DCIT, Jaipur V. JHMEN DASS & PARTY, Jaipur

ITA 458/JPR/1999

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78073 (ITAT-JAIPUR)
• Duration Of Justice: 14 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 1996-1997
• Appeal Filed On: 30-07-1999
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: S K SHARMA
• Keywords: Opportunity of being heard; Revised return
• Section: 145; 144

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH : JAIPUR BEFORE SHRI RAJPAL YADAV AND SHRI R.C. SHARMA ITA NO. 458/JP/1999 ASSTT. YEAR : 1996-97 DEPUTY CIT, VS. M/S. JHAMAN DASS & PARTY, CENTRAL CIRCLE-2, RAMESH MARG, C-SCHEME, JAIPUR. JAIPUR. PAN NO. - - (APPELLANT) (RESPONDENT) REVENUE BY : SHRI D.C. SHARMA, DR ASSESSEE BY : SHRI SK SHARMA, AR DATE OF HEARING : 23.05.2014 DATE OF PRONOUNCEMENT : 30.05.2014 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF REVENUE AGAINST THE ORDER OF LEARNED CIT(APPEALS) DATED 23.05.1999 PASSED FOR AS SESSMENT YEAR 1996-97. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.7,10,238 OUT OF THE TRADING ADDITION MADE BY THE ASSESSING OFFICER. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN AOP AND A LIQUOR CONTRACTOR. IT HAS FILED ITS RETURN OF INCOME ON 29.11.1996 DECLAR ING AN INCOME OF RS.3,01,550. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND A NOTICE UNDER SEC. 143(2) OF THE INCOME-TAX ACT, 1961 WAS ISSUED ON 25.9.1997 . ON PERUSAL OF THE ACCOUNTS, IT REVEALED THAT ASSESSEE HAS DECLARED SALES OF RS.3,0 7,91,441 IN THE COUNTRY LIQUOR BUSINESS AND SHOWN A G,.P. OF RS.2,08,22,213 WHICH GIVES THE RATE OF G.P. AT 67.63%. AFTER PAYMENT OF SHORTFALL LICENSE FEE, THE NET PROFIT SH OWN BY THE ASSESSEE IS 20%. IN THE IMFL 2 ACCOUNT, SALES OF RS.1,93,74,555 WITH G.P. OF RS.27 ,20,780 HAS BEEN SHOWN. AFTER PAYMENT OF SHORTFALL LICENSE FEE, A LOSS OF 11% WAS DECLARED BY THE ASSESSEE IN THIS ACCOUNT. LEARNED ASSESSING OFFICER WAS NOT SATISFI ED WITH THE BOOK RESULTS OF THE ASSESSEE. HE REJECTED THE BOOK RESULTS AND MADE AN ADDITION OF RS.7,81,238 IN THE TRADING ACCOUNT. 3. ON APPEAL, LEARNED FIRST APPELLATE AUTHORITY HAS CONFIRMED THE REJECTION OF BOOK RESULTS BUT REDUCED THE TRADING ADDITION. LEARNED CIT(APPEALS) HAS OBSERVED THAT A LUMP SUM ADDITION OF RS.80,000 WOULD MET THE ENDS OF JUS TICE. IN THIS WAY, SHE DELETED AN ADDITION OF RS.7,01,238 OUT OF THE TOTAL ADDITION M ADE BY THE ASSESSING OFFICER. 4. BEFORE US, LEARNED DR RELIED UPON THE ORDER OF T HE ASSESSING OFFICER. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF THE LEARNED CIT(APPEALS). 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND G ONE THROUGH THE RECORDS CAREFULLY. SECTION 145 HAS A DIRECT BEARING ON THE CONTROVERSY, THEREFORE, IT IS SALUTARY UPON US TO TAKE NOTE OF THIS PROVISI ON. '145(1) INCOME CHARGEABLE UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES SHALL, S UBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCORDANCE WITH EIT HER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSE SSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. 3 (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTIN G STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144.' 6. FROM THE BARE READING OF THIS SECTION, IT WOULD RE VEAL THAT IT PROVIDES THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE . ACCORDING TO SUB- CLAUSE ( I ), THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AN D GAINS OF THE BUSINESS OR PROFESSIONS OR INCOME FROM OTHER SOURCE S' SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOYED BY AN ASSESSEE REGULARLY SUBJECT TO THE SUB-SECTION (2) OF SECTION 145 OF TH E ACT. SUB-SECTION (2) PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFIC IAL GAZETTE FROM TIME TO TIME THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME. THUS, IT INDICATES THAT INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTAN CY FOLLOWED BY AN ASSESSEE, I.E., CASH OR MERCANTILE. SUCH METHOD HAS TO BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTRA L GOVERNMENT FROM TIME TO TIME. SUB-CLAUSE (3) PROVIDES A SITUATION, I.E., IF THE ASSESSING OFFICER IS UNABLE TO DEDUCE THE TRUE INCOME ON THE BASIS OF METHOD OF AC COUNTANCY FOLLOWED BY AN ASSESSEE THEN HE CAN REJECT THE BOOK RESULTS AND AS SESS THE INCOME ACCORDING TO HIS ESTIMATE OR ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CASE IS REQUIRED TO POINT OUT THE DEFECTS IN THE AC COUNTS OF ASSESSEE AND REQUIRE TO SEEK EXPLANATION OF THE ASSESSEE QUA THOSE DEFECTS. IF THE ASSESSEE FAILED TO 4 EXPLAIN THE DEFECTS THEN ON THE BASIS OF THE BOOK R ESULTS, INCOME CANNOT BE DETERMINED AND ASSESSING OFFICER WOULD COMPUTE THE INCOME ACCORDING TO HIS ESTIMATION KEEPING IN VIEW THE GUIDING FACTOR FOR E STIMATING SUCH INCOME. WHERE A STOCK ACCOUNT IS NOT MAINTAINED AND RECONCILIATIO N IS NOT POSSIBLE IN BETWEEN THE AGGREGATE OF STOCK ON OPENING DATE AND STOCKS P URCHASED WITH THE AGGREGATE OF STOCK SOLD AND AVAILABLE IN CLOSING STOCK OR SAL ES ARE NOT VERIFIABLE THEN, IN SUCH CASES, IF THE GROSS PROFIT IS LOW IN COMPARIS ON WITH PAST YEARS OR IN COMPETITIVE BUSINESS, THEN ASSESSING OFFICER CAN RE JECT THE BOOK RESULTS AND ESTIMATE THE INCOME. 7. ADMITTEDLY, THE BOOKS OF THE ASSESSEE ARE NOT RE LIABLE, THEY ARE REJECTED. THIS ACTION OF THE ASSESSING OFFICER HAS BEEN UPHELD BY THE LEARNED CIT(APPEALS). THE ASSESSEE DID NOT CHALLENGE REJECTION OF BOOK RESULT S BEFORE THE ITAT AND THE DISPUTE TRAVELLED TO THE HON'BLE HIGH COURT WAS WITH REGAR D TO ESTIMATION OF INCOME AFTER REJECTION OF BOOKS. THUS, THE NEXT QUESTION CASE AR ISES, IS THAT WHAT SHOULD BE THE ESTIMATED ADDITION REQUIRED TO BE MADE BY THE ASSES SING OFFICER TO THE INCOME OF THE ASSESSEE. FOR THIS PURPOSE, SUB-SECTION (3) OF SECT ION 145 CONTEMPLATES THAT ASSESSING OFFICER MAKES AN ASSESSMENT IN THE MANNER PROVIDED IN SEC. 144 OF THE INCOME-TAX ACT, 1961. THIS SECTION READS AS UNDER: SECTION 144. (1) IF ANY PERSON (A) FAILS TO MAKE THE RETURN REQUIRED [UNDER SUB-SECTIO N (1) OF SECTION 139] AND HAS NOT MADE A RETURN OR A REVISED RETURN UNDER SUB -SECTION (4) OR SUB-SECTION (5) OF THAT SECTION, OR 5 (B) FAILS TO COMPLY WITH ALL THE TERMS OF A NOTICE ISSU ED UNDER SUB-SECTION(1) OF SEC. 142 [OR FAILS TO COMPLY WITH A DIRECTION ISSUE D UNDER SUB-SECTION (2A) OF THAT SECTION ] OR (C) HAVING MADE A RETURN, FAILS TO COMPLY WITH ALL THE TERMS OF A NOTICE ISSUED UNDER SUB-SECTION (2) OF SECTION 143, THE [ASSESSING OFFICER], AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH THE ASSESSING OFFICER HAS GATHERED, [SHALL, AFTER GIVIN G THE ASSESSEE AN OPPORTUNITY OF BEING HEARD, MAKE THE ASSESSMENT] OF THE TOTAL INCO ME OR LOSS TO THE BEST OF HIS JUDGMENT AND DETERMINE THE SUM PAYABLE BY THE ASSES SEE ON THE BASIS OF SUCH ASSESSMENT. PROVIDED THAT SUCH OPPORTUNITY SHALL BE GIVEN BY TH E ASSESSING OFFICER BY SERVING A NOTICE CALLING UPON THE ASSESSEE TO SHOW S\CAUSE, ON A DATE AND TIME TO BE SPECIFIED IN THE NOTICE, WHY THE ASSESSMENT SHOULD NOT BE COMPLETED TO THE BEST OF HIS JUDGMENT : PROVIDED FURTHER THAT IT SHALL NOT BE NECESSARY TO GIVE SUCH OPPORTUNITY IN A CASE WHERE A NOTICE UNDER SUB-SECTION (1) OF SECTION 142 HAS BEEN ISSUED PRIOR TO THE MAKING OF AN ASSESSMENT UNDER THIS SECTION.] (2) THE PROVISIONS OF THIS SECTION AS THEY STOOD IM MEDIATELY BEFORE THEIR AMENDMENT BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1 987 94 OF 1988), SHALL APPLY TO AND IN RELATION TO ANY ASSESSMENT FOR THE ASSESSMENT YEAR COMMENCING ON THE IST DAY OF APRIL, 1988, OR ANY EARLIER ASSESSME NT YEAR AND REFERENCES IN THIS SECTION TO THE OTHER PROVISIONS OF THIS ACT SHALL B E CONSTRUED AS REFERENCES TO THOSE PROVISIONS AS FOR THE TIME BEING IN FORCE AND APPLI CABLE TO THE RELEVANT ASSESSMENT YEAR.} 8. A BARE PERUSAL OF THIS SECTION WOULD SUGGEST THA T IN ORDER TO ESTIMATE INCOME, LEARNED ASSESSING OFFICER HAS TO EXERCISE HIS DISC RETION WHICH SHOULD BE IN CONSONANCE WITH BEST OF HIS JUDGMENT. HON'BLE HIGH COURT WHILE REMANDING THIS APPEAL TO THE ITAT HAS CONSIDERED THIS ASPECT IN PARAGRAPH NO. 24 AND OBSERVED AS UNDER: 6 IT IS WELL SETTLED THAT IN A BEST JUDGMENT ASSESSM ENT, THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK. THE AUTHORITIES CONCERNED SHO ULD MAKE A HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN THE BEST JUDGMENT AS SESSMENT AND SHOULD NOT ACT ARBITRARILY. IT IS EQUALLY TRUE THAT ASSESSEE HIMSE LF TO BE BLAMED AS HE DID NOT SUBMIT PROPER ACCOUNTS. 9. APART FROM THE ABOVE PROPOSITION, WE ARE CONSCI OUS OF THE FACT THAT IN VARIOUS AUTHORITATIVE PRONOUNCEMENTS, IT HAS BEEN PROPOUNDE D THAT IN MAKING A BEST JUDGMENT ASSESSMENT, THE ASSESSING OFFICER MUST NOT ACT DISH ONESTLY OR VINDICTIVELY OR CAPRICIOUSLY. HE MUST MAKE WHAT HE HONESTLY BELIEVE TO BE A FAIR ESTIMATE OF THE PROPER FIGURE OF ASSESSMENT AND FOR THIS PURPOSE HE MUST B E ABLE TO TAKE INTO CONSIDERATION LOCAL KNOWLEDGE, REPUTATION OF THE ASSESSEE ABOUT HIS BUS INESS, THE PREVIOUS HISTORY OF THE ASSESSEE OR THE SIMILARLY SITUATED ASSESSEE. IT IS ALSO PERTINENT TO MENTION THAT JUDGMENT IS A FACULTY TO DECIDE MATTER WITH WISDOM, TRULY AND L EGALLY. JUDGMENT DOES NOT DEPEND UPON THE ARBITRARY, CAPRICE OF AN ADJUDICATOR, BUT ON SETTLED AND INVARIABLY PRINCIPLES OF JUSTICE. THUS, IN A BEST JUDGMENT, EVEN IF, THERE I S AN ELEMENT OF GUESS WORK, IT SHOULD NOT BE A WILD ONE, BUT SHALL HAVE REASONABLE NEXUS TO T HE AVAILABLE MATERIAL AND CIRCUMSTANCES OF EACH ASSESSEE. APPRAISING OURSELVE S WITH THESE FUNDAMENTALS, LET US CONSIDER THE FACTORS DISCUSSED BY THE ASSESSING OFF ICER IN THE ASSESSMENT WHILE MAKING THE LUMP SUM ADDITION. HIS BRIEF FINDING READS AS U NDER: 4. THE EXPLANATION OF THE ASSESSEE HAS BEEN CAREFU LLY CONSIDERED BUT I AM NOT FULLY SATISFIED WITH THE SAME. IN ABSENCE OF THE SA LE VOUCHERS WHICH ARE PRIMARY RECORDS OF THE SALES, IT CANNOT BE SAID THAT WHATEV ER SALES ARE SHOWN ARE DULY REFLECTED IN THE ACCOUNTS. IN THE CASE OF M/S. MEGH RAJ SINGH SURENDRA PAL SINGH, JETARAN WHERE LIFTING PERCENTAGE IS ALMOST SIMILAR, THE NET LOSS IN IMFL ACCOUNT IS 7.82% AFTER CONSIDERING THE SHORT FALL, WHEREAS IN THE CASE OF THE ASSESSEE IT IS 7 11% AND WHEN REQUIRED TO STATE AS TO WHY THE PROFIT MAY NOT BE DETERMINED THE ASSESSEE COULD NOT GIVE ANY SATISFACTORY REPLY EXCE PT STATING THAT THE OVER ALL PROFITABILITY WAS MORE OR LESS THE SAME AS IN THE C ASE OF MEGHRAJ SURENDRA PAL & PARTY. THE G.P. RATE IN THAT CASE WAS EXCLUSIVELY H IGHER THAN THE G.P. RATE DECLARED BY THE ASSESSEE AND, THEREFORE, IT IS ONLY THE NET PROFITABILITY WHICH NEEDS TO BE CONSIDERED. AFTER CONSIDERING THE FACTS OF THE CASE , THE NET LOSS IS RESTRICTED TO 8% AND ACCORDINGLY AN ADDITION OF RS.5,81,238 IS MADE TO THE TRADING ACCOUNT. 5. IN THE COUNTRY LIQUOR ACCOUNT HAVING REGARD TO T HE G.P. RATE AND NET PROFIT RATE AND AFTER LIFTING PERCENTAGE OF 21.69%, A LUMP SUM ADDITION OF RS.2 LACS IS MADE TO COVER UP THE LEAKAGES. 10. FROM PERUSAL OF THE ABOVE, IT REVEALED THAT LE ARNED ASSESSING OFFICER WAS OF THE OPINION THAT IN THE CASE OF MEGHRAJ SINGH SURENDRA PAL SINGH, THE NET LOSS AFTER DEBITING THE SHORTFALL LICENSE FEE IN THE TRADING ACCOUNT WA S 7.82% WHEREAS IN THE CASE OF ASSESSEE, IT IS 11%. HE RESTRICTED THE NET LOSS TO 8% AND ACC ORDINGLY MADE AN ADDITION OF RS.5,81,238 IN THE TRADING ACCOUNT. WE FIND THAT IN THE COUNTRY LIQUOR ACCOUNT, G.P. SHOWN BY THE ASSESSEE IS 67.63% AND NET PROFIT RATE AT 20 % WHICH IS NORMAL. IN SUCH SITUATION, LEARNED ASSESSING OFFICER HAS NO REASON TO MAKE A LUMP SUM ADDITION OF RS. 2 LACS IN COUNTRY LIQUOR ACCOUNT. AS FAR AS ALLOWANCE OF LOSS ES IN IMFL ACCOUNT AT 8% AS AGAINST CLAIMED AT 11% IS CONCERNED, LEARNED ASSESSING OFF ICER HAS TAKEN GUIDANCE FROM THE RESULTS SHOWN BY M/S. MEGHRAJ SINGH SURENDRA PAL SI NGH. HE HAS NOT DISCUSSED HOW THE FACTS OF THIS CASE ARE SIMILAR TO THAT OF ASSESSEE. FOR MAKING A COMPARISON IN THIS LINE OF BUSINESS, THERE ARE SEVERAL FACTORS, NAMELY, STATE GOVERNMENT POLICY FOR PARTICULAR AREA, GEOGRAPHYSICAL CONDITION, SOCIO ECONOMIC CONDITION, EXPERIENCE AND AVAILABILITY OF FUNDS WITH THE CONTRACTOR, POLITICAL CONDITION, NATURAL P ROSPERITY OR CALAMITY, TOURIST OR REVOLVING PUBLIC ETC. LEARNED ASSESSING OFFICER HAS NOT ASSI GNED ANY REASON GIVING PARITY WITH 8 M/S. MEGHRAJ SURENDRA PAL SINGHY. APART FROM THESE FACTORS, LEARNED CIT(APPEALS) HAS REAPPRECIATED THE FACTS AND CIRCUMSTANCES. REVENUE HAS NOT POINTED OUT AS TO HOW THE DISCRETION EXERCISED BY THE LEARNED CIT(APPEALS) IS BASED ON EXTRANEOUS REASONS OR IT IS CONTRARY TO THE FACTS. ALONG WITH THIS APPEAL, WE H AVE HEARD THE APPEAL OF MEGHRAJ SURENDRA PAL SINGH. THE RESULT DECLARED BY THE ASSE SSEE HAS NOT BEEN ACCEPTED BY THE ASSESSING OFFICER. IN THAT CASE ALSO, THE ASSESSING OFFICER HAS MADE AD HOC ADDITION. IN THE COUNTRY LIQUOR ACCOUNT, M/S. MEGHRAJ SURENDRA P AL SINGH HAS SHOWN G.P. AFTER SHORTFALL OF LICENSE FEE AT 18.1% WHEREAS IN THE CA SE OF ASSESSEE, NET PROFIT AT 20% AND G.P. IS MUCH HIGHER THAN THIS FIGURE. IN THE IMFL A CCOUNT, THAT CONCERN HAS SHOWN LOSSES AT 7.82% BUT LEARNED ASSESSING OFFICER HAS REJECTE D THE BOOK RESULTS AND ESTIMATED G.P. AT 16%. THUS, THE FACTS ARE NOT SIMILAR. ITS RESULT WA S ALSO NOT RELIABLE. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THIS APPEAL , IT IS DISMISSED. 11. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 30 /5/2012. SD/- SD/- ( R.C. SHARMA ) ( RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 /05/2014 *MOHAN LAL* COPY FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. CIT(APPEALS) 5. THE DR