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TMI Blog2022 (12) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... liabilities as well as the expenditures and particularly to establish that these expenses are incurred wholly and exclusively for the business of the assessee. Therefore, instead of allowing the assessee to discharge its primary onus in support of these claims, the CIT(A) on its own ask the assessee to produce the complete books of accounts, relevant vouchers and supporting documents including the copy of sale-deeds/agreements. Once the books of accounts and other relevant records was produced by the assessee first time during the appellate proceedings before the CIT(A), the principles of natural justice demands that the other party should be given an opportunity to verify the evidence first time produced at the appellate stage. CIT(A) without giving any reason in the impugned order as to why the books of accounts and other relevant material produced by the assessee was not referred to the AO for his examination and report has passed the impugned order. Both the parties have fairly agreed before us that the matter can be restored to the file of AO for de novo assessment. This in our considered opinion is a clear violation of principles of natural justice, as the AO was not even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring assessment proceedings. 5. The Ld. CIT(A) is not justified in deleting the addition of Rs.1,12.02.665- on account of professional/consultancy by the assessee during assessment proceedings. 6. The Ld. CIT(A) has stated that following his notice dated 12.04.2019 the assessee has submitted response, but Ld. CIT(A) has failed to mention as to whether all the books of accounts were produced before him and he has rally examined and have communicated the outcome of his observation to the AO for his counter representation Ld. CIT(A) has done so, hence acted illegally without following the appellate procedure and legal convention. 7. The Ld. CIT(A) has erred in deleting all the additions merely on the ground that income of the assessee has been estimated and books of accounts were not rejected and for reaching to the conclusion has relied upon various case laws disrespecting the fact that the income has not been disallowed for want of evidences, and additions of sundry creditors and advances from customer have been made considering the complete failure of furnishing explanation with necessary evidences, by the assessee. 8. The Ld. CIT(A) has erred in not giving opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt documentary evidence, books of accounts and after considering these records produced by the assessee the additions made by the AO have been deleted by the CIT(A) while passing the impugned order. 6. Aggrieved by the impugned order of the CIT(A), the revenue has filed the present appeal. The Ld. CIT DR has submitted that despite the repeated notices issued by the AO, the assessee did not appear or response to these notices during the assessment proceedings and consequently the Assessing Officer has framed the assessment under Section 144 of the Income Tax Act. The AO has made the additions on two issues out of three issues which were taken up for limited scrutiny under CASS. There was a complete failure on the part of the assessee to furnish the explanation as well as supporting evidence in respect of all three claims. He has further contended that the CIT(A) has accepted the explanation of the assessee ignoring the crucial fact that the assessee failed to discharge the primary onus in respect of the current liabilities shown in the books, the expenses claim under the head commission expenses as well as consultancy fees. The primary onus is on the assessee to establish that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 145(3) as well as ad hoc disallowance or estimation of the income by the AO whereas, in the case of the assessee there is no ad hoc disallowance or estimation of the income by the AO. Therefore, all those decisions as well as reasoning of the CIT(A) is absolutely irrelevant for the issues involved in this case. 11. On the other hand, the Ld. AR has submitted that as per the provisions of Section 250(4) of the Income Tax Act, the CIT(A) can conduct the necessary inquiry as he think fit or direct the AO to make further inquiry and report the result of the same. In the case of the assessee the CIT(A) directed the assessee to produce all these records including books of accounts which were produced by the assessee for the examination of the CIT(A). Thus, when the CIT(A) was satisfied on examination and conducting the inquiry from the record produced by the assessee as per his direction then it was not necessary to give an opportunity to the AO for examination of the said evidence or to file any rebuttal to the said record. He has further submitted that the assessee produced all the relevant records including the ledger accounts, the details of the creditors and the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (1) (b) of the Income tax Act, 1961 dated 20.11.2017 was passed Imposing Rs. 10,000/-. Final Show cause notice dated 04.12.2017 was issued through registered post /email, fixing the date of compliance on 11.12.2017 at 12.50 P.M at 38 M.G Marg, Kayaker Bhawan and show cause why following addition may not be made in your case for A.Y 2015-16 :- 1. Current liabilities of Rs. 20,72,15,014/- [(Part A-BS.4A(ld).] 2. Commission expenses of Rs. 3,52,49,419/- [(Part A-P L S.No.22 (ii)]. 3. Consultancy fees of Rs. 1,12,02,665/- [(Part A-P L S. No. 24(ii)]. as it stands unverified due to non-compliance on your part. Show cause why Rs. 25,36,67,098/- (i.e. Rs. 20,72,15,014/- + Rs. 3,52,49,419/- + Rs.1,12,02,665/-) may not be added to your income for A.Y. 2015-16. No compliance was made. It is a time barring assessment. Accordingly, I have no other option but to complete the assessment on merits based on the material available on records. Hence Rs. 25,36,67,098/- (i.e Current liability of Rs.20,72,15,014/- + Commission expenses of Rs. 3,52,49,419/ and Professional/Consultancy fees of Rs.1,12,02,665/-) is added to the total income of the assessee. Subject to the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and written submission filed along with the details filed enclosed therein. The Assessing Officer made adhoc addition under various heads by passing an order u/s 144 of the Act for the reason that the appellant did not produce before AO any books of account and bills and vouchers for verification of expenses claimed. Appellant also did not comply with notices u/s 142(1). It is a fact that AO made the addition without rejecting the books of accounts u/s 145(3) of IT Act and estimating the income without any basis whatsoever of any kind purely on the basis of conjecture. It is a trite law that AO in order to ascertain what would constitute a fair and reasonable estimation of income u/s 144 has to bring some material on record before making any additions. Appellant's history is one of the good source of such material on the basis of which additions can be made u/s 144 of IT Act. Appellant is a Limited company and is in first year of operation. Complete books of accounts are maintained and its audit are done for Companies Act and for Income Tax Act. Returns of income and all other statutory returns are filed on the basis of such audited accounts. Appellant has submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant's history. It is a fact in this case that the books of a/c were not produced and the bills and vouchers pertaining to all the expenses were not made available for verification before the AO, but the AO did not invoke S. 143(3) and did not reject the books of accounts and went on to form 'Best Judgment' u/s 144 of IT Act absolutely without any basis. The Hon'ble Allahabad High Court in the case of CIT V/S. Surjeet Singh Mahesh Kumar (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. Therefore in absence of any material on record, AO's discretion in estimating the income of the appellant is held to be exercised arbitrarily. It is clear from the fact that the appellant's gross turnover during the FY 2014-15 is only Rs.8,42,91,909/- but the AO made total additions of Rs. 25,36,67,098/- which is more than three times of the total turnover of the assessee. Such an act cannot be said to be judicious. The rejection of books of accounts u/s 145 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (supra), the Hon'ble jurisdictional High Court has held as under: 11 . Section 145(3) of the Act lays down that the Assessing Officer can proceed to make assessment to the best of his judgment under section 144 of the Act only in the event of not being satisfied with the correctness of the accounts produced by the assessee. In the instant case the Assessing Officer has not rejected the books of account of the assessee. To put it differently the Assessing Officer has not made out a case that conditions laid in Section 145(3) of the Act are satisfied for rejection of the books of account. Thus, when the books of account are maintained by the assessee in accordance with the system of accounting, in the regular course of his business, same would form the basis for computation of income. In the instant case it is noticed that neither the Assessing Officer nor CIT(Appeals) have rejected the books of account maintained by the assessee in the course of the business. As such tribunal has rightly rejected or set aside the partial addition made by Assessing Officer for arriving at gross profit and sustained by the CIT(Appeals) and rightly held that entire addition made by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by appellant. AO could have used it as a good material to base his assessment. In the case of Tolaram Daga Vs. CIT reported in (1966) 59 ITR 632(Gau) wherein their lordships have observed and held as under:- It would appear that the accounts of the firm which had been produced in the case had been accepted and acted upon by the department and no serious challenge had been made to their genuineness or that they were kept regularly In the course of business. That being the case, the accounts are relevant and afford prima facie proof of the entries and the correctness thereof under section 34 of the Evidence Act. Hon'ble Delhi High Court in the case of CIT vs. Jay Engineering Works Ltd. reported in (1978) 113 ITR 389 wherein their lordships have observed and held as under:- While the word evidence may recall the oral and documentary evidence as may be admissible under the Indian Evidence Act, the use of the word material shows that the Income-tax Officer not being a court can rely upon material which may not be strictly evidence admissible under the Indian Evidence Act for the purposes of making an order of assessment. Court often take judicial notice of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proper inference from the same . In the present case, the AO has estimated the income without any basis or any available information obtained from any independent source and disregarding the facts available in the audit report filed with the return of income. As held by Hon'ble Court in the case of Jay Engineering (Supra) even if it was not possible for the assessee 's to produce the original account books, AO should have relied upon auditors' reports that constitutes relevant material for making assessment. It is not the case of the AO that the books were not properly maintained. Not even a word has been whispered by the AO that the books were not maintained in accordance with the method of accounting or were incorrect or incomplete. If the books of account are being maintained by the appellant in accordance with the accepted system of accounting, in the regular course of his business, then only same would form the basis for computation of income. In absence of any evidence being brought on record by AD against the claim of current liabilities of Rs.20,72,15,014/-; commission expenses of Rs.3,52,49,419/- and site development expenses of Rs.1,12,02,665/- the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of accounts are audited, the AO could have used it a good material to base his assessment. While making this observation the CIT(A) has completely ignored the fact that when there was no response or participation of the assessee in the assessment proceedings, the question of considering the books of accounts and supporting evidence as the basis of assessment does not arise. Further, once the books of accounts and other relevant records was produced by the assessee first time during the appellate proceedings before the CIT(A), the principles of natural justice demands that the other party should be given an opportunity to verify the evidence first time produced at the appellate stage. The CIT(A) without giving any reason in the impugned order as to why the books of accounts and other relevant material produced by the assessee was not referred to the AO for his examination and report has passed the impugned order. Both the parties have fairly agreed before us that the matter can be restored to the file of AO for de novo assessment. This in our considered opinion is a clear violation of principles of natural justice, as the AO was not even given an opportunity to verify this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Liabilities as on 31.03.2015 was duly supported by the challans, amounts having been deposited in the government exchequer well within time, so there remains no basis for the addition so made by the ld. Assessing Officer in the assessment order be sustained in the appellate proceedings. 6. BECAUSE advances from customers aggregating to Rs.20,12,20,655/- were duly supported by books of account and other details, adjustments on materialization of deals with sale deeds in subsequent years, so the addition made by the ld. Assessing Officer of the entire figure as standing credit in the balance sheet is wholly erroneous and unjustified. 7. BECAUSE there being no dispute on the veracity of the audited books of account having been raised by the Assessing Officer at the time of assessment proceedings as also not initiation of provisions of section 145(3) of the Act, complete disallowance of Brokerage and Commission of Rs.3,52.49.419/- and Site Development Charges (considered as consultancy fees) of Rs.1,12,02,665/- is wholly erroneous and bad too. 8. BECAUSE the observation made by the Id. CITA) in the appellate order as regards relief on account of Brokerage and Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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