9911796707
TMI Blog1997 (2) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... partment, the said return of income was being filed on estimate and that a revised return of income would be filed after obtaining copies of necessary records. It was also mentioned therein that the assessee-firm had been dissolved with effect from October 23, 1985. Notices under section 142(1) and under section 143(2) of the Act were issued to the assessee fixing the hearing of assessment proceedings on February 20, 1989. Apparently, along with the said notices a detailed questionnaire was also issued to the assessee requiring the assessee to produce trading account, profit and loss account, balance-sheet, quantity-wise analysis of monthwise sales and purchases, details of opening and closing stock, etc. On February 20, 1989, the assessee addressed a letter to the Assessing Officer, vide which the Assessing Officer was requested to grant a further period of 15 days to file the abovementioned details. On the same date, the Assessing Officer issued another notice to the assessee refixing the hearing of the case on March 2, 1989. There was no compliance with the notice. Subsequently, on March 13, 1989, the Assessing Officer issued an order under section 142(2A) after obtaining prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he opinion that the complaint lodged with the police was inadequate. In the absence of books of account, the Assessing Officer proceeded to complete the assessment ex parte under section 144 of the Income-tax Act, 1961. The Assessing Officer noted that, according to the sales register of the assessee, which was in the possession of the Department, having been seized during the course of search and which was for the period from April 1, 1985, to May 31, 1985, i.e., for 2 months, the sales as per the sales register came to ₹ 90,92,953. Since the assessee had stated that the firm was dissolved on October 22, 1985, and that there was no closing stock on the said date, the Assessing Officer estimated the sales for the remaining period of the previous year, i.e., for 4 months and 22 days, at ₹ 2 crores. The total sales of the assessee were, therefore, estimated at a sum of ₹ 2,90,92,953. Taking note of the rate of gross profit in similar firms, the Assessing Officer applied a gross profit of 6.5 per cent. on such estimated turnover to arrive at the gross profit for the year. He thereafter proceeded to bifurcate various expenses claimed by the assessee in three sections, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view, in my opinion, the estimate of turnover of somewhere around ₹ 2.90 crores appears to be rather excessive, particularly when the previous year in question extended to a period of 6 months and 2 days only. In this view of the matter and having regard to the fact that there was a downward tendency in the turnover in the lean period in respect of the earlier years, a fact which cannot be ignored or lost sight of in a best judgment assessment, I am of the opinion that it would suffice if the turnover of the balance period is estimated at a round figure of ₹ 1.10 crores or, in other words, it would be fair to estimate the turnover of the appellant firm for the entire year at a sum of ₹ 2,00,00,000. After estimating the turnover at ₹ 2 crores, the learned Commissioner of Income-tax (Appeals) proceeded to make a reasonable estimate of the income of the assessee. He noted that in the assessment year 1985- 86 the assessee had declared the net profit at 0.35 per cent. which was accepted by the Revenue on the declared turnover. He, therefore, concluded that Taking all these circumstances into consideration, I deem it fit to apply a net profit rate of 0.50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.80% 2.70% 3.50% Net profit 1,00,000 85,066 51,630 45,075 0.50% 0.35% 0.15% 0.25% Pointing to the figures in the chart the assessee s counsel submitted that only in one year in the past the net profit exceeded ₹ 85,000 and the chart further shows that there was a declining trend in the business of the assessee. He, therefore, submitted that the estimate of income by the Commissioner of Income-tax (Appeals) at ₹ 1 lakh was fair and reasonable. We have considered the rival submissions and perused the facts on record. In this case there was a search and the books of account were seized. Later on, books were released and the assessee was asked to get the same audited under rule 14A of the Income-tax Rules. Thereafter, the assessee informed the Assessing Officer that the books of account had been lost in transit and the necessary proofs in the form of police complaint and an advertisement in the newspaper, etc., were also produced before the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of 6 months and 22 days as against the income of ₹ 85,066 for a complete year, i.e., the assessment year 1985-86. Under the circumstances, we decline to interfere. In the result, the appeal is dismissed. PHOOL SINGH (Judicial Member). I have the privilege to go through the order prepared by Shri B. L. Chhibber, learned Accountant Member, but I do not subscribe to the findings on the only ground involved in this appeal of the Revenue and proceed to give out the facts of the case and reasons for arriving at different findings. The only effective ground raised in this appeal by the Revenue is as under : The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in reducing the addition from ₹ 14,16,912 to ₹ 1,00,000 holding that net business income should be estimated at 0.50 per cent. on the turnover of ₹ 2 crores. The facts relating to this are given in detail by learned Account Member. To sum up, it is mentioned that the assessee-firm was engaged in cloth business on wholesale basis in the year under consideration, i.e., the assessment year 1986-87. There was a search under section 132 of the Income-tax Act, 1961 (he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the Act and he issued a notice to the assessee on June 19, 1989, to show cause why the assessment should not be completed on the basis of past records of the assessee-firm. He also gave out the details of total sales effected by the assessee for the assessment years 1984-85 and 1985-86 along with the rate of gross profit for both the years. As the firm was dissolved on October 22, 1985, the Assessing Officer estimated the sales for the period from April 1, 1985, to October 22, 1985, at 2.9 crores as sales of ₹ 90 lakhs were shown by the assessee in its sales register for April, 1985, and May, 1985. Later on, he proceeded to estimate the gross profit. He proposed the rate of gross profit of 6.5 per cent. on the total sales as in the assessment year 1984-85, the assessee had shown the gross profit at 2.84 per cent. and in the assessment year 1985-86 it was 6.14 per cent. He considered the submissions of the assessee and confirmed the above estimate of total sales of ₹ 2.9 crores and the rate of gross profit at 6.5 per cent. He further examined the factum of expenses. He was having in the possession the rough cash books and debit notes of the assessee-firm from April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of elaborate reasoning given in his order running from page 4 to page 11 of the assessment order and none of the factors out of it was considered by the learned Commissioner of Income-tax (Appeals), nor has the assessee-firm been able to rebut the findings arrived at by the Assessing Officer on this point. He justified the conclusion of the Assessing Officer on the basis of these findings of the Assessing Officer and further submitted that the amount of total sales arrived at by the Assessing Officer at ₹ 2.90 crores was based on the material available on record as the Assessing Officer did find the total sales of ₹ 90 lakhs for two months and for the remaining 4 months 22 days the Assessing Officer rightly estimated the total sales at ₹ 2 crores and in all ₹ 2.90 crores. He also invited our attention that the rate of gross profit at 6.5 per cent. was also rightly followed by the Assessing Officer on the basis of the assessee s own earlier rate of gross profit as well as on the basis of rate of gross profit shown by other firms of the same group which were working in the same business and from the same premises. He defended the action of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n what was the motive of the assessee-firm for setting up such a concocted story. To begin with the theory of the assessee, it was asserted by the assessee-firm that the books were taken to the office of the Assessing Officer on March 10, 1989, and when the same were being taken back to the assessee s premises in an autorickshaw, then the said driver of the autorickshaw fled away with all books of account of the assessee-firm as well as the other four firms of the same group on account of some dispute on payment of fare of autorickshaw. The matter was brought to the notice of the Assessing Officer next working day, i.e., March 13, 1989, and even reported to police station on March 17, 1989, and even a note was published in newspaper Sandesh dated March 24, 1989, regarding the loss of books and the same were not traceable. The learned Assessing Officer has examined each and every aspect of this theory in detail from page 4 onwards to page 11 of the assessment order and the first point relating to it is about the date of hearing when books were brought to the office of the Assessing Officer. In paragraph 4 of his order, the Assessing Officer specifically mentioned that March 10, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which go to prove that this theory of loss of books is a cock and bull story. It is the case of the assessee that books were called for by the Assessing Officer on March 10, 1989, and after loss of the books, the factum of loss was reported on that very day at 1.15 p.m. as stated by Tahilram Parimal on May 26, 1989, while the earlier plea of the assessee on this point through letter dated April 15, 1989, was that the factum of loss of books of account was informed to the Assessing Officer orally on the immediate next working day, i.e., March 13, 1989. This was a material contradiction that shows the different view adopted by the assessee in relation to the factum of information given by the assessee to the Assessing Officer and it was rightly concluded by the Assessing Officer that no information was actually given by the assessee on March 10, 1989, nor on March 13, 1989. The above conclusion of the Assessing Officer is supported by another important circumstance that in case the books were lost on March 10, 1989, then the assessee-firm should have reported this fact to the auditors also in their correspondence but in the letter dated March 27, 1989, issued by the assessee-firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as audit was also not possible on account of the wilful alleged loss of books of account. The Assessing Officer proceeded to complete the assessment under section 144(b) of the Act and that was the correct procedure adopted. The Assessing Officer was expected to work out the approximate turnover, the rate of gross profit and total income of the assessee. He rightly issued a show-cause notice, dated June 19, 1989, to the assessee-firm mentioning that he was in possession of rough cash books from April 1, 1985, to July 9, 1985, and sales register written from April 1, 1985, to May 31, 1985, of the assessee- firm which were seized during the course of the search. He proposed on the basis of the rough cash books and sales register referred to above, the total sales for the period from April 1, 1985, to October 22, 1985, during which period the firm was in existence, at ₹ 2.9 crores as the sales register for the period from April 1, 1985, to May 31, 1985, revealed total sales of ₹ 90,92,953 and for the remaining period of 4 months 20 days, he estimated the sales at ₹ 2 crores. The reply of the assessee on this point as mentioned by the Assessing Officer in paragraph 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the same premises from where the assessee-firm operates is as under : 1. Tahilram Parimal 9.4 per cent. 2. M. Tahilram 6.06 per cent. This approach of the Assessing Officer was a most appropriate one as the assessee-firm as well as the other two firms of the same group have shown the rate of gross profit at more than 6 per cent. The rate of gross profit if taken at 6.5 per cent. should be treated as a justified one and keeping in view the important aspect that books of account have been wilfully and intentionally withheld by the assessee by concocting a story of loss of books. I, therefore, confirm that view of the Assessing Officer also and conclude that the gross profit rate at 6.5 per cent. was a justified one. The last point discussed by the Assessing Officer relates to the expenses which were to be deducted to work out the total income. The Assessing Officer was having rough cash books and some debit notes for the period from April 1, 1985, to May 20, 1985, and out of those some expenses in debit notes were found unstamped and unsigned. The Assessing Officer called upon the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmed, it will be improper if the Assessing Officer is allowed to make deduction in expenses at 40 per cent. The amount of expenses available for 2 months were shown by the assessee and out of those some expenses were not duly supported with intialled/stamped voucher(s) but those deductions of 25 per cent. as conceded by the assessee and in all 40 per cent. deduction made by the Assessing Officer would have been justified in case we were taking exact figures of sales on the basis of the books of account as well as the rate of gross profit worked out on those figures but in the case in hand, as referred to above, its estimate of sales figures as well as of the rate of gross profit though based on appropriate analysis of figures then no deduction in the amount of expenses is called for either in expenses relating to sales or not connected to sales or to miscellaneous petty expenses. Accordingly, I direct the Assessing Officer to give credit to the assessee for all the amount of expenses as claimed by it and to work out the amount of expenses on the same percentage for the remaining amount for the remaining period without any deduction what to say of 40 per cent. and 25 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requiring the assessee to produce the profit and loss account, balance-sheet, trading account, quantitywise analysis of monthwise sales and purchases, details of opening and closing stock, etc., on March 2, 1989. According to the assessee as submitted in its letter dated June 22, 1989, addressed to the Assessing Officer, xerox copies of certain seized books were given to the assessee on November 2, 1988, and copies of certain vouchers and other records were given as late as May 26, 1989, and May 29, 1989, and it was for this reason the assessee could not finalise the books of account of the period involved and also could not file the profit and loss account, balance-sheet, and auditors report and revised return based thereon. On March 2, 1989, as per the assessee the Assessing Officer was informed that the books of account are almost at the stage of finalisation. Subsequently, on March 13, 1989, the Assessing Officer issued an order under section 142(2A) after obtaining prior approval of the Commissioner of Income-tax requiring the assessee to get its books of account audited by an appointed auditor and to submit an audit report in the prescribed Form No. 6B. Meanwhile the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained certain vouchers unstamped and unsigned and on that count he held 40 per cent. thereof as not allowable being not genuine. He then estimated the expenses under various heads for the balance period based on the expenses of the last year and disallowing 40 per cent. therefrom he estimated the allowable expenses from the gross profit at ₹ 4,74,129 and deducting the same from the gross profit adopted, he assessed the net profit at ₹ 14,16,912. The learned Commissioner of Income-tax (Appeals) for the detailed reasons given in his order adopted the sales at ₹ 2 crores and applying thereon a net profit rate at 0.5 per cent. the net profit was worked out and adopted at ₹ 1 lakh. The learned Accountant Member in his order had upheld the order of the Commissioner of Income-tax (Appeals) whereas the learned Judicial Member has concurred with the sales estimated by the Assessing Officer at ₹ 2,90,92,953 and also application of gross profit rate thereon at 6.5 per cent. He has, however, directed the Assessing Officer to allow the expenses as per the vouchers found for the limited period and the amount of expenses for the remaining period at the same perce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year Account period Sales (Rs.) 1983-84 1-4-82 to 31-3-83 1,76,09,452 1984-85 1-4-83 to 31-3-84 3,73,14,290 1985-86 1-4-84 to 31-3-85 2,31,61,435 The figures of sales for the assessment years 1984-85 and 1985-86 for the first seven months are also available in the compilation and the same are as under : 1984-85 (Rs.) 1985-86 (Rs.) April 83 40,16,410.88 56,38,430 May 83 27,61,259.75 41,39,100 June 83 23,42,100.66 42,45,090 July 83 17,62,559.13 17,57,910 August 83 19,39,221.73 9,55,460 September 83 25,97,520.79 3,66,570 October 83 (1 to 15) 16,25,555.46 9,350 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the maximum being the peak season whereas in the later months from June onwards the sales had shown a downward trend. There is also nothing on record to show that the assessee effected sales in the remaining period of four months and 22 days in the same proportion as found recorded for the months of April and May in the sales register. The past records in such a situation are the best guide and the same cannot and should not be ignored unless there is positive material to prove to the contrary. There being no such material we have to fall upon the past records for estimate of sales. In this view of the matter, I concur with the view taken by the learned Accountant Member upholding the estimate of sales at ₹ 2 crores. Having estimated the sales a profit rate is to be applied thereon to determine the income. The details relating to purchases and expenses relating to the trading account and also expenses relating to the profit and loss account for the accounting year are not fully available. The vouchers seized give details in respect of majoori, commission, dalali, salary, post and stamp, etc., for a limited period but necessary details about vatav, interest, purchases, et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I also find that in the cases of sister concerns the net profit rate declared for the preceding three assessment years is as under : 1983-84 1984-85 1985-86 K. Tahilram 0.34 % 0.41 % 0.36 % P. Tahilram 0.27 % 0.18 % 0.84 % The average net profit rate for the preceding three assessment years in the case of K. Tahilram is 0.37 per cent. and in the case of P. Tahilram is 0.43 per cent. I also note that in the case of the assessee the net profit declared for the preceding three assessment years was less than ₹ 86,000 as per details below : 1983-84 ₹ 45,075 1984-85 ₹ 51,630 1985-86 ₹ 85,066 Looking to the results of the earlier three years in the case of the assessee as well as in the cases of two sister concerns where the business carried on was identical the net profit rate applied at 0. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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