ACIT,Circle-2, Bharuch V. Shri Mohmedsadik A Shaikh, Ankaleshwar

ITA 682/SRT/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1965 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-04-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 11-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPEND RA KUMAR
• Keywords: Rejection of books of accounts; Depreciation; Revised return; Reason to believe; TDS
• Section: 144; 143(3); 143(1); 143(2); 139(1); 142(2A); 72; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकरअपीलसं./ITA No.682/SRT/2018 (Ǔनधा[रणवष[ / Assessment Years: (2014-15) (Virtual Court Hearing) The ACIT, Circle-2, Bharuch. Vs. Mohmedsadik A. Shaikh, Prop. of Earth Power, Behind Mona Complex, Rajpipla Chowkdi, Ankleshwar-395002. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AHZPS5638N (Appellant)/(Revenue) (Respondent)/(Assessee) Assessee by : Ms Kinjal V. Shah, CA Revenue by : Shri Deependra Kumar, Sr. DR स ु नवाईकȧतारȣख/ Date of Hearing : 27/04/2022 घोषणाकȧतारȣख/Date of Pronouncement : 27/06/2022 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the Revenue, pertaining to Assessment Year (AY) 2014-15, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-3, Vadodara [in short “the ld. CIT(A)”] in Appeal No. CIT(A)-Vadodara-3/10033/2017-18, dated 30.07.2018, which in turn arises out of an assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the “Act”]. 2. The grounds of appeal raised by the Revenue are as follows: “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting addition on account of sub-contractor charges of Rs.53,25,465/- disregarding the finding of the A.O. in the assessment order. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting addition on account of sub-contractor charges of Rs.53,25,465/- by holding that “As a matter of fact, when books of accounts are rejected u/s 145(3) of the Act, then best judgment assessment has to be restored to by way of estimating profit based on turnover of the appellant” without appreciating that no exception is provided in section 40A(2)(b) of the Act to provide that the provision of section 40A(2)(b) will not apply to cases, where the assessee’s books of account have been rejected u/s 145(3) of the Act and without appreciating that factual aspects of the case did not warrant invoking the Page | 2 ITA.682/SRT/2019/AY.2014-15 Mohmedsadik A. Shaikh provision of section 144 of the Act. The A.O. on the basis of information and material available on record had correctly made above referred addition of Rs.53,25,465/-. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting various additions on account of difference in cash balance of Rs.31,81,701/-, difference in other debit balance of Rs.34,68,318, difference in stock of Rs.27,12,576/- by holding that “Once books of accounts are rejected under section 145(3) of the Act, then best judgment assessment has to be made and no addition can be made based on rejected books of accounts and therefore all the additions from item no. (2) to (9) are directed to be deleted except interest on income tax refund which is taxable under any circumstances” without appreciating that the assessee had filed return of income and attended assessment proceedings, the A.O. could not have made best judgment assessment u/s 144 of the Act and consequently, the A.O. had correctly made above referred addition on the basis of information and material available on record in his order u/s 143(3) of the Act. 4. On the facts and circumstances of the Case and in law, the Ld. CIT(A) was not justified in deleting addition of Rs.26,68,513/- being income corresponding to undisclosed TDS of Rs.48,338/- by estimating net profit @10% of turnover, without appreciating the factual finding on the issue recorded in the assessment order and without appreciating that had the assessee accounted for above referred income of Rs.26,68,513/-, the figures of turnover and sales reported in the assessee’s books of account would have considerably increased. 5. On the facts and circumstances of the case and in law, the Ld. CIT(A) was not justified in deleting addition of Rs.26,68,513/- being income corresponding to undisclosed TDS of Rs.48,338/- by estimating net profit @10% of turnover, without appreciating that though the assessee had earned above referred income of Rs.26,68,513/-, it did not account for the same in its books of accounts and consequently reduced its taxable income and corresponding tax liability. 6. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in determining total income @10% of turnover on the basis of revised audit report by emphasizing on the A.O’s failure to make best judgment u/s 144 of the Act without appreciating that the A.O committed no mistake in not invoking the provision of section 144 of the Act and had followed the provision of the Act and relied on the facts available on record for making various additions in the assessment order. 7. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that “Once books of account are rejected under section 145(3) of the Act, then best judgment assessment has to be made and no addition can be made based on rejected books of account” without appreciating that nowhere in Section 144 of the Act, it is mentioned that the provision of this section shall apply to the cases where the assessee’s books of account have been rejected u/s. 145(3) of the Act. 8. The appellant craves to add to, amend or alter the above ground as may be deemed necessary.” Page | 3 ITA.682/SRT/2019/AY.2014-15 Mohmedsadik A. Shaikh 3. We note that above grounds raised by the Revenue are interconnected therefore we shall adjudicate them together. Brief facts qua the issue are that return of income was filed by the assessee under section 139(1) of the Act on 30.11.2014 declaring total income of Rs.20,27,910/-. The return of income of the assessee was processed u/s 143(1) of the Income Tax Act, accepting the total income as returned by the assessee. Later on, the assessee filed a revised return on 19.07.2015, declaring total income at Rs.13,01,940/-. The said return of income for the year under consideration filed by assessee was selected for scrutiny through CASS. Accordingly, notice u/s 143(2) of the Income-tax Act was issued on 01.09.2015. M/s Earth Power is a proprietary concern of Shri Mohd. Sadik Abedin Shaikh. The assessee is engaged in the business of Fork Lift Hiring and trading of certain small items/parts. The assessee's case has been selected for "LIMITED SCRUTINY" through CASS for the A.Y. 2014-15 with the following reasons:- (i) Large Amount of sundry creditors (ii) Mismatch in sales turnover reported in Audit Report and ITR Due to complex transactions, Later on, vide letter of assessing officer, dated 08.11.2016, an opportunity was granted to the assessee u/s142(2A) for referring the case to Special Audit. The assessee vide his letter, dated nil has stated that he has no objection for referring the case to Special Audit. Therefore, in the interests of the Revenue, the assessee's case was referred to Special Audit u/s 142(2A) of the Act after obtaining approval from the Hon'ble Pr.CIT-3. Thereafter, an order u/s. 142(2A) of the I.T. Act was passed on 9.12.2016 nominating M/s. B. N. Kedia & Co, 210/B, Century Business Centre, Near Udhna Darwaja, Ring Road, Surat and the assessee was directed to get its accounts audited for the F.Y. 2013-14 relevant to A.Y. 2014-15 and furnish the report in the prescribed Format duly signed and verified by the said Accountant. The Special Auditor has stated that during the course of Special Audit, the assessee has not co-operated and has not submitted the requisite details called for. However, the assessee has merely stated that the mistake has occurred due to oversight. Therefore, the assessee has neither given any satisfactory explanation Page | 4 ITA.682/SRT/2019/AY.2014-15 Mohmedsadik A. Shaikh nor produced any proof / evidences in this regard. Therefore, the books of accounts of the assessee were rejected by AO u/s 145(3) of the Act since there are not only huge discrepancies in the figures under various heads of Balance Sheet and P&L account of the assessee for the A.Y.2014-15 but also the assessee has not maintained any Stock Register and also no site-wise details of work done were provided. The maintenance of stock register is also quite important. The Hon'ble Supreme Court in its decision in the case of S. N. N. Chettiar 38 ITR 579 has stated as under:- "The keeping of a stock register is of great importance because that is a means of verifying the assessee's accounts by having a "qualitative tally'. In the present case, the AO noted that assessee has not maintained stock register so also there are huge discrepancies in the figures under various heads of Balance Sheet and P& L account as stated above and he has also not been able to provide site-wise details of expenses made in respect of sub-contracts given to various parties. Thus, books of accounts of the assessee were rejected u/s, 145(3) of the Act and the difference in the opening stock as stated above i.e. Rs.27,12,575/- was added to the total income of the assessee. After rejection of books of accounts, the assessing officer also made following additions: (i).Addition on account of sub-contract expenses Rs.53,26,485/- (ii)Difference in cash balance Rs.31,81,701/- (iii).Difference in other debit balance Rs.34,88,318/- (iv)Difference in credit balance being payment made out of books Rs.14,00,012/- (v)Difference in credit balance being unaccounted purchases Rs.17,06,629/- (vi)Addition on account of prior period interest expenses Rs.14,84,190/- (vi)Addition on interest received on Income Tax Refund Rs.7,845/-. (vii) Addition on account of income earned on undisclosed TDS Rs.26,68,513/- 4. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has made estimated addition at the rate of 10% of Turnover and deleted other addition made by the Assessing Officer observing as follows: Page | 5 ITA.682/SRT/2019/AY.2014-15 Mohmedsadik A. Shaikh “Once books of accounts are rejected under section 145(3) of the Act, then best judgment assessment has to be made and no addition can be made based on rejected books of accounts and therefore all the additions from item no. (2) to (9) are directed to be deleted except interest on income tax refund which is taxable under any circumstances” 5. Aggrieved by the order of ld CIT(A), the Revenue is in appeal before us. 6. Learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 7. On the other hand, ld Counsel for the assessee defended the order passed by ld CIT(A). 8. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that after rejection of books of accounts of the assessee, the ld CIT(A) computed the estimated addition on turnover of assessee, as follows: “Therefore, from above judgment, I have reason to believe that, at appellate proceedings also, the best judgment assessment can be made. So far as question of making reasonable estimate is concerned, in this line of business where heavy machinery is used making depreciation a major component of Profit & Loss Account, Net Profit may vary from 2% to 5%. Under presumptive scheme, tax rates are prescribed @8% for smaller turnover businesses. I have come across one judgment of ITAT, Rajkot where N.P. rates of identical business are discussed and accepted. Hon'ble ITAT, Rajkot in ITA No.1011/Rjt/2010 in the case of Gayatri Crane Services (A.Y.2007-08) has observed that the assessee company was engaged in the business of Crane hire and Transportation. During the year under consideration (A.Y.2007-08), the assessee declared net profit of Rs.21,42,646/-yielding net profit rate of 6.23% on the total turnover of Rs.3,43,79,608/- as against the net profit rate of 2.75% on the total turnover of Rs.3,12,05,276/- in the immediately preceding year. Certain additions were made by the A.O. on the basis of a survey action, which were deleted by both CIT(A) as well as by the Tribunal. The facts of the present case are similar including the turnover with this reported case. 6.12 Thus, to be fair to the appellant, Net Profit rate is taken @10% because there are definitely several deficiencies in the books of accounts of the appellant which could not be reconciled and accordingly taxable income of the appellant is hereby computed as under: Page | 6 ITA.682/SRT/2019/AY.2014-15 Mohmedsadik A. Shaikh Sr. No. Particulars Amount (Rs.) 1 Total turnover of the appellant for the year under consideration (turnover adopted from the revised audit report prepared by Arun Salvi & Co., CA and not disturbed by the special auditor) 3,04,32,020/- 2 Estimated income @10% 30,43,202/- Rounded off 30,43,000/- Thus, total taxable income of the appellant is recomputed as Rs.30,43,000/-.” 9. We note that Hon'ble High Court of Gujarat in the case of Prasant Oil Mill vs Income-tax Officer [2016] 72 taxmann.com 136 (Gujarat) wherein it was held that where Assessing Officer rejected account books of assessee after verification and made addition to its income by relying upon same account books, Assessing Officer ought not to have made addition by relying upon same account books; instead he ought to have made best judgment assessment. Hon'ble High Court has held as under: "6. We have heard learned counsel appearing on behalf of both the sides. It is a matter of fact that the Assessing Officer rejected the books of accounts of the assessee but, has made additions by relying upon the same books of accounts. The facts in these cases are similar to the facts narrated in Dhiraj R. Rungta's case (supra). Therefore, the issues raised in these appeals would stand governed by the judgment Dhiraj R. Rungta's case (supra). When the Assessing Officer found mistakes in the books of accounts of the assessee on verification and consequently, rejected the same, then it ought not to have made additions by relying upon the same books of accounts. Instead, the Assessing Officer ought to have made the best judgment assessment on the basis of the history and nature of business and the net profit rate as shown by the assessee in the previous year. In view of the same, the matters are required to be reconsidered by the Assessing Officer keeping in mind the principle rendered in the aforesaid decisions." 10. Respectfully following the binding judgment of Hon`ble Gujarat High Court in the case of Prasant Oil Mill(supra), we hold that when ld CIT(A) made addition on estimated basis @ 10 of assessee`s turnover, then other line by line additions should not be made, hence we do not find any infirmity in the order of ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. Page | 7 ITA.682/SRT/2019/AY.2014-15 Mohmedsadik A. Shaikh 11. In the result, appeal filed by the Revenue is dismissed. Order is pronounced in the open court on 27/06/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat / Ǒदनांक/ Date: 27/06/2022 SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat