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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 ..... 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. Depreciation on the godown building - no evidence of asset being put to use was submitted - Held that:- 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 depreciation as per law. In the result, the ground is allowed for statistical purposes. Addition u/s 69C - low household withdrawals - Held that:- AO without bringing on record any demonstrable evidence that the assessee has in fact incurred expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8/. 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 ₹ 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 assessee himself has offered for taxation undisclosed income, then it means that the books of accounts are not reliable and not as per the requirement of Income Tax Act, 1961. He thereafter held that income of ₹ 22,60,000/- which is included in the Profit and Loss Account by the assessee is a non-operative income. If this is not taken into account then there is a loss of ₹ 16,89,875/- whereas in the previous year, there was a profit of ₹ 1,89,769/-. Therefore, there is a difference of ₹ 18,34,358/- which is unexplained. Accordingly, by applying the net profit rate of the previous year of 0.324% on the declared turnover of ₹ 4,45,93,545/- for the year, he estimated the net profit at ₹ 1,44,483/- thereby resulting into an addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 50,000/-. This amount of addition is accordingly confirmed. The balance addition of ₹ 94,483/- is directed to be deleted. Thus While Ground no. 1 is partly allowed, Ground no. 2 is treated dismissed. 4. 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 only one item i.e., Dhaniya. The complete quantity tally of this item traded by the assessee is as per the trading account available at PB 7. All the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for the AO to have resorted to estimate method. There being no dispute about the sales and purchases, non maintenance of stock register lost its significance so far as arriving at GP rate is concerned. Therefore, the CIT(A) was right in his reasoning about admitted state of affairs. Resorting to estimate of GP rate was founded on no materiality. Mere deviation in GP rate cannot be a ground for rejecting books of accounts and entering realm of estimate and guesswork. Lower GP rate shown in the books of accounts during current year and fall in GP rate was justified and also admitted by the AO as well as CIT(A) as well as the Tribunal. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 purchases and sales are fully vouched and no discrepancies as such was found in the books of accounts maintained by the assessee. In the present case even the provision of section 145 is not applicable. Therefore the addition made by the Assessing officer is without any basis and directed to be deleted. 5. We have heard the rival submissions and pursued the material available on record. The survey was carried out at the assessee s premises on 7.3.2011 before the close of the financial year and thereafter, the assessee finalized its books of accounts, got them audited by the statutory auditors and the financial stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 ₹ 8,88,439/- on the godown building. On perusal of Schedule D of the Balance Sheet, he observed that the opening WDV is ₹ 7,27,839/-, addition of ₹ 7,27,839/- made before 30.09.2010, addition of ₹ 24,49,569/- made after 30.09.2010 and depreciation claimed is ₹ 8,88,439/-. Thus, total value of the building before depreciation is ₹ 1,04,48,613/-. As the building was put to use after 30.09.2010, he held that depreciation is allowed @ 5% on ₹ 1,04,48,613/- i.e., ₹ 5,22,430/-. Therefore, he disallowed ₹ 3,66,009/- (8,88,439 5,22,430) on account of excess claim of depreciation. 7. On appeal, the Ld. CIT(A) held that the argument of the AO is contradictory as on one hand the AO is not disputing the opening WDV b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 depreciation as per law. In the result, the ground is allowed for statistical purposes. 10. In respect of ground no. 4 of the Assessee s appeal, briefly the facts of the case are that the AO on perusal of Form 26AS observed that commission on brokerage of ₹ 14,337/- received from Shri Kamlesh Dhamani has not been recorded in the books of accounts. He thus, made an addition of ₹ 14,337/-. 11. Before the Ld. CIT(A), the assessee submitted an affidavit stating that the commission of ₹ 14,33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 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 ₹ 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 ₹ 3,11,749/- whereas in the previous year there was a profit of ₹ 3,00,093/-. Therefore, there is a difference of ₹ 6,11,842/- which is unexplained. Accordingly, by applying the net profit rate of the previous year of 0.144% on the declared turnover of ₹ 40,04,86,073/- for the year, he estimated the net profit at ₹ 5,76,700/- thereby resulting into an addition of ₹ 8,88,449/-. 15. The Ld. CIT(A) held that the very fact that there was a survey is sufficient ground to reject the books of accounts. However, with regards to the net profit, he held that the estimation of the AO is based on the PY s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, 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 ₹ 4,00,000/-. This amount of addition is accordingly confirmed. The balance addition of ₹ 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 PB 6. From the same it can be noted that there is no closing stock of Paddy, Soyabean and Wheat as all the goods purchased during the year are sold. Only in Sarso, there is a closing stock. All the entries in the trading account i.e., Opening stock, purchases, sales and closing stock is fully supported by the quantity and purchase and sales invoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standard of living enjoyed by the assessee and school fees of ₹ 4,000/- per month, the withdrawal is insufficient to meet the expenses. Thus, he estimated the household withdrawals to be ₹ 1,50,000/- and made addition of ₹ 86,300/-. 19. On appeal, the Ld. CIT(A) confirmed the addition by holding that the estimation of monthly household expenses at ₹ 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 ₹ 12,500/- is in no way unjustified or unreasonable considering the background that the appellant has. I am therefore not inclined to interfere with the addition of ₹ 86,300/- made by the A.O on this ground to the household expenses. This ground of appeal is treated as dismissed. 20. It was submitted that the family of the assessee comprises of assessee himse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de 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 ₹ 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 ₹ 60,000/-. In our opinion under section 69C, no addition can be made until and unless the Assessing Officer first discharges his onus and prove that the assessee has incurred the expenditure, once the Assessing Officer discharges the onus, the onus gets shifted on the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstant 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 ₹ 8,10,178/- and the Ld. CIT(A) has erred in confirming the same at ₹ 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 ₹ 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 27.09.2011 declaring total income of ₹ 22,08,304/-. A survey u/s 133A was carried on 07.03.2011. The assessee offered for tax unaccounted cash of ₹ 9,06,400/- and unaccount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks 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 surrendered certain income during survey and he wanted to set it off against some regular income to reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ₹ 4,000/- per month, the withdrawal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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