DCIT, Jaipur V. HEMANT SHARMA & PARTY, Jaipur

ITA 459/JPR/1999

• Counselvise Citation: 45923114 RSA 1999
• 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: 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. 459/JP/1999 ASSTT. YEAR : 1996-97 DEPUTY CIT, VS. M/S. HEMANT SHARMA & PARTY, CENTRAL CIRCLE-2, FLAT NO. 2, NEELKANTH APPARTME NTS, JAIPUR. C-SCHEME, 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 REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 17.05.1999 PASSED FOR ASSESSMENT YEAR 1996-97 . THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT LEARNED CIT(APPEALS) HAS ERRED IN D ELETING THE ADDITION OF RS.4,87,789 OUT OF THE TRADING ADDITION MADE BY THE ASSESSING O FFICER. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN AOP AND A LIQUOR CONTRACTOR. I T HAD FILED ITS RETURN OF INCOME ON 31.10.1996 DECLARING AN INCOME OF RS.1,78,330. ON S CRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE HAS DECLARED A G.P. OF RS.69,97,714 ON SALES OF RS.1,23,25,725 IN THE COUNTRY LIQUOR. IT GIVES G.P. RATE OF 56.77%. IN THE IMFL AND BEER, IT HAD SHOWN SALES OF RS.1,82,32,899 AND G.P. OF RS .82,05,143 WHICH GIVES G.P. RATE OF 45%. LEARNED ASSESSING OFFICER HAS REJECTED THE BO OK RESULTS OF THE ASSESSEE AND ESTIMATED THE G.P. AT 57.5% IN COUNTRY LIQUOR ACCOU NT AND 46% IN IMFL/BEER. IN THIS WAY, A TRADING ADDITION OF RS.5,47,789 HAS BEEN MADE. 2 2. ON APPEAL, LEARNED CIT(APPEALS) HAS CONFIRMED TH E TRADING ADDITION AT RS.60,000 ONLY AND GRANTED A RELIEF OF RS.4,87,789 TO THE ASS ESSEE. 3. IN THE PRESENT APPEAL, REVENUE IS CHALLENGING DE LETION OF THIS ADDITION. LEARNED DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER. HE SUBMITTED THAT LEARNED CIT(APPEALS) HAS CONFIRMED THE REJECTION OF BOOK RESULTS OF THE ASSESSEE. THUS, ONLY QUESTION FOR DETERMINATION IS HOW MUCH ADDITION IS TO BE MADE IN THE TRADING ACCOUNT OF THE ASSESSEE. LEARNED ASSESSING OFFICER HAS JUST ENHANCED THE G. P. RATE BY 1% IN THE G.P. DECLARED BY THE ASSESSEE. IT IS A REASONABLE ADJUSTMENT AFTER R EJECTION OF BOOKS. LEARNED CIT(APPEALS) OUGHT TO HAVE NOT INTERFERED THIS ESTIMATION. ON TH E OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS NOT NECESSARY THAT AD DITION IS TO BE MADE IN EACH AND EVERY CASES WHERE BOOK RESULT WAS REJECTED. HE POINTED OU T THAT THE G.P. DECLARED BY THE ASSESSEE IS REASONABLE AND, THEREFORE, NO ADDITION OUGHT TO HAVE BEEN MADE. 4. 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) 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 3 ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144.' 5. 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 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 4 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. 6. 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 (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 5 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.} 7. 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: 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. 6 8. 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 SATISFIED WITH THE SAME. SINCE THE ASSESSEE HAS FAILED TO SUPPORT THE SAME PRACTICALLY BY SALE VOUCHERS, IT CANNOT BE SAI D THAT THE SALES AND PROFITS HAVE BEEN CORRECTLY REFLECTED IN THE ACCOUN TS. IN THE COUNTRY LIQUOR ACCOUNT, THE G.P. RATE OF 57.5% IS APPLIED ON SALES OF RS.1,25,36,494 AS UNDER: THIS WILL GIVE A PROFIT OF RS.72,08,484. AFTER DEDU CTING DECLARED PROFIT OF RS.69,97,714, TRADING ADDITION O F RS.2,10,.770 IS MADE. 53,28,210 X 100 = 1,25,36,494 100 57.5 7 (II) SIMILARLY, IN THE IMFL AND BEER ACCOUNT, G.P. RATE OF 46% IS APPLIED ON SALES OF RS.1,85,69,918 WHICH WILL GIVE A PROFIT OF RS.85,42,162. AFTER DEDUCTING DECLARED PROFIT OF RS.82,05,143, TRADING ADDITION OF RS.3,37,019 IS MADE. 9. FROM THE PERUSAL OF THE ABOVE, IT WOULD REVEAL T HAT ASSESSING OFFICER HAS JUST ENHANCED THE ADOPTION OF G.P. RATE BY 1% IN THE G.P . DECLARED BY THE ASSESSEE. IT IS TRUE THAT HE HAS REJECTED THE BOOK RESULTS OF THE ASSESS EE AND THE INCOME OF THE ASSESSEE HAS TO BE ESTIMATED, BUT LEARNED ASSESSING OFFICER HAS NO T ASSIGNED ANY BASIS FOR ENHANCING THE G.P. HE HAS NOT MADE REFERENCE TO ANY SIMILARLY SIT UATED ASSESSEE OR ANY OTHER MATERIAL POSSESSED BY HIM WHICH CAN GOAD HIM TO FORM AN OPIN ION THAT A G.P. RATE OF 57.5% IN THE COUNTRY LIQUOR AND 46% IS TO BE APPLIED IN IMFL/BEE R ACCOUNT. THE REASON FOR ADOPTING THIS YARD STICK IS NOT DISCERNIBLE IN THE ASSESSMEN T ORDER. LEARNED FIRST APPELLATE AUTHORITY FURTHER EXERCISED HER DISCRETION AND CONF IRMED A LUMP SUM ADDITION OF RS.60,000. THE DISCRETION OF THE LEARNED FIRST APPE LLATE AUTHORITY CAN BE DISTURBED BY THE SECOND APPELLATE AUTHORITY, IF IT IS ESTABLISHE D ON THE RECORD THAT EXERCISE OF SUCH DISCRETION IS BASED ON EXTRANEOUS REASONS OR NOT IN CONSONANCE WITH THE FACTS. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE IN THE FINDIN GS OF THE LEARNED CIT(APPEALS). THE APPEAL OF THE REVENUE IS DISMISSED. 10. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 30 /5/2014. SD/- SD/- ( R.C. SHARMA ) ( RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30/05/2014 *MOHAN LAL* 8 COPY FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. CIT(APPEALS) 5. THE DR