PCIT-17 Vs Time & Space Haulers (Bombay High Court)
The Bombay High Court considered a Revenue appeal under Section 260A of the Income Tax Act, 1961, challenging the Income Tax Appellate Tribunal’s order for Assessment Year 2007-08. The Revenue raised two questions of law: (i) whether the Tribunal was justified in upholding the Commissioner (Appeals)’ order despite the Assessing Officer rejecting the books of account under Section 145(3), and (ii) whether the Tribunal was justified in restricting a disallowance of ₹16 lakh to ₹3 lakh when the assessee had itself disallowed ₹16 lakh in its computation of taxable income.
On the first question, the High Court observed that both the Commissioner (Appeals) and the Tribunal had found no basis for rejecting the books of account. The Assessing Officer had neither questioned the correctness nor the completeness of the books before rejecting them, had not identified any defect in the books produced, and had ignored the fact that the accounts had been duly audited. Although the Revenue submitted that the assessee had failed to respond to repeated queries, the Court held that the Assessing Officer’s order did not reflect the dissatisfaction regarding the correctness or completeness of the books required for invoking Section 145(3). Accordingly, the Court held that this question did not give rise to any substantial question of law and declined to entertain it.
On the second question, the Court had earlier adjourned the matter to enable the Revenue to produce the computation of income, as it had not been annexed to the appeal. At the subsequent hearing, counsel for the Revenue sought further time, stating that information had not yet been received from the Assessing Officer. Counsel for the assessee produced a copy of the computation of income filed with the return and stated that the assessee had itself added back ₹16 lakh while computing its taxable income.
The High Court admitted the appeal on the second substantial question of law. Counsel for the assessee further submitted that the appeal itself could be disposed of in favour of the Revenue, acknowledging that the assessee had disallowed ₹16 lakh in its computation of total taxable income. The Court held that the Commissioner (Appeals) and the Tribunal had acted contrary to the facts on record by restricting the disallowance to ₹3 lakh.
The High Court answered the second substantial question of law in the negative, in favour of the Revenue and against the assessee. It also recorded its appreciation for the fair conduct of the assessee’s counsel in producing the computation of income supporting the Revenue’s case and agreeing to the final disposal of the appeal at that stage.
Accordingly, the appeal was allowed. No order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
On 25.6.2018, we pass the following order:
“This Appeal under Section 260A of the Income Tax Act, 1961 (the Act), challenges the order dated 19th June, 2015 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order dated 19th June, 2015 is in respect of Assessment Year 200708.
2. Mr. Pinto on behalf of the Revenue only urges the following questions of law, for our consideration:
“(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in law in upholding the orders of the CIT(A), ignoring the action of AO in rejecting the books of accounts u/s 145(3) in view of the failure to provide adequate details regarding its generation of income?
(b) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in law in upholding the orders of the CIT(A), restricting the disallowance of Rs.16 lakhs to Rs.3 lakhs when the Assessee itself had disallowed the same in its computation?”
3. Re Question (a):
i) We find that the impugned order of the Tribunal while rejecting the Respondent’s appeal and upholding the order of the Commissioner of Income Tax (Appeals) [CIT(A)], found that there was no basis for the Assessing Officer to reject the books of account. In fact, the Assessing Officer does not question the correctness/completeness of the account before rejecting the accounts.
(ii) Moreover, as the CIT(A) as well as the Tribunal have further recorded that the Assessing Officer could not point out any defect in the books of account produced before him and he completely ignored the fact that the account had been duly audited. Thus, both the authorities have on facts come to the conclusion that there was no basis to reject the books of account.
(iii) Pinto, learned Counsel for the Revenue submits that inspite of repeated requests, the Assessee did not respond to the queries of the Assessing Officer. This, therefore, led to the rejection of the books of account.
(iv) We find that the power to reject the books of account can only be exercised where the Assessing Officer, is not satisfied with the correctness and/or completeness of the books of account. This nonsatisfaction is not reflected in the order of the Assessing Officer.Thus, he does not satisfy the sinequonon to reject the books of account. Moreover, the Assessing Officer has ignored the fact that the accounts were audited. This would further support the view that there is no basis to reject the books of account.
(v) In view of the above, the question as framed does not give rise to any substantial question of law. Thus, not entertained.
4. Re Question (b):
i) After the issue was argued for sometime, Mr. Pinto, learned Counsel for the Revenue was unable to show us from the record as filed, that RespondentAssessee had itself added back by disallowing an amount of Rs.16 lakhs while computing its taxable income.
(ii) This particularly in view of the grievance of the Revenue that authorities were not correct in restricting the disallowance of Rs.16 lakhs to Rs.3 lakhs. This is contrary to the claim of the Respondent in its computation of income. The computation of income is not annexed to the memo of appeal.
(iii) At the request of Mr. Pinto, Appeal is adjourned by two weeks, to enable Mr. Pinto to take instructions and produce the computation of income. Needless to state, the Appellant will give to the other side a copy of the computation of income its seek to rely upon before the next date.”
2. Today, when the matter is called out, Mr. Pinto the learned counsel for the AppellantRevenue seeks time on the ground that he has not yet received the information from the Assessing Officer. At this Mr. Dalal the learned counsel appearing for the RespondentAssessee states that the Respondent has itself added back amount of Rs.16 Lakhs while computing taxable income. In support he also tenders a copy of the computation of Income filed along with the return of income.
3. In the above view, Appeal is admitted on the substantial question of law at Sr.No.(b) above as indicated in our order dated 25.6.2018.
4. Mr. Dalal the learned counsel for the Respondent very fairly states that appeal itself at this stage can be disposed of in favour of the Revenue on question (b). Accordingly, with the consent of the parties, appeal itself is taken up for final disposal.
5. Mr. Dalal the learned counsel for the Respondent states that Respondent itself had disallowed the sum of Rs.16 Lakhs while computin its total taxable income. Therefore, the CIT (Appeals) as well as the Tribunal restricting the disallowance to Rs.3 Lakhs is contrary to the facts on record.
6. In the above view, substantial question at Sr.No.(b) above has to be answered in the negative, i.e., in favour of the AppellantRevenue and against the RespondentAssessee.
7. Before we part, we would like to place on record our appreciation for the fair attitude of Mr. Samir Dalal learned counsel for the RespondentAssessee who not only brought to our notice the computation of Income which was filed by the Assessee before the Assessing Officer in support of the Revenue’s case but also in the present facts stated that Appeal itself be disposed of at this stage. In fact, this behaviour in tax matters till a few years ago was the norm, but now so rarely seen, that we are pleasantly surprised and compelled to place on record our appreciation.
8. Accordingly, appeal allowed in above terms. No order as to costs.
