Commissioner Of Income Tax-I, Jodhpur v. Shri Mangilal Choudhary

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR. J U D G M E N T Commissioner of Income Tax-I, JodhpurVs.Shri Mangilal Choudhary D.B. INCOME TAX APPEAL NO.160/2010 Date of Order:: 18[th] September, 2014 P R E S E N T HON'BLE MR.JUSTICE GOVIND MATHURHON'BLE MR.JUSTICE VIJAY BISHNOI Mr. Sheetal Kumbhat, for the appellant. .... BY THE COURT: (PER HON'BLE GOVIND MATHUR,J.) REPORTABLE The substantial question of law for adjudication before us in this appeal is “whether on the facts and inthe circumstances of the case the Income Tax AppellateTribunal was justified in holding that the provisuions ofSection 145(3) of the Act of 1961 are not applicable in thepresent case?” The facts in the appeal are that the assesseederives income from execution of contract work awarded bydifferent departments of the Government. During theassessment year 2006-07 the appellant declared profit ofRs.22,24,001/-ontotalcontractreceiptsofRs.3,51,51,351/- subject to depreciation and interest onthird parties. A net profit in a tune of Rs.5,25,268/-including interest received on Fixed Deposit Receipts yielding a net profit rate of 1.1% as against 1.15% in theimmediately preceding year. The Assessing Officerconsidered the declared net profit quite low, thus, calledupon the assessee to explain as to why a net profit rate @12.5% be not applied. The Assessing Officer while rejectingthe accounts books of the assessee pointed out certaindiscrepancies in the books of accounts with specificassertion that no stock register was maintained, attendanceregister-muster roll suffers from serious defects, vouchersof purchase and expenses are self-prepared, no work inprogress was shown and the identity of the creditors wasnot borne out in the accounts books. With this backgroundhe invoked the power as per provisions of Section 145(3) ofthe Income Tax Act, 1961. The Assessing Officer estimated the net profit ofassessee by applying a net profit rate of 12.5% on thecontract receipts keeping in view certain judgments ofdifferent High Courts. Accordingly, an addition ofRs.24,67,880/- was added in the income return furnished bythe assessee. An appeal preferred by the assessee before theCommissioner of Income Tax (Appeals), Jodhpur givingchallenge to the order of assessment came to be rejected byjudgment dated 29.7.2009. The Commissioner while rejectingthe appeal held that the Assessing Authority while invokingprovisions of Section 145(3) of the Act of 1961 arrived atthe conclusion that the Assessing Officer was rightly notsatisfied about correctness and completeness of the accountof the assessee. The assessee further challenged the order passedby the Commissioner of Income Tax (Appeals) by approachingthe Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur.The Income Tax Appellate Tribunal by its order dated31.5.2010 accepted the appeal and deleted the addition madeby the Assessing Officer in the income return by theassessee. In this appeal before us the submission oflearned counsel for the revenue is that the AssessingOfficer being not satisfied with the correctness andcompleteness of the accounts of assessee decided to applythe method of accounting as per Section 145(3) of the Actof 1961. The decision of the Assessing Authority was basedon objective consideration of the books of accountsmaintained by the assessee and, therefore, the Income TaxAppellate Tribunal erroneously interfered with thediscretion of the Assessing Officer. It is emphasised thatthe Income Tax Appellate Tribunal has not taken intoconsideration the reasons given by the Assessing Officerfor being not satisfied with correctness and completenessof the accounts maintained by the assessee. Heard learned counsel for the appellant. Heard learned counsel for the appellant. Sub-section (3) of Section 145 of the Act of 1961provides that where the Assessing Officer is not satisfiedabout the correctness or completeness of the accounts ofthe assessee, or where the method of accounting provided insub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by theassessee, the Assessing Officer may make an assessment inthe manner provided in Section 144. In the case in hand the Assessing Officer invokedthe authority under sub-section (3) of Section 145 beingnot satisfied about the correctness and completeness of theaccounts of the assessee. The Assessing Officer in detailreferred errors and incompleteness in the books ofaccounts. The defects/discrepancies noticed by theAssessing Officer are as under:- “(i) The assessee has not maintained any registercontaining details regarding purchase ofmaterials, consumption of raw-materials etc. onday to day and site wise basis. As such theexpenses incurred on material and daily and sitewise consumption thereof are not subject toverification so is the position with regard tothe value of closing stock. (ii) The attendance register produced revealedthat no site-wise attendance register/muster-rolls have been maintained and only one register(in three volume) has been maintained for markingthe attendance of all the laborers working atvarious sites of far away places like Jodhpur,Sirohi, Khinwara, Abu Road, Jojawar, Sadri-Ranakpur, Bijapur-Goria etc. In this Registeralso only names of persons are mentioned withoutany other identification like father's name,address, category of the worker like Mistry, Met,Karigar, Mazdoor etc. and against them “P” ismarked by the assessee's men. No date wisesignatures are obtained in the register thoughthey put their signatures on the stamps affixedto it showing the payment. Even the name of theSites is no where mentioned in the register where the laborers have worked. Marking attendance inone register for all these sites is impossible ondaily basis as the assessee resides at Paliwhereas the works were carried out at various faraway places mentioned above i.e. Jodhpur, Sirohi,Khinwara, Abu Road, Jojawar, Sadri-Ranakpur,Bijapur-Goria etc. Further in the registerstamped receipts for payments are shown almost atall pages only for 21, 22, 24 & 26 persons,whereas the payments are shown on these pages for32 persons. When these defects are pointed out ithas been submitted by the AR that the assesseeused to visit all these sites daily on hisvehicle and mark the attendance of the laborersby himself. As regards the non availability ofrevenue stamps on these registers his argument isthat it happened due to non availability of thesame in the site. Both the arguments are putforth only for the sake of arguments and is notacceptable. It is also noticed that the assesseehas shown payment of wages to male and femaleworkers at the same rates whereas no suchpractice is prevalent in the field of roadconstruction. Thus the so-called attendanceregister is not reliable and hence the labour &wages payment shown at Rs.89,54,480/- is notverifiable. (iii) The vouchers produced before me forpurchases of materials and expenses are self-prepared vouchers. Even these vouchers do notcontain name & address of the persons to whom thepayments have been made. On the cash paymentvouchers for expenses no voucher No. ismaintained. Payments for purchases of rawmaterials like, stone, grit, sand, soil etc. weremade in cash also. Out of total purchase of soilat Rs.6,37,220/- only a payment of Rs.81,600/-was through cheque and the remaining paymentswere made in cash where identity of therecipients are not verifiable. (iii) The vouchers produced before me forpurchases of materials and expenses are self-prepared vouchers. Even these vouchers do notcontain name & address of the persons to whom thepayments have been made. On the cash paymentvouchers for expenses no voucher No. ismaintained. Payments for purchases of rawmaterials like, stone, grit, sand, soil etc. weremade in cash also. Out of total purchase of soilat Rs.6,37,220/- only a payment of Rs.81,600/-was through cheque and the remaining paymentswere made in cash where identity of therecipients are not verifiable. (iv) The assessee has shown sundry creditors tothe tune of Rs.1,26,56,471/-. Only names ofindividuals are given in respect of thesecreditors and identity of these creditors is notproved though sufficient opportunity has beengiven. Even the name of father of these creditorsis not available rendering their addressincomplete. (v) Verification of ledger revealed that cashpayments exceeding Rs.20,000/- were made to thecreditors on various dates during the year, whowere last year's creditors, having openingbalances and such creditors have also no addressoridentity,renderingthecreditorsunverifiable. Thus, the creditors shown are notverifiable, meaning thereby that the expenses/purchases shown against them are not subject toverification.” Beside the above, the Assessing Officer foundthat the assessee was having continuous work in severalcontracts awarded to him and he was continuing with severalworks at various sites at the end of accounting year and itwas not possible to believe that even after having workremaining to be completed with him he would have stoppedhis work on different sites in the month of March. Theexpenses claimed by the assessee were not even accrued onthe last day of accounting year. The Commissioner of Income Tax (Appeals) afterexamining the errors and incompleteness pointed out by theAssessing Officer affirmed the order of assessment. TheIncome Tax Appellate Tribunal by the order impugned heldthat the purchase and sales are found vouched and plausiblereasons has been assigned for declining profit rate, the trading result shown by the assessee cannot be taken to beuntrue. Under Section 145(3) of the Act of 1961 therequirement is that the Assessing Officer must be satisfiedabout correctness and completeness of the accounts of theassessee. Mere submission of vouchers is not sufficient toarrive at the conclusion that the trading result shown bythe assessee are true. The Assessing Officer while makingassessment of return can reject the same as unreliable, ifimportant transactions are omitted therefrom or if properparticulars in vouchers are not forth coming or if they donot include entries relating to several relevant factsnecessary to compute income. The rejection of accountswould always be justified when the accounts books are foundunreliable, incorrect or incomplete for valid reasons. In the case in hand the Assessing Officer byrelying upon several errors and incompleteness in the booksof accounts decided to invoke the authority as per Section145(3) of the Act of 1961. Suffice to mention that noplausible reason was extended by the assessee for errors inthe vouchers and in other accounts books. The Income TaxAppellate Tribunal without examining the errors pointed outby the Assessing Officer reversed the order of assessmentand its affirmance by Commissioner of Income Tax (Appeals)by relying upon the principle that the vouchers submittedare not required to be treated untrue. The tribunal did notchoose to examine the fact that no plausible reason wasextended by the assessee to satisfy the Assessing Officerabout their truthfulness. In the case in hand the Assessing Officer byrelying upon several errors and incompleteness in the booksof accounts decided to invoke the authority as per Section145(3) of the Act of 1961. Suffice to mention that noplausible reason was extended by the assessee for errors inthe vouchers and in other accounts books. The Income TaxAppellate Tribunal without examining the errors pointed outby the Assessing Officer reversed the order of assessmentand its affirmance by Commissioner of Income Tax (Appeals)by relying upon the principle that the vouchers submittedare not required to be treated untrue. The tribunal did notchoose to examine the fact that no plausible reason wasextended by the assessee to satisfy the Assessing Officerabout their truthfulness. The appeal, thus, deserves acceptance, hence isallowed. The order impugned dated 31.5.2010 passed byIncome Tax Appellate Tribunal in ITA No.550/JU/2009(Annexure-3) is declared illegal and, therefore, the sameis quashed. The order passed by the Assessing Officer dated22.12.2008 (Annexure-1) is affirmed. (VIJAY BISHNOI),J. (GOVIND MATHUR),J. kkm/ps.