Ravikumar Kamleshbhai Shah, Ahmedabad V. The Income Tax Officer, Ward -5(2)(1), Ahmedabad

ITA 497/AHD/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 3164 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 13-03-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 12-06-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIC.DHARNINATHV.S.
• Assessee Lawyers: SHRIM.S.CHHAJED

Judgement Text

आयकरअपीलीयअधिकरण , अहमदाबादनयायपीी INTHEINCOMETAXAPPELLATETRIBUNAL, ‘’D’’BENCH,AHMEDABAD BEFORESHRIWASEEMAHMED,ACCOUNTANTMEMBER And MS.MADHUMITAROY,JUDICIALMEMBER आयकरअपीलसं./ITANo.497/AHD/2023 (धििाधरणणवध / Asstt.Year:2017-18) RavikumarKamleshbhaiShah, E-401,SidhashillaApartment, VasnaBarejRoad,Vasna, Ahmedabad-380007 PAN:CLFPS6694L Vs.IncomeTaxOfficer, Ward-5(2)(1), Ahmedabad (Applicant)(Respondent) Assesseeby:ShriM.S.Chhajed,A.R. Revenueby:ShriC.DharninathV.S.,Sr.D.R. सुिणाईकीतारीख /DateofHearing:14/03/2024 घोवणाकीतारीख /DateofPronouncement:03/04/2024 आदेश /ORDER PERWASEEMAHMED,ACCOUNTANTMEMBER: Thecaptionedappealhasbeenfiledattheinstanceoftheassesseeagainst theorderoftheLearnedCommissionerofIncomeTax(Appeals)(inshort “Ld.CIT(A)”),NationalFacelessAppealCentre(inshort“NFAC”),Delhiarisingin thematterofassessmentorderpassedunders.143(3)oftheIncomeTaxAct, 1961(here-in-afterreferredtoas"theAct")relevanttotheAssessmentYear 2017-18. 2.Theassesseehasraisedthefollowinggroundsofappeal: “1.TheorderpassedbytheLd.CIT(A)isagainstlaw,equity&justice. 2.TheLd.CIT(A)haserredinlawandonfactsinsummarilyupholdingrejectionof booksofaccountsU/S145oftheActmadebytheLd.A.O. ITAno.497/AHD/2023 Asstt.Year-2017-18 2 3.TheLd.CIT(A)haserredinupholdingtheadditionU/S68oftheActofRs. 3,28,75,000/-ofsalesmadeincashasunexplainedcashcredit. 4.TheLd.CIT(A0haserredinlawandonfactsininvokingsection115BBEoftheAct whentransactionsareoccurredpriortoinsertionofprovisiononstatute. 5.TheappellantCraveslibertytoadd,amend,alterormodifyalloranygroundsof appealbeforefinalappeal.” 3.TheinterconnectedissueraisedbytheassesseeisthatthelearnedCIT-A erredinupholdingtherejectionofthebooksofaccountsandfurtherconfirming additionofthesalesmadeincashof₹3,28,75,000onaccountofunexplained cashcreditundersection68oftheAct. 4.Thefactsinbriefarethattheassesseeinthepresentcaseisanindividual andcarryingonhisbusinessunderthenameandstyleof2proprietaryconcerns M/s.MahalaxmiOrnamentsandM/sVeerFabricswhichareengagedinthe businessofgoldjewelleryandwholesalebusinessoffabricsrespectively. 5.TheAOduringtheassessmentproceedingsfoundthattheassesseeduring thedemonetisationperiodhasdepositedsubstantialcashof₹3,28,75,000which wasclaimedagainstthecashsales.However,theAOfoundthatthecashsale shownbytheassesseeinimmediatelyprecedingthedemonetisationperiodwas NILandlikewiseinthefinancialyear2015-16,thetotalcashsalewasof₹ 3,08,775only.Accordingly,theAOhadadoubtonthegenuinenessofcash depositedduringthedemonetisationperiod. 5.1TheAOalsonotedthatthesuppliersofthejewellerytotheassesseehas notbeenpaidsincelongtimeagainstthepurchasesshownbytheassessee. AccordingtotheAO,suchoutstandingsundrycreditorsforalongtimeinthe businessofgoldjewelleryisnotpossible.AspertheAO,nostockregisterwas furnishedbytheassesseeshowinginwardandoutwardmaterialsoastojustify theavailabilityofstockagainsttheallegedsales. ITAno.497/AHD/2023 Asstt.Year-2017-18 3 5.2TheAOalsofoundthattheinvestigationwingvidelatternumber DDIT(Inv)/U-1(1)/Info./Cashdep./18-19dated30March2019hasreferredthe transactionassuspiciouswhichwerecarriedoutbythesuppliersofthejewellery totheassessee.Inviewoftheabove,theAOsoughtanexplanationfromthe assessee.Theassesseemadeadetailedreplycontendingthattheimpugned amountofcashdepositsinthebankrepresentsthesales.Itwasalsosubmitted thatthecashsalesintheearlieryearortheperiodcannotbeayardsticktohavea doubtonthesalesshownbytheassesseeduringthedemonetisationperiod.The assesseealsosubmittedthatifthebooksofaccountsarerejectedthentheonly optionavailableistoestimatethegrossprofit/netprofit.Therefore,noaddition undersection68oftheActcanbemade.Buttheassesseecontendedthatbefore rejectingthebooksofaccounts,thefairopportunityofbeingheardshouldbe giventohim. 5.3ButtheAOwasnotsatisfiedwiththeexplanationfurnishedbytheassessee onthereasoningdetailedbelow: “Inviewoftheabovediscussion,itcanbelogicallyconcludedthat,theassesseehadbeen instrumentalindepositingSBNnotesbyfabricatingthebooksofaccountbyrecording bogusandinflatedpurchaseandcorrespondingboguscashsales.Astheassesseecould notprovethegenuinenessoftheretailsaleshown,whichasperassesseeisthebasisof mountingcashinhand,andalsotheeffortsmadebythisofficebyissuingnotices u/s.133(6)oftheITActwerefailedduetonon-confirmationfromthepartieswithwhom sales/purchaseswereshown,theentirecashdepositofRs.3,28,75,000/-istreatedas unexplainedcashcreditsandaddedtothetotalincomeaspertheprovisionsofsection68 oftheIncomeTaxAct,andtaxedaccordingly.Penaltyproceedingsundersection 271AAC(1)areinitiatedseparately. (Addition:Rs.3,28,75,000/-) 11.Aquestionwhichpossiblyarisesiswhetherthisamounttodoubletaxation.The undersignedisofviewthatitdoesnotamounttodoubletaxationofsameincomeascash depositsduringdemonetizationperiodisnotgeneratedfrombusinessactivityanditis fromundisclosedsourcesandtobetaxedasincomefromothersources.Further,inthe caseofKaleKhanMohammadHanifv.CIT[1963]501TR1(SC).Hon'bleSupreme Courtheldthat"theincomeistreatedasonefromanundisclosedsourcewhichthe questionpostulates,itisnottreatedasincomeofthedisclosedsourcewhichhas previouslybeenassessedtotaxand,therefore,thereisinsuchacasenodoubletaxation." 12.Onemoreissuepertinenttodiscusshereisthatifbooksofaccounthavebeen rejectedandtaxisleviedonestimatedincome,whetherA.O.canmakeanadditionfor cashcreditu/s.68oftheActornot.ThereisnothinginlawwhichpreventstheAssessing Officerinanappropriatecaseintaxingthecashcredit,thesourceandnatureofwhichis notsatisfactorilyexplained,andthebusinessincomeestimatedbyhimafterrejectingthe ITAno.497/AHD/2023 Asstt.Year-2017-18 4 booksofaccountoftheassesseeasunreliable.InthecaseofKaleKhanMohammad Hanifv.CIT[1963]50ITR1(SC).Hon'bleSupremeCourtheldthat“itcannotbesaid thatthetaxingauthoritieswereprecludefromtreatingtheamountsofthecreditentriesas incomefromundisclosedsourcessimplybecausetheIentriesappearinthebooksofa businesswhoseincometheyhadpreviouslycomputedonapercentagebasis".” 6.AggrievedassesseepreferredanappealtothelearnedCIT-Awho confirmedtheorderoftheAO. 7.Beingaggrievedbytheorderofld.CIT-A,theassesseeisinappealbefore us. 8.ThelearnedARbeforeusfiledapaperrunningfrompages1to206and synopsisofeventsrunningfrompages1to6supportedbyvariouscaselaws.The ld.ARbeforeussubmittedthathehasbeeninstructednottopresstheground relatingtotherejectionofthebooksofaccountsundersection145(3)oftheAct. Assuch,theld.ARbeforeusdidchallengetheorderoftheauthoritiesbelow regardingtherejectionofthebooksofaccounts.However.itwassubmittedthat once,thebooksofaccountsarerejected,theonlyoptionavailablewiththe revenueistoestimatetheincomeoftheassesseeinscientificmanner.Asperthe ld.ARtheincomedeclaredbytheassesseeintheearlieryearsshouldbeadopted astheyardsticktodeterminetheincomeafterrejectingthebooksofaccounts.To thiseffect,theld.ARsubmittedthenecessarydetailsandfurthercontendedthat theamountofnetprofitsshownbytheassesseeintheyearindisputeismuch betterthantheearlierandlateryear,thereforenoadjustment/additionis warranted. 9.Ontheotherhand,theld.DRvehementlysupportedtheorderofthe authoritiesbelow. 10.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Fromtheprecedingdiscussion,wenotethattheAO rejectedthebooksofaccountsafterinvokingtheprovisionsofsection145(3)of theAct.Beforeus,theassesseehasnotchallengedtheactionoftheauthorities ITAno.497/AHD/2023 Asstt.Year-2017-18 5 belowwithrespecttotherejectionofthebooksofaccountsmadebythemunder theprovisionsofsection145(3)oftheAct.Insimplewordsthedecisionofthe authoritiesbelowforrejectingthebooksofaccountshasreachedtothefinality andnointerferencetothiseffectisrequiredtobemade.Itisthetritelawthat oncethebooksofaccountshavebeenrejected,theonlyresortavailabletothe revenueistodeterminetheincomeoftheassesseeinthemannerprovidedunder section144oftheActtothebestofthejudgment.TheHon'bleSupremeCourt inKachwalaGemsv.Jt.CIT[2007]288ITR10/158Taxman71heldthat rejectionofbooksofaccountundersection145justifiedandbestjudgment assessmentundersection144oftheActneeded. 10.1TheHon'bleBombayHighCourtinBastiramNarayandasv.CIT[1994]210 ITR438/74Taxman454heldthatrejectionofbooksofaccountjustifiedunder section145andbestjudgmentassessmentundersection144needed. 10.2TheHon'bleGujaratHighCourtinthecaseofCITVs.DhirajR.Rungta reportedin40taxmann.com284heldthatoncerejectionofbooksofaccountis justifiedundersection145oftheAct,nootheradditioncanbemadereferringthe samesetofbookstotheincomeoftheassessee. 10.3Thenextcontroversyariseshowtomakethebestjudgementinthe mannerprovidedundersection144oftheActafterrejectingtheaccountsunder theprovisionsofsection145(3)oftheAct.Whenthebooksarerejected,alump sumadditionismadetotheoriginalreturnofincome.Suchadditionmaybebased onestimateofturnoverandprofitrateordisallowanceofclaims,expenditure,etc. asheldbytheHon’bleSupremecourtincaseofCITv.Pilliah&Sons[1967]63 ITR411(SC). 10.4FurtherinthecaseofBrijBhushanLalPardumanKumarv.CIT[1978]115 ITR524,theSupremeCourthadthistosay: ITAno.497/AHD/2023 Asstt.Year-2017-18 6 "...theauthoritymakingabestjudgmentassessmentmustmakeanhonestandfair estimateoftheincomeoftheassesseeandthougharbitrarinesscannotbeavoidedinsuch estimatethesamemustnotbecapriciousbutshouldhaveareasonablenexustothe availablematerialandthecircumstancesofthecase......."(p.530) 11.Fromtheabovediscussion,itcanbeopinedthatbestjudgment assessmentscannotbebasedonwildguess,ratheritshouldbebasedonsome materialsavailableonhandrelatingtotheassesseewhichshouldbetakeninto accountandthattooafterprovidingtheopportunityofbeingheardtothe assesseeaswellasconsideringtheprovisionsoftheActandRulesofIncomeTax Rules.Afterrejectingbookresults,theAssessingOfficerhastodeterminethe incomeinreasonableandscientificmannerafterconsideringtheresults/ performanceoftheearlieryearsorsomecomparablecases.Inholdingso,we referredthejudgmentofco-ordinatebenchofJodhpurTribunalincaseofSriram Jhanwarlalv.ITO[2005]98TTJ(Jodh.)639.Therelevantobservationis extractedasunder: Afterrejectingthebookresults,theAOdoesnotgetunfetteredpowerstomake assessmentatanyincome.Heissupposedtobeguidedeitherbythepreviousresultsof theassesseeorsomecomparablecases.Intheinstantcase,theAOhasalloweddeduction ofdirectexpensesat75percentofthegrossreceiptswithoutanycogentmaterial.Hisad hocestimateofexpensesdivorcedfromtherelevantfactscannotbeupheld. 12.Nowcomingtothefactsofthepresentcase,theAOhasassumedthe amountofcashdepositduringthedemonetisationperiodof₹3,28,75000/-as unexplainedcashcreditundersection68oftheAct.Assuch,whatwefindisthis thattheAOafterrejectingthebooksofaccountshasnotestimatedtheincome buthastreatedtheamountofcashsalesdepositedduringthedemonetization periodinthebankasunexplainedcashcreditwhichisagainstthespiritofthelaw asdiscussedabove.Firstofall,theprovisionsofsection68oftheActcannotbe appliedtotheamountshownassalesinthebooksofaccountsotherwiseitis goingtoleadtothedoubleadditionwhichisundesirable.Inholdingso,wedraw supportandguidancefromthejudgementofCITvs.VishalexportsoverseasLtd intaxappealNo.2471of2009videorderdated3-07-2012whereintheorderof ITAno.497/AHD/2023 Asstt.Year-2017-18 7 theITATwasupheldthatthesalescannotbetreatedasunexplainedcashcredit undersection68oftheAct. 13.Atthisjunctureitisnecessarytodealwiththecaselawcitedbythe revenueauthoritiesinthecaseofShriKaleKhanMohamedHanifVs.CITreported in50ITR1formakingtheadditionundersection68oftheAct.Inourhumble understanding,inthiscasetheissuewasinvolvedfortheadditionundersection 68oftheActwhereasinthecaseonhand,thesaleshavebeenassumedas unexplainedcashcreditundersection68oftheAct.Thus,weareoftheviewthat thefactsofthecasearedistinguishableandaccordingly,thesalescannotbe treatedasunexplainedcashcreditundersection68oftheActinthegivenfacts andcircumstances. 14.Besidestheabove,wealsonotethattheassesseehasshowntotalsalesin thebooksofaccountsmorethanRs.15crores.TheAOoutofsuchsaleshas treatedthesumof₹3,28,75000representingthecashdepositedduringthe demonetisationperiodoutofthecashsalesasunexplainedcashcreditunder section68oftheAct.ButtheAOhasnotreducedsuchamountofalleged unexplainedcashcreditfromtheamountofsales.ThisactionoftheAOcontrary. ItisforthereasonthattheAOinthepresentcaseistreatingtheamountofcash depositsduringthedemonetisationperiodassalesandunexplainedcashcredit undersection68oftheActwhichiscontrarytothespiritoftheprovisionsoflaw. AssuchtheAOshouldhavereducedtheallegedamountofunexplainedcash creditfromthetotalsalesandthebalancesalesshouldhavebeenmadesubject totaxonsomeestimationbasis.ButtheAOhasnotdoneso.Therefore,weareof theviewthatsuchadditionmadebytheAOandconfirmedbythelearnedCIT-A inthegivenfactsandcircumstancesisnotsustainableforthereasonselaborated above.Atthisjuncture,itisequallyimportanttonotethattheassesseehas shownbetternetprofitratioincomparisontotheimmediatelypreceding assessmentyearandsucceedingassessmentyear.Therefore,eventonmeritof thecasenoadditioniswarrantedinthegivenfactsandcircumstances.Inviewof ITAno.497/AHD/2023 Asstt.Year-2017-18 8 theaboveandafterconsideringthefactsintotality,weupholdtherejectionofthe booksofaccountsmadebytheauthoritiesbelowbutwiththedirectionnotto treattheamountofcashsalesasunexplainedcashcreditundersection68ofthe Act.Hence,wesetasidethefindingofthelearnedCIT-AanddirecttheAOto deletetheadditionmadebyhim.Hence,thegroundofappealoftheassesseeis herebyallowed. 15.Intheresult,theappealoftheassesseeisallowed. OrderpronouncedintheCourton03/04/2024atAhmedabad Sd/-Sd/- (MADHUMITAROY)(WASEEMAHMED) JUDICIALMEMBERACCOUNTANTMEMBER Ahmedabad;Dated03/04/2024 ManishTRUECOPY