Income Tax Appeal v. The Dy. Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR J U D G M E N T INCOME TAX APPEAL NO. 102 of 2005 RADHEY SHYAM SITA RAM & PARTY V/S THE DY. COMMISSIONER OF INCOME TAX DATE OF JUDGMENT : July 03, 2008. PRESENT ' HONBLE SHRI N.P. GUPTA,J. HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J. Mr. Ramit Mehta for appellant. Mr. K.K. Bissa for respondent. BY THE COURT (PER HON'BLE CHAUDHARI),J: Appellant has filed appeal against the order oflearned ITAT, by which appeal of the respondent waspartly allowed and cross objections of the appellant weredismissed. Brief facts of the case are that ExciseDepartment, Government of India, issued licence to theappellant for whole region of Chittorgarh district,Rawatbhata and Begu. Appellant submitted return ofIncome-tax for the Assessment Year 1998-99 declaring thesale of country liquor to the tune of Rs.17,20,98,045 anddeclared gross profit of Rs.9,55,66,891 @ 55.53% anddeclared sale of IMFL/Beer to the tune of Rs.11,59,44,719and declared gross profit @ 6.04% on sales. Assessing Officer applied provisions of Sec.145(2), as no primary salevouchers had been issued for retail sales, so the books ofaccounts were rejected and while rejecting the books grossprofit rate 56% was applied against 55.53% on sale ofcountry liquor. Sale of country liquor was increased to thetune of Rs.17,50,00,000 against shown in return asRs.17,20,98,045 and thus made an addition ofRs.24,33,109 under the head 'Sale of country liquor' and inthe same way in case of IMFL/Beer, gross profit rate wasestimated at the rate of 6.50% on estimated sales ofRs.12,00,00,000 against gross profit rate of 6.04% on thesale of Rs.11,59,44,719 and thus increased income byRs.8,00,114 on this count. Learned CIT (A), vide orderdated 05.05.2000, partly accepted the appeal of appellantand deleted addition of Rs.8,00,114 made by the AO onthe sale of IMFL/Beer as well granted relief ofRs.22,26,691 on the sale of country liquor. Learned ITAT,by impugned order, partly accepted appeal of respondentand upheld order of Assessing Authority in regard toaddition of gross profit on the sale of country liquor andrejected cross objections of the appellant but upheld orderof CIT(A) regarding deletion of gross profit of Rs.8,00,114on the sale of IMFL/Beer, against which order this appealhas been filed by the appellant. Appeal was admitted vide order dated07.11.2005 by this Court and following substantialquestions were framed: 1. Whether in the facts and circumstances ofthe case, the Tribunal was right in upholdingthe applicability of Sec.145(3) of the Act of1961 particularly, keeping in view theamendment brought in Sec.145 w.e.f.1.4.1997?the case, the Tribunal was right in upholdingthe applicability of Sec.145(3) of the Act of1961 particularly, keeping in view theamendment brought in Sec.145 w.e.f.1.4.1997? 2. Whether in the facts and circumstances, theTribunal was justified in upholding theadditions made by the Assessing Officer onthe basis of best judgment assessment whichis founded on the very basis which has beenthe reason for rejecting the books ofaccounts as being not verifiable and notconsidering the available definite material onthe basis of which best judgment could bemade keeping in view other attendingcircumstances?Tribunal was justified in upholding theadditions made by the Assessing Officer onthe basis of best judgment assessment whichis founded on the very basis which has beenthe reason for rejecting the books ofaccounts as being not verifiable and notconsidering the available definite material onthe basis of which best judgment could bemade keeping in view other attendingcircumstances? Heard learned counsel for the parties andperused record. Heard learned counsel for the parties andperused record. Learned counsel for the appellant argued thatlooking to the turnover of country liquor and increase inprofit, learned CIT (A) had rightly deleted additions madeby learned AO and learned ITAT has committed error inrestoring the order of AO, hence appeal may be acceptedand the order of ITAT may be set aside, whereas learnedcounsel for the respondent submitted that learned AOwhile rejecting the books of accounts has rightly appliedprovisions of Sec.145(3) and marginally increased profitand turnover in the absence of proper books of accountsand order passed by ITAT is in accordance with law henceappeal may be rejected. Learned AO has mentioned in the assessmentorder that assessee has made retail sales in country liquorfor which a consolidated register is made but neitherprimary sale vouchers have been issued for the retailsales, therefore, sales which have been shown, cannot beverified as no primary bills, vouchers are being issued tothe customers nor produced before the Assessing Officer.Learned AO further observed that in absence of productionof primary sales bills, the books of account of appellant areliable to rejection as the same do not reflect correctincome of the assessee, and in such circumstances,provisions of Sec.145(3) were applied. The finding hasbeen upheld by CIT (A) and ITAT. Sec.145(3) of theIncome-tax Act also lays down that where the AssessingOfficer is not satisfied about the correctness orcompleteness of the accounts of the assessee, or wherethe method of accounting provided in sub-sec.(1) oraccounting standards as notified under sub-sec.(2) havenot been regularly followed by the assessee, the AssessingOfficer may make an assessment in the manner providedin Sec.144. This provision clearly shows that when theAssessing Officer is not satisfied about the completeness ofaccounts of the assessee, he can make an assessment inthe manner provided in Sec.144 i.e. best judgmentassessment. In absence of proper books of accounts, thelearned AO has rightly made best judgment assessmentand Tribunal was right in upholding the applicability ofSec.145(3) of the Income-tax Act. Learned counsel for the appellant relied on 101ITR 525(Madras) - Md. Umer Vs. Commissioner of Income-tax, Bihar, in which it was held that once the method ofaccounting employed by the assessee has been regularlyemployed and income, profits and gains could properly bededuced from such regularly employed method ofaccounting, that is the end of the matter for the purpose ofthe proviso to sub-section (1) of Sec.145. In that case,there was no finding that any of the entries in the books ofaccount were not correct and there was no finding thatsuch a method of accounting had been irregularlyemployed by the assessee. This citation does not help tothe appellant because learned AO has mentioned in hisorder that in the absence of production of any primarysales bills, the books of accounts of the assessee are liableto rejection as the same do not reflect correct income ofthe assessee. When profits and gains cannot be properlydeduced from the account books of the assessee, AO hasto proceed only under Sec.145(3). Thus, the Tribunal wasright in holding the applicability of Sec.145(3) of theIncome-tax Act. Hence, Question No.1 is answered infavour of respondent and against the assessee. Learned AO has assessed income on sale ofcountry liquor on the basis of gross profit rate of 56%against 55.53%, shown by the appellant, and hasestimated sale of country liquor at Rs.17,50,00,000 Learned AO has assessed income on sale ofcountry liquor on the basis of gross profit rate of 56%against 55.53%, shown by the appellant, and hasestimated sale of country liquor at Rs.17,50,00,000 against shown by assessee at Rs.17,20,98,045. This factclearly shows that he has made insignificant addition ingross profit rate as well as sale and learned ITAT afterdetailed discussion has rightly upheld order of AO inincreasing the quantum of sales as well as rate of grossprofit. Appellant himself has shown gross profit rate of59.59% in the previous year and in such circumstances inthe absence of proper books, learned AO has notcommitted any error in increasing the gross profit rate tothe tune of Rs.56% against 55.53% shown by appellanthimself. Learned counsel for the appellant also reliedupon 269 ITR 346(Kerala) – CIT Vs. NathekkattuConstructions, in which it was held that the first appellateauthority without considering the case of the assesseebased on the books of account and other records, hadstraightaway thought that this was a fit case for estimationof profit on percentage basis. It was observed that theTribunal had also committed a mistake in approving theestimation of income adopted by the first appellateauthority, the question of estimation of income from thecontract receipt was a matter to be considered by theAssessing Officer himself in accordance with law. Thiscitation also does not help the appellant rather helps therespondent as it was held in the aforesaid case thatquestion of estimation of income from the contractreceived is a matter to be considered by the Assessing Officer himself in accordance with law. In the presentcase, learned AO after considering all aspects hasincreased sale as well as gross profit marginally in areasonable manner and learned ITAT after discussing thesefacts in detail has arrived at correct conclusion in upholdingthe order of learned AO. Learned counsel for the appellant also placedreliance on 25 ITR 216 (Nagpur) – Seth NathuramMunnalal Vs. Commissioner of Income-tax, in which it washeld that if the assessee fails to satisfy the Income-taxOfficer as to the correctness of the percentage of profitsreturned by him, it is open to the Officer to take a higherpercentage consistent with the state of trade in the localityor with any special circumstances of the assessee, whichwarrant a higher rate of profits, but the Income-tax Officermust disclose the basis and manner of computation andmake his order a speaking one. This citation rather helpsthe respondent as AO as well as the learned ITAT hasgiven cogent reasons for increasing the rate of gross profitas well as turnover in absence of proper books of accounts. Learned counsel for the appellant has alsoplaced reliance on 104 STC 130 (SC) – Commissioner ofSales-tax Vs. Girja Shanker Awanish Kumar, in which itwas observed that as the respondent, a manufacturer ofsilver ornaments, did not maintain any book ascontemplated by Sec.12(2) of the UP Sales Tax Act, 1948, the account books were rejected and turnover of therespondent was estimated by the assessing authority tothe best of his judgment. The High Court in revision heldthat the defect being technical in nature, the turnoverdisclosed in the account books of the respondent should beaccepted. The Supreme Court on appeal, set aside thedecision of the High Court and restored the estimatedturnover. This citation also does not help the appellantbecause in the present case learned AO has rejected thebooks of accounts and has properly estimated turnoverand gross profit on sale of country liquor. the account books were rejected and turnover of therespondent was estimated by the assessing authority tothe best of his judgment. The High Court in revision heldthat the defect being technical in nature, the turnoverdisclosed in the account books of the respondent should beaccepted. The Supreme Court on appeal, set aside thedecision of the High Court and restored the estimatedturnover. This citation also does not help the appellantbecause in the present case learned AO has rejected thebooks of accounts and has properly estimated turnoverand gross profit on sale of country liquor. On the other hand, learned counsel for therespondent placed reliance on 258 ITR 676 (Rajasthan) –CIT Vs. Bhawan and Path Nirman Bohra & Co., in whichassessee had shown net profit rate of 8.10% but theAssessing Officer while noticing various defects in thebooks of account rejected net profit rate and applied netprofit rate of 12.5% under Sec.145 of the Income-tax Act.CIT (Appeals) reduced net profit rate to 10%, which wasupheld by ITAT as well as by this Court. In the case inhand, AO marginally increased turnover and gross profitrate on the sale of country liquor, which has properly beenupheld by ITAT after detailed discussion and there appearsno ground to interfere with the finding of ITAT. That apart, all said and done, if the books ofaccounts have been found to have been rightly rejected, /jpa the Assessing Officer is to proceed under Sec.144, which isbest assessment judgment. Obviously, what is the bestassessment judgment is a pure question of fact and theassessment has been made a subject matter of scrutiny bythe two appellate forums. Thus, it clearly acquires statusof brass finding of fact as recorded by the learned Tribunal.In that view of the matter, it cannot be said that it givesrise to any substantial question of law as contemplated bySec.260A of the Income Tax Act. Thus, Question No.2 isanswered in favour of Revenue. In the light of reply to the aforesaid twoquestions, appeal of the appellant is dismissed. (KISHAN SWAROOP CHAUDHARI),J. (N.P. GUPTA),J.