Case Law Details
DCIT Vs Maa Umiya Agritech Pvt. Ltd. (ITAT Indore)
ITAT Indore held that in the absence of any major discrepancies or defects in the books of accounts, the rejection of the books of account only for want of tax audit report is not justified.
Facts- The assessee company was engaged in the business of food process and cold storage. The assessee filed its return of income on 29.09.2012 declaring total income at loss of Rs.13,43,58,600/-. The AO completed the assessment u/s 144 on 25.03.2015 at the total income of Rs.5,38,80,006/-. Aggrieved by the assessment order, the assessee filed before the Ld. CIT(A). The Ld. CIT(A) after calling remand report twice from the AO has deleted the majority of the additions made by the AO. Therefore, aggrieved by the impugned order of the Ld. CIT(A) the revenue has filed the present appeal.
Conclusion- It is specifically noted that the remedy for non-filing of the tax audit report is to initiate separate proceedings under Income Tax Act but when all other documents and books of account are maintained and statutory audit reports were filed to show that books of account have been audited by the auditor then the AO ought to have examined books of account and supporting evidence.
It is only a case where accounts were not correct or incomplete or the method of accounting employed by the assessee is not such as to enable the AO to determine the income properly then can resort to the provisions of section 145(3) or 144 of the Act. In the absence of any major discrepancies or defects in the books of accounts, the rejection of the books of account only for want of tax audit report is not justified.
FULL TEXT OF THE ORDER OF ITAT INDORE
This appeal by the Revenue is directed against the order dated 14.09.2020 of Commissioner of Income Tax(Appeal)-III Indore for Assessment Year 2012-13.
2. The present appeal has been filed on 27.04.2022. The registry has pointed out a delay of 499 days in filing the present appeal. We have heard the Ld. DR as well as the Ld. AR on the point of delay in filing the present appeal. The Ld. AR of the assessee has fairly admitted that the delay in filing the present appeal is covered by the judgment of Hon’ble Supreme Court in case of Suo-moto Cognizance of extending the Limitation reported in 441 ITR 722 (SC) wherein the Hon’ble Supreme Court has finally issued the following direction in Para 5 as under:
“5. Taking into consideration the arguments advanced by learned counsel and the impact of the surge of the virus on public health and adversities faced by litigants in the prevailing conditions, we deem it appropriate to dispose of the M.A. No. 21 of 2022 with the following directions:
(i) The order dated 23-3-2020 is restored and in continuation of the subsequent orders dated 8-3-2021, 27-4-2021 and 23-92021, it is directed that the period from 15-3-2020 till 28-22022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings.
(ii) Consequently, the balance period of limitation remaining as on 3-10-2021, if any, shall become available with effect from 13-2022.
iii. In cases where the limitation would have expired during the period between 15-3-2020 till 28-2- 2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 1-3-2022. In the event the actual balance period of limitation remaining, with effect from 1-3-2022 is greater than 90 days, that longer period shall apply.
iv. It is further clarified that the period from 15-3-2020 till 282-2022 shall also stand excluded in computing the periods prescribed under sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.”
Accordingly, in view of the judgment of Hon’ble Supreme Court in suo-moto cognizance for extension of the limitation, the appeal of the revenue is treated as filed within the period of limitation.
3. The Revenue has raised following ground of appeal:
“1. The Ld. CIT(A) was not justified in deleting the addition of Rs.5,20,37,486/- out of the total addition made of Rs.5,38,80,806/-admitting the additional documents, violating the Rule 46 of the I.T Rules, 1962 regarding admission of additional evidences.
2.The Ld. CIT(A) was not justified in not considering the letter of AO to extended the time limit for filing the final remand report as she (AO) was busy in completing the time barring assessments. However, the Ld. CIT(A) proceeded and passed appellate order without obtaining the said remand report for the AO.
3.The Ld. CIT(A) was not justified in ignoring the remand report dated 11.11.2016 in which specifically mentioned that the assessee was entitled for set off of earlier loss amounting to Rs.2,55,25,774/-however the Ld. CIT(A) allowed the loss of Rs.13,43,58,600/- without any specific findings.
4.The Ld. CIT(A) was not justified in allowing the appeal of the assessee on account of rejection of books of account invoking the provisions of section u/s 145 of the IT Act, 1961 by A.0.
5.The appellant craves leave to add or deduct form or otherwise amend the above grounds of appeal.”
4. The assessee company was engaged in the business of food process and cold storage. The assessee filed its return of income on 29.09.2012 declaring total income at loss of Rs.13,43,58,600/-. The AO completed the assessment u/s 144 on 25.03.2015 at the total income of Rs.5,38,80,006/-. Aggrieved by the assessment order, the assessee filed before the Ld. CIT(A). The Ld. CIT(A) after calling remand report twice from the AO has deleted the majority of the additions made by the AO. Therefore, aggrieved by the impugned order of the Ld. CIT(A) the revenue has filed the present appeal.
5. The Ld. DR has submitted that the assessee neither attended assessment proceedings nor produced books of account or any documentary evidence with respect to claim of loss in the return of income and therefore, the AO rejected the books of account by invoking provision of section 145(3) of the Act and framed the assessment as on the basis of best judgement.
6. The AO has passed assessment order u/s 144 of the Act when there was no response or compliance on the part of the assessee to the notices issued by the AO u/s 142(1) as well as summons u/s 131 of the Act issued by the AO. The AO given sufficient opportunity to the assessee to present the case and file the supporting evidence however, the assessee failed to produce the supporting evidence and requisite details. Accordingly, the assessment was framed by the AO u/s 144 on the basis of the information available with the AO. He has further submitted that the assessee filed the additional evidence before the Ld. CIT(A) but the same was not allowed to be verified and examined by the AO in the remand proceedings as the Ld. CIT(A) did not allow the sufficient time to the AO. The Assessing Officer requested for allowing him some more time to verify and examine the books of account and additional evidence filed by the assessee as he was busy in time barring assessments however, ld. CIT(A) did not allow the same and passed impugned order. Thus, the Ld. DR has submitted that the impugned order of the Ld. CIT(A) may be set aside and the matter may be remanded to the record of the AO for fresh examination and adjudication. He has relied upon the order of the Ld. AO.
7. On the other hand, Ld. AR has submitted that during the course of assessment proceedings the assessee through its representative Shri Mahendra Kumar Jain, CA attended the office of the Assessing Officer and submitted its submissions/reply to the notice u/s 142(1) of the Act dated 19.02.2015. The AO did not take submissions filed by the assessee on record on the ground that it is not filed with the power of attorney in favour of the representative. Ld. AR has further submitted that on the very next day when the representative of the assessee again tried to submit power of attorney, he was asked to come on next working day and on the next working day he again reached to the office of the AO to submit requisite power of attorney, the AO did not allow the same on the ground that there is no date fixed for hearing of the assessee’s case. Therefore, the assessee was denied to submit power of attorney and relevant papers, information and explanation to the notice u/s 143(1) of the Act. The AO has framed assessment u/s 144 ignoring the loss declared by the assessee in the return of income of Rs.13,43,58,600/-. The AO has computed the total income by taking the return of income at nil which is contrary to the record and facts. The Ld AR has submitted that in these circumstances the assessee has produced this record before the Ld. CIT(A) and remand report was called by the Ld. CIT(A) vide letter dated 05.10.2016. The AO submitted the remand report dated 11.11.2016 objecting to the none filing of the tax audit report with the statutory audit report and on this very ground the AO again refused to allow the carry forward of losses. The assessee filed a copy of the assessment order for A.Y.2011-12 showing the loss of earlier year to the tune of Rs.2,55,25,774/- which was accepted by the AO as eligible for setting off. The AO again disallowed the statutory allowance of depreciation on the ground that no such claim of depreciation has been filed by the assessee. The assessee produced books of account during the remand proceedings but the AO again made the remarks that ledger was not supported with complete bills and hence, reiterated the rejection of books of account. The AR has submitted that the assessee produced books of account along with bills and vouchers during the remand proceeding and also replied point wise details with each of the disallowance made by the AO while passing the assessment order and explained that a sum of Rs.13,87,504/- relates to advance against sales. The detailed chart containing name and addresses of the parties with ledger account and confirmation were filed. A sum of Rs.37,05,000/- related to unsecured loan taken during the year and assessee has produced the detailed chart with PAN, Address and confirmation of the parties. A sum of Rs.3,79,83,403/- related to the sundry creditors and assessee produced all the details explaining the nature, name, addresses, phone no. of the parties along with ledger account. The assessee also explained the amount of Rs.63,04,100/- on account of alleged cash deposit in the bank account is actually a transaction pertains to bank account belonging to Patidar Enterprises and not of the assessee. A certificate in this regard issued by the bank of India was filed before the AO in the remand proceedings along with bank account statement of the assessee to prove that this amount was not deposited in the bank account of the assessee. Further a sum of Rs.45 lakh is related to sale of property of the assessee and relevant details were produced. The AO verified all these documents and no adverse comments were passed by her.
8. As regards the certain queries raised by the AO during the remand proceedings the assessee filed the reply dated 16.10.2016 and produced requisite details and documents including depreciation chart. Ld. AR has further submitted that the AO has calculated a sum of Rs.13,92,820/- as disallowable u/s 40A(3) whereas the assessee itself has made a suo-moto disallowance of Rs.47,73,187/- in the computation of income. Therefore, this figure of Rs.13,92,820/- is included in the suo moto disallowance made by the assessee of Rs.47,73,187/- . Further an amount of Rs.1,50,500/- paid to transporters has already been disallowed.
9. The Ld. AR has submitted that in the remand report dated 11.11.2016 the AO has question only three items. The AO verified the books of account and bills and vouchers and after verification raised specific queries regarding disallowance u/s 40A(3) of Rs.13,92,820/- which is already part of the suo-moto disallowance of Rs.47,73,187/-, disallowance u/s 40(a)(ia) of Rs.1,50,500/- towards payment to transporters which was also disallowed by the assessee and unsecured loan of Rs.12,50,000/-given in cash was also suo moto added back of Rs.8 laksh in the assessment year 2016-17. The AO has made no adverse comments so far as the other items of the addition made in the original assessment as well as the loss declared by the assessee in the return of income. The AR submitted that it is a case of high handed attitude of the AO during the assessment proceedings as well as in the remand proceeding which is evident from record that despite the directions of the Ld. CIT(A) the AO was reluctant to verify and examine books of account, other documents and record produced by the assessee. The ld. CIT(A) has noted this attitude of the AO and condemned the same in the impugned order. Since the AO has not carried out the verification and examination of the books of account and other evidence in the first remand proceedings and raised certain queries to avoid the same, therefore, the Ld. CIT(A) again called for remand report which was also avoided by the AO on the excuse of busyness. Thus, the Ld. AR has submitted that the ld. CIT(A) has rightly considered the evidence produced by the assessee and deleted the addition though part addition has been confirmed by the Ld. CIT(A). He has supported the impinged order of the Ld. CIT(A) and submitted that the assessee has produced an affidavit of CA, Mahendra Kumar Jain who attended office of the AO during the assessment proceeding but the AO refused to entertain him as well as to take the reply to notice u/s 142(1) of the Act on record for want of power of attorney. In the affidavit CA, Mahendra Kumar Jain has explained all the facts and his bitter experience during the assessment proceedings. He has also filed a copy of the submission given to the AO on 19.02.2015 along with Annexure which were not considered by the AO while passing the assessment order. Thus, the Ld. AR has submitted that there is no infirmity in the impugned order of the Ld. CIT(A) and the same may be upheld.
10. We have considered the rival submission and relevant material on record. The case of the assessee was selected for scrutiny under CASS and consequently the notice u/s 143(2) was issued on 06.08.2013. In the meantime the case was transferred to ACIT-3 Indore from DCIT-1(1), Indore due to change of jurisdiction on account of restructuring. Accordingly further notice u/s 143(2) and 142(1) were issued on 19.01.2015. Thus, it is clear that after the case was selected for scrutiny in the year 2013 the proceedings were resumed in the month of January 2015. Since the case was time barring in the end of March 2015 therefore, the AO was in hurry to complete the assessment and issued notice u/s 143(2) and 142(1) on 19.02.2015 and summons u/s 131 on 03.02.2015 fixing date of hearing on 03.03.2015. As there was no compliance on behalf of the assessee therefore, a summon was also issued to the auditor of the assessee for production of audit report of the assessee. In response to that the auditor of the assessee attended the proceedings and filed audit report. Further the AO recorded that when there is no response of the assessee to the notice u/s 143(2) and 142(1) he has no option but to invoke the provision of section 144 of the Act. Ld. AO further recorded that on perusal of the Income Tax Return and audit report furnished by the auditor of the assessee it was noted that gross receipt of the assessee for year under consideration was Rs.1,81,51,290/- whereas the assessee has claimed loss of Rs.13,43,58,600/-. The AO rejected the books of account u/s 145 of the Act and then framed the assessment by determine the returned income of the assessee at nil. After the income of the assessee was taken at nil the AO made various additions on account of long term liabilities, unsecured loan, unexplained creditors, cash deposit u/s 68, undisclosed sale of property. The AO finally determine the income of the assessee as under:
|
Return of income is determined as Nil |
Nil |
| Add: (1) on account of long term liabilities u/s 68 (as discussed in para 4) | Rs.13,87,504/- |
| (ii) On account of unexplained unsecured loans u/s 68 (as discussed in para 5) | 37,05,000/- |
| (iii) On account of unexplained creditor u/s 68 (as discussed in para 6) | 3,79,83,402/- |
| (iv)On account of unexplained cash deposit u/s 68 (as discussed in para 7) | 63,04,100/- |
| (v) On account of undisclosed short term capital gain (as discussed in para 8) | 45,00,000/- |
| Total assess Income | 5,38,80,006/- |
11. The AO rejected the claim of loss only on the ground that nobody has responded to the notice issued however, the return of income as well as audit report was very much available with the AO as recorded in the assessment order. Therefore, without pointing out the defect in the claim of loss the AO has simply rejected the same and taken the business income at nil. It is pertinent to note that the assessee has specifically made the statement that the representative of the assessee attended the office of the AO and submitted reply to the notice u/s 142(1) dated 19.02.2015 but the same was not taken on record by the AO for want of power of attorney. The assessee further stated that the Ld. AR has tried repeatedly to submit power of attorney on the next day and day after but the AO avoided to take power of attorney on record and therefore, it was highhanded treatment given by the AO to the assessee and its representative. In support of these facts and submission the assessee has filed the affidavit of one Mr. M.K. Jain, CA who has made solemn statement in the affidavit as under:
12. During the course of appellate proceedings the Ld. CIT(A) after considering the fact that assessment order was passed u/s 144 and the AO resumed the assessment proceeding in the month of January 2015 whereas the limitation was to expire in the month of March 2015. The Ld. CIT(A) called for remand report from the AO. The AO submitted the remand report dated 11.11.2016 and raised various issues which are reproduced by the Ld. CIT(A) in para 4 as under:
“4.The AO vide his remand report di 11.11.2016 upon the following:-
i) The auditor of the assessee company CA Jitendra Mishra submitted Statutory Audit report but no IAR was either done or produced by him.
ii) That set off of losses of earlier years carried forward losses was not allowed as the case record of earlier year were not transferred in her office by previous AO. Now copy of assessment order for A.Y. 2011-12 is submitted and as per order u/s 143(3) for the A.Y.2011-12. the assessee is entitled for set off of losses of earlier years amounting to Rs. 2,55,25,774/-
iii) With regard to statutory allowance, no such claim of depreciation has been filed.
iv) This office has called for Books of account and it was observed that ledger was not supported with complete bills. Hence rejection of books of account during the course of assessment proceedings by invoking provision to Section 145(3) are in order.
iv) Further on examination of books of account it was found dis under:-
v) Cash payments against purchases exceeding Rs.20-400 were made amounting to Rs. 13,92,820/- are disallowable us-40A(3).
vi) Payment exceeding Rs.35,000/- were made to 2 transporters totalling to Rs. 1,50,500/- are disallowable u/s 40(a) (ia) TW. 40A(3)
(C) Unsecured Loan 12.05 lacs was taken in cash
13. The assessee has also filed reply to all these queries raised by the AO in the remand report which is also reproduced by the Ld. CIT(A) in the impugned order. The Ld. CIT(A) then called for the books of account along with bills and vouchers and a second remand report was called for from the AO on the issues which were raised by the AO in the first remand report. Therefore, the Ld. CIT(A) tried to resolve the dispute after proper verification and examination of the books of account, supporting vouchers and bills as well as other details and explanation produced by the assessee. In the second remand report the AO made remark which are reproduced by the Ld. CIT(A) in para 8 of the impugned order as under:
“8. The AO in his remand report narrated as under:-
“Now your good self directed to verify the loss by examination of the books of accounts as the assessee has produced the books of accounts. there is no annexure enclosed with the letter as referred above.
Therefore in absence of Tax Audit Report and books in accounts verification of loss claimed by assessee is not possible”
He further disbelieved the contention of the assessee that
Rs.13,92,820/-and Rs.1,80,500/- have already been disallowed and added back in the computation of income though a detailed list in this regard was also submitted before him.
14. The only objection raised by the AO is non-filing of the tax audit report. The AO avoided the examination of books of account and other supporting evidence for want of tax audit report though the statutory audit report was already filed before the AO during the assessment proceedings. Considering the conduct of the AO for not conducting the remand proceeding and examination of the books of account the Ld. CIT(A) observed in para 9 of the impugned order as under:
“9. The case was again fixed before my predecessor and was agair 2xplained My predecessor while directing the AO to submit remand report had very strongly condemned the high handed attitude of the W Relevant paras are reproduced below:-
“During the course of hearing. I have gone through the assessment order, written submissions and remand reports submitted be the Assessing Officer. Plain reading of part 1 and 2 of the assessmen order revels that the appellant was not afforded sufficient opportunity to present the case during the course of assessment proceedings: The first notice was issued in this on 06 08 2013 and was served and appellant on 13/08 2013. The second notice issued on 1999), 2015 was returned back as unserved. Thereafter, one more notice was stated to having issued fixing the case on 19/02/2015 which does not specific date of issue of notice. A summon dated 23.02.2015 was issued fixing the case for 03/03/2015. However, whether the summon was served clear from the above discussion that between 06-18 2013 to 19/02/2015. no assessment proceedings were carried out by the Assessing Officer. It was only when the assessment was getting barred by limitation, a notice dated 19/02/2015 was issued followed by summon as mentioned above. The service of which have also not been known from the assessment order. It becomes very clear that the assessee has not got sufficient opportunity and time to present it’s case,
The AO proceeded to complete the assessment proceedings u/s 144 of 1.1. Act. Now during the course of appeal proceedings before the then CUAL, the appellant has taken the plea that complete books of account and relevant documents justifying the claim of loss have been maintained which have been produced before the CIT (A) as well as the Assessing Officer during the remand proceedings. The existence of books of accounts and relevant documents have not been disputed by The Assessing Officer also. It has also been accepted fact that the books of accounts were not audited as per I.T. Act. For which the separate proceedings under 1.1. Act. are initiated and under process. But when the complete books of accounts are maintained, the statutory audit of these books have been carried out, it is not understood as why during the remand proceedings, the AO has not examined in relation with the loss claimed and various additions made. I have gone through the remand reports and observed that the same are neither satisfactory nor convincing and reasonable to finalise the appeal proceedings.
It needs to be noted by the Assessing Officer that the CIT (A) has no power to set aside the assessment order for re-examination and reconsideration. Therefore, the then CIT(A) has remanded the entire case for re-examination in view of the fact that the assessment was completed us 144 of 1.T. Act. resulting into heavy additions and disallowance of loss of more than 13 crores without bringing out any material on record. These kinds of high pitched assessments are not appreciated by the organization if not supported by the reasonable and sufficient material.”
15. It is specifically noted that the remedy for non-filing of tax audit report is to initiate separate proceedings under Income Tax Act but when all other documents and books of account are maintained and statutory audit report were filed to show that books of account have been audited by the auditor then the AO ought to have examined books of account and supporting evidence. On-going through the assessment order we find that the AO has rejected the books of account for want of tax audit report which is not a good ground without pointing out any serious or major defects in the books of account which were attempted to be filed during the course of assessment proceeding and were finally produced before the AO during the remand proceedings. The AO though verified the books of account of the assessee and in the first remand report has pointed out certain issues needs to be explained by the assessee. Therefore, once the AO has specifically raised certain queries regarding certain issues which were subsequently explained by the assessee and second remand report was called for by the Ld. CIT(A) then the rejection of books of account was no more justified. The assessee has relied upon various judgment of Hon’ble High Courts including jurisdictional High court on the point that section 144 would be attracted only to case where either the accounts are not correct or incomplete or the method of accounting employed is such that in the opinion of the AO the income of the assessee would not be properly deduced from such accounts maintained by the assessee. Therefore, it is only a case where accounts were not correct or incomplete or method of accounting employed by the assessee is not such as to enable the AO to determine the income properly then can resort to the provisions of section 145(3) or 144 of the Act. In the absence of any major discrepancies or defects in the books of accounts the rejection of the books of account only for want of tax audit report is not justified. The Ld. CIT(A) has considered this matte in para 12 to 14.3 as under:
“12. This ground of appeal is with regard to non-allowance of claim of loss of Rs. 13,4358,600/- incurred during the year on account of non-production of books of account.
12.1 The appellant has submitted books of account, audited accounts along with audit report head wise details of additions made with vouchers before the AO and my predecessor. The AO has not commented adversely on any of the details submitted war, to additions made by her. Some new points were raised in the remand reports which were also replied satisfactorily.
12.2 It is clear that the appellant had produced audited books of accounts with bills and vouchers thrice before the authority, twice before the AO and once before my predecessor. The AO was given full opportunity to verify the Books of account twice which was availed also and no defect other than some minor issues were raised in the remand report: Though the AQ has rejected the books again in remand report but in a general manner. NO specific major defect was pointed out. The AO seems to be satisfied with the books of account and supporting vouchers bills & documents .Further no specific adverse comment was made in the remand report Further the disallowances made in the order u’s 144 were also not discussed in the remand report. It seems that the AO had nothing to say on these issues.
12.3 My predecessor also while directing the AO to submit remand report has come very heavily on the AO, It seems that the AO had not even tried to address the core issue ie why the loss was disallowed and when all the documents and books of account are produced, why the kept silent on the additions made u/s 144 inspite of given several opportunities.
12.4 In view of the above facts and the judicial decisions so discussed in para 11 The non allowance of loss of Rs. 13,43,58,600/-seems unjustified and the same is directed to be allowed. As a result this ground of appeal is allowed
Ground No.2
13.0 This ground relate to various additions of Rs. 5,38,80,006/ – made in the absence of documentary evidence.
13.1 The appellant has produced books of account along with documents evidences w.r to the additions made twice before AO and also before my predecessor. The same were thoroughly checked by the NO and no adverse comment on disallowances were made. Though the AO rejected the books again in remand report but in and are general manner. No specific major defect was pointed out by the AO.
13 de remand reports submitted by the AO, the AO has not adversely commented on any of the additions made u/s 144. After detailed and books of account and documentary evidence produced, she proposed the following as disallowable
| (i)Disallowable us 40A(3) | 13,92,820 |
| (ii) Disallowance u/s 40(a)(ia) | 1,50,500 |
| (iii) Rental Income not shown | 3,00,000 |
| 18.43.320/- |
He AR of the appellant submitted that disallowance of Rs.. 13,92,820/-and Rs. 1,50,500/- has already been made and rental income of Rs 3.00.000- has been offered to tax with related documents evidences.
13.3 I have gone through the order of the AO. remand reports and submissions much der comments on remand reports. I have also gone through the submissions made by the AR before me. The AR of the appellant vehemently argued that when the order was passed us 144, the additions/disallowances made adhoc and without verification of books. The audited books of account alongwith bills and vouchers addressing each disallowance made were produced before the AO twice and once before my predecessor. It transpires from the remand report of the AO that the books and vouchers a thoroughly examined and after examination of the same, the general comments have been made without points out any specific defect.
13.4. It appears that the appellant has submitted full details regarding additions of Rs.5,38,80,806/- made with complete bills and vouchers. The same has been thoroughly examined by the AO also. Howsoever as the AO has made further disallowable of Rs. 18.43,320/-, the addition is restricted to Rs. 18,43,320 and the appellant shall get relief of Rs 5,20,37,486/-. As a result this ground of appeal is partly allowed
Ground No.3
14.0 This ground is with regard to rejection of books of account us 145 of the Act.
14.1 In this case the order was passed us 144. As the order was passed u/s 144 the books were not produced. My predecessor directed the AO to comment on each and every disallowance after proper verification of books of account and bills and vouchers. Accordingly, audited books of account with supporting documents were produced before the Act. The disallowances made were also addressed specifically. The AO verified the books of account and supporting and pointed out some proposed disallowance in the case. Merely because some disallowances were were proposed books of account cannot be rejected u/s 145.
14.2 The AO seems to have carried away with the order passed u/s 144 though audited books of account and supporting were thoroughly examined yet the ground of rejection of books of account was maintained. The reason was also not explained by the AO as to why he is again resorting to section 145 at the cost of repetition, the case laws cited by the AR are reproduced below.
(i) Hon’ble High Court of Madhya Pradeshi in the case of Shri Suresh Chand Talera vs. CIT reported in 73 CCH 1034 MPIC held as under:-
“Sec. 145 would be attracted only to a case where either the accounts are r correct or complete to the satisfaction of AO or the method employed is such that in the opinion of the AC the income of the assesse could not be properly deduced from such accounts maintained the assessee.Thus, it is only in a case where accounts were not correct or complete or where accounts are correct and complete but method employed coming is not such as to enable the AO to deduce the income of the assessee properly, the assessment of the income of the assessee could be made in such manner as the AO may determine. The Tribunal although held that the AO had not found any sales outside the books of the assessee, had not given any clear finding as to whether the assessee had correctly and completely maintained the accounts or that from the accounts maintained by the assessee, his income could not be correctly deduced and yet has directed the AO not to compute the income of the assessee in accordance with his books of account but to apply GP rate of 20 per cent for gold ornaments and 32 per cent for silver ornaments. The Tribunal should have recorded a clear finding as to whether or not the account books of the assessee were correct and completed or whether or not from the accounts maintained by the assessee his income could be properly deduced. Such a finding can be recorded only on consideration of the account books of the assessee and, therefore, this issue decided by the Tribunal afresh on remand.”
(ii) Hon’ble FIAT Delhi “G” Bench in the case of DCIT vs. M/s JSL Architecture Ltd reported in ITA No. 3457/Del/2015 held as under:-
“It has been held in the case of Pandit Brothers vs. CIT (1954) 26 ITR 159 (P& H) that before ITV No.3457 Del 2015 rejecting books of account, there must be material before the ITO to lead him to the conclusion that the method employed is defective or that the case required reconsideration and a new computation must he made. The mere fact that the profits are low is not terial upon which finding regarding the rejection of books of account can be based. In the case of CIT vs. K. S. Bhatia (2002) 125 taxmann 454 P&H), it was held that the mere fact that the profits are low compared to earlier years is not sufficient to make an estimate of net profits,””
(iii) In a recent judgment of Century Tiles. Lid. vs. JCIT (2014) 51 com 515 (Ahmedabad) it was held that where assessee maintained regular books of account which were duly audited, decline in gross receipts and disproportionate increase in expenses in certain heads of account itself, cannot be a ground to reject book results. The same is the view of Hon’ble Jharkhand High Court which, in the case of CIT vs. Anand Kumar Modi (2014) 44 taxmann.com 21 (Jharkhand) held that addition made after rejecting books maintained by assessee should be deleted when all quantitative details were available in hooks of account and account and accounts were regularly maintained.
(iv) The judgment of Hon’ble Madras High Court in the case of GNDI vs. DCIT (2014) 43 com 246 is extremely pertinent gone lies of the case. In this case, it was held that when assessee explained reasons for fall in G.P and revenue did not verify same by substantial materials impugned order of the AO was to be set-aside.
(v) The judgement by the Hon’ble High Court in the ease of CIT Faridabad vs. Smt. Sulochana Bhatia (2012) 20 taxmann.com 298 (P & H ) needs to be mentioned here. In this case, the A.O. taking a view that assessee had not maintained books of account properly, rejected the same and made certain additions on account of suppression of receipts. On appeal Commissioner (Appeals) as well as the Hon’ble Tribunal deleted the said addition. On revenue’s appeal. it was noted that assessee my produced recipes and the AD had adopted method of estimation without there having any rational basis to support guess work.
Nevertheless in the case, where the AO without recording any finding that the books of account maintained by the appellant were incorrect, proceeded to reject the books of account on the basis of his sweet will without having any documentary evidences on record. In these circumstances, the rejection his no legs to stand.
(i) Hon’ble Apex Court in the case of Dhakeshwari Cotton Mills vs. CVT noted in 26 FIR 775 (SC) hold that AO cannot make any addition on the account of his guess work without having any material evidence on record. The relevant extracts of the said judgement if reproduced as under:-
“that making the assessment under sub section 3 of section 23 of the Income Tax Act. 1992 Corresponding to the section 143(3) of the Income Tax Act, 1961 the Income Tax Officer is not entitled to make a pure guess and makan assessment without reference to any evidence of may material there must be something more than bare suspicion to support the assessment under section 23(3))”
(vii) In the case of CIT vs. J.J. Enterprises reported in 122 Taxman 124 Hombre Supreme Court approving the decision of the lower authorities affirmed that the addition made on the basis of “pure guess work” were unsustainable.
(viii) In the case of State of Orissa vs. Maharaja B.P. Singh Deo reported in 76 LTR 690 (SC) wherein in the Assistant Collector has not given no reasons for enhancing the assessment and his order does not disclose the basis on which he has enhanced the assessment The Lion be supreme Court held that the assessment must be based on some relevant material, it is not a power that can be exercised under the sweer will and olsa of 3 concerned authorities.
(ix) In the case of Brij Bhushan Lal Parduman Kumar vs. CI reported in 115 ITR 524 Hon’ble Supreme Court held that in the judgement assessment an honest and fair estimate of the income should made and the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case
(x) In the case of State of Kerala vs. C. Velukutty reporte, MODUIR 24 Hon’ble Supreme Court held that though there is an element of guesswork in a “best judgment assessment”. it should not be a wild one, but should have reasonable nexus to the available material and the circumstances in each case. Though the section provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard to the available material,
(xi) In the case of CIT vs. Om Oversens reported in 13 Laxman 185 Punjab and Haryana High Court held that the AO can’t reject the book of accounts provided by the assessee without specifying proper adequate and sufficient reasons. The Hon’ble High Court held that
“We find no force in the arguments raised by the learned counsel for the revenue. While allowing the appeal of the assessee, the CIT(A) has given a finding of fact that the additions have been made by the AO without pointing out any specific defect in the books of account The sad finding has been further upheld by the Tribunal. During the course of arguments, learned counsel was unable to point out any illegality or perverse in the said finding of fact. Thus, we find no infirmity in the order of the Tribunal.
(xii) In the case of CIT vs. Vikram Plastics reported in 239 ITR 161 Hon’ble Gujarat High Court held that “it was found there was no discrepancy or defects in books of account maintained by assessee and further the books of account maintained by assessee were not found to be incorrect or incomplete and that no material was brought on record by the revenue to prove that purchases and expenses had been inflated or sales had neon suppressed. In this context the Hon’ble High Court held that,
“In our opinion, in view of the finding reached by the Tribunal that there were no discrepancies or defects pointed out in the books of account and further at they were regularly maintained and also on the finding that there was no material brought on record to establish that purchases or expenses were inflated or sales suppressed and also in view of the finding that this was made as that there was no method of regular accounting employed, the Tribunal was fully justified in coming to the conclusion that the provisions of section 145(2) could not be invoked,”
(xiii) In the case of TTO vs. Abbey Chemicals Pvt. Ltd. (ITA no. 2875 Ahd 2004) wherein the Hon’ble Ahmedabad Tribunal held that there lies no justification for the rejections of books of accounts on pure guess. The Hon’ble Tribunal held as under:-
Undisputedly and as observed by the Id. CIT(A) in the impugned order the AO did not point out any defects in the books of account while ignoring the book results… The ratio of the judgments in Dhakeswari Cotton Mills Ltd. v. CIT 11981 26 1TR 775 (SC): Raghubir Mandal Harihar Mandal v. State of Bihar (1957) 8 STC 770 (SC); Sune of Kerala v. C. Velukutty 11966) 60 ITE 239 (SC); State of Orissa, Maharaja Shri B.P. Singh Deo (1970) 76 IT 690 (SC): Brij Bhusan Lal Pardaman Kumar v. CIT (1978) 115 TIR 524 (SC); Chouthmal Agarwalla v. CIT [1962] 46 ITR 262 (Assam RVS and Sons Dairy Farm v. CIT [2002] 257 ITR 764 (Mad): International Forest Co v. CIT [1975] 101 ITR 721 (J&K): M. Durai Raj v. CIT [1972] 83 ITR 484 (Ker); Ramchandra Ramnivas v. State of Orissa [1970] 25 STC 501 (Orissa Action Electricals v. Deputy CII [2002] 258 ITR 188 (Delhi) and Kamal Kumar Saharia v. CIT [1995] 216 ITR 217 (Gauhati) indicate that the AO is not fettered by any technical rules of evidence and pleadings, and he is entitled to act on material which are not acceptable in evidence in a count of law, but while making the assessment under the principles of best judgment. the Income-tax Officer is not entitled to make a pure guess without reference to any evidence or material. There must be something more than a mere suspicion to support the assessment”
(xiv) Hon’ble High Court of Madhya Pradesh in the case of CIT vs. Saatal Kattha & Chemicals (P) Itd reported in 73 CCH 0872 MPHC held as Under:-
“Accounts Rejection G.P. rate vis-a-vis undisclosed sales Assessee engaged in the business of manufacture and sale of Kattha and Cutch by processing Kher wood AO rejected the books maintained by the assessee by invoking s 145(2) on the ground that the assessee did not maintain quantitative records of Kher wood trees, and determined the sale of Kattha outside books by estimating yield at 14.13 per cent Not justified.”
(v) The Hon’ble Supreme Court in the case of CIT vs. Padamchand Ramgopal reported in 76 ITR 719 held that insignificant mistakes noticed in the books of account of one year, like one item of receipt having en incorrectly recorded, cannot form the basis for rejection of books of account.
14.3 The existence of books of account and relevant documents have not been disputed by the AO. When complete books of accounts are maintained and statutory audit of the same is carried out by a qualified Chartered Accountant, there seems to be no reason for rejection of books of account.
In view of submissions made by the AR, reliance placed by his on various case laws, remarks of my predecessor and facts of the case. This ground is, therefore, allowed.
16. It is pertinent to note that the AO while computing the total income has rejected the claim of loss for want of tax audit report and other details and even refused to entertain the CA for want of power of attorney though the reply along with balance sheet and other details as well as statutory audit report were filed before the AO. The AO even did not allow the brought forward loss which were allowed in the preceding year to be carry forward and therefore, it shows that the AO has passed the assessment order by ignoring the undisputed facts available before him and rather contrary to the fact so far as the brought forward loss of Rs.2.55 crores which was subsequently accepted by the AO in the remand proceedings. The assessee stated that it has produced books of account along with vouchers and when the AO has not considered the books of account and vouchers but rejected the books of account of the assessee the same were produced before the ld. CIT(A) and therefore, there is no violation of Rule 46A of the Income Tax Rules. The Ld. CIT(A) has confirmed these facts while passing impugned order that the record was brought before the AO but it was not considered. Thus, the AO misconducted himself while passing the assessment order and therefore, the record which was already filed before the AO was rightly considering by the Ld. CIT(A) while passing the impugned order. Accordingly, in the facts and circumstances of the case we do not find any error or illegality in the impugned order of the Ld. CIT(A) same is upheld.
17. In the result, appeal of Revenue is dismissed.
Order pronounced in the open court on 08.06.2023.
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