Commissioner Of Income Tax, Bhagalpur v. Dhananjay Kumar Yadav B

IN THE HIGH COURT OF JUDICATURE AT PATNAMiscellaneous Appeal No.211 of 2018 ====================================================== Commissioner Of Income Tax, Bhagalpur ... ... Appellant/s Versus Dhananjay Kumar Yadav B - 103, Jagmeno Shree Garden Apartment, VehNagar, Rukanpura, Bailey Road, Patna - 800014 PAN . ... ... Respondent/s ======================================================Appearance :For the Appellant/s: Mrs. Archana Sinha, Sr. SC. Income Tax Deptt. Ms. Shilpi Keshri, AdvocateFor the Respondent/s: Mr. Krishna Mohan Mishra, Advocate====================================================== CORAM: HONOURABLE THE CHIEF JUSTICE and HONOURABLE MR. JUSTICE RAJIV ROYCAV JUDGMENT(Per: HONOURABLE THE CHIEF JUSTICE) Date : 24-01-2024 The questions of law arising in the above appealare framed as follows:- 1. Whether on the Assessing Officerestimating profits of a business after rejecting thebooks of accounts, there is any scope for furtheradditions to be made based on the entries in thebooks of accounts? 2. Whether when such estimation ofprofit is made, the Commissioner under Section263 of the Income Tax Act, 1961, can revise theassessment order finding prejudice on the revenue,which is an essential ingredient in invoking Section263, along with an erroneous finding by theAssessing Officer? 2. The learned Standing Counsel for the revenueargued that in the present case, the assessee was a workscontractor, who in addition to the said income had income fromother sources, in the subject assessment year, being 2012-13.The Assessing Officer looked at the books of accounts anddirected the assessee to produce the bills and vouchers of thematerials purchased. The assessee having failed to produce thesame, the Assessing Officer rejected the books of accounts andestimated a net profit of 6% on the gross receipts of the assesseeto which the other incomes were added. 3. The Commissioner under Section 263 of theIncome Tax Act, 1961 (for brevity, ‘the Act’) found theassessment order to be erroneous on two counts. The payment oftax deducted at source claimed of Rs. 2,64,000/- having notbeing proved and the Assessing Officer having not reckoned thesundry creditors of the assessee especially when no bills andvouchers were produced. The order of the Commissioner underSection 263 of ‘the Act’ is asserted to be perfect, in all respects,by the Revenue, since the assessment order is both erroneousand prejudicial to the revenue. The learned Senior StandingCounsel also relies on the decision in Malabar Industrial Co.Ltd. vs. Commissioner of Income Tax; (2000) 243 ITR 0083. 4. The learned counsel for the respondent, however,points out that when the books of accounts are rejected, there isno scope for seeking explanation to the various entries made inthe books of accounts. The Assessing Officer having reckonedthe gross profit at 6% on the total receipts, there cannot be anyfurther additions made. The learned counsel would assert thatMalabar Industrial Co. Ltd. (supra), relied by the revenue, isin his favour. The respondent also relies on PrasadConstruction & Co. vs. CIT & others; (2016) 388 ITR 579(Pat-HC) and Asst. CIT vs. Salauddin; (2019) 414 ITR 335(Pat-HC). Reliance is also placed on CIT vs. Aggrawal Engg.Co (Jal.); (2008) 302 ITR 246. 5. We will first consider the decisions placed onrecord and then look at the application of the dictum to the factsof the case. The first of the cases placed before us is CIT vs.Aggrawal Engg. Co (supra) of the Punjab and Haryana HighCourt. Therein, the assessee being a civil contractor filed thereturn based on which the assessment was made, which wascancelled under Section 263 of ‘the Act’. A fresh assessmentwas made which was challenged in appeal before theCommissioner. The Commissioner deleted two additions madeby the Assessing Officer, on account of cash introduced in the 5. We will first consider the decisions placed onrecord and then look at the application of the dictum to the factsof the case. The first of the cases placed before us is CIT vs.Aggrawal Engg. Co (supra) of the Punjab and Haryana HighCourt. Therein, the assessee being a civil contractor filed thereturn based on which the assessment was made, which wascancelled under Section 263 of ‘the Act’. A fresh assessmentwas made which was challenged in appeal before theCommissioner. The Commissioner deleted two additions madeby the Assessing Officer, on account of cash introduced in the books and payments made for purchases outside the books ofaccounts. The Commissioner found that the books of accountshaving been rejected by the Assessing Officer, and a net profitof 10% being applied, there is no reason for the furtheradditions. We are perfectly in agreement with said findingsespecially since it has to be presumed from the facts available inthe judgment that the receipts of the assessee were confined tothe civil contracts. When the gross receipts were taken and anassessment made estimating the book profit, the defects anddefalcations in the books of accounts is reckoned to be takeninto account. In this context, we only raise one reservation, as towhether in reckoning the total income for the purpose ofcomputing the gross income, it is not discernible from thejudgment, whether the cash introduced and the purchases madeoutside the books of accounts were included or not. 6. Prasad Construction & Co. (supra) is the caseof a civil contractor arising from an assessment order; not anorder under Section 263 of ‘the Act’ as is the case in the presentappeal. Therein also, the assessment of the civil contractor wasconcluded; estimating net profit at 10%. The assessment orderhaving been confirmed by the two appellate authorities, reachedthe High Court where the assessee claimed that the net profit was only 6%.The Division Bench of this Court interfered withthe assessment only on the ground that the material relied on bythe Assessing Officer was irrelevant and relevant materialshaving not been relied upon; which dictum is not applicable tothe above case. 7. In Salauddin (supra) a works contractor with the main source of income from the contract awarded by theRailways and the Public Works Department, disclosed a totalreceipt slightly above that of the previous year. The AssessingOfficer rejected the books of accounts and determined the netprofit at the rate of 8% as against the net profit declared of5.10% by the assessee; only slightly above the 5% declared forthe preceding year. The assessee challenged the order before theCommissioner, who made a further addition on the basis ofprofit not disclosed. The Tribunal found that once the books ofassessee has been rejected and net profit estimated at 8% therewas no reason for a further addition at the level of the firstAppellate Authority, who has sustained the addition of net profitby the Assessing Officer. 8. Malabar Industrial Co. Ltd. (supra), relied onby both the parties held that to invoke Section 263 of ‘the Act’two conditions must co-exist; that the order of the Assessing Officer should be erroneous and it should also be prejudicial tothe interest of the revenue. It was declared that the mere factthat the order of the Assessing Officer is erroneous would notnecessarily lead to invocation of Section 263 of ‘the Act’; sincewhen two views are possible and the Assessing Officer haschosen one of them; giving the assessee relief to an extent, themere fact that the revenue collected less tax would not enableinvocation of Section 263 of ‘the Act’. However, when the orderis erroneous and the revenue loses tax, lawfully payable by aperson, it will also be prejudicial to the interest of the revenue;which words, it was held, is of wide importand not confined tomere loss of tax. Officer should be erroneous and it should also be prejudicial tothe interest of the revenue. It was declared that the mere factthat the order of the Assessing Officer is erroneous would notnecessarily lead to invocation of Section 263 of ‘the Act’; sincewhen two views are possible and the Assessing Officer haschosen one of them; giving the assessee relief to an extent, themere fact that the revenue collected less tax would not enableinvocation of Section 263 of ‘the Act’. However, when the orderis erroneous and the revenue loses tax, lawfully payable by aperson, it will also be prejudicial to the interest of the revenue;which words, it was held, is of wide importand not confined tomere loss of tax. 9. As we noticed, of the four decisions discussedherein above, three are on assessment. In the present case, theAssessing Officer had estimated the gross profit at 6% of thetotal receipts and had completed the assessment after adding theincome from other sources also. The sundry creditors, as is seenfrom the explanation offered by the assessee before theCommissioner for the subject assessment year, came toRs. 3,44,84,318/-; out of which, the liability in the previous yearwas Rs. 1,92,98,140/-. Hence the sundry credit claimed by theassessee came to Rs. 1,51,86,178/-. Obviously, this was not noticed by the Assessing Officer and presumably the same wasnot accounted in the total receipts, as undisclosed income. If thesundry credits are not explained properly, then disclosing that inthe books of accounts would amount to a device employed tosuppress the income received, as a credit taken by a third party,with whom the assessee had a transaction. 10. In the present case, the assessee was a workscontractor as is disclosed from Annexure-2 order under Section263 of ‘the Act’, who had executed contracts awarded byvarious State government departments. There is no question ofthe credit being attributed to any of the awarders; which even ifexisting, there was no difficulty in establishing the same. 11. We also have to notice that in the assessmentorder, the assessee has income from different sources; from afirm, house property and other sources. Hence, the incomedeclared by the assessee is not solely from the contract work.When the assessment made is of income from one single source,if the total contract receipts are taken to estimate the grossprofit, necessarily there cannot be any further additions made. Inconsonance with the reservation made by us, while dealing withPrasad Construction & Co. (supra), applied to the presentcase; if the gross receipts are taken, on which the net profit is assessed, the entire receipts are not reflected, then definitelythere is scope for addition, to the receipts. The sundry creditors,if not explained will have to be added to the contract receiptsbefore the net profit is assessed or otherwise added in theincome from other sources, bringing in that quantum, asunexplained income. 12. Hence, either way, whether the unexplainedsundry credits are added to the contract receipts or as incomefrom other sources definitely the tax payable by the assesseewould be higher than that paid by a mere estimation of netprofit; looking at the quantum returned, on which noexplanation was sought. We also have to notice that in thepresent case the Commissioner under Section 263 of ‘the Act’had also reckoned non-payment of tax deducted at source. 13. Essentially, the Commissioner has found theorder to be erroneous for reason of non payment into thetreasury, of the tax deducted at source having not been verifiedand also the sundry creditors having not been examined; thelatter of which ground results in the finding that the estimationof profit on the contract receipts alone would be an erroneousexercise and it causes prejudice to the interest of the revenue.We find absolutely no reason to interfere with the order of the 13. Essentially, the Commissioner has found theorder to be erroneous for reason of non payment into thetreasury, of the tax deducted at source having not been verifiedand also the sundry creditors having not been examined; thelatter of which ground results in the finding that the estimationof profit on the contract receipts alone would be an erroneousexercise and it causes prejudice to the interest of the revenue.We find absolutely no reason to interfere with the order of the Commissioner and set aside the order of the Tribunal answeringthe questions of law against the assessee and in favour of theRevenue, especially on the facts of this case. The order of theTribunal setting aside the order under Section 263 of ‘the Act’ isannulled. 14. The appeal stands allowed directing theAssessing Officer to complete the assessment. (K. Vinod Chandran, CJ) Rajiv Roy, J: I agree Aditya Ranjan/- AFR/NAFRAFRCAV DATE16.01.2024.Uploading Date24.01.2024.Transmission Date ( Rajiv Roy, J)