M/S Shyamlal Agrawal(Sohagpur) 36 Subhash Nagar,Kotra Road, Raigarh (Cg v. Respondent:(Revenue

/}j^--13 .ol-TOWtW COWTOf CWATTISGAW AT BILASFUR'>TaxCase No,46 pf 2009APPELLANT:Ws Shyamlal AgnwK^(Assessee)VersusRESPONDENT:Income Tax C?fficer(Revenue)OR&ER FOR CONSIDERATEONSd/-Dhirendra MishraJudgeHON-BLE SHRI R.N. CHANDRAKAR. JSd/-OL~f< ~~~^-t-ejz_R.N. ChandrakarJudgePOST FOROR&ER ON[•S-f][ 'JAWAW.]2010Sd/-Dhirendra MishraJudgesv'~f.^c1ir—y^'~"£;i•'sS^.^- HI6H COURT OF CHHATTIS6ARH AT BILASPUR Tax Case No.46 of 2009 APPELLANT:(Assessee) M/s Shyamlal Agrawal(Sohagpur) 36 Subhash Nagar,Kotra Road, Raigarh (CG) Versus RESPONDENT:(Revenue) Income Tax OfficerWardI,AoyakarBhawan,Chakradhar Nagar, Raigarh (C&) (Appeals[under][ Section][ 260-A][ of][ the][ Income][ Tax][ Act,][ 1961)] Present. Shri Neelabh Dubey, counsel for appetlant/assessee.ShriRajeevShrivastava,StandingCounselfortherespondent/revenue. Division Bench: Honlale Shri Dhirendra Mishra& Hon'ble Shri ft.N. Chandrakar. JJ. OR & E R(Passed on °5'?'f^January. 2010) The foilowing order of the Court was passed by DhirendraMishra, J. 1.The appetlant/assessee has this appeal under Section preferred preferred260A of the Income Tax Act, 1961 (in short- "the Act") against theorder of Annexure A/3 of the Income Tax Appetlate Tribunal,"Tribunoil")order of Annexure A/3 of the Income Tax Appetlate Tribunal,"Tribunoil")BttaspurBench,Bilaspur(in shorton the foltowingsubstantiat of law: questionssubstantiat of law: questions 'Whether/. on the facts cnd in circumstances ofthe case by finding of the Tribunal that Sross[rate][ shown][ was][ low][ is][ contresry][ to][ focts]the case by finding of the Tribunal that Sross[rate][ shown][ was][ low][ is][ contresry][ to][ focts]profitand perverse?and perverse? ^y 2.Whether inabitity to produce account books canlead to best assessmenf when audit Judgmentlead to best assessmenf when audit Judgmentreport is on record? 3.Whether recoveries made for delay in executionof contract ca"e apart of the gross frofit of thecontractor?of contract ca"e apart of the gross frofit of thecontractor? 2. Briefly stoted, fcrcts of the case are thoit the ossessee fited retumof income for the dssessment 2004-05 on 31March, 2CX)5 yeardeclaring totatincome of fts.1,47,347/- along with audit report.Assessmentcase was fixed forhecringon2August..20Q5.However, account books could not be by the assessee as the producedbag containing books of accounts in transiT was stolen on lAugust,2005 from the troin. The Assessing Officer obsefved that in theabsence of books of accounts ond vouchers for expenses ctctimed, itwqyld not be possible to verify the accuracy of the income eamedand expenses claimed.Accordingty, the case was referred to theAdditional CIT to issue necessary directions for to enabte guidcmeethe ITO to comptete the assessment. The Additional CTT issueddirections under Section 144A of the Act and accordmgly, the AO,consideringalt the facts and circumstances.of the case, rejected'theaccounts by cdopting the tumover ct Rs.5,46,76,4347- and appliedgross profit of 12.657o on the tumover on the basis of gross profitfor the and made addition.of Rs.11,19,098/- in the preceding yearegross profit. After deducting depreciation a\d professional tax underSection 43Bof Rs.1,47,347/-, total taxable income was assessed dt.Rs.12.66,440/-. Interest under Sections 243A, 243B, 243C was dsochcrged and underSect'ion 271(l)(b)/271(l)(c) penalty proceedingsweres^parately initioted. 3. CIT(Appeals) allowed the cypeal taking into considerotion the pcrtlyassessee's explanort-ion with cm observdtion thctt' in this gross profit pcrtlyassessee's explanort-ion with cm observdtion thctt' in this gross profit PT,^tt»^eK;^yyy"-^"%^.1\"~ j\3-y case may reasonably be estimated @ 11% on the receipts of grossRs.5.46,76,435/- and accordingty, addition of Rs.2,16,934/- was madeand total relief of Rs.9,02.161/- was altowed. grossRs.5.46,76,435/- and accordingty, addition of Rs.2,16,934/- was madeand total relief of Rs.9,02.161/- was altowed. 3. CIT(Appeals) allowed the cypeal taking into considerotion the pcrtlyassessee's explanort-ion with cm observdtion thctt' in this gross profit pcrtlyassessee's explanort-ion with cm observdtion thctt' in this gross profit PT,^tt»^eK;^yyy"-^"%^.1\"~ j\3-y case may reasonably be estimated @ 11% on the receipts of grossRs.5.46,76,435/- and accordingty, addition of Rs.2,16,934/- was madeand total relief of Rs.9,02.161/- was altowed. grossRs.5.46,76,435/- and accordingty, addition of Rs.2,16,934/- was madeand total relief of Rs.9,02.161/- was altowed. 4. Revenue went up in appeal against the order of CTT(A) before theTribunal oind the Tribunal altowed the appealond estimcrt-ed part-ly forthe relevant osse^ment at' 12% instead of 11%gross p\3fit yearas est-imated by CIT(A). S.Learned'counset for the cppetlant submitted tho* accounts can berejected underSection 145(3) of the Act only when accounts are notcorrect or complete or method of accounting or accounting standardsare not followed. In the instant case, the accounts have beenrejectedon the that the account books could not be groundwhichisnpt underSectionl45(3).Theproduced, permissfbleassessee filed audit report in Form 3CB as required wider Section44AB.It contained no adverse remarks ond certified that thebalance sheet and profit A loss occount are in agreement with ttebooks of accounts and there is no discrepcuicy or inconsistency. FormNo.SCD filed aiong with audit report- stated that books of accountswere maintained and examined ond there was no change in the methodof accounting applied. It atso details of deductions/expendityres gawailowable and disaltowable and the work carried out, Even for thepurposes of best judgment asse^ment under S®;tion144, it has to'beon thebasis ofretevontmaterid.However,whilemakingassessment, the audit report aibmitted by the asswsee wos nottaken into considerotion, which wois a relevant material. 6. Reliance is placed on the judgment in the matter of AMitlonalCommissioner of Iname Twf, Dethf-II Vs. J'ay Eiyinewlng WorksLtd.. reported w\ (19^) 113 ITR 389. /»'^f"(;"^I 8 6. Reliance is placed on the judgment in the matter of AMitlonalCommissioner of Iname Twf, Dethf-II Vs. J'ay Eiyinewlng WorksLtd.. reported w\ (19^) 113 ITR 389. /»'^f"(;"^I 8 7. Qn the otherhand, Shri Rajeev Shrivastava.leamedStondingCounset for the respondent/revenue, aubmitted that the as^s®eefiled its retum for the relevaftt return was under year, processedSection 143(1) and the case was selected for scrvt'iny. Notice underSection 143(2) was issued for 2August, 2005, the same was dulyserved upon the assessee, howewr, assessee did not appedr on 2August, 2005.The assessee in sts reply received on 8November,2006 menfioned thort- the bag containing the books of cccounts andvouchers was stolen near Champa railway $t-ation on 1August, 2005.In these circumstcinces, as directions of the Additional CIT, perunder Section 144A the AO, in the absence of books of accqunts andCounset for the respondent/revenue, aubmitted that the as^s®eefiled its retum for the relevaftt return was under year, processedSection 143(1) and the case was selected for scrvt'iny. Notice underSection 143(2) was issued for 2August, 2005, the same was dulyserved upon the assessee, howewr, assessee did not appedr on 2August, 2005.The assessee in sts reply received on 8November,2006 menfioned thort- the bag containing the books of cccounts andvouchers was stolen near Champa railway $t-ation on 1August, 2005.In these circumstcinces, as directions of the Additional CIT, perunder Section 144A the AO, in the absence of books of accqunts andvouchers, held that the ecrned by the ossessee cannot be profitarrived at and estimated profit @ 12.657s by adopting tumover atRs.9,46,76,435/-. He further submifted that the Tribunal has right!yrejected estimationof gross profit @ 11% arrived at by CTT(A) byassigning vatidreasons and no substantial oftaw, as questions by the appellant, is involved for adjudication of this appesl.proposed8. We have heard leomed counsgl for the parties ond gone through thematerial avail&ble on record. profitarrived at and estimated profit @ 12.657s by adopting tumover atRs.9,46,76,435/-. He further submifted that the Tribunal has right!yrejected estimationof gross profit @ 11% arrived at by CTT(A) byassigning vatidreasons and no substantial oftaw, as questions by the appellant, is involved for adjudication of this appesl.proposed8. We have heard leomed counsgl for the parties ond gone through thematerial avail&ble on record. 9. Observert'lons of the AO; (i) That, the assessee filed its return on 31AAarch, 2005. After the retum under Section 143(1), thecoBe was ^lectedprocessingfor scrutiny aid notice under Section 143(2) dated 5July, 2005was issued for 2August, 2005. However, none appeared on behslfof the assessee on that date.After initiating penalty proce®lingsseparat'ely, oinother notice under Section 143(2) was issued ondserved on 22AAay, 2006 due to change of incumbent. Notice underSection 142(l)(i)(ii) was again served on 3November, 2006. (ii)The assessee in its reply received on 8November, 2006, apprisedthat the bag containing books of erecounts and vouchers wgs stolennearChamparailwaystation on 1August, 20%. (iii) In these circumstances. the AO observed thorf' in the absence ofbooks of accounts and vouchers of expenses claimed, it would not bepossible[to][ verify][ the][ accuracy][ of][ income][ eamed][ land][ expenses]claimed, and ,sought necessary directioh from the Additionflt CITunderSection144.As directions of the AdditionalCIT, perassessment was made after rejecting the accounts by applying gross12.65% by adopting turnowr at Rs.5,46,76,435/-. The AOprofit®further observed thct the ossessee's gross p"ofits in the yeor 2002-03 and 2003-04 were 15.17% and 12.65% respectively. 10. Observations of CTT(A); (ii)The assessee in its reply received on 8November, 2006, apprisedthat the bag containing books of erecounts and vouchers wgs stolennearChamparailwaystation on 1August, 20%. (iii) In these circumstances. the AO observed thorf' in the absence ofbooks of accounts and vouchers of expenses claimed, it would not bepossible[to][ verify][ the][ accuracy][ of][ income][ eamed][ land][ expenses]claimed, and ,sought necessary directioh from the Additionflt CITunderSection144.As directions of the AdditionalCIT, perassessment was made after rejecting the accounts by applying gross12.65% by adopting turnowr at Rs.5,46,76,435/-. The AOprofit®further observed thct the ossessee's gross p"ofits in the yeor 2002-03 and 2003-04 were 15.17% and 12.65% respectively. 10. Observations of CTT(A); CIT(A) atso observed thot in the absence of books of accowits, billsand vouchers etc. itis difficult tomake any observort-ion for the heed-wi'se disallowances. It has been obseryed thatquontifyingthere has been decline in the rart'e in this case compcred gross profitto the immediotely preceding year 2003-04 by 2%, though net profithas improved from 0.19% to 0.26%. The reasons assigned by theassessee for decline in the could not be verified with gross profitreference to the books of account ond other documents since thesewere already lost due to theft.Howev^r, the claim for qipetjcmt'saltowability of deduction in respect 6f the recoveries made by variouscontractees on account of deicy in-execution of the work contractscnd inferior of work, was accepted ond furt-her taking into qualityaccount the aforesaid fact, the has been estimated @ gross jyofit11% on the receipts of Rs.5,46,76,435/-. ' gross ll. Observations of the Tribunal: The Tribunat has observed thcrt dT(A) has not brought any mfft'eriaton record for estimat'ing @11% for the relevant gross profitassessment year, particularly when the assessee himself has shownthe ©12.65% even for the assessment 2005-06. gross profit yearThe observcri'ion of CIT(A) that ttiere has been decline in the grossprofitrateby2%, though thenet profit has improved from 0.19% to0.26% for the 2003-04, is contrary to the submissions on behatf yearof the assessee, wherein it hcs been claimed that the assessee Wflssubjected to recoveries to the extent of Rs.35,26,278/- during theyear, which was not there in the previous year, cmd accordingly, gross has been estimated @ 12%.profit 12. Iri Jay Engineering Works Ltd. (supra), the relevant account booksfor occounting 1961-62 and 1962-63 were destroyed in fire in yearsNovember, 1962.Certain deductions were claimed by the assesseealong with stat'ement of and loss cccounts and balance sheets profitfrom the determination of for the assessment 1962-63 profits yearand 1963-64 respectively. The deductions were disallowed by theIncome Tax Officer.However, the same were allowed by theappellate Assistant Commissioner and by the Tribunal. The applicationfor. reference of the of law to the High Courl' was also; questionrejected. -The Delhi High Court-, rejecting the reference appliccrtion bythe revenue, held tho* under Section 143(3) of the Act, the IncomeTax Officer does not only hear such evidence as the assessee moyproduce or as he may riequire to be produced, but atso takes into .consideration "all relevant material which he has for the gathered" of mcking on oesessment.purpose -The Delhi High Court-, rejecting the reference appliccrtion bythe revenue, held tho* under Section 143(3) of the Act, the IncomeTax Officer does not only hear such evidence as the assessee moyproduce or as he may riequire to be produced, but atso takes into .consideration "all relevant material which he has for the gathered" of mcking on oesessment.purpose In thort' case. the external auditors of the assessee-companieshad made their annual reports ynder Section 227(2) of the CompaniesAct, 1956 to the members of the company on thedccoynts exomiinedby them and on the batance sheets cnd and \oss oiccounts for profitthese two These reports did not doubt the correctness of the years.expenses. deductions of which were claimed by the assessee. UnderSection 227(3)(b) and (c),the auditor's report hoid tostate whetherin their opinion proper books of account as required by Iqw hcive beenkept by the company and whether the compan/s batonce sheets and and loss accounts were in agreerftent with the books of accountprofitand returns. In these circumstances, it was held thot the income.tcDCauthorities were competent not only to accept the ouditors report',but also to draw the inference from the same. proper 13. However, in the instcmt case. the Tribunal after cwisidering themori'erial available on record hcs pointed out inconsistency in theexplcmoitionof the assessee oind crccepted by CIT(A) with respect toctaim of the assessee thothe was subjected to recovertes ofRs.35,26,278/- in the assessmesnt 2003-04. yecr 14.0n due consideration of the findings of the AO and the reaswisassigned by the Tribunal for modifying the order of CIT(A), we areof the opinion that the procedure fotlowed by the Tribunal forestimal'ing the @ 12% after OKlopting the total tumover* grossprofitfor the assessment year 2003-04 was just ond proper, and the samedoes not give rise to any substcntial question of law, as proposed bythe appellant. 15. In the result, the appeal being without substance deserves to bedismissed and is, accordingly, disftissed.