COMMISSIONER OF INCOME TAX PATIALA V. AJAY KUMAR SINGLA

ITA/181/2014

AI Insights

The case revolves around an appeal by the Commissioner of Income Tax, Patiala, challenging the decision of the Income Tax Appellate Tribunal, which had deleted an addition of Rs. 85,45,077 to the income of Shri Ajay Kumar Singla. This addition was initially made by the Assessing Officer under Section 40A(3) of the Income Tax Act, 1961, due to alleged violations concerning cash withdrawals not supported by bills and vouchers. The Tribunal's decision was based on the application of a gross profit rate, which the court found sufficient to cover the disputed expenditures without needing to invoke Section 40A(3). The High Court dismissed the appeal, agreeing with the Tribunal's application of the gross profit rate and the precedent from the Santosh Jain case.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 730158 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 07-10-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax Vs. Smt. Santosh Jain (2008) 296 ITR 324 P&H, CIT Vs. Banwari Lal case (1999) 229
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: SAVITA SAXENA
• Keywords: Assessment Year 2009-10; Books of Accounts; Cash Withdrawals; Disallowance; Gross Profit Rate; Income Tax; Section 40A(3)
• Section: 142(1); 143(2); 40A(3); 44AB; 250(6); 143; 44A; 194(C); 260-A

Judgement Text

"ITA No.181 of 2014 (O&M) { 1 } IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. Income-tax Appeal No.181 of 2014 (O&M) Date of Decision: October 7, 2014 The Commissioner of Income Tax, Patiala …Appellant Versus Shri Ajay Kumar Singla …Respondent CORAM: HON’BLE MR. JUSTICE RAJIVE BHALLA HON’BLE MR. JUSTICE AMIT RAWAL Present:- Ms. Savita Saxena, Advocate, for the appellant. AMIT RAWAL, J. The revenue has approached this Court by invoking the provisions of Section 260 A of the Income Tax Act, 1961 (hereinafter called “the Act”) by challenging the order dated 18.10.2013 passed by the Income Tax Appellate Tribunal, Chandigarh Bench “B” Chandigarh in ITA No.356- Chandigarh-2013 in respect of assessment year 2009-10. It has been claimed that the following substantial questions of law would arise for determination of this Court:- “(i) In the facts and circumstances of the case, whether the ITAT was right in law in not sustaining the addition of Rs.85,45,077/- made on account of disallowance u/s 40A(3) of the Income Tax Act, 1961, even when the assessee has violated the provisions of Section 40A(3) and failed to furnish information and produce accounts? RAMESH KUMAR 2014.10.27 17:04 I attest to the accuracy and authenticity of this document High Court Chandigarh ITA No.181 of 2014 (O&M) { 2 } (ii) In the facts and circumstances of the case, whether the ITAT was right in deleting the addition of Rs.85,45,077/- without appreciating the fact that there is no correlation between the estimated G.P.rate and the disallowance u/s 40A (3)? (iii) In the facts and circumstances of the case, whether the ITAT was right in law in deleting the addition and not setting it aside to the file of the CIT(A) or the AO for ascertaining particular of specific default u/s 40A(3) without appreciating the fact that the AO had to make the addition u/s 40A(3) on the basis of cash withdrawal made by the assessee from his bank account for meeting business expenses on account of failure on the part of the assessee to furnish relevant information and accounts?” The facts deduced from the order of the Assessing Officer indicate that the assessee filed a return on 29.9.2009. The Assessing Officer processed the return under Section 143 of the Act and brought the case under scrutiny. Accordingly, the statutory notices as envisaged under the law, i.e., the notices under section 142 (1) and 143 (2) of the Act alongwith the questionnaire were issued and served upon the assessee. The assessee had declared the net profit of `7,46,920/- against the gross receipts of `1,47,09,566/- thereby giving the net profit rate of 5.05%. In response to the notices afore-mentioned, assessee filed objections. Besides various objections, the main objection of the assessee was that it had been maintaining the books of accounts as required under Section 44A of the Act which were duly audited under Section 44AB of the Act and the audited balance sheets, profit and loss account alongwith the annexures, the statement of particulars in Form No.3CD alongwith the copy of the account RAMESH KUMAR 2014.10.27 17:04 I attest to the accuracy and authenticity of this document High Court Chandigarh ITA No.181 of 2014 (O&M) { 3 } were also submitted in Assessment Proceedings. The Assessing Officer rejected the books of accounts and estimated the income of the assessee by applying the net profit rate of 10% as against 5.05% declared by the assessee, thus, an addition on account of the low gross profit rate to the tune of `7,32,336/- was added and the net profit was calculated at `14,79,256/.-. Besides this, Assessing Officer, after verifying the accounts of the assessee, found that the cash withdrawals allegedly made by the assessee for incurring various expenses was not justifiable for want of bills and vouchers, as the assessee failed to produce, much less proof thereof, thus, held the assessee liable to deduct the tax at source as required under Section 194(c) of the Act. Accordingly, the Assessing Officer disallowed the said expenses/cash withdrawals and added the same to the income of the assessee, being in violation of the provisions of Section 40A(3) of the Act. The assessee challenged the order dated 30.12.2011 of the Assessing Officer in appeal filed under Section 250 (6) of the Act before the Commissioner of Income Tax (Appeals), Patiala. The Commissioner of Income Tax (Appeals), after noticing the submissions of the assessee and as well as the fact that in course of the assessment proceedings, the assessee vide letter dated 5.5.2011 filed an explanation and reconciliation of deposits/withdrawals in the two bank accounts in relation to the audited financial statements and as per the conciliation statement, the total cash withdrawal, which was disallowed by the Assessing Officer, was actually utilized throughout the year on day to day basis, held, that Assessing Officer presumed entire cash withdrawals utilized by making cash payments which RAMESH KUMAR 2014.10.27 17:04 I attest to the accuracy and authenticity of this document High Court Chandigarh ITA No.181 of 2014 (O&M) { 4 } are in violation of Section 40A(3) of the Act and erroneously made exuberant addition. The Tribunal while relying upon the judgment rendered by this Court in case Commissioner of Income Tax Vs. Smt. Santosh Jain (2008) 296 ITR 324 P&H, held that where the income of assessee is computed by applying the gross profit rate, there is no requirement to invoke the provisions of Section 40A(3) of the Act, by applying the gross profit rate, it takes care of the expenditure, otherwise, than by way of cross cheque also and, thus, deleted the aforementioned addition. As regards the other additions ordered by the Assessing Officer, Commissioner of Income Tax (Appeals) maintained the said additions. The revenue challenged the said finding before the Income Tax Appellate Tribunal vide appeal No.256-Chandigarh/2013, whereas, on the other hand, the assessee also filed the cross-objections bearing No.16/Chandigarh/2013 in the aforementioned ITAT. That the ITAT relying upon the judgment in the case of Santosh Jain (supra), which followed the decision of Allahabad Court in CIT Vs. Banwari Lal case (1999) 229 vide order dated 18.10.2013 dismissed the appeal and permitted the assessee to withdraw the cross-objections. Counsel for revenue submitted that ITAT has not appreciated that there was violation of Section 40A(3) of the Act, as assessee had not submitted the books of accounts and, thus, they were rightly rejected by Assessing Officer. We have heard the counsel for the revenue and are of the considered view that when the income of the assessee was computed by RAMESH KUMAR 2014.10.27 17:04 I attest to the accuracy and authenticity of this document High Court Chandigarh ITA No.181 of 2014 (O&M) { 5 } applying gross profit rate, there is no need to look into the provisions of Section 40A(3) of the Act, inasmuch as that, when the gross profit rate is applied, then it takes care of the expenditure otherwise by way of crossed cheques. It is settled law that once books of accounts are rejected, no further disallowance can be made. We are in agreement with the judgment rendered in Smt.Santosh Jain's case (supra), wherein it has been held that the provisions of Section 40(3) of the Act could not be invoked in the estimation of gross profit. The counsel for the revenue has not cited any judgment contrary to what has been laid down in Smt.Santosh Jain's case (supra). Thus, the discretion exercised by the Tribunal is based on relevant consideration and does not suffer from any legal infirmity warranting the interference by this Court. No substantial question of law would arise for our determination. The appeal is wholly misconceived and the same is accordingly dismissed. ( RAJIVE BHALLA ) ( AMIT RAWAL ) JUDGE JUDGE October 7, 2014 ramesh RAMESH KUMAR 2014.10.27 17:04 I attest to the accuracy and authenticity of this document High Court Chandigarh "