Pr. Commissioner Of Income Tax, Kota v. Shri Harbans Lal Sethi, 97, Dushera Scheme, Kota

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR (1) D.B. Income Tax Appeal No. 348 / 2017 Pr. Commissioner of Income Tax, Kota ----Appellant Versus Shri Harbans Lal Sethi, 97, Dushera Scheme, Kota. ----Respondent (2) D.B. Income Tax Appeal No. 349 / 2017Pr. Commissioner of Income Tax, Kota ----AppellantVersus Shri Harbans Lal Sethi, 97, Dushera Scheme, Kota ----Respondent (3) D.B. Income Tax Appeal No. 350 / 2017Pr. Commissioner of Income Tax, Kota. ----Appellant Versus Shri Harbans Lal Sethi, 97, Dushera Scheme, Kota. ----Respondent (4) D.B. Income Tax Appeal No. 351 / 2017Pr. Commissioner of Income Tax, Kota ----Appellant Versus Shri Harbans Lal Sethi, 97 Dushera Scheme, Kota. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anil Mehta For Respondent(s) : Mr. Lokesh Taylor for Mr. Mahendra Gargieya _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERIHON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 06/02/2018 1.In all these appeals common question of law and facts areinvolved hence they are decided by this common judgment. 2.By way of these appeals, the appellant has challenged thejudgment and order of the tribunal whereby tribunal has partlyallowed the appeals of the assessee and dismissed the appeals ofthe department. 3.Counsel for the appellant has framed following substantialquestionS of law:- 3.1Appeals No.348/2017 & 349/2017 1. Whether on the facts and in thecircumstances of the case and in law, the ITATwas justified in restricting the addition forprofit of Rs.14,00,000/- made by the CIT(A) toRs.2,00,000/- only without providing any basisfor such adhoc estimation of extra profit ofRs.2,00,000/- when the books of account ofthe assessee were properly rejectedu/s.145(3)? 2. Whether on the facts and in thecircumstances of the case and in law, the ITATwas justified in deleting addition ofRs.1,24,860/-madebydisallowingdepreciation on cars and mobiles on accountof their use in personal capacity when theprovisions of Section 32 of the Act strictlyrequires business use of the assets forallowing depreciation and specially whenestimation of profit was made by the Assessing Officer and confirmed by the ITATprior to allowance of interest and depreciation? 3.2Appeal No.350/2017 1. Whether on the facts and in thecircumstances of the case and in law, the ITATwas justified in restricting the addition of extraprofit of Rs.80,07,358/- to only Rs.3,00,000/-by estimating such amount on adhoc basis andwithout providing any basis specifically whenthe books of accounts were properly rejectedu/s.145(3) and addition to the extent ofRs.25,95,796/- was agreed to by the assesseeand not retracted at any stage. 3.3Appeal No.351/2017 1. Whether on the facts and in thecircumstances of the case and in law, theHon'ble ITAT was justified in restricting theaddition of extra profit of Rs.70,46,571/-made on agreed basis to only Rs.4,00,000/-by estimating such amount on adhoc basis andwithout providing any basis specifically whenthe books of accounts were properly rejectedu/s.145(3) and addition was agreed to by theassessee and not retracted at any stage. 4.The facts of the case are that the case of the assessee wastaken up after issuing notice u/s.143(2). The Assessing Officerfound that the gross profit indicated in the return of income wasless in comparison to past years. It was observed that completerecord of the purchase bill payment made to the daily wages,transportation charges etc. were not produced by the assessee.The Assessing Officer on the examination of the books of accountsrejected the said books of accounts on the basis of the defects 4.The facts of the case are that the case of the assessee wastaken up after issuing notice u/s.143(2). The Assessing Officerfound that the gross profit indicated in the return of income wasless in comparison to past years. It was observed that completerecord of the purchase bill payment made to the daily wages,transportation charges etc. were not produced by the assessee.The Assessing Officer on the examination of the books of accountsrejected the said books of accounts on the basis of the defects noted in sub-para 'i to x of para 3' of its order. The books ofaccounts were not complete nor any stock register was produced,hence the books of accounts were rejected. A show cause noticewas also issued to the assessee for invoking the provisionsu/s.145(3). No satisfactory explanation was submitted by theassessee. Accordingly, the assessment order was framed byapplying net profit rate of 11.5% on total gross receipt subject tointerest and depreciation. 5.Normally the consistent practice of this court to calculate thelast five years average g.p., has been followed by the tribunal. Inour considered opinion, the view taken by the tribunal is inconsonance with the view taken by this court. 6.The finding of the tribunal in this regard reads as under:- “5.1 The Ground of appeal no.3 of theassessee regarding the adhoc disallowancesmade by the AO totaling to Rs.1,24,830/- onaccount of depreciation on vehicles anddepreciation on mobiles which has beensustained by the ld. CIT(A). 5.2 Being aggrieved by the order of the ld.CIT(A), the assessee is in appeal before usagainst the sustenance of disallowance of Rs.1,24,830/- 5.3 After going through the orders of theauthorities below and the materials availableon record, we hold that once the books ofaccount are rejected and income is estimatedthen there is no further scope for any additionout of various expenses debit in profit and lossaccount. Therefore, we find no merit in theorder of the ld. CIT(A) which is not justified inconfirming the disallowance of Rs. 1,24,830/-.In this view of the matter the Ground No. 3 ofthe assessee is allowed. 13.6 We have carefully considered the rivalcontentions and perused the material availableon record. As regards the enhancement made 5.2 Being aggrieved by the order of the ld.CIT(A), the assessee is in appeal before usagainst the sustenance of disallowance of Rs.1,24,830/- 5.3 After going through the orders of theauthorities below and the materials availableon record, we hold that once the books ofaccount are rejected and income is estimatedthen there is no further scope for any additionout of various expenses debit in profit and lossaccount. Therefore, we find no merit in theorder of the ld. CIT(A) which is not justified inconfirming the disallowance of Rs. 1,24,830/-.In this view of the matter the Ground No. 3 ofthe assessee is allowed. 13.6 We have carefully considered the rivalcontentions and perused the material availableon record. As regards the enhancement made by the ld. CIT(A), we have already rejectedsuch a working after discussion made ourorder in A.Y.2006-07 in ITA No.495/JP/13(supra). Following the same, working adoptedby the ld. CIT(A) for making the enhancementis hereby rejected and it is held that afterapplication of Sec.145(3) of the Act , it wasonly a case of fair estimation to be madekeeping in mind the past history of the case orother comparable case, if any cited by theparties and relevant material hence. Asregards the estimation of income afterrejection of the books of account from aperusal of the comparative charts, it is seenthat the assessee has declared receipts ofRs.54.73 Crores in this year as againstRs.41.15 Crores of last year and the declaredNP rate (subject to interest & depreciation)this year was 8.57% which is better fromA.Y.2003-04 & 2004-05 wherein, it wasdeclared at 7.87 % & 7.99% only. It may benoted that ITAT Jaipur Co-ordinate Bench inassessee's own case in A.Y.2003-04, 2004-05,2005-06 have upheld NP rate of 8.50%(subject to interest & depreciation). The AOhimself has applied 9.50% in A.Y.2005-06.Moreover, the gross receipts have gone upfrom Rs.41.15 Crores last year to Rs.54.73Crores this year, which means an increase inthe receipts by 33%. It is also settled that forthe purpose of fair estimation an overall viewshould be formed, considering the past historyof few years. Accordingly, the average ofimmediately past five years i.e. A.Y.2003-04 to2007-08 (considering the adjusted NP rate of9.98% in A.Y.2006-07), the average NP ratecomes to 8.72% (approx.) while assessee haddeclared 8.57%. There was increase inturnover by 33%. Therefore, there was nojustification to apply 9.50% (subject todepreciation only) or 10.36% (subject tointerest & depreciation ). Considering thetotality of facts & circumstances of the case,past history and increase in turnover , weuphold the addition of Rs. 4.00 lacs only. Thusground of appeal no. 2 of the assessee ispartly allowed. “ 7.Taking into account the average g.p., the tribunal has rightlymodified the order of the CIT(A) and AO.modified the order of the CIT(A) and AO. 8.We are in complete agreement with the view taken by the tribunal. Therefore, no substantial questions of law arises. 9.The appeals stand dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 23-26.