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TMI Blog2017 (9) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... estimating the net profit from business at Rs. 1,44,483/- and the Ld. CIT(A) has erred in estimating the net profit at Rs. 50,000/- instead of accepting the results declared by the assessee. 3. The ld. CIT(A) has erred on facts and in law in confirming the disallowance out of the claim of depreciation at Rs. 1,95,261/-. 4. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 14,337/- by incorrectly holding that the commission income so received belongs to the assessee." 2. In respect of ground no. 1 & 2 of the asssessee's appeal, briefly the facts of the case are that the assessee is a partnership firm engaged in the business of trading of graded dhania. It filed its return of income on 27.09.2011 declaring total income of Rs. 8,46,918/. A survey u/s 133A was carried on 07.03.2011. During survey, Shri Ram Karan Pokra, Partner of the firm, surrendered undisclosed income of Rs. 22,60,000/- on account of construction of godown in the business premises. The firm included the same in the income for the year under consideration and credited the same in its profit/loss account. The AO rejected the books of accounts u/s 145(3) by holding that when the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be upheld u/s 145 (3). Now coming to the estimation of Income, it is well known that in the case of Best Judgment where resort is taken to Section 144, the Assessing Officer exercising his jurisdiction cannot act arbitrarily or capriciously. The assessment must proceed on judicial consideration in the light of relevant material that may be brought on record. The Hon'ble Allahabad High Court in the case of CIT V/s. Surjeetsingh Maheshkumar (1994) 210 ITR 83 has held that in every case of Best Judgment, the element of guess work cannot be eliminated so long as Best judgment has a nexus with material on record and discretion in that behalf has not been exercised arbitrarily or capriciously. The A.O has proceeded on notion that the reasons for showing lesser income was because the assessee had surrendered certain income during survey and he wanted to set it off against some regular income to reduce the taxability. However, the estimation based on previous year's N.P when the turnover has reduced substantially by almost 1.4 crores is not a fair estimation in my opinion. The addition to N.P is accordingly restricted to a figure of Rs. 50,000/-. This amount of addition is accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,45,93,545) is better than the gross profit rate of 8.88% (51,85,893 / 5,84,19,529) of the previous year. Further, the lower authorities have not found any unverifiable expenses in the profit and loss account. Therefore, there is no reason to interfere with the book results declared by the assessee. 4.3 Reliance in this connection is placed on following cases: Malani Ramjivan Jagannath vs. ACIT 316 ITR 120 (Raj.) It was held that in each trading account, only four entries were there of opening stock and purchases on debit side, sales and closing stock on credit side. The quantum and value of purchases and sales had not been in dispute in as much as they were held to be fully vouched. Value of opening stock also cannot be disputed as it came from closing stock of previous year. The inventories of closing stock were also not found to be incorrect. That is to say actual stock position was not in dispute. The previous year's books of accounts were not found to be incorrect. In the face of these undisputed facts and circumstances, the Tribunal could not have interfered with the order of CIT(A). In doing so, it had ignored all admitted facts in the face of which there was no occasion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence of any material pointing towards falsehood of the accounts books, cannot by itself be a ground to reject the account books under sec. 145(3) of the Act. CIT vs. Om Overseas 315 ITR 185 (Punj. & Har.) In this case assessee declared G.P. rate of 25.38% as against 29.5% declared in the immediately preceding assessment year. Assessee failed to produce the quantitative details of the raw material and finished product. AO rejected the books of accounts and applied G.P. rate of 27%. The tribunal held that since no defect has been pointed out in the books of accounts, the AO was not justified in making addition by rejecting the book result of the assessee. On appeal filed by the department, High Court upheld the order of the ITAT by holding that no substantial question of law arises from the order of the tribunal. CIT vs. Gotan Lime Khaniz Udyog 256 ITR 243(Raj) The Hon'ble High Court has held that mere rejection of books of accounts by resorting to section 145 did not necessarily lead to the addition to the returned income or a different figure of income. Hence simply because section 145 is applicable should not be a criteria for making trading addition more particularly when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fic defect in the trading results or in the overall determination of business results which has been highlighted by the AO during the course of assessment proceedings. As far as setting off of undisclosed income of Rs. 22,60,000 is concerned against the regular business loss is concerned, the ld CIT(A) has given a finding that such undisclosed income have to be taxed under the head of "business income" and not to be taxed separately, a finding which has been accepted by the Revenue and is not under challenge before us. In light of above, we are of the view that there was no basis with the AO for rejection of books of accounts in the instant case as contemplated under section 145(3) of the Act. In the result, ground no. 1 of the assessee's appeal is allowed. In view of the same, ground no. 2 relating to estimating of profits becomes infructious and is hereby dismissed. 6. In respect of ground no. 3 of the assessee's appeal, briefly the facts of the case are that AO observed that the assessee had claimed depreciation of Rs. 8,88,439/- on the godown building. On perusal of Schedule D of the Balance Sheet, he observed that the opening WDV is Rs. 7,27,839/-, addition of Rs. 7,27,839/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible to depreciation @ 5% on the investment of Rs. 32,37,609/- (7,27,839 + 24,49,569) i.e., Rs. 1,61,870/- as against the disallowance of Rs. 1,95,261/- disallowed by the Ld. CIT(A). In view of above, the AO be directed to allow the claim of depreciation accordingly. 9. We have heard the rival contentions and pursued the material available on record. The depreciation on addition of Rs. 32,37,609 towards construction of godown was disallowed by the ld CIT(A) holding that no evidence of asset being put to use was submitted. The ld AR has contended that rental income from the godown has been received during the last 2-3 months of the financial year and the construction was also completed in January 2011 which proves that godown was actually put to use during the year. We prima facie found force in the argument of the ld AR that where rental income has started accruing to the assessee, the same demonstrate that the asset was actually put to use. However, there is no finding of the lower authorities in this regard. We are accordingly setting aside the matter to the file of the AO to examine the above said contention of the ld AR and where the same is found to be in order, allow the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of low household withdrawals." 14. In ground no. 1 & 2 of the asssessee's appeal, briefly the facts of the case are that assessee is the proprietor of M/s Kishorilal Radhavallabh. He filed the return of income on 27.09.2011 declaring total income of Rs. 21,42,306/-. A survey u/s 133A was carried on 07.03.2011. The assessee offered for tax unaccounted cash of Rs. 7,49,201/- and unaccounted debtors of Rs. 18,05,000/- i.e., Rs. 25,54,201/- and included the same in his income for the year under consideration. The AO rejected the books of accounts u/s 145(3) by holding that when the assessee himself has offered for taxation undisclosed income, then it means that the books of accounts are not upto date, defective and not as per the requirement of Income Tax Act, 1961. He thereafter held that income of Rs. 25,54,201/- which is included in the Profit and Loss Account by the assessee is a nonoperative income. If this income is not taken into account then there is a loss of Rs. 3,11,749/- whereas in the previous year there was a profit of Rs. 3,00,093/-. Therefore, there is a difference of Rs. 6,11,842/- which is unexplained. Accordingly, by applying the net profit rate of the previous y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment has a nexus with material on record and discretion in that behalf has not been exercised arbitrarily or capraciously. The A.O has proceeded on notion that the reasons for showing lesser income was because the assessee had surrendered certain income during survey and he wanted to set it off against some regular income to reduce the taxability. However, the estimation based on previous year's N.P. when the turnover has almost doubled is not a fair estimation in my opinion. The N.P is accordingly restricted to 0.1% which gives a rough figure of around Rs. 4,00,000/-. This amount of addition is accordingly confirmed. The balance addition of Rs. 1,76,700/- is directed to be deleted." 16. During the course of hearing, ld. AR submitted that the assessee has maintained day to day books of accounts including the stock records. These accounts are duly audited. Neither in the assessment proceedings nor in the survey proceedings any specific defect was found in the entries made in the books of accounts maintained by the assessee. In fact assessee has dealt in four items i.e., Paddy, Sarso, Soyabean and Wheat. The complete quantity tally of these items traded by the assessee is at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3 of the assessee's appeal, briefly the facts of the case are that the AO observed that the assessee has withdrawn Rs. 63,700/- (wrongly mentioned as Rs. 42,700/-) to meet his household expenses. He rejected the contention of the assessee by holding that considering the social & economic status, the size of the family, the standard of living enjoyed by the assessee and school fees of Rs. 4,000/- per month, the withdrawal is insufficient to meet the expenses. Thus, he estimated the household withdrawals to be Rs. 1,50,000/- and made addition of Rs. 86,300/-. 19. On appeal, the Ld. CIT(A) confirmed the addition by holding that the estimation of monthly household expenses at Rs. 12,500/- by the AO is in no way unjustified and unreasonable considering the assesssee's background. The relevant finding of the ld CIT(A) which is reproduced as under:- "As regards Ground of appeal no. 4, related to increase in the household expenses, the A.O has detailed reasons for his estimation and non acceptance of the assessee's expense details. As per the A.O's estimation in the family of 4, the monthly expenses coming to Rs. 12,500/- is in no way unjustified or unreasonable considering the backgr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial to show that assessee might have incurred household expenditure more than that declared by him- Additions made by AO and CIT(A) deleted-Assessee's appeal allowed ITO vs. Balbir Singh Sekhon (2012) 143 TTJ 0017 (UO) (Chd.) (Trib.) Where the AO had made addition towards household expenses without assigning any reasons or material to show why the withdrawals shown by the assessee could not be accepted, the addition was rightly deleted by CIT(A). Kiritsinh Vakhatsinh Gohil vs. ITO (OSD) (Ahm.) (Trib.) ITA No. 1340 & 1341/Ahd/2009 "We have carefully considered rival submissions, perused the material on record. We noted that the addition of Rs. 60,000/- has been made by observing (Assessment Year 2004-05) that the assessee has not shown withdrawal for a house hold expenses. Therefore, considering the size of the family and standard of leaving, the Assessing Officer made the addition for house hold expenses, on estimate basis without point out the specific size of the family and the various expenses incurred by the assessee. This is a fact from record that the son of the Karta, who stays with the Karta, has also shown the withdrawal at Rs. 60,000/-. In our opinion under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer to prove that the assessee has incurred the expenditure. Once the Assessing Officer discharges the onus, the onus gets shifted on the assessee to offer an explanation about the source of such expenditure. In the instant case, the Assessing Officer, has not discharged the initial onus placed on him. In light of the same, we are setting aside the order of the AO and delete the subject addition. In the result, ground of appeal is allowed. Assessee's grounds of appeal (ITA No. 448/JP/17) "1. The Ld. CIT(A) has erred on fact and in law in confirming the rejection of books of the account u/s 145(3) of the Income Tax Act, 1961. 2. The Ld. AO has erred on fact and in law in estimating the profit from business at Rs. 8,10,178/- and the Ld. CIT(A) has erred in confirming the same at Rs. 4,00,0000/- instead of accepting the results declared by the assessee. 3. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 1,07,300/- made on account of low household withdrawals." 23. In ground no. 1 & 2 of the asssessee's appeal, briefly the facts of the case are that the assessee is the proprietor of M/s Kishorilal Radhavallabh. He filed the return of income on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income offered during survey. The very fact that there was a survey was sufficient ground to reject the books of accounts in the case. This view has been held by my predecessor CIT(A) in the case of Smt. Rajesh Jain prop. Chamatkar Properties vide appeal order no. 227/10-11 vide order dated 25.01.2012. Conforming to the same view, I am of the opinion that the rejection of books is to be upheld u/s 145 (3). Now coming to the estimation of Income, it is well known that in the case of Best Judgment where resort is taken to Section 144, the Assessing Officer exercising his jurisdiction cannot act arbitrarily or capriciously. The assessment must proceed on judicial considerations in the light of relevant material that may be brought on record. The Hon'ble Allahabad High Court in the case of CIT V/s. Surjeetsingh Maheskumar (1994) 210 ITR 83 has held that in every case of Best Judgment, the element of guess work cannot be eliminated so long as Best judgment has a nexus with material on record and discretion in that behalf has not been exercised arbitrarily or capraciously. The A.O has proceeded on notion that the reasons for showing lesser income was because the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unverifiable expenses in the profit and loss account. Therefore, there is no reason to interfere with the book results declared by the assessee. 25.2 Reliance in this connection is placed on following cases: * Malani Ramjivan Jagannath vs. ACIT 316 ITR 120 (Raj.) * Ashoke Refractories P. Limited vs. CIT 279 ITR 457 (Cal.) * CIT vs. Smt. Poonam Rani 41 DTR 194 (Del.) (2010) * CIT vs. Om Overseas 315 ITR 185 (Punj. & Har.) * CIT vs. Gotan Lime Khaniz Udyog 256 ITR 243(Raj) 26. We have heard the rival contentions and pursued the material available on record. In ITA No. 446/JP/2017, under identical facts and circumstances of the case, the books of accounts were rejected and estimation of net profit was made by the AO. Our findings and directions contained in ITA No. 446/JP/16 shall apply mutatis mutandis to this appeal as well. 27. In respect of ground no. 3 of the asssessee's appeal, briefly the facts of the case are that the AO observed that the assessee has withdrawn Rs. 42,700/- to meet his household expenses. He rejected the contention of the assessee by holding that considering the social & economic status, the size of the family, the standard of living enjoyed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that no addition can be made until and unless the AO first discharges his onus and prove that the assessee has incurred the expenditure, once the AO discharges the onus, the onus gets shifted on the assessee to offer an explanation about the source of such expenditure as is apparent from the AO. Reliance in this connection is placed on the following cases: * Atul D. Pawar vs. DCIT (2013) 35 CCH 0162 (Bom.) (Trib.) * ITO vs. Balbir Singh Sekhon (2012) 143 TTJ 0017 (UO) (Chd.) (Trib.) * Kiritsinh Vakhatsinh Gohil vs. ITO (OSD) (Ahm.) (Trib.) ITA No. 1340 & 1341/Ahd/2009 * Pradip C. Patel vs. Dy. CIT (Ahm.) (Trib) 58 TTJ (Ahd) 409 * Shri. Naginbhai C. Patel vs. ACIT, CC-2, Baroda (Ahm.) (Trib.) 30. The ld DR has vehemently argued the matter and relied upon the order of the lower authorities. 31. We have heard the rival contentions and pursued the material available on record. In ITA No. 447/JP/17, under identical facts and circumstances of the case, additions on account of low household withdrawals were made by the AO. Our findings and directions contained in ITA No. 447/JP/17 shall apply mutatis mutandis to this appeal as well. With the above directions, respective app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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