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TMI Blog2013 (8) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... were sundry creditors of the assessee. The A.O. sent the letters to them under Section 133(6) of the Act on test check basis on the same address as produced by the assessee but all the letters were returned back unattended. One of claimed sundry creditors appeared before the A.O and produced his submission stating that he had no transaction with the assessee in relevant F.Y. The A.O. asked to explain the identity and genuineness of the person related to these letters which returned back. The assessee furnished the explanation but the A.O. was not satisfied. The A.O. noticed that the assessee could not satisfy regarding the verification of sundry creditors. The assessee produced only self made vouchers in which there was no signature or any sign of identity of the person to whom payment was due or payable. In absence of documentary evidence Rs.3,21,58,268/- has been disallowed and added back to the income of the assessee as per I.T. Act & Rules. The learned CIT(A) deleted the said addition as under :- (Page Nos. 6 to 8) "Appellant's submission alongwith the assessment order have been considered carefully. Assessment records have also been perused. The appellant has produced its aud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r payment. As number of transactions runs into thousands during the year and therefore, all the records are maintained on the basis of truck numbers which is also indicated on the freight memos along with the destination, weight etc. which have already been produced before the A.O. and undersigned for perusal and verification. Hence, the appellant company has produced complete details of freight payable. It is pertinent to note that neither the A.O. nor the auditor have recorded any adverse finding whatsoever regarding mercantile system of accounting employed and regularly followed by the appellant. Nor any adverse comment has been made rgarding correctness and completeness of appellant's books of accounts. In fact, the same have also been accepted by the A.O. himself after verification. A.O. has also not disputed the freight and route expenses claimed as per the appellant's trading and profit & loss account after verification of the same and specific show cause in that regard, as mentioned above. When a return has been furnished and books of accounts have also been produced in support of that return, the accounts should be taken as the basis for assessment. If evidence is produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly to the driver for the truck No.MP 06 E-4531 in respect of consignment for M/s. Cadbury India Ltd. Supporting documentary evidence furnished by the appellant in form of freight memo, consignment note, consignment receipt report, Form No.15-1 of Shri Sunil Kulshreshtha have not been accepted by the A.O. without any jurisdiction. Nor any opportunity to cross examine Shri Sunil Kulshreshtha has been afforded to the appellant company before drawing adverse inference which is against principle of natural justice. Therefore, on the basis of facts above, A.O. is not found justified in making addition u/s 68 for sundry creditors for expenses payable and not addition of Rs.3,21,58,268/- is hereby deleted. 5. In the result, the appeal is allowed." 4. The learned Departmental Representative relied upon the order of A.O. and on the other hand, learned Authorized Representative relied upon the order of CIT(A) and submitted that the AO has not found any defect in the books of account. He has submitted that neither the A.O. nor the Auditor found any defect in the books of account. Learned A.R. submitted that the A.O. did not state under which section he made the addition. The learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head "Profits and gains of business or profession" or "Income from other sources" has to be computed in accordance with the method of accounting regularly employed by the assessee, unless in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom or the Income-tax Officer is not satisfied about the correctness or completeness of the accounts of the assessee. Under the sub-section (3) of section 145 in any case where the accounts are correct and complete to the satisfaction of the Income-tax Officer but the method employed is such that, in the opinion of the Income-tax Officer, the income cannot properly be deduced therefrom, then the computation has to be made upon such basis and in such manner as the Income-tax Officer may determine. However, if the Income-tax Officer is not satisfied about the correctness or completeness of the accounts of the assessee or where no method of accounting has been regularly employed by the assessee, the Income-tax Officer may make the assessment in the manner provided in section 144. Section 145 is mandatory and the Revenue is bound by the assessee's choice of a method regularly employed unless b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show increase in the purchase price and decrease in sales. He also noticed that the weight of finished products declared by the assessee was more than the weight of raw materials. When asked to explain, the assessee submitted that after drawing wire, the process went on to put the wire for enamelling, as a result of which the weight of the wire increased by 2-3 per cent. The Assessing Officer felt that in the absence of adequate supporting evidence, the explanation given by the assessee could not be accepted. He, therefore, rejected the account books of the assessee under section 145(3) and estimated income by applying the gross profit rate of the preceding assessment year. On appeal, the Commissioner (Appeals) noted that the assessee had furnished complete details, including comparative details in respect of purchase of raw materials and manufacture of copper wires as well as in respect of sale during the year in question as compared to the earlier years. He also took note of the fact that the assessee was duly registered under the Central Excise Act and was maintaining proper quantitative details in the prescribed manner and, therefore, held that the assessee had adopted consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. It was for that reason that the Commissioner (Appeals) was satisfied that the assessee had furnished complete details, including quantitative details in respect of purchase of raw material, manufacture of copper wire and sale of the finished products. In those circumstances, the accounts maintained by the assessee could not have been said to be incomplete or inaccurate. In fact, the Assessing Officer had no material before him to treat the accounts of the assessee as defective or incomplete. [Para 6]...... As regards the marginal increase in the weight of the finished product, the explanation given by the assessee had been accepted not only by the Commissioner (Appeals) but also by the Tribunal. The Assessing Officer had no material before him on the basis of which it could be said that the weight of the wire did not increase even marginally during the process of enamelling. Therefore, he had no justification, in law, in rejecting the explanation given by the assessee in that regard. The fall in gross profit ratio, in the absence of any cogent reasons could not, by itself, have been a ground to hold that proper income of the assessee could not be deduced from the accounts mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lone. If the stock register is not maintained by the assessee, that may put the Assessing Officer on guard against the falsity of the return made by the assessee and persuade him to carefully scrutinize the account books of the assessee, but the absence of one register alone does not amount to such a material leading to the conclusion that the account books were incomplete or inaccurate. Similarly, if the rate of gross profit declared by the assessee in a particular period is lower as compared to the gross profit declared by him in the preceding year, that may alert the Assessing Officer and serve as a warning to him to look into the accounts more carefully and to look for some material which could lead to the conclusion that the accounts maintained by the assessee were not correct, but a low rate of gross profit, in the absence of any material pointing towards falsehood of the account books, cannot, by itself, be a ground to reject the account books under section 145(3). [Para 10]" In the case of Tolaram Daga vs. Commissioner of Income-tax [1966] 59 ITR 632 (Assam), the court observed as under:- "It would appear that the accounts of the firm which had been produced in the case h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance because the assessee has not contravene the provisions of the act and any addition on this ground will be unwarranted, unlawful, unjustified and unnecessary hardship to the assessee." 7. The learned Authorized Representative in support of the procedure of making entries in books of account demonstrated by referring various pages of the paper book where copies of relevant challans and builty, copies of freight memo for engaging the truck, consignment note, consignment receipt note etc. have been placed at Page Nos. 10 to 12 of the assessee's paper book. Ld. A.R. has also demonstrated that the assessee has followed such practice and such amounts were shown payable in past years. In the past years the revenue has accepted the system of accounting followed by the assessee and did not make such addition. The comparative details noted by the CIT (A) in this regard are reproduced as below:- Sl.No. A.Y. Freight/truck running expenses Sundry creditors Remarks 1. 2005-06 7,35,57,334/- 1,48,85,143/- Disallowance of Rs.50,000 on estimatedbasi 2. 2006-07 11,09,22,656/- 1,72,96,516/- Accepted by the A.O. 3. 2007-08 15,61,57,557/- 3,05,99,104/- Accepted by the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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