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TMI Blog2012 (4) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... aid Department as they could not support the allegation - the AO never could enlist or provide single conclusive instance of either incompleteness or inaccuracy in the accounts – in favour of assessee. - IT Appeal Nos. 850 to 856 and 1043 to 1049 (PuNe) of 2009 - - - Dated:- 31-1-2012 - I.C. Sudhir, D. Karunakara Rao, JJ. S. K. Singh for the Appellant. Dr. V.L. Jain for the Respondent. ORDER D. Karunakara Rao, Accountant Member There are fourteen appeals under consideration involving seven assessment years from AY 2000-01 to AY 2006-07. They are the cross appeals consisting of seven each of assessee and revenue respectively. All the fourteen appeals are filed against a composite order of the Ld. CIT (A) dated 24/06/09. 2. The issues raised in the grounds are same and for of the sake of convenience grounds raised by the revenue and assessee for the A.Y.2000-01 are reproduced as under: (1) The Ld. CIT (A) has erred in deleting addition of ₹ 3,35,73,600/-. (2) The Ld. CIT (A) failed to consider the fact that A.O. has carried out investigation recorded statements of operator after which conclusion was drawn and assessment was framed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deleted. (b) Personal hearing may be granted. (c) Any other relief Your Honour may deem fit 4. During the proceeding before us the Learned Counsel for the assessee filed identical additional grounds for all the seven assessment years and the same relevant for the AY 2000-01 read as follows. 1. The learned CIT(A) erred in confirming the estimation of the suppressed receipts without rejecting books of accounts in compliance with requirements of section 145(3) of I T Act, 61. 2. The learned CIT(A) erred in confirming the estimation of the suppressed receipts in the completed assessment without any evidence in the search material. 5. Admission of Legal Ground and its adjudication: At the very outset of the hearing proceedings before us, Sri V L Jain, Ld Counsel for the assessee analyzed the grounds of both assessee and the revenue for all seven AYs in general and for ay 2000-01 in particular and mentioned that they relates to the addition of ₹ 3,55,24,800/- and other sums for other assessment years on estimation basis in the assessment made u/s 153A of the Act. In the process, the AO rejected the books of accounts of the assessee silent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is a case of search u/s 132 of the Act and it is an admitted fact that no incriminating material was found to suggest the suppression of cable connections for any of the seven years under consideration. Further, Ld Counsel argued stating that there is neither inaccuracy nor incompletion in the accounts maintained by the assessee for all the years under consideration. Under this consideration, decision of silently invoking of provisions of Section 145(3) of the Act and the decision to resort to estimation are invalid. Referring to the department allegation of mismatch of the cable connections between the ones disclosed in income tax return and those alleged by the authorities of Service Tax Division, Ld Counsel demonstrated that the allegations made by the Central Excise Department, Service Tax division, were found untrue. Therefore, no credibility should be attached to such allegation. Further, he mentioned that the books maintained by the assessee are correct, accurate and complete in all respect and they were duly audited by the statutory auditors as per the provisions of Section 44AB of the Income-tax Act. He also mentioned that the AO failed to point out any discrepanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umed that the cable connectivity is understated to a large scale ? Answer - Whatever information provided to your office regarding direct cable connectivity is correct and there has been no discrepancy in regard to direct connections of ICC. So far the percentage of connectivity discussed there are factors of vacancy in residential accommodations, investors from Mumbai and NRI's. Further, for planning purpose, we take 40% as possible connectivity. Thus, the AO inferred to the conclusion that the assessee's books does not reflect the correct number of cable connections as accounted ones are far below the said 40%. AO also stumbled on some information involving the allegation of service tax evasion in turn suppression of cable connection evading service tax. 12. Otherwise assessee files regular return of income. Ex consequenti to search action, notices u/s.153A were issued on 30/10/2006 for all years under consideration. After examining the contents of the returns, the scrutiny assessment was completed adopting the uniform basis of estimation @ 40% of the electricity connection of the area (Provided by the MSEB as a cable connection of the assessee). Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authority. During the first appellate proceedings, the assessee questioned the AO's basis of the estimation and principles to be followed by the assessing officer in matters of assessments involving search and seizure actions like present one and mentioned in search assessment, there is no role for estimation such as 40% of MSEB connections. Assessee argued that such weird and unfettered estimations are against the set principles of Search and Seizure assessments. 14. On hearing both the parties as per the discussion given in para 8 of the impugned order the CIT(A) resorted to different estimation, his estimation is given in para 8.1 is as follows: 8.1 Taking into account the above-mentioned aspects and material on record which, inter-alia, includes the findings of the Assessing Officer regarding lack of proper maintenance of record in respect of subscriber base, I am of the considered view that it would be fair and reasonable if income of the appellant is estimated by increasing 10% of subscriber base with reference to number of connections shown by the appellant for the purpose of income-tax for all the assessment years under appeal. (For this purpose, rate per co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion that the said department could not finally succeed in clinching the existence of any evasion of service tax by way of suppression of cable connectivity. Therefore the books accounts of the assessee are proper, reliable, complete and from any discrepancy and inaccuracy. The other point on which the Revenue kept it's heavy reliance relates to the answer of Sri Inamdar given in response to question no.13 ie we take 40% as possible connectivity . As per the asses see, the same was given in the context of business planning. Obviously it was meant for business set up, installation plant and machinery, employees recruitment, purchase of electronic gadgets etc. Its a vogue and generalized assertion of Sri Inamdar and much importance as done by the AO should not be attached. On the other hand, the revenue relied heavily the said statement of Sri Inamdar which is evident from the way AO adopted the said 40% as the basis of estimation of the suppressed cable connections of an area. Of course, the CIT(A) did not approve of the AO'S line of estimation @ 40% and the CIT(A) in turn resorted to estimation @10% of electricity connections of an area. Thus, in principle, the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok B has been discarded by the Assessing Officer in favour of the show cause notice dated 28/12/2007 (placed at page 76 of paper book B) which seeks to resort to estimation of income on the basis of number of households having electrical connections. This shows the uncertain and unsure stance of the Assessing Officer. 7. Reliance is placed on the following decisions for the proposition that the action of the Assessing Officer to resort to Sec. 145(3) is incorrect : i. CIT v. Shrimati Poonam Rani - 326 ITR 223 (Delhi) In the absence of any material pointing towards falsehood of the books of accounts and no particular defect, or discrepancy being pointed in the books of accounts, the Delhi High Court held that resort could not be made to rejecting the books of accounts by invoking Sec.145(3). ii Saurashtra Ball Pen (P) Ltd. v. DCIT - 24 SOT 556 (Mumbai) The Hon. Tribunal has analyzed the provisions of Sec.145(3) and concluded that the Assessing Officer has to be satisfied about the incorrectness as also the incompleteness of the Accounts after taking into consideration various factors and not omitting to consider the material before him while exercising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot showing its subscriber base properly - This comment is without any basis in the search material. 2. Shri Ezaz Inamdar has stated in his sworn statement recorded on 27/04/2006 in response to the question no.13 that we take 40% as possible connectivity - This response is picked in isolation with utter disregard to the question and the answer. A reading of the question and answer makes it clear that a part of the sentence is extracted to mislead. The full sentence is Further for planning purpose, we take 40% as the possible connectivity. 3. Para 10 of the assessment order has been extracted to provide the conclusion of the enquiries. - None of the statements made in Para A-E leads to the inference that an estimate is required. 4. The notice of the service tax department is heavily relied on for the facts contained therein - The service tax department itself has in order dated 09/11/2010, chosen to drop the proceedings. 5. The comments confirm in the final Para of Page 3 of the letter that it was post search investigations when surveys were carried out that yielded anomaly in rates offered by different franchisees. 6. In so fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he clause 12(1) reads as follows:- (12A) Books or books of accounts includes ledgers, day-books, cash books, account-books and other books, whether kept in written form or as print-outs of the data stored in a floppy, disc, tape or any other form of electromagnetic data storage device. 22. The above definition given in clause (12A) of section 2 is reasonably important for understanding the phrase 'accounts of the assessee' mentioned in the pre-amended section 145(2) of the Act. These expressions were also referred to in the provisions of section 44 AB of the Act. The combined reading of the above said provisions read with section 44AB and other guidelines issued in connection with the books of accounts to be maintained 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 and day-to-day stock registers is thus a statutory requirement of the assessee-company. There is no adverse comment by the Statutory auditors as evident from the Audit Report enclosed to the Return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant. Allegation of lower GP is no ground for rejection of books u/s 145 of the Act as held by the High Court of Punjab Haryana in the case of CIT v. Patiala District Co-op. Milk Producers' Union Ltd [2010] 328 ITR 615. It is the judgment of the jurisdictional High court in the case of Bastiram Narayandas Maheshri ( supra ) for rejection of the accounts, non maintenance of the day to day records showing the manufacturing details is adequate. Thus, when no discrepancy is noticed in the accounts maintained by the assessee, AO cannot assume jurisdiction u/s 145(3) of the Act as held by the Delhi High Court in the case of Anand Kumar Deepak Kumar. It is also relevant to mention that without enlisting the defects, incompletion and inaccuracies in the accounts of the assessee, AO cannot expressively or otherwise, invoke the provisions of section 145(3) of the Act. Ahmedabad Bench of the Tribunal held in the case of Dy. CIT v. Paras Dyeing Printing Mills (P.) Ltd [2010] 4 ITR(Trib) 29 [2011] 44 SOT 12 (Ahd.) that when no specific discrepancies or defects in the books of account of the assessee has been pointed out nor was any material brought to establish that pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the number of the cable connections by the Central Excise Department, Service Tax Division suggest the suppression of the cable connections. Further, the statement of Sri Ijaj Inamdar, who stated that the assessee considers 40% of the electricity connections of the area for planning of his business, also suggests the suppression of the cable connections. B. Stand of the Assessee: Per contra, the case of the assessee is that the search action never yield any incriminating information, whatsoever, questing the books of accounts of the assessee for all the years under consideration. Therefore, the accounts of the assessee are complete and accurate. Further, as per the assessee, there are no evidences what so ever to indicate that the accounts are incomplete. Ld AR for the assessee challenged the production of the alleged evidences referred to in para 12 of the Assessment order before the Tribunal for which the revenue has no reaction. Thus, the said remarks of the AO on the existence of evidences in support of the suppression of the cable connections are unfounded. Regarding the allegation of service tax evasion by the Central Excise Department, Service Tax Division, Ld Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and the same were audited it is the rule that the AO shall accept the said books so long as he has not found out any defects or incompleteness of transactions or discrepancies or any inaccuracies, whatever may be the name given to them. Further, it has been the rule that when the books are rejected by the AO by invoking the provisions of sub-section 3 of sec. 145 of the Act, the onus is on the AO to pin-point or enlist the deficiencies or inaccuracies in the said books of account of the assessee. Without pointing out the same either directly expressing in the order or indirectly by implication, the AO cannot resort to rejection of the accounts of the assessee and further, he cannot resort to the best judgment assessment in the manner prescribed in sec. 145(3) of the Act. In the light of the above rule in force, we have analysed the scenario of the instant case and find that the AO nowhere expressly rejected the books. In alternative, AO has not enlisted the inaccuracies or incompleteness of the accounts by implication too. Therefore, it is the case of non rejection of books of accounts by the AO by express reasons before AO resorts to the estimation in the manner provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of this kind and magnitude involving creation of huge demand are not legally sustainable and therefore, are avoidable. AO should have the wisdom of distinguishing the elements of planning of the company vis avis the earning of actual or real income of the company. The Planning of the company involves the capacity building of the company and it is the endeavor of the company to achieve its full capacity and quite often, it is never reached and plan/capacity of the company is continuously revised upwards. Capacity of the company is not the basis for taxation and therefore, the tax has to be levied on the income and not on the income earning capacity of the assessee. Generally, the capacity of the company is always higher and it is the object related decision of the company. We are surprised how the officers miss these basis issues. Therefore, the AO/CIT(A) have erred in keeping reliance on such generalized statement for rejection of the books of accounts and the same does not constitute reasonable cause for rejection of the Audited Books of accounts of the assessee for all the years. 31. Regarding the argument at (ii) above, learned counsel for the assessee has specifically d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed therein?. AO's order does not contain a whisper about the provisions of section 145 of the Act, while he proceeded to make best judgment assessment. This is not done. Therefore, in our considered opinion the AO made a best judgment assessments in this case assuming jurisdiction u/s 145(3) of the Act invalidly. Such assessments are unsustainable. Therefore, CIT(A) did not approve the AO's decision rightly and he was silent on the issues relating to the provisions of section 145 of the Act and rejected the AO's basis ie 40% of the electricity connections of an area. He fixed the estimation at 10% of the same. We cannot approve the estimations of any kind ie 40% or 10% as the case may be, when the books of accounts off the assessee are not proved faulty on fronts of accuracy or incompleteness. It is a trite law that the onus is heavily on the AO when the books are to be rejected and the income of the assessee is estimated. Unless, the accounts are rejected for express reasons, which is not there in this case, and corroborated by the conclusive evidence, in consequinti, any decision on the estimation of income is unsustainable in law. Therefore, the rejection of books of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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