2017 (10) TMI 480 - AT - Income Tax

Additions u/s. 40A(3) and 40A(3A) - best judgment assessment - rejection of books of accounts - Held that - From the perusal of Section 144 we donot also find any restriction on the powers of the AO to only estimate income based on profitability after rejecting books of accounts. There is no equity under taxing statute and if the provision of the statute are clear and unambiguous, full effect is to be given to them to compute income of the assessee. There is no scope of adding or deleting any word in taxing statute if the language is clear, simple and unambiguous. We donot find any restricting words in Section 144 restricting the AO to only assess profitability after rejecting books of accounts to compute income of the assessee. Further perusal of Section 40A(1) also clearly reveals that it has a non obstante clause which clearly stipulates that Section 40A(which includes 40A(3)/40A(3A) ) has an overriding effect notwithstanding anything to the contrary contained in any other provision of the 1961 Act relating to the computation of income under the head Profit and gains of business or profession . Section 28 deals with computation of income from profits and gains of business or profession which is to be computed in accordance with the provisions contained in Section 30 to 43D which included Section 40A(3)/40A(3). Section 40A(1) has a non obstante clause notwithstanding anything to the contrary contained in any other provision of the 1961 Act relating to the computation of income under the head Profit and gains of business or profession as is contained in Section 40A(1) and in our considered view even if accounts are rejected u/s 145(3), the AO can estimate income of the assessee by taking recourse to Section 40A(3) which has an overriding effect over Section 145(3) r.w.s. 144. The assessee in the instant case has admitted that books of accounts were rightly rejected by the AO u/s 145(3) and hence in our considered view, the AO has rightly framed assessment for AY 2009-10 which was upheld by learned CIT(A) which we are not inclined to interfered and hence we uphold/sustain the appellate order of learned CIT(A) and the additions are confirmed. The assessee fails in this appeal. So far as appeal of the assessee for AY 2008-09 AO shall work out disallowance in the similar manner as for AY 2008-09 as was done for AY 2009-10 by invoking applicable provisions of Section 40A(3)(a) and (b). We also have noticed that assessment for AY 2008-09 was framed by the AO by invoking Section 69C wherein all purchases stood dismissed, while for framing assessment for AY 2009-10, the AO invoked Section 40A(3)/40A(3A) wherein disallowance has been made based on payments made to the so called purchasing parties in excess of ₹ 20000/- otherwise than by account payee cheque or account payee draft which has led to double jeopardy to the assessee as the assessee has opening creditors on 01-04-2008 of ₹ 10.82 crores who virtually got disallowed twice, once when entire purchases were disallowed for AY 2008-09 u/s 69C and secondly when payments against those purchases were made against preceding year outstanding s in AY 2009-10 which has led to double jeopardy . However, this figure of double jeopardy needs to be worked out by the AO and in any case since now we have directed the AO to compute disallowance with reference to Section 40A(3)(a) and (b)

Issues Involved:
1. Condonation of delay in filing appeal for AY 2008-09.
2. Rejection of books of accounts and best judgment assessment for AY 2009-10.
3. Disallowance under Section 40A(3) and 40A(3A) for AY 2009-10.
4. Addition under Section 69C for AY 2008-09.
5. Double jeopardy due to disallowance in both AY 2008-09 and AY 2009-10.

Detailed Analysis:

1. Condonation of Delay in Filing Appeal for AY 2008-09:
The assessee filed an appeal late by 123 days for AY 2008-09, citing financial difficulties and shock due to huge demands raised by the Revenue. The Tribunal observed that the assessee faced high-pitched assessments with additions exceeding ?30 crores. Considering the Supreme Court's decision in Ujagar Singh's case, the Tribunal found no malafide intent in the delay and condoned it, admitting the appeal.

2. Rejection of Books of Accounts and Best Judgment Assessment for AY 2009-10:
The AO rejected the assessee’s books of accounts under Section 145(3) due to non-compliance and incomplete records. Despite multiple notices, the assessee failed to provide necessary documents. The AO concluded that the assessee issued non-account payee cheques to accommodation entry providers, which led to the rejection of books. The Tribunal upheld the rejection of books, noting that the AO is not restricted to estimating income based solely on profitability but can use incriminating material gathered during the assessment.

3. Disallowance under Section 40A(3) and 40A(3A) for AY 2009-10:
The AO disallowed ?17.99 crores under Section 40A(3) and 40A(3A) as the assessee made payments exceeding ?20,000 otherwise than by account payee cheques. The Tribunal noted that the assessee admitted to issuing non-account payee cheques and upheld the disallowance, emphasizing that Section 40A(1) has an overriding effect, allowing the AO to invoke Section 40A(3) even after rejecting the books of accounts.

4. Addition under Section 69C for AY 2008-09:
For AY 2008-09, the AO made an addition of ?13.67 crores under Section 69C, concluding that the assessee made cash purchases without proper bills. The Tribunal directed the AO to work out disallowance in a similar manner as for AY 2009-10, invoking Section 40A(3)(a) and (b).

5. Double Jeopardy Due to Disallowance in Both AY 2008-09 and AY 2009-10:
The assessee argued that disallowances in both AY 2008-09 and AY 2009-10 led to double jeopardy. The Tribunal acknowledged that the opening creditors of ?10.82 crores on 01-04-2008 were disallowed twice. However, since the Tribunal directed the AO to compute disallowance under Section 40A(3) for both years, the issue of double jeopardy would be resolved.

Conclusion:
The Tribunal dismissed the appeals for both AY 2008-09 and AY 2009-10, upholding the AO's actions and confirming the disallowances under Sections 40A(3), 40A(3A), and 69C. The Tribunal emphasized that the AO can use incriminating material gathered during the assessment even after rejecting the books of accounts.

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