Malpani House Of Stones, A Registered Partnership Firm Pitaliyon Ka Chowk, Jaipur v. Commissioner Of Income Tax-Ii, Income Tax Office, New Central Revenue Building, Statue Circle, Jaipur

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. DB INCOME TAX APPEAL NO.35/2003. Malpani House of Stones, A registered Partnership firm Pitaliyon Ka Chowk, Jaipur, through its Partner Shri Shyam Das Malpani S/o Shri Shrikrishan Malpani aged about 50 years R/o Pitaliyon Ka Chowk, Jaipur. Versus Commissioner of Income Tax-II, Income Tax Office, New Central Revenue Building, Statue Circle, Jaipur. DATE OF ORDER ::: 04.10.2016. HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE BANWARI LAL SHARMA Mr. Prakul Khurana for the appellant.Mr. Anuroop Singhi for the respondent. 1.By way of this appeal, the assessee has challengedthe judgment and order of the Tribunal whereby the Tribunal hasallowed the appeal preferred by the assessee and dismissed theappeal preferred by the department. 2.This court while admitting the matter, has framed following questions of law: “Whether trading additions by rejecting thewhole books of account as well as the additionby rejecting some of the purchases can bemade simultaneously and whether this wouldnot tantamount to double addition?” 3.Counsel for the appellant has contended that theassessee's books of account were rejected and they wereassessed on the basis of estimation and while estimating theother income also addition was made under section 69C of the Income Tax Act which would amount to double taxation whileestimating the income. While rejecting the books of accounts,the AO has considered the over all turn over for the head as has been detailed as under: “Subject to the above remarks total income iscomputed as under:Net profit as per P&L a/c2,47,877Add: Income tax20,751Donation 1,102Dep. To be consideredseparately31,550 ------------------ 53,403------------------3,01,280 Addition on account ofundisclosed income as discussed above13,740Trading addition asdiscussed above84,508 Out of dalali a/c a sum of Rs.3535/- is disallowedas alleged sales as discussed above 3,535 Out of foreign travelling exp. A sum of Rs.10,908/-is disallowed and added back to the total income of the assessee.10,908 Out of misc. exp. a sumof Rs.3194/- is added asdiscussed above.(u/s37(2A) 2,194 Out of misc. exp. whichincludes exp. on Deewaligifts etc. as discussedabove.1,000 Out of Car & Scooterexp. a sum of Rs.2,000 is disallowed as discussedabove.2,000 1,17,885 4.The CIT (Appeals) has confirmed the same and theTribunal has also. Counsel for the appellant contended that inview of the decision of this Court reported in Commissioner ofIncome Tax Vs. Tyaryamal Bal Chand- (1987) 165 ITR 453(Raj.), it has held as under: “The ITO was within his right to tax the amountof Rs.16,950 as income from disclosedsource, even though he had added the amountof Rs.18,117 in addition to the profits shownby the respondent-firm in its account books.However, the assessee was well within hisrights to plead that this amount of Rs.16,950 iscovered by the intangible income assessed atRs.18,117 and added to the income of the firmand apart from this, since for the lastpreceding three years, substantial additionsamounting to Rs.32,797 have been made, theamount of Rs.16,950 could be taken ashaving come out of such intangible additions.In the facts and circumstances of the case, theTribunal was right in treating the unexplainedcash credit entries to the extent of Rs.16,950as covered by added gross profit in the sum ofRs.18,117 on the basis of the estimate.” 5.The Allahabad High Court in the case ofCommissioner of Income Tax Vs. Babban Pandey- (1970) 77ITR 601 (All) has held as under: 5.The Allahabad High Court in the case ofCommissioner of Income Tax Vs. Babban Pandey- (1970) 77ITR 601 (All) has held as under: “The word “undisclosed source” means asource which has not been disclosed by theassessee. It may refer to any of the sourcesmentioned in S.6 of 1922 Act, not excluding“profits and gains of business, profession, orvocation”. The mere fact that the explanationof the assessee as to the source of theamount in question was rejected and that hedid not set up the plea in his grounds ofappeal that it formed part of his businessprofit, did not preclude the Tribunal fromfinding out the correct source thereof. Thefinding of the Tribunal that the item inquestion stands covered by the addition ofRs.18,000 made by the ITO in the tradingaccount obviously means that it came out ofthe profits of the business. It was competenton the part of the Tribunal to come to thatfinding, although no such ground was setforth in the memorandum of appeal by theassessee. The Tribunal was competent tohold that the sum of Rs.6,531 came out ofand was covered by the addition ofRs.18,000 to the business profits. The findingof the Tribunal in point is a finding of factwhich this Court cannot interfere.” 6.The Andhra Pradesh High Court in the case of Maddi Sudarsanam Oil Mills Co. Vs. Commissioner of Income Tax- (1959) 37 ITR 369 (AP) has held as under: “Accounts- Rejection- Profit estimated at flatrate- Further addition on account of cashcredits- IT authorities cannot adopt a flat rateto compute gross profit as well as rely on thebooks for purpose of adding unexplainedcash credit which were part of the scheme ofbalancing the accounts. The Tribunal was careful in emphasising thatit is basing its computation on the estimate of9.5% and not upon any of the items which were taken into account by the IT authorities.The scrutiny by the Tribunal of the items ofaddition made by the IT authorities wasmerely for the purposes of showing that theaccounts could not be relied upon. Thecontention that the Tribunal having adoptedas the basis of assessment a gross profit of9.5% instead of 5.1% had computed thefigure Rs.1,37,189 wrongly is valid. Havingcomputed the gross profit at 9.5% the AACfurther added a sum of Rs.56,345 on accountof unaccounted for profit on sale of permitsrestricted to the unproved cash credits. Thisaddition is obviously wrong when a flat rateof 9.5% on the total turnover is beingadopted in computing the gross profits. Theassessee had recourse to the several entriesof cash credits only for the purposes ofbalancing the accounts with a view toreducing the rate of gross profits. If once theIT authorities have rejected the books, theycannot have it both ways, namely, adopting aflat rate to compute gross profit as well asrely on the books for the purposes of addingunexplained cash credits which were part ofthe scheme of balancing the accounts.Having regard to the categoricalobservations of the Tribunal that the additionshould be unitary where the proviso to S.113is applied by making an estimate it cannot beassumed that the Tribunal intended tonegative the statement by also adding cashcredits in computing the gross profits.” 7.The Andhra Pradesh in yet another case in Indwell Constructions Vs. Commissioner of Income Tax- (1998) 232 ITR776 (AP) has held as under: “The pattern of assessment under the IT Actis given by s.29 which states that the incomefrom profits and gains of business shall becomputed in accordance with the provisionscontained in ss. 30 to 43D. Sec.40 providesfor certain disallowances in certain casesnotwithstanding that those amounts areallowed generally under other sections. Thecomputation under s.29 is to be made unders.145 on the basis of the books regularly 7.The Andhra Pradesh in yet another case in Indwell Constructions Vs. Commissioner of Income Tax- (1998) 232 ITR776 (AP) has held as under: “The pattern of assessment under the IT Actis given by s.29 which states that the incomefrom profits and gains of business shall becomputed in accordance with the provisionscontained in ss. 30 to 43D. Sec.40 providesfor certain disallowances in certain casesnotwithstanding that those amounts areallowed generally under other sections. Thecomputation under s.29 is to be made unders.145 on the basis of the books regularly maintained by the assessee. If those booksare not correct or complete, the ITO mayreject those books and estimate the incometo the best of his judgment. When such anestimate is made it is in substitution of theincome that is to be computed under s.29. Inother words, all the deductions which arereferred to under s.29 are deemed to havebeen taken into account while making suchan estimate. This will also mean that theembargo placed in s.40 is also taken intoaccount. No doubt there is big differencebetween profit earned with own capital andprofit earned with borrowed capital and sucha difference could have been taken intoaccount by the ITO while making anestimate. If the CIT had set aside theestimate on the ground that the vital fact thatthe business was carried on with own capitaland not with borrowed capital has beenignored by the ITO, there may not have beenany difficulty in upholding that order. But,when he proposes to add back an exact itemin the P&L a/c, he was relying on therejected books which he could not do. Thereis also a further difficulty if s.40 is to be takeninto account even after making an estimate.When there are certain other deductionswhich are to be disallowed such as wealth-tax payment in s.40, can it be said that aftermaking an estimate, the wealth-tax chargedin the P&L a/c should again be added backto the profit. This example illustrates how thecontention of the Revenue, that s.40(b)makes a difference in the situation, isuntenable. Therefore, it is not correct in lawto make a separate addition representing theinterest and remuneration paid to partners,to the income already estimated andassessedfromcontracts.-MaddiSudarsanam Oil Mills Co. Vs. CIT (1959) 37ITR 369 (A)): TC 42R.1310 followed.” 8.Mr. Singhi, counsel for the respondent, has contended that in view of the concurrent findings of both theauthorities for which no question has been framed and the 7 assessment made by the authority is just and proper, nointerference is called for. 9.We have heard counsel for the appellant and the counsel for the respondent. 10.In view of the well settled principle of law that whenincome is estimated and while assessing the same and rejectingthe books of accounts, it would not be appropriate to rely on thebooks of accounts for any addition other than estimate made by A.O. 11.In that view of the matter, the contention raised bythe appellant deserves to be accepted. The income which hasbeen added on the basis of books of accounts having beenrejected and in that view of the matter, addition of Rs.13,740/-requires to be deleted. 12.The appeal is allowed. The question is answered infavour of the assessee and against the Department. (BANWARI LAL SHARMA), J. (K.S. JHAVERI), J. bblm