Iapl/343/2017 Of Pr. Commissioner Of Income Tax Varanasi v. M/S Raees Alam Siddiqui

-Court No. 35 Case :- INCOME TAX APPEAL No. - 343 of 2017Appellant :- Pr. Commissioner Of Income Tax VaranasiRespondent :- M/S Raees Alam Siddiqui Counsel for Appellant :- Praveen KumarCounsel for Respondent :- Ashok Trivedi Hon'ble Bharati Sapru,J. Hon'ble Dinesh Kumar Singh,J. 1. The instant Income Tax Appeal has been filed by the Revenueunder Section 260-A of the Income Tax Act, 1961 (hereinafter referredto as ‘the Act’) impugning the judgment and order dated 28.07.2017passed by the Income Tax Appellate Tribunal, Lucknow, Bench A(hereinafter referred to as ‘the ITAT’) in ITA No.159/LKW/2017 forthe Assessment Year 2011-12. 2.The appeal was admitted on 27.02.2018. The following questions of law have been formulated for decision of this Court:- i)Whether, on the facts and circumstances of the case and in lawthe learned ITAT was justified in holding that after applicationof Section 144 of the IT Act the only way available to theAssessing Officer to assess income by applying N.P. Rate andnot by making specific disallowances. ii) Whether, on the facts and circumstances of the case and in law the learned ITAT was justified in deleting addition ofRs.8,92,02,109/- for bogus/unverifiable purchase and ofRs.2,19,88,312/- for bogus/unverifiable expense claimed in M/sSewa Enterprises and Surgical and M/s.Prabhat Enterprisesand directing the Assessing Officer to calculate Net Profit of theassessee at the rate of 11.5% of the total sale for all the threepropriety concerns. Iii) Whether,on the facts and circumstances of the case and inlaw the learned ITAT was justified in deleting addition ofRs.29,00,000/- out of the addition of Rs.33,31,1820/- made forunexplained investment in immovable property and fullydeleting the addition of Rs.29,00,000/- made for unexplainedgift without giving an opportunity to the Assessing Officerdespite the fact that the assessee had not furnished any evidencebefore the Assessing Officer during the assessment proceedings. 3.The assessee runs three proprieties concerned namely M/s SunSurgicals, M/s Sewa Enterprises and M/s Prabhat Enterprises. Theseproprieties concerned are engaged in trading and supply of surgicaland hospital goods, medicines and surgical instruments as well asrepairs and maintenance of Government Hospitals respectively. 4.The respondent-assessee filed its return of income on 30.09.2011declaring total income of Rs.1,41,49,150/-. The case was selected forscrutiny and accordingly notice under Section 143(2) of the Act wasissued. Thereafter, notice under Section 142(1) of the Act was issuedon 23.05.2013 and the assessee was directed to furnish copies ofBalance Sheet, Profit and Lost account and audit report forAssessment Year 2011-2012. 5. During the course of assessment proceedings, several opportunitieswere given to the assessee to produce books of account and supportingdocuments viz., purchase invoices, vouchers for expenses relating dayto day purchase etc. 6. In view of the aforesaid, the Assessing Officer (hereinafter referredto as ‘the AO’) rejected the books of account and trading results shownby the assessee and proceeded to complete the assessment proceedingson the basis of material available on record and in the mannerprovided under Section 144 of the Act and assessed total income of theassessee for tax at Rs.15,73,71,390/-. 7. Aggrieved by the aforesaid assessment order, the respondent-assessee filed an appeal before the CIT(A). The CIT(A), however,rejected the appeal and held that the AO had provided ampleopportunities to the assessee to represent his case and give necessarydetails along with evidence to prove the receipts and paymentmentioned in the final account but the respondent-assessee did notfurnish the details as required by the AO and, therefore, the AO hadinvoked the provisions of Section 144 of the Act and completed theassessment under Section 144 of the Act on the basis of materialavailable before the AO. 7. Aggrieved by the aforesaid assessment order, the respondent-assessee filed an appeal before the CIT(A). The CIT(A), however,rejected the appeal and held that the AO had provided ampleopportunities to the assessee to represent his case and give necessarydetails along with evidence to prove the receipts and paymentmentioned in the final account but the respondent-assessee did notfurnish the details as required by the AO and, therefore, the AO hadinvoked the provisions of Section 144 of the Act and completed theassessment under Section 144 of the Act on the basis of materialavailable before the AO. 8. The respondent-assessee thereafter, filed an appeal before the ITAT.The ITAT on the appeal has passed the impugned order. 9. The ITAT has recorded a finding of fact that the assessee did notproduce the books of account, even though the accounts of theassessee were duly audited and, therefore, the AO had rightly invokedthe provisions of Section 145(3) of the Act and resorted to theprovisions of Section 144 of the Act to make an assessment in themanner provided therein. The Tribunal after noting the provisions ofSection 144 of the Act has held that the only course left with the AOwas just to estimate the total income of the assessee to the best of hisjudgment. 10. However, the Tribunal has further held that once the books ofaccount had been rejected, the AO should not have disallowed theexpenses for computing the income of the assessee which wereclaimed by the assessee. The AO should have estimatedthe income ofthe assessee by applying the net profit rate to the gross receipt of theassessee. 11. The Tribunal has also held that only in the Assessment Year 2009-10, the Tribunal had confirmed the order of CIT(A) estimating the netprofit at the rate of 11.5% and, therefore, directed the AO to estimatethe net profit of the assessee @ 11.5% on the total sales made by allthe concerns of the assessee. 12.After setting aside the order passed by the CIT(A), the ITAT hasrestored the issue to the file of the AO with a direction that the AOshould verify from the copy of the Bank account and the copy of totalincome whether the source of investment could be proved or not. Oncethe books of account had been rejected as it was not supported by theevidence, the only course available to the AO was to make the bestjudgment assessment under Section 144 of the Act. The AO wasrequired to assess the income estimating the net profit at a particularrate. The AO had to consider the facts and circumstances of the case and evaluate the material collected by him to make an assessment onthe best of his judgment. 13. Heard Mr. Praveen Kumar, learned counsel for the appellant and Mr. Ashok Trivedi, learned counsel for the respondent. 14. We find that the AO while finalising the assessment under Section144 of the Act had disallowed the claims of expenditure made by theassessee which could not be verified in absence of evidence led by theassessee to support the claim. It is permissible for the AO to disallowthe claims while finalising the assessement in the manner providedunder Section 144 of the Act to make best judgment assessment. It isnot required for the AO to apply net profit at a particular rate whilefinalising the assessment under Section 144 of the Act. Method forestimating the income in the previous year of the assessee on the basisof net profit at a particular rate cannot be applied for all subsequentyears. 15. We, therefore, hold that the impugned order passed by theTribunal is not in accordance with law and, therefore, we set aside theimpugned order passed by the Tribunal and remit the matter back tothe Tribunal to decide the appeal of the assessee on merit and not onthe basis of method of net profit @ 11.5% applied for assessing theestimate of profit of the assessee for the previous year i.e. 2009-2010.We thus, allow the appeal and answers the questions of law in favourof the Revenue and against the assessee. Order Date:-14.08.2018 prateek/