2018 (8) TMI 2087 - AT - Income Tax

Best judgment Assessment u/s. 144 - assessee could not comply with the requisitions specified in the notices u/s. 142(1) issued from time to time - HELD THAT - The burden to prove its return, and the claims preferred thereby, is on the assessee. The assessee s insistence, therefore, on the Revenue to provide him with the copies of the documents he required for making compliance, is thus wholly inappropriate, particularly considering that it is not the Revenue (Income-tax) but the Customs Department that had seized the documents. Equally invalid is the plea of an inability to provide the documents/information in view of the books of account having been seized or taken away by the Customs Department, which continued to be made by the assessee before the AO even as late as 14/12/201. It was incumbent on the assessee to have moved the Customs Department for the said documents, which has not been shown. AO provided the same to the assessee on 19/12/2011, i.e., after obtaining the same from the Customs Department. While the AO indeed acted proactively in doing so, he ought to have, in the interest of the assessment, or should we say proper assessment, acted earlier in requisitioning the same from the Customs Department. The idea or the purpose of the foregoing is not to apportion the blame, which no doubt lies substantially at the door of the assessee inasmuch as it is he who has to make the compliances in discharge of his statutory duties, but, rather, to emphasize that the same is both futile as well as facile inasmuch as the assessment, as made, cannot be approved of. Under the circumstances, we only consider it proper that the matter, setting aside the impugned order, is restored back to the file of the AO for adjudication afresh in accordance with law after allowing the assessee a reasonable opportunity to state his case with reference to the various queries raised or that maybe raised in the said set aside proceedings.

Summary

Issues Involved:
1. Framing of assessment under Section 144 of the Income Tax Act, 1961.
2. Compliance with notices under Section 142(1).
3. Verification of documents and information provided by the assessee.
4. Confirmation of accounts of trade parties.
5. Treatment of cash deposits and cash sales.
6. Allegations of fraudulent activities and purchases from certain parties.
7. Determination of the assessee's business nature and commission rate.
8. Completeness and correctness of the assessee's accounts.
9. Role of the appellate authority in correcting errors and ensuring proper verification.

Detailed Analysis:

1. Framing of Assessment under Section 144:
The assessment was framed under Section 144 as a best judgment assessment due to the assessee's failure to comply with requisitions specified in notices under Section 142(1). The Assessing Officer (AO) invoked Section 145(3), leading to the assessment of income at 2.75% of the turnover as commission. The assessee contested this, claiming all required documents were furnished.

2. Compliance with Notices under Section 142(1):
The assessee argued that the documents were submitted after obtaining copies from the AO on 19.12.2011, with some information supplied on 26.12.2011. However, the AO found the provided information incomplete and incorrect, with discrepancies in the cash-book and other records. The appellate tribunal noted that proper compliance with Section 142(1) notices was not achieved, attracting Section 144(1)(b).

3. Verification of Documents and Information Provided:
The tribunal highlighted the need for proper verification and comprehension of the provided information. The AO found differences in cash deposits and sales, requiring further explanation. The tribunal emphasized that verification is essential for a proper assessment, which was incomplete in this case.

4. Confirmation of Accounts of Trade Parties:
The AO could not confirm the accounts of all trade parties due to the late submission of ledger accounts and confirmations from only 15 out of 40 creditors. The tribunal noted that the balances of 155 parties raised doubts, necessitating confirmation. The appellate authority should have ensured proper verification of these accounts.

5. Treatment of Cash Deposits and Cash Sales:
The AO identified discrepancies in cash deposits and sales, with an additional deposit of Rs. 89.10 lacs unexplained. The tribunal stressed the need for proper examination of cash sales and deposits, especially given the large proportion of cash sales in the total sales, which suggested sales in the grey market.

6. Allegations of Fraudulent Activities and Purchases from Certain Parties:
The AO noted that purchases from four parties under investigation by the Customs Department required scrutiny. The assessee's counsel confirmed purchases from these parties but denied sales to them. The tribunal acknowledged the need to investigate the genuineness of these transactions and their reflection in exports.

7. Determination of the Assessee's Business Nature and Commission Rate:
The AO's finding of the assessee's business as a commission business at a rate of 2.75% was without basis. The tribunal found no justification for this determination and emphasized the need for proper verification to ascertain the true nature of the business.

8. Completeness and Correctness of the Assessee's Accounts:
The tribunal observed that the accounts were not fully verified, with pending examination of quantitative records, stock tally, and vouchers. The appellate authority should have ensured complete verification before concluding on the correctness and completeness of the accounts.

9. Role of the Appellate Authority in Correcting Errors and Ensuring Proper Verification:
The tribunal criticized the first appellate authority for not addressing the incomplete verification and adjudicating without a proper basis. The appellate authority has the duty to correct errors and ensure thorough verification, as established by the Supreme Court in Kapurchand Shrimal v. CIT.

Conclusion:
The tribunal set aside the impugned order and restored the matter to the AO for fresh adjudication, allowing the assessee a reasonable opportunity to address queries. The tribunal did not issue any findings of fact but emphasized the need for proper verification and compliance with statutory requirements. The assessee's appeal was allowed for statistical purposes.