Pr. Commissioner Of Income Tax, Jaipur-3, Statue Circle, C-Scheme, Jaipur Rajasthan v. Shri Shyam Singh Jat

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 149/2018 Pr. Commissioner Of Income Tax, Jaipur-3, Statue Circle, C-Scheme, Jaipur Rajasthan ----Appellant Versus Shri Shyam Singh Jat , Prop. M/s Shyam Poultry Farm Main BusStand, Govindgarh, Sikar Road, Sitarampura, Tehsil ChomuJaipur 303712 Rajasthan Ay 2011-12 ----Respondent For Appellant(s) : Mr. Daksh Pareek with Mr. Arjun Singhfor Mr. Sameer Jain HON'BLE MR. JUSTICE KALPESH SATYENDRA JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS 10/07/2018 Judgment 1.By way of this appeal, the appellant has assailed thejudgment and order of the Tribunal whereby Tribunal hasdismissed the appeal of the department and partly allowed theappeal of the assessee for statistical purposes. 2.Counsel for the appellant has framed following substantialquestion of law:- 1. Whether on the facts and circumstances andin law, the ITAT was justified in rejecting theplea of Revenue regarding deleting the additionu/s 68 of Rs.4,39,72,094/- as unexplainedbank deposit by the CIT(A) without consideringthe fact that the assessee had declared itsincome u/s 44AD in its ITR and had failed tofurnish its books of accounts before the AOover span of 19 months, after availing 9 opportunities to do so, without a speakingorder regarding the objections raised by AOagainst accepting fresh evidence under Rule46A of the Income Tax Rules and withoutbringing on record the sufficient cause underRule 46(1)(ii) that prevented the appellantfrom producing any evidence before the AO? 2. Without prejudice to the above question oflaw the following questions of law are beingfiled: a. Whether on the facts and in circumstancesof the case and in law the Tribunal can acceptthe books of accounts of the assessee evenwhen the net profit rate and the sales shownare at variance with the net profit rate and saledeclared as presumptive income in its incometax return which has never been revised by theassessee? b. Whether the assessee can declare itspresumptive income u/s 44AD declaring N.P.rate @ 14.99% of gross receipts in its incometax return and claim lower N.P. rate and higherturnover, subsequently, without filing a revisedreturn? 3. Whether on the facts and in thecircumstances of the case and in law, theHon'ble ITAT was justified in upholding therejection of books of accounts of the assesseeparticularly when the assessee filed return ofincome u/s 44AD and even after 9opportunities in over 19 months they were notproduced during the assessment years andwere got audited after assessment proceedingsand there was a difference between N.P. andtotal sales declared in the ITR and the auditedbooks? 4. Whether on the facts and in thecircumstance of the case and in lae, theHon'ble ITAT can absolve certain class orclasses of assessee from maintaining stockregister and proper bills and voucher inviolation of provision u/s 44AA? 5. Whether on the facts and in circumstancesof the case and in law, the Hon'ble ITAT canover-rule a finding of facts by CIT(A) regardingnon-maintenance of proper books of accounts,in absence of any fresh evidence furnished before it by the assessee to rebut the finding offact by the first appellate authority? 6. Whether on the facts and in circumstancesof the case and in law, the Hon'ble ITAT'sacceptance of net profit declared by assesseeat 1.75% is per incuriam, as it violates judicialprecedence and discipline since it hasconsistently been held by Hon'ble RajasthanHigh Court that past hostory of the assesse willbe the basis of estimating N.P. when books ofaccounts have been rejected u/s 145(3),particularly in the case of the assessee, whenN.P. rate is 21.93% in A.Y. 2009-10 and17.97% in A.Y. 2010-11 and 14.99% in theyear under consideration as per the ITR filedand never revised? before it by the assessee to rebut the finding offact by the first appellate authority? 6. Whether on the facts and in circumstancesof the case and in law, the Hon'ble ITAT'sacceptance of net profit declared by assesseeat 1.75% is per incuriam, as it violates judicialprecedence and discipline since it hasconsistently been held by Hon'ble RajasthanHigh Court that past hostory of the assesse willbe the basis of estimating N.P. when books ofaccounts have been rejected u/s 145(3),particularly in the case of the assessee, whenN.P. rate is 21.93% in A.Y. 2009-10 and17.97% in A.Y. 2010-11 and 14.99% in theyear under consideration as per the ITR filedand never revised? 3.The fact of the case are that the assessee filed its return ofincome on 30.09.2011 declaring total income of Rs. 1,58,366/-.However, the matter was selected for scrutiny and accordingly,notices were issued. Looking to the non-cooperation of theassessee, the Ld. AO, proceeded on the basis of bank statementreceived from Bank of Maharashtra, Govindgarh and invokedsection 144 in making the assessment, thereby, making totaladdition to the tune of Rs.4,50,50,380/-. 4.Counsel for the appellant has mainly contended that theTribunal and CIT(A) have committed serious error in ignoring thestatement of the Bank Manager and have wrongly assessed on thebasis of information submitted in the revised audited statementbefore CIT(A). 5.In this regard, the relevant observation of the CIT(A) readsas under:- 4.2 It is observed that the assessee had filedhis return of income on the basis of unauditedaccounts and got the accounts auditedsubsequent to completion of assessment.During the appellate proceedings, the assesseehis return of income on the basis of unauditedaccounts and got the accounts auditedsubsequent to completion of assessment.During the appellate proceedings, the assessee filed the copies of such audited accounts alongwith confirmations from parties from whommajor purchases had been made. The assesseealso pointed out various inter-transfer entriesrelated to transfer of funds amongst variousbank accounts held by the assessee. Theassessee requested for considering the aboveevidences as fresh evidences as per Rule 46A.Vide letter dated 25.01.2016, a Remand Reportwas called for from the AO requesting him toexaminetheentireevidencesandconfirmations furnished by the assessee. TheAO submitted the Remand Report dated7.7.2016 from which it is seen that the AO hasverified only the transfer entries and hassubmitted that claim of inter-transfer entries tothe extent of Rs.26,29,818 are found to becorrect. The AO has however not given anycomments regarding the nature of cashdeposits, the subsequent RTGS payments forpurchases of chicken feed and chicken by theassessee as well as the other additions madeby the AO and the justification thereof. In theabsence of complete verification by the AO, allelevant facts were freshly examined during theappellate proceedings. It is firstly observedthat the fresh show-cause notice asking theassessee to explain cash deposits in 11accounts of the assessee was issued on24.2.2014 givin time up to 27.2.2014 and theassessment was completed on 28.2.2014without taking into consideration the version ofthe assessee. In my opinion the time of 3 daysallowed by the AO was insufficient for theassessee to reconcile and explain entries in 11bank accounts, more so in the absence ofaudited accounts. It is therefore held that theassessee was prevented by sufficient cause innot being able to respond to the final show-cause notice given by the AO. Accordingly, theadditional evidences submitted by the assesseeduing the appellate proceedings are herebyadmitted in accordance with the provisions ofRule-46A. 6.Taking into account the evidence on record, the CIT(A) haspartly allowed the appeal of the assessee which was furtherallowed by the tribunal observing on each of the ground asunder:- 10. We have heard the rival contentions andperused the material available on record. We find that the AO has brought to tax the creditentries appearing in the assessee’s bankaccounts in absence of necessary explanationon the part of the assessee. During theappellate proceedings before the ld CIT(A), theassessee has submitted the audited financialstatements, which, as pointed out by the ldCIT(A) as well as by ld DR during the course ofhearing, have been audited subsequent tocompletion of assessment proceedings andother details in terms of bank reconciliationstatements and other support documentation interms of purchase confirmations, etc. The samewere admitted as additional evidence afterseeking the remand report from the AO. The ldCIT(A) observed that the AO in his remandreport has only commented partially on certainmatters and thereafter, invoking his co-terminuspowers examined the relevant facts and relateddocumentation having a bearing on the matterespecially the nature of deposits in the bankaccounts and payments towards purchase ofchicken feed and chicken by the assessee. Afterdetailed examination, the ld CIT(A) hasaccepted the submission of the assessee thatout of cash deposits of Rs 4,37,07,862 in hisbank accounts, an amount of Rs 3,40,35,960represents sale of poultry products which hasalso been reported in the audited financialstatements. The said finding of the ld CIT(A)remain uncontroverted before us and the sameis hereby confirmed. 11. Regarding the difference of Rs 96,71,902,the ld CIT(A), after taking into consideration theremand report of the AO, has accepted the saiddifference except for an amount of Rs12,05,000 which as per assessee representopening cash and debtor balances. As per ldCIT(A), these opening balances are notverifiable in absence of books of accounts forthe previous years. Per contra, the ld ARsubmitted that assessee was engaged in thebusiness from last so many years and wasregularly filing ITRs, the financials of year 2010-11 was duly audited by a Chartered Accountant,third party confirmation from the debtors andcash book was duly submitted and books ofaccounts for the preceding years wasmaintained and the income was reported u/s44AD of the I.T.Act. As per auditor’s report, wefind that the auditors have categorically statedthat “this is the first year of audit, openingbalance are taken as certified by the proprietorwith due confirmation from the bank statement”. Given that, we are of the view thatmatter will require examination of the saidcontentions so raised by the ld AR andaccordingly the matter to this limited extent isremanded back to the file of the AO. statement”. Given that, we are of the view thatmatter will require examination of the saidcontentions so raised by the ld AR andaccordingly the matter to this limited extent isremanded back to the file of the AO. 12. Regarding rejection of books of accounts bythe ld CIT(A) under section 145(3) of the Act,the ld CIT(A) has stated that there aresubstantial cash purchases which are notsupported by proper bills/vouchers andsecondly, no stock register has been maintainedby the assessee. In this regard, the ld AR hascontended that most of the purchases arethrough RTGS payments and only a part of thepurchases are made in cash for which cashreceipt and kanta parchi, etc were submittedbefore the ld CIT(A). We thus find that thereare contrary claims of cash purchases –substantial as per ld CIT(A) and only a part oftotal purchases as per the ld AR which areequally vague and doesn’t throw any light onthe extent of purchases made during the year incash and which remains unverified. At the sametime, given the inherent nature of theassessee’s business, where purchases are alsomade from farmers, cash transactions cannotbe ruled out. Further, regarding non-maintenance of stock register, the ld ARsubmitted that there are no opening and closingstock during the year and what has beenpurchased during the year, the same has beensold during the year, hence, there was nonecessity to maintain the stock register and thesame cannot be a basis for rejection of books ofaccounts. We find that the assessee is in thebusiness of purchase and sale of chicks andpoultry feed. Sales are made to farmers andButchers. The assessee purchase broilers fromhatcheries and poultry feed from farmers aswell as from industrial units. The assessee soldbroiler to marginal farmers and poultry unitsand after 40-45 days the assessee purchasethese already supplied broilers from thefarmers/poultry units and sale them tobutchers. In our view, given the nature ofbusiness of the assessee and the turnover of Rs3,40,35,960 reported during the year, the countof no. of broilers and chicks purchased and sold,and stock of poultry feed purchased andconsumed is desirable and will support theorderly functioning of the assessee’s businessand reflection of its financial results. At thesame time, given that the assessee operates hisbusiness in an informal and rural set up with hands on approach, there is a possibility of non-maintenance of adequate records. Further, wenoted that this is the first year where theassessee has carried out the exercise ofmaintenance of formalized books of accountsand got them audited. At the same time, wefind that there are adequate documentation tosupport the purchase and sales made duringthe year in terms of ledgers, invoices andpurchase confirmations. Further, no specificdefect has been highlighted by the ld CIT(A) inrespect of other expenses claimed by theassessee. Given the peculiarity of the facts andcircumstances of the case, we are of the viewthat the ld CIT(A) was not correct in rejection ofbooks of accounts and estimating the net profitsin hands of the assessee relating to theimpunged assessment year. 13. In light of above discussions, the bookresults and net profit so declared by theassessee is hereby accepted except forverification of opening balances of cash anddebtors for which the matter is being setasideto the file of the AO. In the result, sole groundof revenue’s appeal is dismissed, ground no. 2of assessee’s appeal is allowed for statisticalpurposes and ground no. 3 of the assessee’sappeal becomes infructuous in view of resultsdeclared as per books of accounts beingaccepted.results and net profit so declared by theassessee is hereby accepted except forverification of opening balances of cash anddebtors for which the matter is being setasideto the file of the AO. In the result, sole groundof revenue’s appeal is dismissed, ground no. 2of assessee’s appeal is allowed for statisticalpurposes and ground no. 3 of the assessee’sappeal becomes infructuous in view of resultsdeclared as per books of accounts beingaccepted. 14. Regarding Ground no. 1 of the assesseeappeal, the same was not pressed during thecourse of hearing. Hence, the same is herebydismissed as not pressed. 15. In Ground No. 4, the assessee haschallenged the confirmation of addition ofagriculture income of Rs. 1,92,350/- as incomefrom other sources. Briefly stated facts of thecase are that no details or basis of theagriculture income was produced for verificationbefore the Assessing Officer. Accordingly heconsidered the same as income from othersources. Even during the appellate proceedings,ld. CIT(A) observed that the same position iscontinuing as no explanation or evidence insupport of such receipt has been furnished bythe assessee. During the course of hearing, theld. AR submitted that the necessary evidenceregarding agriculture income were neverdemanded by the either AO or by the ld.CIT(A). However, the same are being submittednow in form of copy of jamabandi and proof of agriculture income and the same may kindly beadmitted. The ld DR fairly submitted that thematter may be remanded to the AO forverification. In light of the same, the evidencein support of agriculture income is admitted andthe matter is remanded back to the file of theAO to examine the same a fresh after providingreasonable opportunity to the assessee. Theground is thus allowed for statistical purposes. 16. In ground No. 4, the assessee has alsochallenged the action of ld. CIT (A) inconsidering the interest income of Rs. 48,231as income from other sources. In this regard,the ld. AR has submitted that interest incomewas already declared while calculating businessincome, Net profit and disclosed in auditedprofit and loss account and same may bedeleted. From perusal of assessment order, wenoted that the AO has brought to tax incomefrom other sources as per return of incomeamounting to Rs 90,256. However, there is nofinding that said figures includes the figure ofRs 48,231. Hence, the matter is remanded backto the file of the AO to examine the same andwhere it is found that the figure of Rs 90,256already includes the figure of Rs 48,231, allowthe necessary relief to the assessee as thesame income cannot be brought to tax twice. Inthe result, the ground of appeal is allowed forstatistical purposes. 17. In ground no. 5, the assessee haschallenged the disallowance of deduction u/s80C of Rs. 51,215/-. In this regard, ld. CIT(A)has observed that no documents or supportingevidences have been furnished either inassessment proceedings or in the appellateproceedings. In this regard, ld. AR submittedthat evidence regarding investment eligible fordeduction u/s 80C were never demanded by AOor ld. CIT(A) and the addition evidenceregarding said investment in form of LIC receiptand tuition fees has now being submitted andthe same may kindly be admitted. The ld DRfairly submitted that the matter may beremanded to the AO for verification. In light ofthe same, the evidence in support of deductionunder section 80C is admitted and the matter isremanded back to the file of the AO to examinethe same a fresh after providing reasonableopportunity to the assessee. The ground is thusallowed for statistical purposes. 7.In that view of the matter, we are in complete agreementwith the view taken by the tribunal. Hence, no substantialquestion of law arises. 8.The appeal stands dismissed. (VIJAY KUMAR VYAS),J (K.S. JHAVERI),J Brijesh 6.