DCIT, Jaipur V. RAJA RAM & PARTY, BHARATPUR

ITA 779/JPR/1998

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78079 (ITAT-JAIPUR)
• Duration Of Justice: 15 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 1997-1998
• Appeal Filed On: 14-12-1998
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: S P SINGHAL
• Keywords: Opportunity of being heard; 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. 779/JP/1998 ASSTT. YEAR : 1997-98 DEPUTY CIT, VS. M/S. RAJA RAM & PARTY (BANDIKUI SIKRI CENTRAL CIRCLE-2, GROUP), JAIPUR. BHARATPUR. PAN NO. - - (APPELLANT) (RESPONDENT) REVENUE BY : SHRI D.C. SHARMA, DR ASSESSEE BY : SHRI SP SINGHAL, AR DATE OF HEARING : 26.05.2014 DATE OF PRONOUNCEMENT : 30.05.2014 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF REVENUE AGAINST THE ORDER OF LEARNED CIT(APPEALS) DATED 14.10.1998 PASSED FOR AS SESSMENT YEAR 1997-98. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT LEARNED CIT(APPEALS) HAS ERRED IN ALLOWING RELIEF OF RS.4,87,235 OUT OF TRADING ADDITION OF RS .5,37,235 MADE BY THE ASSESSING OFFICER. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN AOP AND A LIQUOR CONTRACTOR. IT HAS FILED IT RETURN OF INCOME ON 31.10.1997 DECLARI NG AN INCOME OF RS.80,244. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT A ND A NOTICE UNDER SEC. 143(2) OF THE INCOME-TAX ACT, 1961 WAS ISSUED AND SERVED UPON THE ASSESSEE. ON AN ANALYSIS OF THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE HAS DISCLOSED A TURNOVER OF RS.3,66,86,077 WITH G.P. AT RS.93,26,942 IN TERMS O F PERCENTAGE G.P. DECLARED BY THE 2 ASSESSEE IS AT 25.42% OF THE TURNOVER. LEARNED ASS ESSING OFFICER HAS REJECTED THE BOOK RESULTS OF THE ASSESSEE AND PROCEED TO ESTIMATE THE INCOME. IN HIS OPINION, THE G.P. DECLARED BY THE ASSESSEE IS ON THE LOWER SIDE. THE SALES OF THE ASSESSEE ARE NOT VERIFIABLE, THEREFORE, HE ESTIMATED THE SALES BY ADDING THE G.P . ELEMENTS IN THE COST OF PURCHASES. ON THE ASSUMED SALES, HE APPLIED G.P. RATE OF 26.50%. THE SALES HAVE BEEN ESTIMATED BY THE ASSESSING OFFICER AT RS.3,72,23,312. THE ESTIMATED G.P. WORKED OUT BY THE ASSESSING OFFICER IS OF RS.98,64,177 AFTER DEBITING THE G.P. DECLARED BY THE ASSESSEE FROM THIS AMOUNT THE DIFFERENCE COMES OUT TO RS.5,37,235 WHIC H HAS BEEN ADDED AS AN INCOME OF THE ASSESSEE. APART FROM THIS AD HOC TRADING ADDITI ON, LEARNED ASSESSING OFFICER HAS MADE SMALL DISALLOWANCE OUT OF TELEPHONE EXPENSES, DIESEL AND PETROL EXPENSES, TRAVELLING EXPENSES AND SUNDRY EXPENSES. HE DETERMINED THE TOT AL TAXABLE INCOME OF THE ASSESSEE AT RS.6,88,860. 3. ON APPEAL, LEARNED CIT(APPEALS) HAS UPHELD THE R EJECTION OF THE BOOK RESULTS BUT RESTRICTED THE TRADING ADDITION TO RS.50,000 INSTEA D OF RS.5,37,235 MADE BY THE ASSESSING OFFICER. 4. LEARNED DR WHILE IMPUGNING THE ORDER OF THE LEAR NED CIT(APPEALS) CONTENDED THAT ASSESSING OFFICER HAS APPLIED A MARGINAL HIGHE R RATE OF G.P. THEN THE ONE TENDERED BY THE ASSESSEE. THE G.P. RATE ADOPTED BY THE ASSESSIN G OFFICER IS VERY REASONABLE, I.E. 26.50% WHICH IS JUST 1% HIGHER THEN THE G.P. DISCLO SED BY THE ASSESSEE. AFTER REJECTION OF BOOKS, SUCH A SMALL ADJUSTMENT ON THE BASIS OF ASSE SSING OFFICERS EXPERIENCE IS PERMISSIBLE. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT COST OF THE 3 GOODS PURCHASED BY THE ASSESSEE AND SOLD ARE NOT IN DISPUTE. LIQUOR IS A CONTROLLED ITEM. ASSESSEE HAS PURCHASED THE LIQUOR AFTER VERIFICATIO N FROM THE EXCISE DEPARTMENT. IT COULD NOT LIFT THE QUOTA IN TERMS OF QUANTITY REQUIRED TO BE LIFTED AS PER EXCISE POLICY AND THE CONTRACT BETWEEN THE EXCISE DEPARTMENT AND THE ASSE SSEE, THEREFORE, IT HAS TO PAY A SHORT LICENSE FEE WHICH IS A DIRECT EXPENDITURE AND HAD A N IMPACT ON THE ULTIMATE TRADING RESULTS OF THE ASSESSEE. THE SHORT LICENSE FEE PAID BY THE ASSESSEE IS OF RS.71,84,284 WHICH IS ALMOST 20% OF THE TURNOVER. THUS, THE NET PROFIT TO THE EXTENT OF 20% IS BEING WIPED OUT BY VIRTUE OF THIS MANDATORY LEVY. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORDS CAREFULLY. SECTION 145 HAS A DIRECT BEARING ON THE CONTROVERSY , THEREFORE, IT IS SALUTARY UPON US TO TAKE NOTE OF THIS PROVISION. '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 ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144.' 4 6. 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 THE AGGREGATE OF STOCK ON OPENING DATE AND STOCKS P URCHASED WITH THE AGGREGATE 5 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. 7. 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 BEING HEARD, MAKE THE ASSESSMENT] OF THE TOTAL INCO ME OR LOSS TO THE BEST OF HIS 6 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.} 8. 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. 9. 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 7 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. 10. ON PERUSAL OF THE ASSESSMENT ORDER, WE FIND THA T ASSESSEE WAS REQUIRED TO PROCURE THE LIQUOR THROUGH EXCISE DEPARTMENT, THUS, ITS PUR CHASES WERE DULY VERIFIED BY THE EXCISE DEPARTMENT OF THE STATE GOVERNMENT, THEY ARE VERIFIABLE. IT IS NOT THE CASE THAT THE ASSESSEE HAD MADE PURCHASES FROM UNKNOWN SOURCES AN D THEN SOLD THOSE ITEMS IN THE MARKET WITHOUT RECORDING IN THE BOOKS. THE SHORT LI CENSE FEE PAID BY THE ASSESSEE AT RS.71,84,284 WOULD ALMOST WIPED OUT THE PROFIT TO T HE EXTENT OF 20%. AFTER DEBITING THIS AMOUNT FROM THE TRADING ACCOUNT, THE G.P. DECLARED BY THE ASSESSEE WOULD 45.42%. LOOKING TO THE FACTS OF THE CASE OF THIS CASE, WE A RE SATISFIED THAT LEARNED CIT(APPEALS) HAS RIGHTLY EXERCISED ITS DISCRETION WHILE RESTRICT ING THE ESTIMATED TRADING ADDITION AT RS.50,000. WE DO NOT SEE ANY REASON TO INTERFERE IN THIS ORDER. THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 3 0 /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