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TMI Blog2015 (2) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... . Otherwise also from the gross profit chart for the last three years it becomes clear that gross profit was 11.76 per cent. in assessment year 2006-07 which increased in 2007-08 to 17.23 per cent. and again has gone back to 11.49 per cent. in the assessment year 2008-09. These factors have to be seen further in the light of the copy of the trading account which is available at page 151 which shows that this gross profit rate and copy of profit and loss accoun where the net result is loss and loss on February 28, 2008, was ₹ 71,25,651. Obviously, this means that there were some extra expenses during the year and the assessee has duly filed the details of expenses before the Assessing Officer as well as the Commissioner but neither the Assessing Officer nor the learned Commissioner has pointed out that such expenses have been inflated or are not correct. Therefore, in the light of these facts it cannot be said that assessment order is erroneous and prejudicial to the interests of the Revenue. The learned Commissioner has discussed many other case law in respect of rejection of books of account and we have perused the same but could not find even a single case law laying down a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surrendered a sum of ₹ 2,15,00,000 as an additional income. Later on, the assessee filed return of income on September 27, 2008, declaring total income of ₹ 1,35,36,300. The assessment was completed under section 143(3) of the Act at ₹ 1,35,52,050. 4. On examination of the assessment records, the learned Commissioner was of the view that the assessee has not declared proper income because despite a surrender of ₹ 2.15 crores the income returned was only ₹ 1,35,52,050. It was further noticed that in the immediate preceding assessment year the gross profit declared by the assessee was 17.23 per cent. in comparison to 11.48 per cent. during the current year. According to the Commissioner, the Assessing Officer has failed to make proper verification in respect of these aspects and, therefore, assessment completed under section 143(3) was without necessary verification and was thus erroneous and prejudicial to the interests of the Revenue. 5. In response to the show-cause notice it was mainly contended before the learned Commissioner that books of account of the assessee were audited and the books were produced along with stock register, etc., before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then referred to the statement of Shri Sanjay Gupta which was recorded during the survey, through which each discrepancy in respect of inventory, cash and investment in the building was explained and Shri Sanjay Gupta had surrendered ₹ 70 lakhs on account of inventory, ₹ 4 lakhs on account of cash and ₹ 1.31 crores on account of money spent on construction of the factory building. He further noted that gross profit declared in the current year was 11.48 per cent. in comparison to 17.23 per cent. in the immediate previous year. Thereafter he relied on the following case law for rejection of books of account : (a) National Legguard Works v. CIT (Appeals) [2007] 288 ITR 18 (P H) ; (b) Surinder Kumar Charanjit Kumar v. CIT [2006] 282 ITR 78 (P H) ; (c) Bassi Tubes P. Ltd v. ITO in I. T. A. No. 45/Chd/2009 of the Income-tax Appellate Tribunal, Chandigarh ; (d) Bassi Tubes P. Ltd v. CIT in I. T. A. No. 751 of 2010-date of deci sion May 9, 2011 (P H) ; (e) KIM Pharma P. Ltd v. CIT in I. T. A. No. 106 of 2011 (O M) [2013] 1 ITR-OL 137 (P H) ; (f) Shree Ganpati Embroidery P. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eous in so far as it is prejudicial to the interests of the Revenue. The income is enhanced as explained in paragraph 14 of order, i.e., ₹ 1,83,80,208. Penalty proceedings under section 271(1)(c) read with Explanation 1 are initiated separately. 9. Before us learned counsel for the assessee submitted that nowhere in the show-cause notice the Commissioner has pointed out that books of account are proposed to be rejected. Without such mention in the show- cause notice he has no right to reject the books. It is a well-settled that if a ground is not proposed in the show-cause notice, then action cannot be taken on such a ground. In this regard he relied on the following decisions : (a) Maxpak Investment Ltd. v. Asst. CIT [2006] 104 TTJ (Delhi) 881; (b) CIT v. Contimeters Electricals P. Ltd. [2009] 317 ITR 249 (Delhi) ; (c) GPSK Capital P. Ltd. v. CIT I. T. A. No. 353/Kol/2012, ITAT Kolk ata Tribunal ; and (d) Colorcraft v. ITO [2008] 303 ITR (AT) 7 (Mum). 10. Learned counsel further referred to various documents in the paper book and pointed out that the Assessing Officer has raised various queries and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ample, in paragraph 6, the Commissioner has observed that purchases and sales cannot be believed but he has not pointed out even a single instance how such purchase or sales are not proper. Simply, because the assessee has furnished the return below the surrendered income cannot be a reason for holding that assessment order is erroneous and prejudicial to the interests of the Revenue. In respect of this contention learned counsel relied on the various decisions of the Chandigarh Bench of the Tribunal which have been filed in the paper book containing judgments and particularly relied on the decision of the hon'ble Punjab and Haryana High Court in the case of Hari Iron Trading Co. v. CIT [2003] 263 ITR 437 (P H). While concluding his argument he also referred to the various decisions relied on by the learned Commissioner and pointed out the distinguishing features of those judgments and how the same were not applicable to the present case. 12. On the other hand, the learned Departmental representative submitted that perusal of the assessment order clearly shows that practically no enquiries have been made by the Assessing Officer. This case was of survey and, therefore, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order completed under section 143(3) of the Act on December 8, 2010, at an income of ₹ 1,35,52,050 as against returned income of ₹ 1,35,36,300. A survey under section 133A was conducted at your business premises on Feb ruary 28, 2008. During the course of survey a sum of ₹ 2,15,00,000 as an additional income other than normal income was surrendered by you which is as under : (a) ₹ 70,00,000 was on account of excess stock ; (b) ₹ 4,00,000 was on account of excess cash ; (c) ₹ 1,31,00,000 on account of unexplained investment in the building ; and (d) ₹ 10,00,000 on account of other discrepancies. 2. You have filed return of income declaring total income at ₹ 1,35,36,300 which is even lower than the additional income declared by you during the survey. A summary of your trading and profit and loss account is as under : Opening stock ₹ 3,93,90,498 Sales ₹ 32,01,01,795 Purchase ₹ 29,73,74,541 (including job work) C. stock ₹ 7,75,85,779 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Consequently, due to the said erroneous order of the Assessing Officer, the Revenue has lost tax revenue lawfully, payable by the assessee. You are, therefore, requested to show cause as to why the assessment completed in your case on December 8, 2010, may not be enhanced/modified/cancelled or reframed under section 263 of the Income-tax Act. 4. For the purpose, you are requested to attend this office on March 21, 2013, at 11.30 a.m. at my office Aayakar Bhawan Rishi Nagar, Ludhiana. In case you do not wish to attend personally, you may file written submissions with regard to the same on or before the stipulated date of hearing. 16. The perusal of the above very clearly shows that nowhere the learned Commissioner referred to the issue of rejection of books or he intends to reject the books of account. Therefore, there is merit in the contention of learned counsel for the assessee that unless a particular ground is mentioned in the show-cause notice which is supposed to be exercised, then such ground cannot be later on taken for the purpose of revising the particular assessment order. In this regard a reference was made to the decision of the hon'ble Delhi H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k tally were furnished before the Assessing Officer and the Assessing Officer did not point out any error. Then he referred to pages 51 to 53, which is the copy of questionnaire issued by the Assessing Officer raising detailed enquires. He particularly invited our attention wherein details of the gross profit and net profit for two years along with the reasons for fall in the same were asked. Details of month-wise purchases, opening and closing stock, sales and purchases of sister concern, nature of business, names of the partners and their shares, details of bank, details of unsecured loans, details of squared up loans, details of sundry creditors above rupees three lakhs, detail of sundry debtors, detailed expenses, etc., were raised through this questionnaire which was duly replied and in this regard various documents were brought to our attention. All those documents have been filed before the learned Commissioner also. Even, if assuming that the Assessing Officer has not applied her mind to those documents even then the learned Commissioner had also not pointed out even a single defect in these documents. Without any such defect, we are afraid it cannot be alleged that the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be relied upon. 12. The Assessing Officer failed to apply his mind and simply accepted the explanations of the assessee. Once there are discrepan cies in the books of account and also surrender is made, the Assessing Officer did not come to a logical conclusion that the very books of account which are unreliable have been relied upon while accepting the explanations of the assessee. In paragraph of the reply dated March 15, 2013, the assessee has submitted that there is not much difference in the gross profit rates as returned by the assessee if the previous year's rate is taken out of the picture. The assessee has been earning profits and the assessee has failed to give any cogent evi dence for the drastic fall in the gross profit rate as compare to earlier years. A general statement that there was fluctuation in the rates is not acceptable. Moreover, the books of account of the assessee are not reliable. 13. One more aspect on the peculiar facts of case is required to be seen. The assessee adopted some methods to offset the income surrendered. Otherwise the income should not have come below the income surrendered by the assessee plus a normal incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in paragraph 6 'it is also seen that the assessee adopted certain methods to reduce the income after making surrender of ₹ 2.15 crores', in our opinion would not prove that assessment order is erroneous and prejudicial to the interests of the Revenue'. Similarly observations at paragraph 13 are not sufficient to show how assessment order is erroneous. The Commissioner is atleast expected to point out which method the assessee has adopted to reduce the profit. 19. It is pertinent to mention here that it was explained before us that during survey a trading account was drawn as on February 28, 2008, the copy of which is available at pages 187 and 188 of the paper book which shows that there was a loss of ₹ 71,25,651 which means that the assessee has suffered a loss of ₹ 71,25,651 up to February 28, 2008. This is a major reason for filing the return for less than the surrendered amount. The learned Commissioner could easily called for the survey folder and find out whether this trading account was correct or not and whether there was any defect in this trading account or otherwise but the learned Commissioner has not bothered to do this exercise and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a higher figure than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. This is because the Income-tax Officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself would not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent. Similarly if an order is erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions by the learned Commissioner and, therefore, we would examine those decisions also. The first decision relied on by him is the decision of the hon'ble Punjab and Haryana High Court in the case of National Legguard Works v. CIT (Appeals) [2007] 288 ITR 18 (P H). In this case following questions were raised (page 19) : (i) Whether, on the facts and circumstances of the present case, the action of the authorities below in restricting the deduction under section 80HHC of the Income-tax Act, 1961, on its own presumption is legally sustainable in the eyes of law ? (ii) Whether the action of the Tribunal in confirming that stock surrendered under survey is income from other sources and not eligible for deduction under section 80HHC claimed by the appellant/ assessee without appreciating the ratio of the judgments laid down by the appellant/assessee in its correct perspective, is legally sustainable in the eyes of law ? Reading of the questions itself shows that the main question whether surrendered income during the survey can be said to have been derived from business and whether the same was eligible for deduction under Chapter VIA. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us as the same does not fall within the domain of guiding principles to determine as to what amounts to a substantial question of law. 23. From the above it becomes clear that first of all no ratio has been laid down and even the hon'ble High Court refused to accept that there was some substantial question of law involved and simply confirmed the findings of the Tribunal. The decision of the Superior Court need to be taken as precedent only when some ratio has been laid down. Secondly, in this case certain discrepancies were found during the survey and the Assessing Officer further noticed that the assessee had declared gross profit rate of 27.48 per cent. against the previous rate of gross profit, i.e., 30.43 per cent. and made a nominal addition of half per cent. by estimating a profit at 28 per cent. Nowhere it is laid down in this case that in the case of survey books needs to be rejected universally. In fact this situation becomes more clear from the decision referred to by the learned Commissioner of Income-tax-Departmental representative by the hon'ble Delhi High Court in the case of Action Electricals v. Deputy CIT [2002] 258 ITR 188 (Delhi). In that case the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see are not correct and complete. In so far as the estimation of the sales/ gross profit rate is concerned, it being a best judgment assessment, based on past years results cannot be said to be arbitrary. 24. From the above it becomes clear that no universal principals were laid down in what situation the books can be rejected and the court very clearly observed that each case has to be considered on its own peculiar fact having regard to the nature of business. In that case rejection was upheld because the assessee has not maintained stock register, coupled with the facts that some unaccounted sales were detected during the search and surrender of ₹ 5 lakhs was made. 25. In the case before us, during the survey, inventory was found to be excessive to the extent of ₹ 66,22,665 against which the assessee surrendered a sum of ₹ 70 lakhs. Physical cash was found at ₹ 4,63,570 whereas as per the books the cash was ₹ 75,802 and the assessee surrendered a sum of ₹ 4 lakhs. Lastly, a slip was found according to which the assessee has invested a sum of ₹ 1,31,00,000 in the construction of building and this amount was also surrendered. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a sudden increased in assessment year 2007-08, i.e., why there was verification in the gross profit rate. Otherwise also from the gross profit chart for the last three years it becomes clear that gross profit was 11.76 per cent. in assessment year 2006-07 which increased in 2007-08 to 17.23 per cent. and again has gone back to 11.49 per cent. in the assessment year 2008-09. These factors have to be seen further in the light of the copy of the trading account which is available at page 151 which shows that this gross profit rate and copy of profit and loss account which is available at pages 187 and 188 where the net result is loss and loss on February 28, 2008, was ₹ 71,25,651. Obviously, this means that there were some extra expenses during the year and the assessee has duly filed the details of expenses before the Assessing Officer as well as the Commissioner but neither the Assessing Officer nor the learned Commissioner has pointed out that such expenses have been inflated or are not correct. Therefore, in our opinion in the light of these facts it cannot be said that assessment order is erroneous and prejudicial to the interests of the Revenue. The learned Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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