The ITO, Ward-1(2), RAJKOT-GUJARAT V. Smt Jayaben K. Ghelani, RAJKOT-GUJARAT

ITA 503/RJT/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6688 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Keywords: Rejection of books of accounts; Opportunity of being heard; Revised return
• Section: 145; 144

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT [CONDUCTED THROUGH E COURT AT AHMEDABAD] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA.NO.503/RJT/2013 ASSTT.YEAR : 2009-2010 ITO, WARD - 1(2) RAJKOT. VS SMT. JAYABEN K. GHELANI RAGHUVIR SOCIETY OPP: GIGEV PAN STREET OF AVADH MEDICAL SAHKAR NAGAR RAJKOT. '( / (APPELLANT) )* '( / (RESPONDENT) REVENUE BY : SHRI LALIT P. JAIN, SR.DR ASSESSEE BY : NONE / DATE OF HEARING : 08/02/2017 / DATE OF PRONOUNCEMENT: 23/02/2017 +,-/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF THE LD.CIT(A), JAMNAGAR DATED 23.10.2013 PASSED FOR THE ASSTT.YEAR 2009-10. 2. THOUGH THE REVENUE HAS TAKEN FOUR GROUNDS OF APP EAL, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE VIZ. THE LD.CIT(A) H AS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.45,68,625/- ADDED BY THE AO ON ACCOUNT OF ESTIMATION OF GP. 3. IN RESPONSE OF NOTICE OF HEARING NONE HAS COME P RESENT ON BEHALF OF THE ASSESSEE. WITH THE ASSISTANCE OF THE LD.DR, WE HAV E GONE THROUGH THE RECORD CAREFULLY AND PROCEED TO DECIDE THE APPEAL EX PARTE QUA THE ASSESSEE. ITA NO.503/RJT/2013 2 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN TRADING OF IRON SCRAP. SHE HAS FILED HE R RETURN OF INCOME ON 30.9.009 DECLARING TOTAL INCOME AT RS.2,49,092/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UND ER SECTION 143(2) WAS ISSUED ON 20.8.2010 WHICH WAS DULY SERVED THROUGH R EGISTERED POST. THEREAFTER, THE LD.AO HAS ISSUED VARIOUS NOTICES, B UT THE ASSESSEE DID NOT SUBMIT REQUISITE DETAILS. ACCORDINGLY, THE LD.AO H AS ESTIMATED THE INCOME AS PER SECTION 145(3) OF THE INCOME TAX ACT. THE LD.AO HAS OBSERVED THAT THE ASSESSEE HAS DECLARED GP AT RS.10,74,566/- ON TOTAL TURNOVER OF RS.2,82,15,954/- WHICH IN TERMS OF PERCENTAGE COMES OUT AT 3.81%. THE AO FURTHER OBSERVED THAT IN THE IMMEDIATELY PRECEDING YEAR, PROFIT DISCLOSED BY THE ASSESSEE WAS 4.21%. SINCE THE ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNTS AND OTHER DETAILS, HE ESTIMATED GP AT 20% OF THE TURNOVER, AND ACCORDINGLY MADE AN ADDITION OF RS.45,68,625/-. 5. ON APPEAL, THELD.CIT(A) HAS DELETED THE ADDITION BY OBSERVING AS UNDER: 7. I HAVE DULY CONSIDERED THE SUBMISSION MADE BY T HE APPELLANT AND ALSO GONE THROUGH THE ASSESSMENT ORDER. 7.1 I AM INCLINED TO AGREE WITH THE APPELLANT'S VIE W THAT THIS WAS NOT THE CASE FOR REJECTION OF BOOKS OF ACCOUNTS U/S. 145(3) BECAUSE OF THE FOLLOWING REASONS:- (I) THE ASSESSING OFFICER HIMSELF WRITES THAT BOOKS OF ACCOUNTS WERE NOT PRODUCED. IF THE BOOKS OF ACCOUNTS WERE NOT PRO DUCED, HOW CAN HE REJECT THE BOOK RESULT AND MAKE ESTIMATION. IF THE BOOKS WERE NOT PRODUCED HOW THE ASSESSING OFFICER WAS NOT SATISFIE D ABOUT THE CORRECTNESS AND COMPLETENESS OF ACCOUNTS OF THE ASS ESSEE AS ENVISAGED IN PROVISIONS OF SEC.145(3). II) EVEN IF FOR THE TIME BEING IT IS PRESUMED THAT BOOK RESULTS WERE TO BE REJECTED, HE SHOULD HAVE COMPARED THE GROSS PROF IT RATIO FROM THE ITA NO.503/RJT/2013 3 EARLIER YEARS. STRANGELY ALTHOUGH HE HAS COMPARED, BUT ESTIMATED THE GP ARBITRARILY AT 20%. IN VIEW OF THE ABOVE, IT IS HELD THAT THE REJECTION OF BOOK OF ACCOUNTS BY THE AO IS NOT AS PER LAW AND ACCORDINGLY THE ADDITI ON ALSO CANNOT BE SUSTAINED. 6. WE HAVE HEARD THE LD.DR AND GONE THROUGH THE REC ORD CAREFULLY. SECTION 145 OF THE INCOME TAX ACT IS THE RELEVANT P ROVISION FOR THIS ISSUE, THEREFORE, IT IS PERTINENT TO TAKE NOTE OF THIS SEC TION. IT READS AS UNDER : 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL , SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCOR DANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (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 ACCOUNTI NG 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.] 7. A BARE READING OF SECTION 145 WOULD REVEAL THAT IT PROVIDE THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE . ACCORDING TO SUB- SECTION 1, THE INCOME CHARGEABLE UNDER THE HEAD PRO FIT AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCE SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOYED BY AN ASSES SEE REGULARLY, SUBJECT TO SUB-SECTION 2 OF SECTION 145 OF THE ACT. SUB-SEC TION 2 PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZET TE 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 ITA NO.503/RJT/2013 4 COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTAN CY FOLLOWED BY AN ASSESSEE I.E. CASH OR MERCANTILE, SUCH METHOD HAS T O BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTRA L GOVERNMENT FROM TIME TO TIME. SUB CLAUSE 3 PROVIDES A SITUATION, THAT IS , IF THE ASSESSING OFFICER IS UNABLE TO DEDUCE THE TRUE INCOME. ON THE BASIS OF M ETHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE THAN HE CAN REJECT THE BOOK RESULT AND THE ASSESSEES INCOME ACCORDING TO HIS ESTIMATION OR ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CASE IS REQUIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE AND REQUIRED TO SEEK EXPLANATI ON OF THE ASSESSEE QUA THOSE DEFECTS. IF THE ASSESSEE FAILED TO EXPLAIN TH E DEFECTS THAN ON THE BASIS OF THE BOOK RESULT, INCOME CANNOT BE DETERMINED AND AS SESSING OFFICER WOULD COMPUTE THE INCOME ACCORDING TO HIS ESTIMATION KEEP ING IN VIEW THE GUIDING FACTOR FOR ESTIMATING SUCH INCOME. 8. FOR EXERCISING THE BEST JUDGMENT, SECTION 144 OF THE INCOME TAX ACT PROVIDE THE GUIDANCE TO THE LD.AO. THIS SECTION RE ADS AS UNDER: 144. [(1)] IF ANY PERSON (A) FAILS TO MAKE THE RETURN REQUIRED [UNDER SUB-S ECTION (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 ISSUED UNDER SUB- SECTION (1) OF SECTION 142 [OR FAILS TO COMPLY WIT H A DIRECTION ISSUED 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, [SHAL L, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD, MAKE THE AS SESSMENT] OF THE TOTAL INCOME OR LOSS TO THE BEST OF HIS JUDGMENT AN D DETERMINE THE SUM PAYABLE BY THE ASSESSEE [* * *] ON THE BASIS OF SU CH ASSESSMENT : ITA NO.503/RJT/2013 5 [PROVIDED THAT SUCH OPPORTUNITY SHALL BE GIVEN BY THE ASSESSING OFFICER BY SERVING A NOTICE CALLING UPON THE ASSESSEE TO SH OW CAUSE, ON A DATE AND TIME TO BE SPECIFIED IN THE NOTICE, WHY THE ASS ESSMENT 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 S ECTION 142 HAS BEEN ISSUED PRIOR TO THE MAKING OF AN ASSESSMENT UNDER T HIS SECTION.] [(2) THE PROVISIONS OF THIS SECTION AS THEY STOOD I MMEDIATELY BEFORE THEIR AMENDMENT BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987 (4 OF 1988), SHALL APPLY TO AND IN RELATION TO ANY ASSESS MENT FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, OR ANY EARLIER ASSESSMENT YEAR AND REFERENCES IN THIS SECT ION TO THE OTHER PROVISIONS OF THIS ACT SHALL BE CONSTRUED AS REFERE NCES TO THOSE PROVISIONS AS FOR THE TIME BEING IN FORCE AND APPLI CABLE TO THE RELEVANT ASSESSMENT YEAR.] 9. IT IS PERTINENT TO NOTE THAT THAT SECTION 144 WO ULD SUGGEST THAT IN ORDER TO ESTIMATE INCOME, LEARNED ASSESSING OFFICER HAS T O EXERCISE HIS DISCRETION WHICH SHOULD BE IN CONSONANCE WITH BEST OF HIS JUDG MENT. WE ARE CONSCIOUS OF THE FACT THAT IN VARIOUS AUTHORITATIVE PRONOUNCE MENTS, IT HAS BEEN PROPOUNDED THAT IN MAKING A BEST JUDGMENT ASSESSMEN T, THE ASSESSING OFFICER MUST NOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRICI OUSLY. HE MUST MAKE, WHAT HE HONESTLY BELIEVE TO BE A FAIR ESTIMATE OF THE PR OPER FIGURE OF ASSESSMENT AND FOR THIS PURPOSE HE MUST BE ABLE TO TAKE INTO CONSI DERATION, LOCAL KNOWLEDGE, REPUTATION OF THE ASSESSEE ABOUT HIS BUSINESS, 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 LEGALLY. JUDGMENT DOES NOT DEPEND UPON THE ARBITRARY, CAPRIC E OF AN ADJUDICATOR, BUT ON SETTLED AND INVARIABLY PRINCIPLES OF JUSTICE. TH US, IN A BEST JUDGMENT, EVEN IF, THERE IS AN ELEMENT OF GUESS WORK, IT SHOULD NO T BE A WILD ONE, BUT SHALL ITA NO.503/RJT/2013 6 HAVE REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND CIRCUMSTANCES OF EACH ASSESSEE. 10. IN THE LIGHT OF THE ABOVE, IF WE EXAMINE FACTS OF THE PRESENT CASE, THEN IT WOULD REVEAL THAT THE LD.CIT(A) HAS ERRED IN OBSERV ING THAT SECTION 145(3) COULD NOT BE APPLIED IN THIS CASE, BECAUSE, AO COUL D NOT EXAMINE RECORDS AS THESE ACCOUNTS WERE NOT PRODUCED BEFORE HIM. IN OU R OPINION SECTION 145(3) CONTEMPLATES THAT THE AO CAN RESORT TO ESTIMATE THE INCOME, IF HE IS UNABLE TO DEDUCE TRUE RESULT FROM THE ACCOUNTS OR OTHER DETAI LS. STRICTLY, BOOKS WERE NOT PRODUCED BEFORE THE AO, AND IT WAS NOT REJECTION OF BOOKS AS SUCH, BUT IMPLIEDLY IT IS ESTIMATION OF INCOME AS PER SECTION 145(3) OF THE ACT. THE LD.CIT(A) HAS NOT CONSIDERED ANY OF THESE ASPECTS, VIZ. WHY THERE IS A DECLINE IN GP, WHY ASSESSEE DOES NOT WANT TO SCRUTINISE ITS BOOKS OF ACCOUNTS FROM THE AO. THEREFORE, CONSIDERING ALL THESE ASPECTS, WE A RE OF THE VIEW THAT THE ORDER OF THE CIT(A) IS NOT SUSTAINABLE. TOTAL ADDI TION CANNOT BE DELETED. AS OBSERVED IN THE FOREGOING PARAGRAPHS THAT INCOME EV EN AFTER REJECTION OF BOOKS CAN BE ESTIMATED ON SOME GUESS WORK. IT IS T O BE ESTIMATED KEEPING IN VIEW SURROUNDING FACTS AND CIRCUMSTANCES. IN THE P RESENT CASE, THE ASSESSEE HERSELF HAS SHOWN GP AT 4.21% IN THE IMMEDIATELY PR ECEDING YEAR. THEREFORE, THE AO OUGHT TO HAVE ADOPTED GP NEARBY THIS FIGURE AND NOT AT 20%. THE ASSESSEE IN HER SUBMISSION BEFORE THE LD.CIT(A) HAS EXPRESSED THE RATE OF AT 4.25%. THUS, TAKING INTO CONSIDERATION WRITTEN SUB MISSIONS FILED BY THE ASSESSEE BEFORE THE LD.CIT(A) AND OTHER MATERIAL, W E DEEM IT APPROPRIATE THAT ENDS OF JUSTICE WOULD BE MET, IF THE GROSS PROFIT I S BEING CALCULATED AT THE RATE OF 5.5% (FIVE POINT FIVE PERCENT) OF THE TOTAL TURN OVER. WITH THE ABOVE OBSERVATION, ORDER OF THE LD.CIT(A) IS SET ASIDE AN D THE AO IS DIRECTED TO RECALCULATE THE ADDITION BY APPLYING GP AT 5.5% (FI VE POINT FIVE PERCENT) OF ITA NO.503/RJT/2013 7 THE TOTAL TURNOVER. THE APPEAL OF THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 23 RD FEBRUARY, 2017 AT AHMEDABAD. SD/- SD/- ( PRADIP KUMAR KEDIA ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER