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TMI Blog2022 (8) TMI 1216X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case and law, the learned Commissioner of Income Tax (Appeal) erred in confirming the order passed by the learned Assessing Officer Us.143(3) of the Income Tax Act after rejection of books U/s.145(3) without appreciating that as required U/s.145(3) the Assessment Order can only be passed U/s.144 and therefore the assessment is bad in law and needs to be set aside. 3. 3. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) erred in confirming the turnover being less than Rs.60,00,000/-, the maximum addition if any had to be restricted to 8% of the Net Profit U/s.44AD. 4. 4. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) failed to appreciate that once the addition is made on the rejection of books of accounts estimating gross profit, there could be no further addition but he proceeded with making further additions on other aspects. 5. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs.6,21,102/- on account of shortage of Gwar commodity without appreciating that the said stock was booked as shortage i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on gross turnover of Rs.54,10,425/-. The Assessing Officer also made addition for shortage of Gwar (Rs.9876/- kgs) which was valued at Rs.6,21,102/-. The Assessing Officer also made addition for excess 'Chana', sold (Rs.876/- Kgs) during the year under consideration amounting to Rs.18,791/-. The income of Rs.3,75,000/- shown by the assessee from thok-khata (wholesale account), which has been found by the AO as without actual delivery and without any documentary evidence in the form of purchase/sale bills or any monetary transactions, thus, the Assessing Officer held the amount of Rs.3,75,000/- as diversion of income to sister concern and therefore accordingly made addition. The Assessing Officer also disallowed interest amounting to Rs.1,68,262/- out of the interest expenditure of Rs.5,99,818/- for interest-free advances to relatives. In this manner, the Assessing Officer after allowing deduction under Chapter VI-A, assessed total income at Rs.24,76,120/-. The assessee could not succeed before the Ld. CIT(A) and therefore, he is before the Tribunal by way of raising the grounds as reproduced above. 3. Before us a paper book has been filed on behalf of the assessee cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gwar. The Assessing Officer has reproduced the quantities as per the audit report and as per the ledger account of sales. For ready reference, said table is reproduced as under: As per Audit Report Opening balance Purchases Total Sales closing stock Quantity 98,991 Kg. 26,685 Kg. 1,25,676 Kg. 1,25,676 Kg. 00.00 Kg. As per ledger account of Gwar Slaes Quantity 98,991 Kg. 64,985 Kg. 1,63,976 Kg. 1,14,100 Kg. 49,876 Kg. 6.2 We find that during assessment proceeding, the assessee himself accepted that 40,000 KG Gwar was sold in preceding assessment year, whereas same could not be recorded in the computer and books of accounts, which are the basis of the audit report. The assessee admitted this mistake of wrong quantitative tally in audit report. Similarly, the assessee explained discrepancy in of closing stock as due to shortage of Gwar because same dried up due to hot weather. No satisfactory explanation in respect of the shortage was provided. Similarly, excess sale of Chana was found by the Assessing Officer, which the assessee attempted to explain as increase in weight due to moisture. The assessee also did not provide few purchase bills/sales bills and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accounts were not produced before him. In our opinion section 145(3) contemplates that the AO can resort to estimate the income, if he is unable to deduce true result from the accounts or other details. Strictly, books were not produced before the AO, and it was not rejection of books as such, but impliedly it is estimation of income as per section 145(3) of the Act. The ld.CIT(A) has not considered any of these aspects, viz. why there is a decline in GP, why assessee does not want to scrutinise its books of accounts from the AO. Therefore, considering all these aspects, we are of the view that the order of the CIT(A) is not sustainable. Total addition cannot be deleted. As observed in the foregoing paragraphs that income even after rejection of books can be estimated on some guess work. It is to be estimated keeping in view surrounding facts and circumstances. In the present case, the assessee herself has shown GP at 4.21% in the immediately preceding year. Therefore, the AO ought to have adopted GP nearby this figure and not at 20%. The assessee in her submission before the ld.CIT(A) has expressed the rate of at 4.25%. Thus, taking into consideration written submissions filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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]. 9. On perusal of the above provisions, it is evident that when section 145(3) is invoked, the word "may" has been mentioned for making assessment in the manner provided under section 144 of the Act. The section 145(3) does not specify that scrutiny assessment post invoking section 145(3) should be passed under section 144, but it only mention for assessment of income in the manner provided in section 144 of the Act. The section 144 prescribe for taking into account all relevant material on record for making assessment of total income or loss by the Assessing Officer to the best of his judgement and then determine the sum payable by the assessee on the basis of such assessment. Thus mandate of the section that assessment post invoking of section 145(3) should be in the manner of assessment u/s 144 of the Act. In view of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have heard rival submission of the parties on the issue in dispute. The Ld. counsel submitted that no addition in respect of shortage of Gwar or excess of Chana should have been made specifically. In our opinion, the discrepancy in quantitative tally is the reasons on the basis of which books of account have been rejected and trading results of current year have been estimated in view of trading results of preceding assessment year. In such circumstances, making separate addition for shortage or excess of any particular item of trading is not required when books of accounts have been rejected and gross profit has been estimated. We accordingly set aside the finding of the Ld. CIT(A) of sustaining the addition of Rs.6,21,102/- for shortage of 'Gwar' commodity and addition of Rs.18,791/- on account of access stock of 'Chana' commodity. The ground No. 4 of the appeal the assessee is accordingly allowed. 15. The ground No. 5 and 6 of the appeal also stands allowed in view of our finding in ground No. 4 of the appeal. 16. The ground No. 7 is in respect of confirming addition of Rs.3,75,000/- on account of transactions entered into a thok-khata basis. 17. The Assessing Officer noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the contention of appellant as he had made multiple transactions and earned profit of Rs. 3,75,000/- but even after the entire transaction, the stock was lying in the godown of assessee. During the process of hedge of prices, no entries were made in the books of accounts and no any bills or documents were raised by him. The burden lies upon the appellant to justify his claim but he has failed as no documentary evidence or purchase and sales bills were produced to establish genuineness of entire transaction. Thus, it is clear that these transactions were nothing but a diversion of income of Rs. 3,75,000/- of the appellant to another sister concern. I find the AO was right in making addition of Rs. 3,75,000/- for shortage of Gwar and excess stock of Chana. The appellant fails on this ground. The ground no. 7 is dismissed." 19. We have heard rival submission of the parties on the issue in dispute and perused the order of the lower authorities. Before us also no documentary evidence in support of the transactions carried out by the assessee have been filed. In such circumstances, we do not have any alternative other than confirming the finding of the Ld. CIT(A) on the issue in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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