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2018 DIGILAW 1451 (RAJ)

Commissioner of Income Tax v. Shyam Singh Jat

2018-07-10

K.S.JHAVERI, VIJAY KUMAR VYAS

body2018
JUDGMENT 1. By way of this appeal, the appellant has assailed the judgment and order of the Tribunal whereby Tribunal has dismissed the appeal of the department and partly allowed the appeal of the assessee for statistical purposes. 2. Counsel for the appellant has framed following substantial question of law:- 1. Whether on the facts and circumstances and in law, the ITAT was justified in rejecting the plea of Revenue regarding deleting the addition u/s 68 of Rs. 4,39,72,094/- as unexplained bank deposit by the CIT(A) without considering the fact that the assessee had declared its income u/s 44AD in its ITR and had failed to furnish its books of accounts before the AO over span of 19 months, after availing 9 opportunities to do so, without a speaking order regarding the objections raised by AO against accepting fresh evidence under Rule 46A of the Income Tax Rules and without bringing on record the sufficient cause under Rule 46(1)(ii) that prevented the appellant from producing any evidence before the AO 2. Without prejudice to the above question of law the following questions of law are being filed: a. Whether on the facts and in circumstances of the case and in law the Tribunal can accept the books of accounts of the assessee even when the net profit rate and the sales shown are at variance with the net profit rate and sale declared as presumptive income in its income tax return which has never been revised by the assessee b. Whether the assessee can declare its presumptive income u/s 44AD declaring N.P. rate @ 14.99% of gross receipts in its income tax return and claim lower N.P. rate and higher turnover, subsequently, without filing a revised return 3. Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was justified in upholding the rejection of books of accounts of the assessee particularly when the assessee filed return of income u/s 44AD and even after 9 opportunities in over 19 months they were not produced during the assessment years and were got audited after assessment proceedings and there was a difference between N.P. and total sales declared in the ITR and the audited books 4. Whether on the facts and in the circumstance of the case and in lae, the Hon'ble ITAT can absolve certain class or classes of assessee from maintaining stock register and proper bills and voucher in violation of provision u/s 44AA 5. Whether on the facts and in circumstances of the case and in law, the Hon'ble ITAT can over-rule a finding of facts by CIT(A) regarding non-maintenance of proper books of accounts, in absence of any fresh evidence furnished before it by the assessee to rebut the finding of fact by the first appellate authority 6. Whether on the facts and in circumstances of the case and in law, the Hon'ble ITAT's acceptance of net profit declared by assessee at 1.75% is per incuriam, as it violates judicial precedence and discipline since it has consistently been held by Hon'ble Rajasthan High Court that past hostory of the assesse will be the basis of estimating N.P. when books of accounts have been rejected u/s 145(3), particularly in the case of the assessee, when N.P. rate is 21.93% in A.Y. 2009-10 and 17.97% in A.Y. 2010-11 and 14.99% in the year under consideration as per the ITR filed and never revised 3. The fact of the case are that the assessee filed its return of income on 30.09.2011 declaring total income of Rs. 1,58,366/-. However, the matter was selected for scrutiny and accordingly, notices were issued. Looking to the non-cooperation of the assessee, the Ld. AO, proceeded on the basis of bank statement received from Bank of Maharashtra, Govindgarh and invoked section 144 in making the assessment, thereby, making total addition to the tune of Rs. 4,50,50,380/-. 4. Counsel for the appellant has mainly contended that the Tribunal and CIT(A) have committed serious error in ignoring the statement of the Bank Manager and have wrongly assessed on the basis of information submitted in the revised audited statement before CIT(A). 5. In this regard, the relevant observation of the CIT(A) reads as under:- 4.2 It is observed that the assessee had filed his return of income on the basis of un-audited accounts and got the accounts audited subsequent to completion of assessment. During the appellate proceedings, the assessee filed the copies of such audited accounts along with confirmations from parties from whom major purchases had been made. During the appellate proceedings, the assessee filed the copies of such audited accounts along with confirmations from parties from whom major purchases had been made. The assessee also pointed out various inter-transfer entries related to transfer of funds amongst various bank accounts held by the assessee. The assessee requested for considering the above evidences as fresh evidences as per Rule 46A. Vide letter dated 25.01.2016, a Remand Report was called for from the AO requesting him to examine the entire evidences and confirmations furnished by the assessee. The AO submitted the Remand Report dated 7.7.2016 from which it is seen that the AO has verified only the transfer entries and has submitted that claim of inter-transfer entries to the extent of Rs. 26,29,818 are found to be correct. The AO has however not given any comments regarding the nature of cash deposits, the subsequent RTGS payments for purchases of chicken feed and chicken by the assessee as well as the other additions made by the AO and the justification thereof. In the absence of complete verification by the AO, all elevant facts were freshly examined during the appellate proceedings. It is firstly observed that the fresh show-cause notice asking the assessee to explain cash deposits in 11 accounts of the assessee was issued on 24.2.2014 givin time up to 27.2.2014 and the assessment was completed on 28.2.2014 without taking into consideration the version of the assessee. In my opinion the time of 3 days allowed by the AO was insufficient for the assessee to reconcile and explain entries in 11 bank accounts, more so in the absence of audited accounts. It is therefore held that the assessee was prevented by sufficient cause in not being able to respond to the final show-cause notice given by the AO. Accordingly, the additional evidences submitted by the assessee duing the appellate proceedings are hereby admitted in accordance with the provisions of Rule-46A. 6. Taking into account the evidence on record, the CIT(A) has partly allowed the appeal of the assessee which was further allowed by the tribunal observing on each of the ground as under:- 10. We have heard the rival contentions and perused the material available on record. We find that the AO has brought to tax the credit entries appearing in the assessee's bank accounts in absence of necessary explanation on the part of the assessee. We have heard the rival contentions and perused the material available on record. We find that the AO has brought to tax the credit entries appearing in the assessee's bank accounts in absence of necessary explanation on the part of the assessee. During the appellate proceedings before the ld CIT(A), the assessee has submitted the audited financial statements, which, as pointed out by the ld CIT(A) as well as by ld DR during the course of hearing, have been audited subsequent to completion of assessment proceedings and other details in terms of bank reconciliation statements and other support documentation in terms of purchase confirmations, etc. The same were admitted as additional evidence after seeking the remand report from the AO. The ld CIT(A) observed that the AO in his remand report has only commented partially on certain matters and thereafter, invoking his co-terminus powers examined the relevant facts and related documentation having a bearing on the matter especially the nature of deposits in the bank accounts and payments towards purchase of chicken feed and chicken by the assessee. After detailed examination, the ld CIT(A) has accepted the submission of the assessee that out of cash deposits of Rs 4,37,07,862 in his bank accounts, an amount of Rs 3,40,35,960 represents sale of poultry products which has also been reported in the audited financial statements. The said finding of the ld CIT(A) remain un-controverted before us and the same is hereby confirmed. 11. Regarding the difference of Rs 96,71,902/-, the ld CIT(A), after taking into consideration the remand report of the AO, has accepted the said difference except for an amount of Rs 12,05,000 which as per assessee represent opening cash and debtor balances. As per ld CIT(A), these opening balances are not verifiable in absence of books of accounts for the previous years. Per contra, the ld AR submitted that assessee was engaged in the business from last so many years and was regularly filing ITRs, the financials of year 2010-11 was duly audited by a Chartered Accountant, third party confirmation from the debtors and cash book was duly submitted and books of accounts for the preceding years was maintained and the income was reported u/s 44AD of the I.T. Act. As per auditor's report, we find that the auditors have categorically stated that "this is the first year of audit, opening balance are taken as certified by the proprietor with due confirmation from the bank statement". Given that, we are of the view that matter will require examination of the said contentions so raised by the ld AR and accordingly the matter to this limited extent is remanded back to the file of the AO. 12. Regarding rejection of books of accounts by the ld CIT(A) under section 145(3) of the Act, the ld CIT(A) has stated that there are substantial cash purchases which are not supported by proper bills/vouchers and secondly, no stock register has been maintained by the assessee. In this regard, the ld AR has contended that most of the purchases are through RTGS payments and only a part of the purchases are made in cash for which cash receipt and kanta parchi, etc were submitted before the ld CIT(A). We thus find that there are contrary claims of cash purchases substantial as per ld CIT(A) and only a part of total purchases as per the ld AR which are equally vague and doesn't throw any light on the extent of purchases made during the year in cash and which remains unverified. At the same time, given the inherent nature of the assessee's business, where purchases are also made from farmers, cash transactions cannot be ruled out. Further, regarding non-maintenance of stock register, the ld AR submitted that there are no opening and closing stock during the year and what has been purchased during the year, the same has been sold during the year, hence, there was no necessity to maintain the stock register and the same cannot be a basis for rejection of books of accounts. We find that the assessee is in the business of purchase and sale of chicks and poultry feed. Sales are made to farmers and Butchers. The assessee purchase broilers from hatcheries and poultry feed from farmers as well as from industrial units. The assessee sold broiler to marginal farmers and poultry units and after 40-45 days the assessee purchase these already supplied broilers from the farmers/poultry units and sale them to butchers. In our view, given the nature of business of the assessee and the turnover of Rs 3,40,35,960 reported during the year, the count of no. The assessee sold broiler to marginal farmers and poultry units and after 40-45 days the assessee purchase these already supplied broilers from the farmers/poultry units and sale them to butchers. In our view, given the nature of business of the assessee and the turnover of Rs 3,40,35,960 reported during the year, the count of no. of broilers and chicks purchased and sold, and stock of poultry feed purchased and consumed is desirable and will support the orderly functioning of the assessee's business and reflection of its financial results. At the same time, given that the assessee operates his business in an informal and rural set up with hands on approach, there is a possibility of non-maintenance of adequate records. Further, we noted that this is the first year where the assessee has carried out the exercise of maintenance of formalized books of accounts and got them audited. At the same time, we find that there are adequate documentation to support the purchase and sales made during the year in terms of ledgers, invoices and purchase confirmations. Further, no specific defect has been highlighted by the ld CIT(A) in respect of other expenses claimed by the assessee. Given the peculiarity of the facts and circumstances of the case, we are of the view that the ld CIT(A) was not correct in rejection of books of accounts and estimating the net profits in hands of the assessee relating to the impunged assessment year. 13. In light of above discussions, the book results and net profit so declared by the assessee is hereby accepted except for verification of opening balances of cash and debtors for which the matter is being set-aside to the file of the AO. In the result, sole ground of revenue's appeal is dismissed, ground no. 2 of assessee's appeal is allowed for statistical purposes and ground no. 3 of the assessee's appeal becomes infructuous in view of results declared as per books of accounts being accepted. 14. Regarding Ground no. 1 of the assessee appeal, the same was not pressed during the course of hearing. Hence, the same is hereby dismissed as not pressed. 15. In Ground No. 4, the assessee has challenged the confirmation of addition of agriculture income of Rs. 1,92,350/- as income from other sources. 14. Regarding Ground no. 1 of the assessee appeal, the same was not pressed during the course of hearing. Hence, the same is hereby dismissed as not pressed. 15. In Ground No. 4, the assessee has challenged the confirmation of addition of agriculture income of Rs. 1,92,350/- as income from other sources. Briefly stated facts of the case are that no details or basis of the agriculture income was produced for verification before the Assessing Officer. Accordingly he considered the same as income from other sources. Even during the appellate proceedings, ld. CIT(A) observed that the same position is continuing as no explanation or evidence in support of such receipt has been furnished by the assessee. During the course of hearing, the ld. AR submitted that the necessary evidence regarding agriculture income were never demanded by the either AO or by the ld. CIT(A). However, the same are being submitted now in form of copy of jamabandi and proof of agriculture income and the same may kindly be admitted. The ld DR fairly submitted that the matter may be remanded to the AO for verification. In light of the same, the evidence in support of agriculture income is admitted and the matter is remanded back to the file of the AO to examine the same a fresh after providing reasonable opportunity to the assessee. The ground is thus allowed for statistical purposes. 16. In ground No. 4, the assessee has also challenged the action of ld. CIT (A) in considering the interest income of Rs. 48,231 as income from other sources. In this regard, the ld. AR has submitted that interest income was already declared while calculating business income, Net profit and disclosed in audited profit and loss account and same may be deleted. From perusal of assessment order, we noted that the AO has brought to tax income from other sources as per return of income amounting to Rs 90,256. However, there is no finding that said figures includes the figure of Rs 48,231. Hence, the matter is remanded back to the file of the AO to examine the same and where it is found that the figure of Rs 90,256 already includes the figure of Rs 48,231, allow the necessary relief to the assessee as the same income cannot be brought to tax twice. In the result, the ground of appeal is allowed for statistical purposes. 17. In the result, the ground of appeal is allowed for statistical purposes. 17. In ground no. 5, the assessee has challenged the disallowance of deduction u/s 80C of Rs. 51,215/-. In this regard, ld. CIT(A) has observed that no documents or supporting evidences have been furnished either in assessment proceedings or in the appellate proceedings. In this regard, ld. AR submitted that evidence regarding investment eligible for deduction u/s 80C were never demanded by AO or ld. CIT(A) and the addition evidence regarding said investment in form of LIC receipt and tuition fees has now being submitted and the same may kindly be admitted. The ld DR fairly submitted that the matter may be remanded to the AO for verification. In light of the same, the evidence in support of deduction under section 80C is admitted and the matter is remanded back to the file of the AO to examine the same a fresh after providing reasonable opportunity to the assessee. The ground is thus allowed for statistical purposes. 7. In that view of the matter, we are in complete agreement with the view taken by the tribunal. Hence, no substantial question of law arises. 8. The appeal stands dismissed.