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TMI Blog2012 (7) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... dition deleted Addition made by rejecting of books of accounts – Held that:- AO is directed to delete GP addition because he has not pointed out single defect in the books of account in the year under consideration - AO has neither bothered to issue a show cause notice before rejecting the accounts of the appellant firm. Application of GP rate at 30% on receipts has been made by the AO without bringing any material on record to justify it, without even caring to mention that he is applying 30% rate as against 20.89% GP rate shown by the assessee - 3419/Ahd/2009, 3348/Ahd/2009, 3431/Ahd/2009 - - - Dated:- 25-5-2012 - SHRI MUKUL Kr.SHRAWAT, SHRI T.R. MEENA, JJ. Assessee(s) by : Shri U.S. Bhati Revenue by : Shri Samir Tekriwal, Sr.D.R. O R D E R PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER : For AY 1996-97, cross appeals have been filed by both the sides arising from the order of CIT(A)-XIV Ahmedabad, dated 28/10/2009. For A.Y. 1998-99, Revenue is in appeal arising from the order of CIT(A)-XIV, Ahmedabad dated 27/10/2009. Appeals for AYs 1996-97 are hereby decided as follows:- [A] Assessee s appeal, ITA No.3419/Ahd/2009 A.Y. 1996-97 2. Ground Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee denying the supply of the reasons for reopening of the assessment it is for the Revenue to show that the reasons for reopening the assessment were given to the assessee. As the Revenue has failed to show that the reasons for reopening the assessment were supplied to the assessee respectfully following the decision of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd.(supra), we set aside the order of the AO and the CIT(A) and remand the matter back to the file of the AO and direct him to redo the assessment afresh after supplying copy of the reasons recorded before issue of notice u/s.148 to the assessee and after meeting the objections that may be raised by the assessee. With these directions the appeals of the assessee are allowed. 3. In consequence thereupon, the reasons so recorded were supplied. 3.1. Ld.AR has drawn our attention on the reasons recorded placed in the paper book, reproduced below:- Recording of reasons for issue of notice u/s.148 in the case of During the course of assessment proceedings for A.Y. 97-98 in the case of assessee, following observation was made in the office note to assessment order: Expenditure of Rs.7,14,970/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were now given to the assessee in the light of the directions of the Hon ble Tribunal, therefore in this regard the grievance of the assessee stood redressed. Referring reason for issuance of notice u/s.148, as placed on page 18 of the paper-book, ld.DR has mentioned that in respect of the account of M/s.Yogiji Construction Company there was a discrepancy and that discrepancy was duly communicated to the assessee, however, remained unexplained, hence it was decided to reopen the assessment for the year under consideration. He has also argued that there was some material which was made the basis for reopening of the assessment. The reopening was within 4 years of the assessment year, hence within the jurisdiction of AO. Reliance were placed on Raymond Woolen Mills 236 ITR 34 (SC) and Kalyanji Mavaji Co. 102 ITR 287 (SC). Apart from the above contention, ld.DR has also pointed out that as per the first order passed u/s.143(3) r.w.s.147 dated 19/03/2002 for A.Y.1996-97, it was clearly mentioned by the AO that the copy of reasons recorded were supplied to the assessee. He has therefore pleaded that the facts were wrongly represented before the Hon ble ITAT, hence under wrong impress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting period ended on 31/03/1996, the closing balance shown in the books of account under the head current liabilities and provisions for the account of M/s.Yogi Construction Co. was at Rs.36,500/-. Even the addition which was made on this account of discrepancy in the balances of the M/s.Yogi Construction Co. in the first round of assessment order dated 19/03/2002 was only of Rs.29,320/- that too it was not for A.Y. 1996-97 but that balance was as on 31/03/1997. In these circumstances, whether the approach of the AO was correct that he had judiciously satisfied himself that the income chargeable to tax has escaped assessment for the year under consideration? Even from the wordings of the reasons recorded, it was not evident that what was the exact reason to believe about which particular income chargeable to tax had escaped the assessment for the assessment year in question. For invoking the provisions of section 147 of the Act, some specific information, either in possession, or should be brought to the notice of AO subsequently and on that basis the AO has good reason to belief that the income has escaped. On plain reading of the impugned reasons recorded, no such belief appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO gives an indication that the AO might have reason to suspect but did not have reason to believe that an income chargeable to tax has escaped assessment. There should be some material on record based upon which the AO had a specific belief that a particular income chargeable to tax had in fact escaped the assessment for a particular assessment year. 6. As far as the case laws cited from the side of the Revenue are concerned, i.e. the decision of Raymond Woolen Mills(supra), the question was that in determining whether commencement of reassessment proceedings was valid, it has only to be seen that there was prima-facie some material on the basis of which department could reopen the case. The Court was of the view that sufficiency or correctness of the material is not a thing to be considered at that stage. But those findings were on the basis of the facts that the assessee was charging to its profit loss account, fiscal duties paid during the year as well as labour charges, power, fuel, wages, etc. However, while valuing its closing stock the elements of fiscal duty and other direct manufacturing cost were not included. That resulted in undervaluation of inventories and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the information may be obtained even from the record of the original assessment from an investigation of the materials on the record or the facts disclosed thereby or from other enquiry or research into facts or law. Unquote. On the basis of above criteria which is enumerated by the Hon ble Supreme Court, we are not of the opinion that either of the situation would not cover or approve the reopening of the assessment. Interestingly the said single basis was ab-initiio not sustainable in the eyes of law and therefore his jurisdiction of reopening stops at that stage. For this legal proposition we place reliance on CIT vs.Shri Ram Singh 217 CTR 345(Raj.) relevant paragraph is reproduced below: 25. The precise question, thus requiring to be considered is, as to whether, the conjunctive word used, being "and", used between the expression "such income" and "also any other income chargeable to tax, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under s. 147" is required to be given its due, or is required to be ignored, or is required to be interpreted as "or". Obviously because, if it is to be interpreted as "or", then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same are dismissed as such. 7.2. Apropos to Ground No.6, the assessee has submitted before AO during set aside assessment proceedings that the amount of Rs.29,320/- had actually been paid by the assessee in subsequent year. In this regard, our attention was drawn on page 50 of the paper-book containing the assessment order passed in the first round of proceedings dated 19/03/2002, wherein the discussion was held as under:- 7. During the course of assessment proc of A.Y. 1997-98 inquiries were carried out in respect of transactions made with M/s.Yogiji Construction Co. On the basis of these inquiries it was noticed that the transactions of the assessee firm with that party tallied to the extent amount of bill and payments made by the assessee during the FY relevant to AY 1997-98 only. However, the opening balance did not tallied and it was noticed that the party had closed the account at the year-end by transferring the balance of Rs.84,960/- to discount account. On the other hand the books of account of the assessee firm showed outstanding balance of Rs.29,320/-. It was noticed that the assessee firm had failed to reduce its expenses by an amount of Rs.29,320/-, which was do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as against 30% estimated by the Assessing Officer. 8.1. At the outset, it is worth to mention that although we have held hereinabove that the reopening was bad in law, in consequence thereof the question of GP addition as raised by the Revenue do not survive. However, for the sake of completeness as also to cover the appeal for A.Y. 1998-99, we have thought it proper to see the merits in respect of the GP addition which was raised by the Revenue before us. The assessee-firm is in the business of earth excavation. The total labour receipts were disclosed at Rs.1,48,45,243/- and the GP shown by the assessee was at Rs.23,11,228/-, therefore the rate of gross profit was 15.56% as against the gross profit rate shown in the past at 20.54%. A query was raised and in compliance it was submitted as under:- Brief summary : It was pointed out that the profit would vary depending upon the nature of the work, site of the work and the terms and conditions of the work undertaken. In this connection, it was also pointed out that the A.Yr. 1994-95 was the solitary year in which the firm could earn comparatively better profits because major receipts were for labour work done by hiring out the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unter the reply. After going through rival submissions I am of the view that bills etc. of cash expenses totaling to Rs.15,31,845 should have been produced when the appellant in its reply dated 9.12.2008 had itself presumed that the AO would proceed on the same lines as he did in the original assessment. In the present appellate proceedings also vide order sheet noting dated 6.10.2009 the bills were required to be produced by 27.10.2009 but on this date they were not produced. The ld.AR did appear with Xerox copies of some bills showing the dates of the years 1993,1994, 1995, but these were not accepted by this office because they were not certified and were neither complete. The AR contended that these were not complete bills. Therefore, in this background the AR was required to answer why should the books of accounts not be rejected. In response the AR stated that the appellant had shown reasonable GP but he could not give any convincing reason for not producing all the bills with respect to which cash payments of Rs.15,31,845 had been made. I would therefore uphold rejection of books of accounts as the appellant despite being given opportunities could not produce/submit comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee as compared to the previous year would not in itself be sufficient to justify any addition. The mere fact that the percentage of loss or gross profit is high or low in a particular year does not necessarily lead to inference that there has been suppression. Low profit is neither a circumstance or material to justify addition of profits. We have taken into consideration the judgments in Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC), Raghubir Mandal Harikar Mandal vs. State of Bihar (1957) 8 STC 770 (SC), State of Kerala vs. C. Velukutty (1966) 60 ITR 239 (SC), State of Orissa vs. Maharaja Shri B.P. Singh Deo (1970) 76 ITR 690 (SC), Brij Bhushan Lal Parduman Kumar vs. CIT 1978 CTR (SC) 134 : (1978) 115 ITR 524 (SC), Chouthmal Agarwalla vs. CIT (1962) 46 ITR 262 (Assam), R.V.S. Sons Dairy Farm vs. CIT (2002) 177 CTR (Mad) 40 : (2002) 257 ITR 764 (Mad), International Forest Co. vs. CIT 1975 CTR (J K) 88 : (1975) 101 ITR 721 (J K), M. Durai Raj vs. CIT (1972) 83 ITR 484 (Ker), Ramchandra Ramnivas vs. State of Orissa (1970) 25 STC 501 (Orissa), Action Electricals vs. Dy. CIT (2003) 180 CTR (Del) 62 : (2002) 258 ITR 188 (Del) and Kamal Kumar Saharia vs. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, as has been pointed out hereinabove, the AO abruptly came to a conclusion that the accounts do not disclose correctly the transactions in respect of purchase of raw materials without any enquiry as to whether such materials commensurate with the volume of the works done. Failure of the assessee to give details of the sundry creditors may be a ground for raising suspicion, but suspicion alone is not enough for invoking the powers of best judgment assessment without the support of the materials. The AO relied upon a part of a transaction for the preceding year while rejecting the other. This is not permissible in law. Without pointing out any error in the P L a/c and the audited report, the powers of best judgment assessment could not be invoked. The principles of best judgment assessment do not appear to have been followed by the AO. The learned Tribunal reduced the rate of profit from 8 per cent to 6 per cent merely on suspicion. In the given circumstances, the question formulated has to be regarded as a question of law. 11.1. We are therefore of the view that in the absence of any specific adverse material on record, the AO was not justified in applying an adhoc gross pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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