9911796707
TMI Blog2008 (7) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... emand of Rs. 40,25,799. 4. The ld. Assessing Officer erred in law as well as on facts in rejecting books of account and the ld. CIT(A) erred in law as well as on fact in sustaining addition on account of GP at the rate of Rs. 19,50,436 by estimating GP at the rate of 12.5 per cent. 5. The ld. Assessing Officer erred as well as on facts in making addition under section 68 in respect of cash credit and the ld. CIT(A) erred in sustaining the same to the extent of Rs. 35,000 (Rs. 10,000 of Durgh Agencies and Rs. 25,000 of M/s. Hindustan Agencies). 6. The ld. Assessing Officer has erred in law as well as on facts in making addition of Rs. 45,000 being the amount appearing under the head Suspense account in the balance sheet and the ld. CIT(A) erred in confirming the same. 7. The ld. Assessing Officer has erred in law as well as in facts making disallowance of Rs. 48,500 being commission paid to Shri M.M. Khatri (Rs. 33,450) and to M/s. R.D.K. Financiers (Rs. 15,000). 8. The ld. Assessing Officer has erred in law as well as on facts in quantifying deduction under section 80HH at the rate of Rs. 10,66,396 and under section 80-I at the rate of Rs. 13,33,000 and the ld. CIT(A) e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s India, etc., have been credited with expenses on moulding charges, compensation and labour charges, etc., on the last day of the accounting year through J.V. entry. 2. The assessee has not maintained either day-to-day production records or day-to-day stock registers so as to verify the receipts, issue and inventory at the end of the year. 3. As per the books of account, closing stock of Ghaziabad branch as on 31-3-1991 draws up negative stock. 4. No bifurcation had been provided to show the exact inventory at each of the branches and the head office on 1-4-1990 or 31-3-1991. 5. The CIT(A) has confirmed the rejection of books results for assessment year 1989-90 applying the provisions of section 145(2) of the Act. Therefore, in line with the reasons given by the CIT(A) for 1989-90, the book results for assessment year 1991-92 are also rejected." 5. Resultantly, the gross profits as per book of the assessee is Rs. 55,66,233 and as per Assessing Officer basing on the working at the rate of 15 per cent as discussed above, the GP works out to Rs. 1.05 crores. Thus, the effective addition on account of the rejection of books of account works out to Rs. 49,33,767. 6. Agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantitative details were furnished in the notes to the accounts as well as in the Tax Audit Report (TAR). Assessing Officer has not raised any query or sought any further information and has not shown how the non-availability of formal stock register comes in the way of deducing the true profits of the business. Appellant has thus stated that non-maintenance of stock register would not be sufficient material for rejecting the books of account. Appellant has place reliance on the following decisions : ( i ) Pandit Bros. v. CIT [ 26 ITR 159 ]; ( ii ) Jhandi Mal Tara Chand Rice Mills v. CIT [ 73 ITR 192]; ( iii ) Vijaya Traders v. CIT [ 74 ITR 279 ]; ( iv ) M. Durai Raj v. CIT [ 83 ITR 484 ]. ( c )As regards the Ghaziabad branch, appellant pointed out that it was not known how the Assessing Officer had arrived at the figures. A complete statement of Ghaziabad branch was furnished to show that at no point of time there was no negative stock. Copy of the information furnished has also been filed on pages 60 to 64 of paper book. ( d )In assessment year 1989-90, CIT(A) upheld the rejection of books of account on totally different grounds. In para 12 of his a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to the manufacturing account for the assessment years 1988-89, 1989-90 and 1990-91. He ignored the GPs relatable to the trading accounts for these years as they were fluctuating badly. The GP s of manufacturing accounts for the said assessment years are 12.55 per cent, 16.66 per cent, 18.05 per cent respectively. The CIT(A) adopted the GP of the relevant to assessment year 1988-89 i.e., 12.55 per cent on the turnover of Rs. 6.01 crores which comes to GP of Rs. 75,16,670 and against declared GP of Rs. 55,66,233. Thus, CIT(A) confirmed the addition of Rs. 19,50,436. 9. Aggrieved with the above the assessee filed an appeal before the Tribunal with the above grounds. The ld. AR for assessee filed brief synopsis of arguments, which are as follows : "( a ) Non-maintenance of formal stock register and transactions with sister concerns with respect to purchases, moulding charges, etc., were existing in the immediately preceding year also; ( b ) Further payment being made to the sister concerns is not a justifiable ground for rejection of book results per se; ( c ) It has no where been even inferred that payments made to sister concerns are excessive or unreasonable; ( d ) Ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balancing [refer sub-para ( b ) of para 6 of this order] for arriving at the closing stock of raw materials. In this regard, we find it is necessary to discuss the scope of provision of section 145 as amended with effect from. 12. Scope of section 145 : The Assessing Officer assumes jurisdiction in rejecting the books of account of the assessee by virtue of section 145 of the Income-tax Act relating to Method of accounting . Section 145 as applicable to assessment year 1991-92 reads as under : "145. (1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall be computed in accordance with the method of accounting regularly employed by the assessee : Provided that in any case where the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that, in the opinion of the Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine : Provided further ****** Provided also ****** (2) Where the Assessing Officer is not satisfied about the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection with the books of account to be mainted by the class of assessee s of this kind, adequately advocates for maintenance of the said registers/day-books apart from other books/ledgers enlisted in clause ( 12A ) of section 2. In other words, the requirement of maintaining day-to-day registers for day-to-day production and day-to-day stock registers is thus a statutory requirement of the assessee-company, which is engaged in manufacturing and trading activities during the year. Having upheld the importance of such day-to-day registers, we need to elaborate on the meaning of correctness and completeness of assessee s accounts. (C)The completeness of accounts refers not only to the accounting entries for all the transaction done in the previous year but also to the list of ledger/books of account as described in clause ( 12A ) above and logically it also refers to the support registers, documents, bills, invoices, etc. In other words, the failure to maintain relevant registers or any other books described in the list makes the accounts of the assessee incomplete. On the other hand, the correctness of the accounts refers to the quality or accuracy or reliability of the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pposes that the assessee s books of account must include the day-to-day registers for production and stocks and stocks in brokers as the assessee is the manufacturer and trader of Ball Pen, Refill, Sketch Pen, Micro Tip Pen, Sharp Pencil and Pencil Lead. Undoubtedly, such registers are necessary to be maintained by the assessee for arriving at the correct profits. Any substitute records maintained as admittedly is the case with the instant case is no match for the above registers/books which are maintained on actual. In the present case, admittedly, the assessee has not maintained the day-to-day production registers, consumption and production of raw materials. Assessee s submission is given in sub-para ( b ) of Para 6 above that non-maintenance of day-to-day registers and stock register do not impact the validity of the books of account shall not made the statutory requirements of maintaining completeness of the accounts of the assessee and the satisfaction of the Assessing Officer in this regard. Accordingly, Assessing Officer failed to apply such statutory requirements. 13. The above scope of the provisions of section 145 conclusively establishing the fact that, what is impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have explanations for its decision not to maintain such vital day-to-day registers. There is no explanation from the assessee for resorting to the "substitute records". In view of the admitted fact that the balance principle is followed by the assessee while arriving at the vital figures relating to stock and certainly not on the basis of actuals determined with the help of the day-to-day registers, which itself supports the Assessing Officer s adverse opinion about the correctness and completeness of the accounts. Regarding the substitute records , we find that they are not books or books of account, which is fortified by the subsequently amended provisions of clause ( 12A ) of section 2. We fail to see the point as to why assessee did not maintain the said registers and resort to other unapproved substitutes. AR for the assessee has not brought on record to establish that the maintaining accounts with the help of substitutes is an approved method by itself. Therefore, maintaining the substitute records based on the principle of balancing, is no match for the day-to-day registers maintained basing on the actuals. Therefore, we are of the considered opinion that the failure to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent in assessment year 1989-90. Though the above GP is shown after taking into account the negative GP of 5.11 per cent in assessment year 1989-90 in respect of trading turnover (there was no trading turnover in assessment year 1988-89), it is sent that the net GP was higher for both the years, in assessment year 1990-91 which GP is 7.64 per cent and in the current year under appeal i.e. assessment year 1991-92 GP is 9.26 per cent. Unreliability of the trading GP has already been discussed in the aforesaid paragraphs of this order. As far as manufacturing account is concerned, following GP are shown in the preceding years : A.Y. 1988-89 - 12.55 per cent A.Y. 1989-90 - 16.66 per cent A.Y. 1990-91 - 18.05 per cent Taking into account all the facts and circumstances of the case, I am of the opinion that it will be reasonable to adopt GP 12.5 per cent on the turnover of Rs. 6,01,33,357 which comes to Rs. 75,16,670 as against Rs. 55,66,233. Addition of GP on the basis of above working would be of Rs. 19,50,436. Accordingly, Assessing Officer is directed to restrict the addition of Rs. 19,50,436." 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 10. These judgments upheld making of the best judgment assessments, consequent to the rejection of accounts of the assessee. Further, they also upheld the involvement of certain degree of guess work in making of ex parte assessment. It is a settled law now that estimations have to be done in such cases. Taking the cue from the above judgments, we have examined the action of the Assessing Officer in resorting to estimations relying on assessee s own case for the earlier assessment years. We have observed that the GP s relevant for the trading accounts are fluctuating badly giving no pattern helpful for any estimation. Therefore, we have to go for the other alternatives such as the GP relatable to the manufacturing activity. The judgment of the Supreme Court in the case of Kachwala Gems ( supra ) approved the rejection of books of account and also making of an assessment by the estimation of GP and relevant Para 7 in this regard is as under : "7. It is well-settled in the best judgment assessment there is always certain degree of guess work. No doubt, the authorities concerned should try to make an honest and fair estimate of income even in a best judgment assessment, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer is directed to recompute the gross profit as per the discussion above and make necessary amendments to the relevant order subjected to other directions in this order. Accordingly, the ground 4 is allowed partly. 21. Ground 5 relates to CIT(A) s decision in sustaining the action of the Assessing Officer of making addition to the extent of Rs. 35,000 i.e., Rs. 10,000 in case of Durgh Agencies and Rs. 25,000 in case of Hindustan Agencies. During assessment proceedings, Assessing Officer disallowed Rs. 2.5 lakhs under section 68 for want of confirmation letters along with the GIR number and other supporting documentary evidences. The amount of Rs. 2.5 lakhs also includes the sum of Rs. 35,000 standing in the names of Durgh Agencies and Hindustan Agencies as detailed above. During the first appeal proceedings, the assessee submitted confirmations, which were send to the Assessing Officer for want of remand report, where the Assessing Officer agreed on the genuineness of the cash credits to the extent of Rs. 2 lakhs. The CIT(A), on re-verification of the facts, deleted the addition to the tune of Rs. 2.15 lakhs out of 2.5 lakhs. He sustained the addition of Rs. 10,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 which appeared in the suspense account of the Balance Sheet. 25. Brief facts in this regard are that the assessee mentioned the above amount in the suspense account in the Balance Sheet. Assessing Officer disallowed the same as he did not receive any satisfactory explanation. During the appellate proceedings before the CIT(A) and during the remand proceedings, the assessee stated that the Assessing Officer has no jurisdiction to make addition on account of suspense account during these set aside proceedings. Whereas, the Assessing Officer stated that the assessment under consideration is the reassessment under the provision of section 144 read with section 147 and the issue that arises during the reassessment proceedings have to be considered and assessed. On merits, assessee had no explanation for the said difference of Rs. 45,000 appearing in the suspense account. Whereas assessee argued before the CIT(A) that the said issue is beyond the scope of the set aside assessment. The CIT(A) after hearing the both parties, rejected the explanation stating that the assessment in question has been made not only under section 250 of the Act but also under section 147 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of details, the CIT(A) rejected the above explanation and proceeded to sustained the additions. Aggrieved with the above the assessee is in appeal before us with the said ground. The arguments of the AR for assessee in this regard revolve around, ( i ) Issue is beyond the scope of said assessment, and ( ii ) Mr. M.M. Khatri has arranged loans from outsiders to the extent of Rs. 31,95,000. Whereas, the ld. DR underlined the assessee s failure in filing the confirmation letter and the assessee s failure in substantiating the services rendered by Shri M.M. Khatri and R.D.K. Financiers for the assessee by filing the details of the loans, names and address of the loans creditors etc. 30. We have heard rival submissions and perused the order of the lower authorities in this regard. It is a fact that so far as Shri M.M. Khatri is concerned the reasonable details relating the extent of loans arranged for assessee were furnished by the assessee. The Assessing Officer failed to act on the information furnished by the assessee in this regard. The Assessing Officer could have invoked the other provisions of the act in examining Shri M.M. Khatri and the books of Shri Khatri if there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the specific persons as mentioned in section 40A(2)( b ) which was the area of investigation, if the assessee could have co-operated. These payments are made to the specific persons in the context of purchase, sales consumption and production. No investigation was undertaken to this area due to non-co-operation by the assessee for reasons known to him. The CIT(A) proceeded to confirm the calculations of the Assessing Officer in absence of full details in support of the calculations of the assessee in arriving at the manufacturing and trading profits. 34. Aggrieved with the above the assessee is in appeal before us for direction in this regard. In the write up synopsis the ld. AR argued for working out on the basis of profits instead of the profits of the manufacturing activities derived of proportion basis. The DR justified the calculation arrived by the revenue authorities. 35. We have heard rival submissions and perused the order of the lower authorities and the paper book filed before us. In the reassessment order, Assessing Officer allowed the deduction under sections 80HH and 80-I. The amounts of Rs. 10,66,396 and Rs. 13,33,000 were allowed respectively against the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
