TaxTMI 
TaxTMI 
2012 (4) TMI 265
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....conclusion was drawn and assessment was framed by making addition. (3) After having come to the conclusion that the assessee's case required estimation of number of subscribers and income because the correct status in this regard was not reflected in its books, the Ld. CIT(A) ought to have upheld the estimate made by the AO. (4) The Ld. CIT(A) failed to appreciate the fact that the subscriber base was estimate by the AO at 40% of the number of residential accommodation [which, in turn was ascertained from the number of electricity connections] on the basis of the statement of Director of the assessee company that they take 40% of a number of residential accommodation in the area as possible connectivity for planning purposes. The estimate made by the assessee for planning its business can reasonably be expected to be correct as it would be based on the assessee's own experience. (5) The Ld. CIT(A) failed to appreciate the fact that the estimate made by the AO was all the more reasonable as he had taken the electricity connections of only a part of the area serviced by the assessee. (6) The Ld. CIT(A) erred in arbitrarily estimating the su....
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....53A of the Act. In the process, the AO rejected the books of accounts of the assessee silently in general and declared number of cable connections recorded in the books. AO failed to enlist or outline the reasons for such rejections and discrepancies in the accounts of the assessee. Relying on the provisions of section 145 of the Act, Ld Counsel argued stating that as per the said provisions, AO is authorized to reject provisions of failure to regularly follow a method of accounting, incorrectness or incompleteness of the accounts. In the absence of any such failure or incorrectness or incompleteness, AO cannot silently reject the books and proceed to resort of best judgment assessment in the manner provided in section 144 of the Act. In the background of the above, the assessee filed letter dated 05/09/2011 raising the aforementioned additional ground and convincingly submitted that the above imported additional grounds are legal in nature and they transfuse into the root of the issues raised in the normal grounds raised by both the parties. Therefore, as per Dr Jain, the said additional grounds ought to be admitted and disposed on its merits. According to him, in case the assesse....
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.... of the Income-tax Act. He also mentioned that the AO failed to point out any discrepancies in the said Audit Report. Adjudication of the Additional Grounds 8. We heard both the parties and perused the orders of the revenue and issues raised in the orders of the revenue and issues raised in the additional grounds. We find that there is no dispute on the legal nature of the issue raised in the additional grounds. Considering the non requirement of any investigation in to the primary fact required for adjudication of the said legal issue raised in the additional grounds, we are of the opinion that the additional grounds raised should be admitted in the interest of the justice. 9. The issue raised in the additional grounds relates to the requirement of rejection of books of accounts as per the provisions of Section 145(3) of the Act before suppressed receipt is resorted by the assessing officer. For adjudicating to the above we proceed to bring out some relevant facts and the background of the assessee. Background Facts 10. Assessee company carries on the business of cable operator services as well as transmitting signals to its input holders / franchisees. There was se....
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....ed by the MSEB as a cable connection of the assessee). Assessing Officer compiled the year-wise rate per cable connection. The assessment for all the seven assessment years were completed and finally determined the undisclosed income of all the seven years as per the chart (on page 24 of assessment order) given below. A.Yrs. Indexed Connectivity Option (40%) Shown by Co. Balance Not shown Rate per connection Undisclosed income (x months) 2000-01 95571 38228 13558 24670 120.00 3,55,24,800 2001-02 42050 42050 14276 27774 170.00 220.00 Sub total 1,41,64,740 5,49,92,520 6,91,57,260 2002-03 115641 46256 14904 31352 220.00 270.00 Sub total 3,44,87,200 5,92,55,280 9,37,42,480 2003-04 127206 50882 15364 35248 270.00 271.43 Sub total 4,75,84,800 6,69,71,552 11,45,56,352 2004-05 139926 55970 16366 39604 271.43 277.78 298.15 Sub total 2,14,99,427 1,10,01,199 10,62,71,393 13,87,72,019 2005-06 153604 61441 21505 39936 298.15 313.70 Sub total 7,14,41,....
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.... the impugned order. 16. Aggrieved with the above relief granted by the CIT(A) in favorite of the assessee, the Revenue filed appeals and the details are on the first pages of this order. Further, aggrieved by the CIT(A)'s decision in not deleting the additions in full, the assessee filed appeals for all years under consideration. Facts relevant to additional grounds: 17. Assessee is a company whose books of accounts are duly audited as per the provisions of the Act. With the exception of some unfounded or irresponsible assertions of the AO, who held in para 12 of his order that there exists some evidences to support the suppression of cable connections by the assessee, otherwise, the search action did not result in the discovery of any direct evidence to demonstrate the same so show that the entries or books of accounts of the assessee for seven assessment years are inaccurate and they suffer from deadly problem of incompleteness of the books of accounts. However, on the issue of existence of such evidences, there was discussion by both the parties during the proceeding before us. In response to the challenge of the assessee's counsel for production of such eviden....
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....ovisions of section 145 of the Act for rejecting the accounts of the assessee. Ld Counsel filed the following two written submissions and the same is reproduced in the succeeding paragraphs of this order. 18. Extract from the written submission by the Assessee: "13. Thus, from the above, it is evident provisions of Section 145(3) are invoked under sub-section (3) on account of Incompleteness of books of account & Inaccuracies of the said books of accounts 14. In the light of the above scope we have examined the fact of the present case. The standard of the revenue is estimations by the assessing officer are justified even when the specific inaccuracies or incompleteness are not pointed out . (2) Assessing officer did not make specific reference of sub-sec.(3) of the Act in his order (3) and there is allegation by the service department about the number of ----statement of Shri Ezaz Inamdar about i.e. "we take 40% as possible connectivity" on the other hand the standard of the assessee is as provided in the Para 5 to 8 and rejoinder also of written submissions which is as under. "5. The Assessing Officer has merely concluded (as can be seen from Para 12 of the asse....
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.... of opinion that the accounts maintained by the assessee were not correct or complete or that income could not be deduced from the books of accounts, the assessee's books of accounts cannot be rejected and such a rejection is perverse and void. vi. International Forest Company v. CIT- 101 ITR 721 (J & K) Accounts cannot be rejected merely on the ground that the summons issued to parties were either returned unserved or no compliance was made where the assessee has maintained proper books of accounts and they were audited u/s.44AB and were produced before the Assessing Officer in which no other defect was found. vii. DCIT v. Associated Petroleum Corporation - 43 SOT 45 (Ahd) Without pointing out any defect, the Assessing Officer cannot resort to rejection of books and without rejecting books of accounts, Assessing Officer cannot estimate the profits. viii. CIT v. Paradise Holidays - 325 ITR 13 (Delhi) 8. Reliance is place on the following decision for the proposition that in the absence of assessment year specific incriminating material, assessment of such year cannot be disturbed by invoking the provision of Sec.153C. i. Sinhgad Tech....
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....rovisions of section 145A of the Act- Valid Invoking provisions: Scope of section 145: The AO assumes jurisdiction in rejecting the books of accounts of the assessee by virtue of section 145 of the Income-tax Act relating to "Method of accounting'. Section 145 was amended by the Finance Act, 1995 with effect from 1.4.1997 and relevant subsection (3) as applicable to the years under consideration reads as under:- "Method of Accounting 145 (1) ... (2).... (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or ................ , the Assessing Officer may make an assessment in the manner provided in section 144." 21. Sub-section (2) of the pre-amended provision is same as the sub section (3) of the substituted section 145 of the Income tax Act and it has following ingredients: (a) AO being not satisfied about the correctness or completeness of the accounts of the assessee; and (b) consequential best judgment assessment in the manner provided in section 144 of the Act. The expressions at (a) i.e. "AO not satisfied", correctness, completeness of the accounts of the assessee are relevant and they req....
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....ilable mistakes or errors in accounts. Thus, the completeness refers to list of books of accounts and entries therein and the correctness of the accounts refers to the quality of the accounts of the assessee. AO may reject the books either for reasons of incompleteness of the accounts or for reasons of the correctness of the accounts. AO's satisfaction about the completeness or completeness of the accounts of the assessee assumes importance. 25. Further, with regard to rejection of books of accounts by the AO u/s 145 of the Act, 'accepting the books of accounts of the assessee is a rule and rejecting the same is an exception'. This is the principle in existence and AO shall not reject the books unless the accounts of the assessee suffer from either of the twin reasons specified in the Act ie correctness or completeness. Hon' ble jurisdictional High Court, in the case of Bastiram Narayandas Maheshri v. CIT [1994] 210 ITR 438/74 Taxman 454 (Bom.) , held that the failure to maintain proper registers contributes to the dissatisfaction of the AO about the fairness or correctness of the accounts and thus the AO is empowered to make the best judgment assessment. I....
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....ding the 'AO being not satisfied' about the correctness and completeness of the assessee's accounts, the Calcutta High Court judgment in the case of Ashoke Refractories (P.). Ltd. v. CIT [2005] 279 ITR 457/158 Taxman 635 is relevant. In the said case, the Hon' ble High Court held that in order to reject the accounts, the AO has to come to an opinion that the income cannot be properly deduced from the accounts so maintained. In order to arrive at such conclusion, it must be shown that the AO has taken into consideration relevant factors and not omitted to consider the material before him. Thus, the above scope of the provisions of section 145 conclusively establishing the fact that, what is important for rejection of books is the AO being not satisfied about the correctness or completeness of the accounts and it is for the AO to establish the incompleteness or incorrectness of the accounts of the assessee. Divergent Stands of the Parties of the Dispute - Summation: 27. In the light of the above scope and philosophy relating to the provisions of section 145(3) of the Act, we need to examine the divergent stands of the parties in the litigation. A. Stand....
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....ts u/s 144 of the Act without validly rejecting the accounts of the assessee. It is also an argument of Ld Counsel that the '40% basis' adopted by the AO was rejected by the CIT(A) in the first appellate proceedings and therefore, the revenue has no valid basis whatsoever for resorting the estimations. Hence as per the Counsel, the impugned assessments should be quashed in view of invalid invoking of the provisions of section 145(3) and consequential best judgment assessment. 28. In the preceding paragraphs of this order, we have analysed the issues concerning the admission of the additional ground tracing the background facts of the case, the scope of the provisions of section 145(3) of the Act, divergent stands of the parties in dispute and the circumstances leading to making of an assessment on estimation basis etc. While discussing the same, we have demonstrated the need for enlisting the accuracies and incompleteness of the accounts of the assessee. In other words, we have approved the existing dictum that 'acceptance of the books of account of the assessee is the rule' and the 'rejection of books is an exception'. In this case, the assessee is under....
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....t is stated that 40% of the electricity connections of an area is considered for their planning purposes and (ii) the allegations of the service tax division of the Central Excise Department, Government of India who initiated certain proceedings under their laws in support of their allegation of suppression of the service tax by way of suppression of the cable connectivity. 30. Regarding the above argument at (i) above relating to the contents of the statement of Shri Inamdar, it is evident that the said statement is unspecific, vogue and the same was made in connection with planning of the business ie in other words assessee purchases the required machinery with a capacity for gathering 40% of the electricity connections of an area. It should never mean that the assessee is providing cable connections to 40% of the electricity connections. In our opinion it constitutes a wild surmises, which should be rejected outright as done by the first appellate authority in the impugned order. Therefore, this statement of Shri Inamdar ought not to become a basis for rejection of books of account as the said statement failed to contribute to either incompleteness or inaccuracy of the acc....
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....ssion of cable connectivity. But, this allegation of the Central Excise Department, in our opinion, does not merit any attention as the proceedings under the said law never fructified legally against the assessee. In any case, these are mere allegations which should be discouraged outright in matters of making of the assessments in general and search assessments in particular. 32. It is a settled law, the suspicion, however strong it may be, never replaces the specific findings or evidences as they unambiguously throw light on the incompleteness and inaccuracy of the accounts of the assessee. It is not the case in here. Therefore, there is no scope for any such surmises and suspicion in matters of rejection of books of accounts. It is the onus on the AO to enlist the defects or discrepancies or entries or failure of the assessee in maintaining some requisite books in the order before the books are rejected u/s 145(3) of the Act. AO might not have mentioned expressively the provisions of sec. 145(3) of the Act in the order but the requirement is, AO must enlist the defects or discrepancies or incompletion or inaccuracies of the accounts of the assessee. In the instant case AO did....