Asstt. Commissioner of Income Tax, Lucknow V. M/s Wishwa Mittar Bajaj & Sons, Lucknow

ITA 59/LKW/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7989 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-10-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 10-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANOJ BHATNAGAR
• Keywords: Rejection of books of accounts

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.59/LKW/2012 ASSESSMENT YEAR:2004 - 2005 M/S WISHWA MITTAR BAJAJ & SONS, 25, CARIAPPA ROAD, LUCKNOW. PAN:AAAFW3551G VS A.C.I.T., RANGE - IV, LUCKNOW. (RESPONDENT) (APPELLANT) SHRI O. N. PATHAK, D. R. APPELLANT BY SHRI MANOJ BHATNAGAR, C. A. RESPONDENT BY 21/10/2014 DATE OF HEARING 16 /12/2014 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - II, LUCKNOW DATED 23/12/2011 FOR THE ASSESSMENT YEAR 2004 - 2005. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. THE CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE IN FAILING TO APPRECIATE THAT THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AFTER TAKING INTO CONSIDERATION THE REPORT OF THE AUDITORS OBTAINED U/S 142(2A) OF THE INCOME TAX ACT AND AFTER GIVING VALID REASON S FOR DOING SO. 2. THE CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE IN FAILING TO APPRECIATE THAT THE NET PROFIT RATE APPLIED OF 2.5% CANNOT BE CONSIDERED TO BE EITHER EXCESSIVE OR UNREASONABLE. HE HAS FAILED TO TAKE INTO ACCOUNT THE FOLLOWING DECISIONS IN WHICH HIGHER NET PROFIT RATE HAVE BEEN CONFIRMED: 2 A ) RAJESH KUMAR SINGH VS. I.T.O., WARD 1(3), GORAKHPUR 5 MTC 289, I.T.A.T. ALLAHABAD B ) DY. CIT CIRCLE BULANDSHAHAR VS. ALLIED CONSTRUCTION 105 ITD 1(SB), I.T.A.T. DELHI C ) SRI ARVIND KUMAR CHAUDHARY VS. DY CI T GONDA I.T.A. NO.172/LKW/10 3. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO SUBMITTED THAT THE REPORT OF THE SPECIAL AUDITOR U/S 142(2A) IS ALREADY FUR NISHED AND THERE IS NO ADVERSE FINDING OF THE AUDITORS ALSO IN THIS REGARD AND THEREFORE, REJECTION OF BOOKS IS NOT PROPER. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IN THE SPECIAL AUDIT REPORT, THESE ARE SOME OF THE OBSERVATIONS OF THE S PECIAL AUDITOR ON PAGE NO. 5 & 6 OF THIS REPORT, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - AFTER DUE DILIGENCE AND TAKING INTO CONSIDERATION THE SUBMISSIONS, EXAMINATION OF ACCOUNTS, ETC. IT CAN BE AFFIRMED THAT THE ASSESSEE HAS THUS INDIRECTLY DENIED TO HAVE CARRIED OUT PHYSICAL VERIFICATION OF THE WIP AS AT 31/03/2004 AND HENCE IT CAN BE RELIABLY AFFIRMED THAT THE WIP IS AN APPROXIMATION BASED ON CONSISTENT POLICY AND ALSO ACCEPTED BY - THE DEPARTMENT IN THE PAST. AS THE ASSESSEE DENI ED TO HAVE MAINTAINED STOCK REGISTER OF MATERIALS AND DETAILED MEASUREMENT OF WORK IN PROGRESS AS AT 31/03/2004 AND HAVE STATED TO HAVE ESTIMATED WIP BY THE MANAGEMENT ON THE BASIS OF. EXPECTED PAYMENTS AGAINST THE WORK DONE AS WELL AS CONSTRUCTION MATERIA LS AT SITE FOR WHICH VIRTUAL CERTAINTY CANNOT BE ASCERTAINED AND INCLUDES ARBITRATION CLAIMS TO THE EXTENT THESE ARE EXPECTED TO BE REALIZED BY THE MANAGEMENT AND HAVE ALSO CLAIMED THAT THIS METHOD HAS BEEN FOLLOWED SINCE PAST SEVERAL YEARS AND ACCEPTED SC RUTINY RECORDS AND HAS ALSO CLAIMED THAT SOME MARGINAL DIFFERENCE, IF ANY, GOES TO INCREASE OR DECREASE THE REVENUE OF THE NEXT YEAR, I AM NOT IN A POSITION TO QUANTIFY THE DEVIATION TO THE REVENUE AND BALANCE SHEET. THE DEVIATION AND ITS IMPACT TO THE RE VENUE AND THE BALANCE SHEET CANNOT BE THEREFORE EXACTLY ASCERTAINED. 3 5. FROM THE ABOVE, IT CAN BE SEEN THAT IT IS NOTED BY SPECIAL AUDITOR THAT THE ASSESSEE HAS DENIED TO HAVE CARRIED OUT PHYSICAL VERIFICATION OF WIP AS ON 31/03/2004 AND HENCE, IT CAN BE RELIABLY CONFIRMED THAT THE WIP IS AN APPROXIMATION. IT IS ALSO OBSERVED BY THE SPECIAL AUDITOR THAT THE Y ARE NOT IN A POSITION TO QUANTIFY THE DEVIATION TO THE REVENUE AND BALANCE SHEET. IN OUR CONSIDERED OPINION, CORRECT FIGURE OF CLOSING STOCK IS VER Y IMPORTANT FOR DETERMINING THE INCOME OF THE ASSESSEE AND SINCE THE CLOSING STOCK HAS BEEN NOT PROPERLY ASCERTAINED BY THE ASSESSEE BY PHYSICAL VERIFICATION ETC., THE REJECTION OF BOOK RESULT CANNOT BE FAULTED. THE ISSUE WAS DECIDED BY CIT(A) AS PER PARA 4(7) OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 4(7) IN VIEW OF THE AFORESAID DISCUSSION I FIND THAT THE ASSESSEE MAINTAINED BOOKS OF ACCOUNTS IN THE REGULAR COURSE OF BUSINESS. THE ASSESSEE MAINTAINED THE BOOKS OF ACCOUN TS BY ADOPTING THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY IT AND IN ACCORDANCE WITH ACCEPTABLE ACCOUNTING STANDARDS. THE BOOKS OF ACCOUNTS WERE AUDITED UNDER SECTION 44AB OF THE ACT. THE AO NEVERTHELESS APPOINTED A SPECIAL AUDITOR UNDER SECTION 142(2A) OF THE ACT. THERE IS NO ADVERSE FINDING IN ANY OF THE TWO AUDIT REPORTS. THE GROUND ON WHICH THE AO HAS REJECTED THE BOOKS OF ACCOUNTS IS NOT VALID. THE AO HIMSELF HAS ACCEPTED THE ABNORMAL BUSINESS CONDITIONS IN WHICH THE ASSESSEE WORKED DURING THE YEAR UNDER CONSIDERATION WHILE ESTIMATING THE PROFITS AT PARAGRAPH 13 ON PAGE 8 OF THE ASSESSMENT ORDER. THE AO WAS IN MY OPINION NOT JUSTIFIED IN ESTIMATING THE PROFITS BY REJECTING THE BOOKS OF ACCOUNTS. I THEREFORE DIRECT THE AO TO ACCEPT THE BOOKS OF ACCOUN TS OF THE APPELLANT AS CORRECT AND COMPLETE AND COMPUTE THE INCOME OF THE APPELLANT AS PER PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. THE APPELLANT GETS THE CONSEQUENT RELIEF. THE GROUNDS OF APPEAL NUMBERS 2 TO 5 ARE THEREFORE ALLOWED. 5.1 FROM THE ABOVE PARA FROM THE ORDER OF CIT(A), IT IS SEEN THAT HE HAS DECIDED THE ISSUE BY GIVING MUCH STRESS ON THIS THAT THE ASSESSEE WAS WORKING UNDER ABNORMAL WORKING CONDITION. IT MAY BE TRUE BUT THEN HOW IT 4 HELPS THE ASSESSEE FOR NOT REJECTING THE BOOK RESULT BECAUSE WHEN THE ASSESSEE COULD NOT MAINTAIN PROPER BOOKS OF ACCOUNT BY PHYSICALLY VERIFYING THE CLOSING STOCK ETC., SUCH BOOK RESULTS ARE NOT RELIABLE AND THE ONLY OPTION LEFT IS TO REJECT THE BOOK RESULT AND ESTIMATE THE PROFIT. IT MAY BE TH AT THE REASONS FOR WHICH THE ASSESSEE COULD NOT MAINTAIN PROPER BOOKS IS THAT THE ASSESSEE WAS WORKING UNDER ABNORMAL BUSINESS CONDITIONS BUT THEN ALSO , SUCH IMPROPER BOOKS CANNOT BE RELIED UPON TO ASSESS THE INCOME OF THE ASSESSEE AND FOR SUCH A SITUATION , THE ONLY COURSE OPEN IS TO REJECT THE BOOK RESULT AND ESTIMATE THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER HAS ADOPTED THE NET PROFIT RATE OF 2.5% FOR ESTIMATING THE INCOME OF THE ASSESSEE AT RS.7,50,112/ - . THE ASSESSING OFFICER ALSO ALLOWED DEDU CTION OF RS.2.28 LAC BEING ADMISSIBLE SALARY TO PARTNERS. ADOPTING NET PROFIT RATE OF 2.28% IS NOT EXCESSIVE AND IT COULD NOT BE SHOWN BY THE ASSESSEE THAT THE RATE ADOPTED BY THE ASSESSING OFFICER IS EXCESSIVE AND UNREASONABLE. UNDER THESE FACTS, WE HOL D THAT THE ORDER OF CIT(A) IS NOT SUSTAINABLE IN THE FACTS OF THE PRESENT CASE AND THEREFORE, WE REVERSE THE ORDER OF CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED. (ORDER WAS PRONOUNCED IN T HE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16 /12/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR