9911796707
TMI Blog2017 (9) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we are of the considered view that merely because the matter was referred for special audit and the AO has made certain additions based on the observations of the special auditor, it cannot be held that the AO has rejected the books of account of the assessee. There has to be a specific finding given by the AO in terms of satisfaction of any or all of the conditions as specified under section 145(3) before he rejects the books of accounts of the assessee. Further, the AO has to specify the reasons as to why he feels that the results declared by the assessee as per the books of accounts are not acceptable. All the AO has done is that he has accepted the book results in respect of recorded transactions and in addition, the unrecorded transactions relating to sales/income, unrecorded purchase and other expenditure have also been brought to tax. In any case, there cannot be a presumption regarding rejection of books of accounts in absence of specific exercise of powers under section 145(3) of the Act. Can rejection of books of accounts be at the instance of the assessee? - Held that:- It is for the assessee to declare its results and offer its books of accounts for verificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo. We donot see any infirmity in the same and the said finding of the ld CIT(A) is hereby confirmed. Ground no. 3 to this limited extent is dismissed. Undisclosed receipt of lease rent - Held that:- As per ld. CIT(A), as the assessee has already shown lease rent in the profit 30,000/- only. Therefore the A.O. is directed to delete addition of 72,000/-. This ground of appeal is therefore allowed. Addition on account of loss in Marble 8,67,670/-. In the result, ground of appeal no 10 is dismissed. Unexplained differences in opening balances of debtors and creditors on protective basis - Held that:- As per the ld CIT(A), the AO has not gone into merits of the case and as the difference did not relate to the year under consideration, the A.O. was directed to delete the addition. We donot find any infirmity in the order of the ld CIT(A) and the same is confirmed. The ground of appeal no 1 is dismissed. Addition on account of different in dates of entries of cash in Bank Statements vis-a-vis cash book - Held that:- Regarding entry of 2,45,000/-, agree with the submission of assessee that this entry was wrongly entered on 02.03.2009 in place of actual date of 03.03.2009, however, it did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first and foremost question that arises for consideration in all these grounds of appeal is whether the books of accounts of the assessee have been rejected in the instant case or not. The ld. CIT(A) has given a finding that in substance the AO never relied on the books of accounts of the assessee, and time and again, this fact was mentioned by the AO in the assessment order. It was accordingly held by the Ld. CIT(A) that AO has in substance rejected the books of accounts and after doing so, the AO should have computed estimated income by estimating turnover of the assessee and should have applied net profit rate for computing the income of the assessee. 6. In this regard, we refer to the remand report of the AO, wherein he has submitted his comments on the rejection of books of accounts, during the course of appellate proceedings before the Ld. CIT(A) which are as under:- " In its counter comments, the A.O. has mentioned as under:- " As it has already been stated in assessment order that the assessment was made on the basis of assessee's books of account and impounded documents. The regular books of account has not been rejected by the A.O. and head wise addition has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "The facts in this case are similar to the facts in the case of Shri Ritesh Somani. While deciding the appeal in the case of Shri Ritesh Somani in ITA No. 592 to 597/JP/2011 and 618 to 623/JP/2011, vide order dated 30.11.2012, we have held that reference for special audit is in accordance with the provisions of law. Following that order we dismiss the above ground of appeal. In the case of Shri Ritesh Somani, while holding that the A.O. was justified in referring the matter for special audit u/s 142(2A) of the Act, the Hon'ble ITAT made the following elaborate observations:- "Before us, the ld. AR has relied upon the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Bajrang Textiles (Supra). In this case, the A.O. issued the directions to get the assessee's accounts audited on 29th December, 1999 when only one day was left for completion of the block assessment. The A.O. also directed the special auditor to prepare the books of accounts in the form of cash book, ledger on the basis of the documents/ papers seized during the course of search as per his directions. The auditor was also required to prepare the trading and profit account and further to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Tribunal (the facts being identical the issue is decided in favour of revenue and against the assessee). This ground of appeal is dismissed." 8. In light of above, in the instant case, it is clear that the basic purpose for referring the matter to the special auditor was to examine the books of accounts and to give his comments on various issues and not to get the books of accounts prepared. It is therefore in consonance with the comments of the AO in the remand proceedings as noted above that the unrecorded expenses/purchase found in impounded documents has been considered by the special auditor in audit report with the remarks that they have entered these expenses/ purchases in books just to prepare correct cash inflow/ outflow statement. 9. The provisions of Section 145(3) of the Act provides that where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in subsection (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under subsection (2), the Assessing Officer may make an assessment in the manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee were asked to get the entries verified as appearing in impounded material vis-a-vis regular books of account of the assessee, but they have failed and could not get the same verified. After going through material/entries available in the impounded records with this office as well as looking to the volume of impounded record complexity therein, it has been decided that it is necessary to get special audit conducted in this case by an another Chartered Accounted u/s 142(2A) of the IT Act, 1961 in order to segregate the transactions from the incriminating documents impounded during the survey proceedings, which were not ascertained from the regular books of account." 12. The A.O. in the assessment order has stated that the special auditor in his report submitted on 18.06.2012 had pointed out a number of defects in the books of accounts of the assessee. Further, the Assessing Officer at para 6 of his assessment order stated as under: "the assessment proceedings are being concluded as per details produced, on the basis of documents impounded during the course of survey, on the basis of books of accounts, trading, profit and loss account, balance sheet produced by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to activities carried out by the assessee. Therefore, we are of the considered view that merely because the matter was referred for special audit and the AO has made certain additions based on the observations of the special auditor, it cannot be held that the AO has rejected the books of account of the assessee. There has to be a specific finding given by the AO in terms of satisfaction of any or all of the conditions as specified under section 145(3) before he rejects the books of accounts of the assessee. Further, the AO has to specify the reasons as to why he feels that the results declared by the assessee as per the books of accounts are not acceptable. 15. Now, let's look at the matter from another perspective. In absence of the specific finding of rejection of books of accounts by the AO, can it be inferred that the AO has rejected the books of accounts of the assessee. In this regard, we refer the recasted profit/loss account for the year ended March 31, 2009 which is available on record. The analysis thereof in terms of recorded transactions and unrecorded transactions depicts the following position: Particulars Total as per recasted profit/loss account (Rs) Unrecord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted income by estimating turnover of the assessee and should have applied net profit rate for computing the income of the assessee. Can rejection of books of accounts be at the instance of the assessee 18. Before departing, we would also like to touch upon another perspective which we have noticed in the instant case. During the course of assessment proceedings, in response to each of the queries raised by the AO in relation to observations of the special auditor, the assessee has repeatedly stated that his books of account should be rejected as done in past assessment years. The question that arises for consideration whether the powers to be exercised under section 145(3) can be exercised at the request of the assessee. To recapitulate, section 145(3) provides that where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144 of the Act. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,286 ix) Unrecorded income from Crusher Hire Charges 10,000/- x) Unexplained expenses 1,14,800/- xi) Transportation charges paid to various truck owner for supply of ballast/grit to railway u/s 69C 3,00,000/- xii) Unrecorded sales as per Annexure-17 1,44,325 xiii) Unexplained expenses being Repair & Maintenance of Plant & machinery 2,64,877/- xiv) Unexplained Transportation Expenses 6,49,962/- Total 1,04,40,452/- 22. The relevant findings of the ld. CIT(A) which are under challenge before us are as under:- "The A.O. had made specific additions on the above grounds and took a stand before me that books of accounts of assessee were not rejected and therefore each addition should be considered separately. I have gone through the observation of A.O. and it was seen that in substance the A.O. never relied on the books of accounts of assessee and time and again this fact was mentioned by A.O. in the assessment order. Therefore, it is held that A.O. has in substance rejected the books of accounts after doing so, the A.O. should have computed estimated income by estimating turnover of assessee and should have applied net profit rate for computing the income of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income [as discussed above] and are treated as partly allowed." 23. In ground no. 4, the Revenue has challenged the action of the ld CIT(A) in deleting the addition of ₹ 27,15,203/- made by A.O. u/s 40(a)(ia) on account of non-deduction of TDS on labour & transportation expenses since the A.O. neither rejected Books of Account of assessee nor estimate income by applying fixed net profit rate on assessee's sales. 24. The relevant findings of the ld. CIT(A) are as under:- "I have gone through the AO's finding and assessee's submission and counter comments of A.O. The nature of transaction (labour & transportation) itself shows that no work can be done without understanding between the parties. No person will carry out work without understanding about the scope of work and resultant consideration. The fact that work was done and payments were made itself shows that there was oral understanding between the parties about the scope of work and consideration. It is therefore held that there was contract between the parties. The assessee further submitted that once books of accounts are rejected no separate disallowance can be made. He placed his reliance on the following jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses, addition on account of non- deduction of TDS on labour & transactions u/s 40(a)(ia), addition on account of violation of provisions of section 40A(3), etc. The ld CIT(A) has held that since the books of accounts have been rejected, estimation of net profit should be made in the instant case. Further, ld CIT(A) has held that where books of accounts have been rejected and net profit has been estimated, no separate additions can be made relying on the same books of accounts. The ld. CIT(A) has accordingly estimated net profit at 10% of the undeclared turnover and 9% of the declared turnover of the assessee and has deleted specific additions/disallowances of various expenses. 28. As we have held above, there is no basis to hold that the books of accounts have been rejected in the instant case. Where the books of accounts have not been rejected, there is no basis to estimate the net profit as done by the ld CIT(A). Consequently, there is no estoppel to make specific additions/disallowances in terms of section 40(a)(i), 40A(3) and other specific disallowances towards unexplained expenditure. In our view the Assessing officer has made the specific additions/disallowances based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 69B and 69C and violation of provisions of section 40(a)(ia) on account of non-deduction of TDS and section 40A(3) of the Act on account of payment in cash beyond the prescribed threshold, the additions so made by the AO are hereby confirmed. 30. Regarding other expenses namely excessive/ bogus expenses amounting to ₹ 2,63,189, unrecorded marble and granite purchase of ₹ 98,948, unrecorded purchases/labour and transportation charges of lime amounting to ₹ 8,49,286, unexplained expenses amounting to ₹ 1,14,800, unexplained expenses being repair & maintenance of plant and machinery amounting to ₹ 2,64,877, unexplained transportation expenses amounting to ₹ 6,49,962, the assessee has again failed to offer any explanation in spite of specific show-cause by the AO and the additions have rightly been made by the AO which are hereby confirmed. Ground no. 3 (other than it relates to unrecorded sales/receipts/income discussed subsequently), ground 4 relating to additions u/s 40(a)(ia) and ground no. 6 relating to additions u/s 40A(3) are thus allowed in favour of the Revenue and the findings of the ld CIT(A) are set-aside. Suppressed production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction the balance is your suppressed sales & these sales are your profit as purchases and expenses of the same has already been debited by you and there is no closing stock of dabora/ grit please file your explanation in this regard. In this reference the assessee in his reply dated 18.07.2012 submitted that we submit our gitti/dabora sales during FY 2008-09 is ₹ 9671086/- whereas during FY 2009-10 it is ₹ 1,79,90,046/-. In FY 2008-09 our disclosed NP is ₹ 10,95,464/- which is ₹ 1447526/- in FY. 2009-10. Rate of tax both in A.Y. 2009-10 & 2010-11 is same. There is therefore no reason for suppression of any income in A.Y. 2009-10 and pay tax thereon in A.Y. 2010-11. We, however, submit that if on this account any addition is made, it should be @ 6% of deemed disclosed sales and it's corresponding relief be provided in next year i.e. A.Y. 2010-11 wherefrom profit so worked out be reduced. Further vide this office letter dated 02.08.2012 the assessee was asked that he has not replied o the Query No. 12 of this office's questionnaire dated 25.06.2012 vide which in nut shell it was asked that out of total purchases of 60356 M.Tons dabora/ballast you have sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as procured 80% ballast from the dobara, which will cover all the deficiencies if any, occurred during the transportation, unloading of stacking of ballast at Railway site. Dabora purchases 54595 M.Tons During the year The production at 80% comes to 43676 M.Tons During the year The assessee has also purchased Ballast 5761 M.Tons During the year Total ballast available 49437 M.Tons The assessee has sold 26017 M.Tons to Railway upto Feb. 2009 The assessee has sold 5749 M.Tons to persons other than Railway The assessee has sold 2717 M.Tons to Railway in March 2009 Total Sales 34483 M.Tons In this way, the assessee has suppressed the sales of 14954 Tones. The assessee has not shown the closing stock of the Dobara/ballast so 14954 M.Tons ballast is suppressed sales of the assessee. The assessee has sold ballast to the railway @ 367.50 per M.Ton so the total value comes to ₹ 54,95,595/- when the assessee has debited the expenditure upto March 2009 relating to manufacturing/ transportation for these sales & he was maintaining his books of account on mercantile basis and assessee has not shown any closing stock of Dabora/ballast, so the total suppressed sales of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has challenged the deletion of addition on account of unrecorded sales of grit of ₹ 14,02,856, unrecorded loading receipts from Railways of ₹ 1,95,889, unrecorded sales of March 2009 of Dabora/ballast to Railway of ₹ 12,27,248, unrecorded income from crusher hire charges of ₹ 10,000, unrecorded sales as per Annexure-17 of ₹ 1,44,325. The total undisclosed turnover therefore comes to ₹ 30,69, 266. 36. The ld CIT(A) after taking into consideration the suppressed sales on account of undisclosed production of ₹ 36,01,132/- as decided above, has given a benefit of telescoping to the assessee and has brought to tax the undisclosed sale figure at at ₹ 36,01,132/- being higher of the two. We donot see any infirmity in the same and the said finding of the ld CIT(A) is hereby confirmed. Ground no. 3 to this limited extent is dismissed. 37. In ground no. 5, the Revenue has challenged the deleting of addition of ₹ 93,000/- made by A.O. on account of undisclosed receipt of lease rent. As per ld. CIT(A), as the assessee has already shown lease rent in the profit & loss account, there is no need for making any separate addition and the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reply of the assessee cannot be accepted and on merits the findings of A.O. is confirmed. However, it would be fair and justified, if assessee is allowed benefit of telescoping. I have confirmed addition of ₹ 1,43,138/- on disclose sale and ₹ 3,60,113/- on undisclosed sales, totalling to ₹ 5,03,251/-. It is therefore held that this additional amount was available with assessee and to the extent of this amount negative cash balance is treated as explained. In the result, addition of ₹ 3,64,419/- (8,67,670-5,03,251) is confirmed. The A.O. is directed to delete balance addition of ₹ 5,03,251/-. This ground of appeal is therefore partly allowed." 46. We have pursued the material available on record and the findings of the ld CIT(A). The assessee is allowed the benefit of telescoping on account of additions sustained above which is higher than the addition of ₹ 8,67,670/-. In the result, ground of appeal no 10 is dismissed. 47. In ground no. 1, the Revenue has challenged the action of the ld CIT(A) in deleting the addition of ₹ 1,07,656/- made by A.O. on account of unexplained differences in opening balances of debtors and creditors on pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly stating that tyres for truck were intended to be purchased from Patel Tyres, and cheque was prepared, however neither tyres were purchased nor payment was made and therefore money withdrawn from Bank on strength of bearer cheque was taken in cash book. I have gone through the reply of the assessee and have not found it as tenable, because the assessee has opted some operandi, as he has taken above, and similarly he has made payment of ₹ 21,000/- to Patel Tyres on 13.08.2008 but simultaneously, he entered this cash in his cash book also Actually, this cash was earned by assessee from his undisclosed sources, therefore, it is added to his total income. C. The assessee has given a cheque of ₹ 50,000/- on 12.08.2008 from Bank A/c No. 8034 PNB to S.S. Pillay, Baroda which is evident from bank statement. The assessee has shown it as cash withdrawal in his audited books of account. Assessee filed reply stating that from S.S. Illay, Baroda, Machine parts were to be purchased. However, neither it was purchased nor payment was made and therefore money withdrawn from bank on strength of bearer cheque was taken in cash book. After going through the reply of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g herewith the photocopy of Annexure- 1 (Page No. 26) in which it is clearly mentioned that this payment has been received by Swastik Crusher by self cheque which is marked now as exhibit ......B. ii) The payment of ₹ 21,000/- has been made by the appellant by cheque to Patel Tyres. I am enclosing herewith the photocopy of Annexure-30 Page No. 11 which is now marked as exhibit.....C and this is not cash withdrawal made by the appellant. Here the appellant is misleading your honour by saying that he has not made the payment to Patel Tyre and this is a withdrawal in cash from bank. The appellant has also made payment of ₹ 50,000/- by cheque to M/s S.S. Pillai Baroda I am enclosing herewith the photocopy of bank statement which is now marked as exhibit .....D from which it can be verified that the payment has been made to S.S. Pillai and this is not cash withdrawal made by the appellant. Here again the appellant misleading your honour by saying that he has not made the payment to S.S. Pillai and this is a withdrawal in cash from Bank". 51. We have pursued the material on record. The following findings of the ld. CIT(A) remain uncontroverted before us and the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
