2020 (3) TMI 211 - AT - Income Tax

Legality of the order passed U/s 144 - best judgment assessment - HELD THAT - In the instant case we find that during the course of assessment proceedings the Assessing officer has issued notice u/s 143(2) 142(1) and through such notice has sought to examine the books of accounts of the assessee. The assessee in turn submitted copy of cash book and ledgers however bills vouchers muster rolls wages register purchase bills etc were not produced for verification inspite of various opportunities granted by the Assessing officer. We therefore find that the Assessing officer having given sufficient opportunity to furnish the aforesaid details and the assessee failing to even attend to the proceedings and replying to the show- cause so issued by the Assessing officer the provisions of section 144 have been rightly invoked by the Assessing officer. How the powers of best judgment should be exercised by the Assessing officer and what principles should be followed by the Assessing officer while making the best judgment? - As relying on BRIJ BHUSHAN LAL PARDUMAN KUMAR ETC. 1978 (10) TMI 2 - SUPREME COURT what is therefore required is to make an honest and fair estimate of income and such estimate of income should have a reasonable nexus to the available material and the circumstances of the case. In the instant case we find that the Assessing officer has disallowed 15% of material wages office and petrol expenses amounting to 11, 84, 522 for the reason that the assessee has failed to substantiate these expenses however on what basis/rationale he has arrived at the figure of 15% has not been specified. There is no finding that there are any specific expenses which have either not been incurred for the purposes of business or are bogus in nature therefore in absence of any specific finding by the Assessing officer the disallowance so made is directed to be deleted. Further interest and remuneration to partners have been disallowed due to specific provisions of section 184(5) which provides that where there is a failure on part of the firm as is mentioned in section 144 of the Act no deduction by way of interest and remuneration shall be allowed. Given the specific bar in the statute against allowance of such interest and remuneration where the assessment has been completed u/s 144 we donot see any infirmity in the action of the Assessing officer where he has strictly followed the provisions of section 184(5) of the Act. Addition made on account of negative cash balance - we find that inspite of sufficient opportunities provided by the ld CIT(A) during the appellate proceedings and having called the remand report the assessee has failed to produce the necessary documentation in support of its claim and the addition has thus rightly been made by the Assessing officer. Lastly regarding non-allowance of full depreciation on all the fixed assets we find that in the balance sheet as on 31.03.2009 the assessee has shown a shop with a book value of 22, 87, 000 besides Tools and plant with book value of 63, 750. In the profit/loss account depreciation on only tools and plant has been debited and similar is the position in the computation of income and the auditor s report where depreciation claim is limited to tools and plants. At the same time given that value of shop has been reflected as part of block of assets in the financial statements and is a matter of record which can be verified in terms of ownership and where such shop premises are utilized for the purposes of business the assessee shall be eligible for depreciation even though not claimed earlier and the matter is remanded to the file of the Assessing officer for limited purposes of verifying the depreciation on shop forming part of assessee s block of assets and where the same is found to be in order allow the claim as per law.

Issues Involved:
1. Legality of the order under section 144 of the IT Act.
2. Addition for shortage of cash and disallowance of expenses.
3. Non-admittance of additional ground regarding interest on capital contribution and remuneration to partners.
4. Non-allowance of full depreciation on fixed assets.

Issue-wise Detailed Analysis:

1. Legality of the Order under Section 144 of the IT Act:
The assessee challenged the legality of the order passed under section 144 of the IT Act, arguing that the books of accounts were produced during the course of hearing. The assessee contended that the assessment should have been completed under section 145(3) by estimating income using GP/NP rate instead of section 144. However, the Revenue argued that sufficient opportunities were provided to the assessee to produce complete bills and other documents, which were not complied with. The Tribunal found that the Assessing Officer (AO) had given multiple opportunities to the assessee to furnish the required details, and the assessee failed to respond to the show-cause notice. Consequently, the Tribunal upheld the AO's decision to invoke section 144, as the assessee did not comply with the terms of the notices issued under sections 143(2) and 142(1).

2. Addition for Shortage of Cash and Disallowance of Expenses:
The assessee argued that the negative cash balance was due to an accountant's mistake and that the end-of-year cash balance was positive. The Revenue countered that the assessee failed to justify the negative cash balance and did not submit any supporting bills or vouchers. The Tribunal noted that the AO disallowed 15% of material, wages, office, and petrol expenses without specifying the basis for this percentage. The Tribunal directed the deletion of this disallowance due to the lack of specific findings. However, the Tribunal upheld the addition for the negative cash balance, as the assessee failed to produce necessary documentation to support its claim.

3. Non-admittance of Additional Ground Regarding Interest on Capital Contribution and Remuneration to Partners:
The assessee claimed that interest and remuneration to partners were allowable under section 40(b) of the IT Act, supported by the partnership deed. The Revenue argued that since the assessment was completed under section 144, the provisions of section 184(5) applied, disallowing interest and remuneration to partners. The Tribunal agreed with the Revenue, stating that the specific provisions of section 184(5) bar the allowance of such interest and remuneration when the assessment is completed under section 144. Therefore, the Tribunal found no infirmity in the AO's action.

4. Non-allowance of Full Depreciation on Fixed Assets:
The assessee challenged the non-allowance of depreciation on a shop used for business purposes. The Revenue argued that only depreciation on tools and plants was claimed and allowed. The Tribunal found that the shop was part of the block of assets in the financial statements and should be eligible for depreciation. The Tribunal remanded the matter to the AO to verify the depreciation on the shop and allow the claim if found in order.

Conclusion:
The Tribunal dismissed ground no. 1 and 3, partly allowed ground no. 2, and allowed ground no. 4 for statistical purposes. The appeal was disposed of accordingly. The order was pronounced in the open court on 18/02/2020.

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