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TMI Blog2015 (11) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... . (2011 (5) TMI 821 - Jharkhand High Court). In making an assessment after rejecting books of accounts and results therefore, the Assessing Officer has to make an honest estimate and having done so he must take into account the past assessment records of the assessee but the Assessing Officer of the present case miserably failed in discharging his functions while framing assessments. On the other hand, the CIT(A), enjoying coterminous powers with the Assessing Officer estimated the net profit in the proper manner as contemplated by the Act and on the basis of sound and well accepted principles. We may further point out that for subsequent assessment year 2009-10 the returned income of the assessee has been accepted in the order u/s 143(3) of the Act without disputing the amount of purchases and creditors. Finally hold that the CIT(A) neither exceeded her jurisdiction nor adopted a view against the interest of revenue rather she adopted higher percentage for estimation of net profit, in the eventuality of rejection of book results and accounts, as against lower percentage of net profit shown by the assessee and accepted by the revenue. The CIT(A) was fair enough when she uphe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of goods purchased with the actual receipts, which are of Hoarding/display charges. 2. Briefly stated the facts giving rise to this appeal are that the Assessing Officer completed assessment proceedings u/s 143(3) of the Income Tax Act, 1961 at total income of ₹ 3,15,05,980 as against the returned income of ₹ 15,74,431 by making certain disallowances. The aggrieved assessee preferred an appeal before the CIT(A) which was partly allowed on certain grounds. Now the revenue is before this Tribunal in the second appeal mainly alleging three issues viz. deletion of addition made by the Assessing Officer in regard to bogus purchases, deletion of addition u/s 41(1) of the Act regarding alleged bogus creditors and disputing the benefit of net profit estimation granted by the first appellate authority to the assessee. Ground No.1 2 of the Revenue 3. Apropos ground no.1 2, We have heard the rival submissions and carefully perused the relevant material placed on record. Ld. DR supported the action of the Assessing Officer and submitted that the Assessing Officer noticed from the profit and loss account that an expenditure of ₹ 1,86,96,742 was debited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated net profit as rightly held by the first appellate authority. 5. On careful consideration of rival submissions, we are of the view that the CIT(A) granted relief to the assessee deleting the first addition made u/s 69C of the Act by recording following observations and findings:- i) Copies of the bills for the purchases were filed and payments were found to have been made through account payee cheque. ii) Discrepancy in PAN number is not relevant or decisive because the purchases are made depending on the demand, price quoted, quality of the goods etc. and the purchaser is not expected to verify at the time of purchase the PAN number furnished by the seller; iii) Purchases were made from the same sellers in the earlier or subsequent year which were not questioned by the Assessing Officer iv) there was no discrepancy in the PAN number, because the number belonged to the seller in her name and she was the proprietor of the business which was run under a different name and style;\ v) the assessment was completed after a scrutiny under section 143(3) for the assessment year 2009-10 and no disallowance was made on this count. The CIT(A) further noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purchases from the party have been made by the appellant in the following year and accepted by the AO in his order u/s 143 (3) for A.Y. 2009-10. As far as transactions with M/s. White Space are concerned, it has been submitted that, the appellant continued to have transactions with the party in the succeeding year also and in fact in the succeeding years, tax has been deducted at source from these payments. Not only this no such disallowance/addition to income has been made by the AO in the succeeding years i.e. A.Y. 2009-10 while completing the case u/s 143 (3). The only reason for the AO to disallow the purchase made from this party was that notice u/s 133 (6) issued to the party came back unserved, but the AO has overlooked the fact that bills were produced by the AR of the appellant, payments were made by cheque, and transactions took place with this party in the succeeding year, which were accepted by the AO. Similar is the case in respect of purchases made from M/s. Shamser Khan Fabricators. Purchases/transactions with this party were effected by the appellant in the succeeding two assessment years and tax was deducted at source. Copies of bills and proof of payment by accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -compliance of such parties to the notices u/s 133 (61 of the Act and also their obdurate refusal to confirm the transactions cannot be easily countenanced or understood. While it is true that without the purchase appellant could not have made the sales, yet it also equally true that me quantum of purchases can be appreciated and attested only when the party supplying the same confirms it as authentic and genuine. Further, these purchase transactions are not such as would be amenable to a numerical count such that it could be said that for making sale of certain number of items purchases of an equal number was necessary. Mere payment through account payee cheques for purchases cannot be taken as a conclusive proof of the genuineness of the purchases. The hesitation of the vendors to respond to the notices u/s 133 (6) of the Act and to confirm the transactions by the vendors does put the transactions under a cloud, constraining the AO to verify the veracity of transactions through other means as are known in commercial practice and law. In the circumstances, therefore, the AO was correct in not accepting the book results after failing in his attempts to verify them through other mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power of enhancement of assessment. The Hon'ble Apex Court while dealing with these powers in the case of CIT vs Hardutroy Motilal Chamaria 66 ITR 443 (Hon'ble Supreme Court) it was held that in the powers of the first appellate authority under the Act, no analogy can be drawn between CIT(A) and first appellate authority empowered under CPC because it is only the assessee who has been given right to appeal against assessment order and if there is no appeal by the assessee, the assessment order attains finality, however, subject to rectification u/s 154, revision u/s 263 or reassessment u/s 147/148 or 153A/153C of the Act which can only be exercised after satisfaction and fulfilment of stringent statutory conditions. It is pertinent to note that since the revenue has no statutory right of appeal against the assessment order, the CIT(A) is not an ordinary court of appeal but the CIT(A) has been conferred with very wide powers and once he exercises powers of first appellate authority u/s 251 of the Act, how powers are not restricted to examining only those aspects which been considered by the Assessing Officer and adjudicated by the assessing authority but extends to correctin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case but the computation of income consequent thereto is not correct. Accordingly, she set right the error committed by the Assessing Officer in the assessment order by directing the Assessing Officer that the computation of the income of the assessee be made on basis of 5% of a flat rate of turnover for estimation of net profit as opposed to gross profit which further provide opportunity from claiming expenses therefrom. We also observe that the CIT(A) has taken percentage @5% of turnover which was based on the past record of the assessee which was not disputed and rather accepted by the revenue. This view also finds support from the dicta laid down by the Privy Council in the case of CIT vs Laxmandas Badridas 05 ITR 180 (PC) wherein it was held that in making an assessment, after rejecting book of accounts and results therefrom, the Assessing Officer has to make an honest estimate and in doing so, he must take into account the past assessment record of the assessee . 10. In the case in hand, there were two aspects viz. first, rejection of book results and second, computation of income thereafter. The first appellate authority s impugned order reveals that she does not s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer commences the computation from the net profit figure shown in the P L account but when he verified the purchases, he disallowed substantive part thereof without disturbing the sales figure the logical inference would be that the Assessing Officer has not accepted or has not reposed confidence in the books of accounts. It is not open or allowed to the CIT(A) to reject the book results partially and accept them partially. In the eventuality when the Assessing Officer disbelieved purchases and major part of purchases are sought to be treated as bogus or disproved and consequently proceeds to make addition us/ 69C of the Act without correspondingly adjusting the sales figure specially when the liabilities (creditors) recorded in the balance sheet are also disbelieved and added back as income, then it would be a reasonable and logical inference that the Assessing Officer has rejected the book results without making any express observations in the assessment order. 12. Ld. DR has also vehemently argued and contended that the CIT(A) adopted a very low rate of percentage while estimating net profit. Learned counsel of the assessee supporting the view taken by the first appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand High Court in the case of Amitabh Construction (P) Ltd. (supra). 15. On careful consideration of above contentions, we are of the opinion that as per ratio of the judgment of Privy Council in the case of CIT vs Laxmandas Badridas (supra) in making an assessment after rejecting books of accounts and results therefore, the Assessing Officer has to make an honest estimate and having done so he must take into account the past assessment records of the assessee but the Assessing Officer of the present case miserably failed in discharging his functions while framing assessments. On the other hand, the CIT(A), enjoying coterminous powers with the Assessing Officer estimated the net profit in the proper manner as contemplated by the Act and on the basis of sound and well accepted principles. We may further point out that for subsequent assessment year 2009-10 the returned income of the assessee has been accepted in the order u/s 143(3) of the Act without disputing the amount of purchases and creditors. To sum up, we finally hold that the CIT(A) neither exceeded her jurisdiction nor adopted a view against the interest of revenue rather she adopted higher percentage for estimation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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