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TMI Blog2009 (11) TMI 1034X X X X Extracts X X X X X X X X Extracts X X X X ..... ises on 24.01.2001. The assessee filed return of income declaring total loss of Rs. 41,513/-. The AO completed assessment on total income of Rs. 37,32,010/-, details of which are as under:- Subject to the above remarks, the total income is computed as under:- Net Profit as per P/L a/c Rs. 1,15,863/- Add: (i) Addition to the trading results As discussed above 3553915 (ii) O/o rent 80000 (iii) O/o payments u/s 43B 39611 36,73,526/- Total 37,89,389/- Less: B/f loss of previous year 1999-2000 As per statement 57,376/- Taxable income 37,32,013/- Rounded off to 37,32,010/- 3.1 The assessee filed appeal before CIT(A). The CIT (A) dismissed assessee s appeal. The assessee filed appeal before the ITAT vide ITA No. 5686/M/2004. The ITAT vide its order dated 21.10.2005 confirmed the order of CIT (A) in respect of main addition of Rs. 35,53,915/-. In respect of addition u/s 43B, it was directed the AO to allow the same if payment was made within grace period. The assessee filed M.A. No. 131/M/06 against the order of ITAT, which has been dismissed vide order dated 14.11.2006 by ITAT. The assessee filed appeal before Hon ble Jurisdictional High court which has been decided vide Income Tax Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court in the case of CIT Vs. Pamwi Tissues Ltd., 215 CTR (Bom.) 150, we, therefore, remit the back to the file of the AO and direct that if the payment of PF ESI is made within grace period the same may be allowed. The AO will decide the issue after providing reasonable opportunity of hearing to the assessee. Now only question remained to be examined in the case under consideration is in respect of addition of Rs. 35,53,915/- on estimation of sale in ground No. 2 of assessee s appeal. Ground No. 1 is general in nature stating total addition made by the AO. 5. The facts relating to the issue are that a survey action u/s 133A was carried on 24.01.2001. There was also search u/s 132 on residence of promoter/ partner of assessee firm, Shankar Poojari and Manager, Shri Raghuram Poojari. During the course of search, some loose papers were found from the residence of Manager, Shri Raghuram Poojari. Shri Shankar Poojari one of the partners has admitted in his statement recorded on 24.01.2001 at the time of search that figures appearing on page No. 26 of loose paper file no. A-9 is the actual sales figures of restaurants. During the assessment proceedings the AO asked the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Malad . Further the DDIT(Inv.) Unit-I, Mumbai vide Appraisal Report has given a finding in respect of the above referred seized loose paper No. 65 to 73 as pertaining to shiv Sagar Malad and the same is to be verified with the regular books of accounts. The relevant extract reads as under:- Pages 65 to 73 are various purchase bills of Shiv Sagar, Malad. The AO may verify the same with regular books of account. Accordingly these purchases are held to be unaccounted purchases of the assessee as the same are not reflected in the books of accounts maintained by the assessee. Admittedly as regards proof of sales recorded, no sales bills or primary evidence have been produced in support of the daily sales recorded in manually maintained sales register. 5.3 The monthly sale reproduced from page 4 of AO s order as under:- April-2000 3,69,700/- May-2000 4,41,962/- June-2000 3,90,736/- July-2000 3,85,716/- Aug-2000 4,36,413/- Sep-2000 4,24,302/- Oct-2000 2,23,314/- Nov.-2000 2,17,284/- Dec.-2000 10.82,227/- Jan.-2001 7,56,232/- Feb.-2001 1,45,443/- Mar.-2001 1,62,317/- 5.4 The AO did not agree with assessee s submissions that sales for the month of December 2000 were duly reflected and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to March 2001 as compared to the actual sales of Rs. 10,82,227/- recorded for the month of December 2000 In view of the foregoing discussion in earlier paras, I hold that the books of accounts maintained by the assessee do not reflect the correctness or completeness of the accounts of the assessee as envisaged in Section 145(3) of the Income Tax Act, 1961 and it is not possible to arrive at the true profits of the assessee. I have no other option but to reject the book results and after careful consideration of the facts and circumstances of the case in entirety, I proceed to estimate the actual sales of the assessee based on the facts emerging from the analysis of the above seized paper and the statement of the partner Shri. Shankar Poojari. From the above chart, the total sales for one month amounts to Rs. 10,82,227/- based on the clarification of Shri. Shankar Poojari reproduced earlier. Therefore, the total sales works out to Rs. 1,29,86,724/- as against the sales as per P L a/c filed i.e. Rs. 50,35,646/-. However, taking into consideration a conservative view and taking into a/c lean period and holiday observed the total sales is estimated at Rs. 1,10,00,000/-. Applying G.P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts were never produced before the survey party at the time of survey. The AO has found clinching evidence regarding the actual sales in the month of December 2000 being representative figure of the average sales being done on a monthly basis. The AO also found conclusive evidence that there was a large volume of unrecorded sales which were admitted by the appellant in the statement given by Sh. Shankar Poojary. The appellant s contention that these figures are already recorded in the books of accounts is a mere cover-up as these figures were recorded subsequently after the survey. The appellant s contention that in view of case laws cited, the statement recorded were only an oral reply which was not backed by any supporting evidence is totally baseless since the assessee itself admitted that the loose paper found at the time of search showed unrecorded sales and the partner himself explained the quantum of unrecorded sales also. Thus the contention that there was no supporting evidence is unfounded. There was no onus on the department to prove beyond reasonable doubt that the entries represented undisclosed income since the partner himself, voluntarily admitted and explained the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod in the same year, while in a block assessment one is concerned with block period of 10 years. The AO has made a reasonable estimation of sales after considering the fact that there would be holidays, leave periods etc. and gave substantial relief to the assessee by estimating the sales at Rs. 1.1 crores as against the money sales of December 10.82 lakhs. The AO has found other flaws in books of account such as unaccounted purchases for which the assessee took a plea that these represented purchases for another unit but however the seized paper found in A-9 revealed unaccounted purchases as explained by the AO in his assessment order in Page 4 where the list of parties were narrated for which the purchases were not reflected in cash book or any expenditure account. The assessee s explanation was again baseless as it claimed that these were not its purchases. The estimation made by the AO is therefore upheld as (a) it has been substantiated by the actual sales figure in the month of December detected at the time of search on partner, survey on appellant (b) evidence of unrecorded sales was found at the time of search and admitted by the partner in his statement (c) the alleged re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvey. The undisclosed income if any was required to be restricted to evidences and material found. The learned AR in support of his contentions relied upon the following decisions:- i). Dhakeshwari Cotton Mills Ltd. V. CIT [ 1954 26 ITR 775 (SC). ii). Dhirajlal Girdharilal V. CIT [1954] 26 ITR 736 (SC) iii). Omar Salary Mohamed Sait Vs. CIT [1959] 37 ITR 151 (SC). 6.2 The learned AR submitted that there is no presumption that a tax return filed after the survey is the one furnished after the detection of unrecorded income. The learned AR in support of his contentions relied upon CIT Vs. Mayank Rotoplast Industries (Guj.) [2002] 253 ITR 442 (Guj) 6.3 The learned AR submitted that Books maintained as per sales tax assessment also completed and accepted the turnover, Sales tax record binding on Income Tax Dept. The learned AR in support of his contentions relied upon CIT V. Anandha Metal Corpn. [2005] 273 ITR 262 (Mad.), CIT vs. C.L. Khatri [2006] 282 ITR 97 (MP) (109) and. CIT Vs. Anand Kumar Deepak Kumar [2007] 294 ITR 497 (Del) 498 6.4 The learned AR submitted that Statement recorded of Shri Shankar Poojari was retracted therefore the same cannot be relied. The learned AR in suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closure made. On the date of survey i.e. 24.01.2001, the accounting period not ended. The books of account were audited and no discrepancy was found. The learned AR submitted that sale for Dec., 2000 for which loose paper found in case of search of other person has been reflected in the books of account; therefore, there is no suppression of income. The sale declared to the sale department has been accepted by the sales tax department. The sales tax order filed has been placed at pages 191-196 of paper book. Neither the statement of partner nor any employees were recorded during the course of survey or in the course of assessment to verify the business of assessee firm. The firm dissolved on 10.04.2001. 7. The learned DR relied upon the order of CIT (A) and submitted that sale was estimated on the basis of seized paper for the month of Dec. 2000. The sale for the Dec. 2000 has been accepted by the assessee. The assessee did not furnish explanations as to why sales for other months were low. The assessee was in the habit of concealing sale, therefore, the AO was right in making estimation of sale for whole year on the basis of sale for the month of Dec. 2000. The learned DR, in supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CIT (A) is neither on the case made out by the AO nor in accordance with the normal assessment provisions of section 144 and 145 of the Act .It appears from the order of the CIT (A) that he has decided the case treating that it was a block assessment and not in accordance with provisions of normal/regular assessment, section 145 and 144 of the Act. Therefore, the order of the CIT (A) cannot be accepted on the issue. It is to note that the case under consideration is required to decide under the provisions of normal assessments under sections 144 and 145 of the Act. According to those provisions, after rejection of books of account a reasonable and fair estimation of income/profit is to make. When matter was heard originally, the parties were argued and presented the case as the case is of block assessment before us. Therefore, the matter was re-fixed for clarification and was heard on the basis of issue involved rejection of books of account and estimation of profit. The learned AR filed certain details regarding net profit of business and argued the matter accordingly. The learned DR on the other hands relied upon the order of the AO and submitted that the AO has rightly mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3 On Considering the section 145 of the Act in the light of facts of the case under consideration, we find that the in the case under consideration books of account was not produced at the time of survey, some purchases found not recorded in the books of account, Sales for the month of Dec. 2000 were recorded in books of account on the basis of loose paper related to the assessee found in a search case of other assessee, The auditor s report is qualified report , Primary vouchers were not produced before AO, Quantity details did not maintain , The AO also found conclusive evidence that there was unrecorded purchases/sales which were admitted by the appellant in the statement given by Sh. Shankar Poojary .The assessee challenged the rejection of books of account under section 145(3) before CIT (A) through ground number one whereas no such ground has been raised before us , therefore it can be said the rejection of books of account by the AO was accepted by the assessee. Under the circumstances, we are of the considered view that the AO was justified in rejecting the books of account as he did not satisfy about the correctness or completeness of the accounts of the assessee, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red all the available materials and applied their mind and tried their best to come to a correct conclusion. So too, a Division Bench of the Patna High Court in Doma Sahu Kishun Lal Sao v. State of Bihar(2 STC 37) refused to interfere with the best judgment assessment of a Sales Tax Officer as he took every relevant material into consideration, namely, the situation of the shop, the rush of the customers and the stock in the shop and also the estimate made by the Assistant Commissioners in the previous quarters. Under section 12(2)(b) of the Act, power is conferred on the assessing authority in the circumstances mentioned there under to assess the dealer to the best of his judgment. The limits of the power are implicit in the expression best of his judgment . Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a best judgment assessment , it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. Though subsection (2) of section 12 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llection 149,014.00 3) Telephone Collection 13,354.00 387,368.00 Net Profit 6,050.67 Net Profit Ratio 0.12% B) Food Collection amount reflected on Cr.side of Profit Loss A/c is the amount recovered from Staff from their salary for providing them food. The amount credited is at normal rate. C) Telephone Collection: Represents amount collected from people using our private telephone. D) Other income represents royalty commission received from Coco-Cola to Monopolise of cold drink. 8.6 let us see effectively what the AO has done. The AO Made addition of Rs.35,53,915/- , If we add this amount of addition to the net business profit shown by the assessee Rs 6,050/- the total comes to Rs 35,59,965/-. Thus total estimation of income from business by the AO is Rs 35,59,965/-. On estimated sale of Rs. 1,10,00,000/-. The calculation of net profit rate comes to 32.36%. Under the circumstances, Can it be said that the estimation made by AO was in accordance with principles of best judgment assessment? It is certainly not; because in this line of business net profit rate of 32.36% cannot be said to the net profit rate which is fair and reasonable and prevailing net profit rate of the market. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions are strictly not applicable to the facts of the case under consideration but by the help of these provisions one can make an estimation of a fair and reasonable profit. After considering the nature of business of the assessee and surrounding circumstances of the case, Considering the both sides, side of revenue and side of the assessee we find that it will fair and reasonable if we estimate the net profit or income by applying net profit rate of 5% after allowing all expenditures including depreciation on the estimated turnover, Rs. 1,10,00,000/- of which calculation comes to 5,50,000/-as against assessee s calculation of business profit Rs 6,050/-. The net addition in total income required is Rs 543950/-. (5,50,000-6,050). Accordingly addition to the extent of Rs 543950 is sustained out of the addition of RS 35,53, 915/-The balance addition of Rs. 30,09,965 is deleted. The AO is directed to recalculate the total taxable income after taking into consideration the addition of Rs 543950/- sustained by us in accordance with law. 9. In the result appeal of the assessee is partly allowed as indicated above. Order pronounced on the 27th day of November, 2009. - - TaxTMI - TMIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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