TaxTMI 
TaxTMI 
1997 (2) TMI 558
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....ccount and other relevant documents were seized by the Department, the said return of income was being filed on estimate and that a revised return of income would be filed after obtaining copies of necessary records. It was also mentioned therein that the assessee-firm had been dissolved with effect from October 23, 1985. Notices under section 142(1) and under section 143(2) of the Act were issued to the assessee fixing the hearing of assessment proceedings on February 20, 1989. Apparently, along with the said notices a detailed questionnaire was also issued to the assessee requiring the assessee to produce trading account, profit and loss account, balance-sheet, quantity-wise analysis of monthwise sales and purchases, details of opening and closing stock, etc. On February 20, 1989, the assessee addressed a letter to the Assessing Officer, vide which the Assessing Officer was requested to grant a further period of 15 days to file the abovementioned details. On the same date, the Assessing Officer issued another notice to the assessee refixing the hearing of the case on March 2, 1989. There was no compliance with the notice. Subsequently, on March 13, 1989, the Assessing Officer iss....
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....on March 24, 1989. The Assessing Officer was further of the opinion that the complaint lodged with the police was inadequate. In the absence of books of account, the Assessing Officer proceeded to complete the assessment ex parte under section 144 of the Income-tax Act, 1961. The Assessing Officer noted that, according to the sales register of the assessee, which was in the possession of the Department, having been seized during the course of search and which was for the period from April 1, 1985, to May 31, 1985, i.e., for 2 months, the sales as per the sales register came to Rs. 90,92,953. Since the assessee had stated that the firm was dissolved on October 22, 1985, and that there was no closing stock on the said date, the Assessing Officer estimated the sales for the remaining period of the previous year, i.e., for 4 months and 22 days, at Rs. 2 crores. The total sales of the assessee were, therefore, estimated at a sum of Rs. 2,90,92,953. Taking note of the rate of gross profit in similar firms, the Assessing Officer applied a gross profit of 6.5 per cent. on such estimated turnover to arrive at the gross profit for the year. He thereafter proceeded to bifurcate various expens....
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....2.90 crores appears to be rather excessive, particularly when the previous year in question extended to a period of 6 months and 2 days only. In this view of the matter and having regard to the fact that there was a downward tendency in the turnover in the lean period in respect of the earlier years, a fact which cannot be ignored or lost sight of in a best judgment assessment, I am of the opinion that it would suffice if the turnover of the balance period is estimated at a round figure of Rs. 1.10 crores or, in other words, it would be fair to estimate the turnover of the appellant firm for the entire year at a sum of Rs. 2,00,00,000.'' After estimating the turnover at Rs. 2 crores, the learned Commissioner of Income-tax (Appeals) proceeded to make a reasonable estimate of the income of the assessee. He noted that in the assessment year 1985- 86 the assessee had declared the net profit at 0.35 per cent. which was accepted by the Revenue on the declared turnover. He, therefore, concluded that "Taking all these circumstances into consideration, I deem it fit to apply a net profit rate of 0.50 per cent. of the total turnover of Rs. 2 crores as estimated earlier. This will give a f....
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.... have considered the rival submissions and perused the facts on record. In this case there was a search and the books of account were seized. Later on, books were released and the assessee was asked to get the same audited under rule 14A of the Income-tax Rules. Thereafter, the assessee informed the Assessing Officer that the books of account had been lost in transit and the necessary proofs in the form of police complaint and an advertisement in the newspaper, etc., were also produced before the Assessing Officer. The Assessing Officer was not satisfied and held that the loss of books was a concocted story to destroy the books/ evidence. Learned counsel for the assessee has made a statement at the Bar that the books of account have not been traced so far. Thus, it is a fact that the books of account were neither available before the Assessing Officer nor before the Commissioner of Income-tax (Appeals) nor before us. Under the circumstances, the only course left to the authorities below was to estimate the income taking into consideration the facts and circumstances of the case. The Assessing Officer has completed the assessment under section 144. It is well-settled that assessment....
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....ion from Rs. 14,16,912 to Rs. 1,00,000 holding that net business income should be estimated at 0.50 per cent. on the turnover of Rs. 2 crores." The facts relating to this are given in detail by learned Account Member. To sum up, it is mentioned that the assessee-firm was engaged in cloth business on wholesale basis in the year under consideration, i.e., the assessment year 1986-87. There was a search under section 132 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), at the business premises of the assessee on July 10, 1985, and the books of account and other relevant documents were seized by the Department. The assessee filed a return of income for the assessment year 1986-87 on June 24, 1987, at a total income of Rs. 60,000 with a note that it is being filed on estimate basis as books were under the custody of the Department and the same shall be revised after obtaining copies of the necessary records. During the assessment proceedings, the Assessing Officer issued a detailed questionnaire calling upon the assessee to produce trading account, profit and loss account, balance-sheet, quantitywise analysis of monthwise sales and purchases, details of opening and....
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.... assessment year 1984-85, the assessee had shown the gross profit at 2.84 per cent. and in the assessment year 1985-86 it was 6.14 per cent. He considered the submissions of the assessee and confirmed the above estimate of total sales of Rs. 2.9 crores and the rate of gross profit at 6.5 per cent. He further examined the factum of expenses. He was having in the possession the rough cash books and debit notes of the assessee-firm from April 1, 1985, to May 20, 1985, in which details of expenses were mentioned and some of the debit notes were found unstamped/unsigned. He took into consideration the reply of the assessee at June 23, 1989, in which expenses were divided into three categories and after considering all the facts, he worked out the expenses for all the period from April 1, 1985, to October 22, 1985, and deducted 40 per cent. thereof in view of the fact that some of the debit notes were not signed nor stamped and 25 per cent. deduction in expenses was being effected in all other related concerns of its group of the assessee-firm. He accordingly worked out the gross profit of Rs. 18.91 lakhs out of which he made the deduction of expenses giving out in paragraph 9 of his ord....
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.... all Rs. 2.90 crores. He also invited our attention that the rate of gross profit at 6.5 per cent. was also rightly followed by the Assessing Officer on the basis of the assessee's own earlier rate of gross profit as well as on the basis of rate of gross profit shown by other firms of the same group which were working in the same business and from the same premises. He defended the action of the Assessing Officer for deduction of 40 per cent. of expenses and concluded that he is placing heavy reliance on the order of the Assessing Officer who has taken into consideration all the relevant facts and circumstances. He also attacked the reasoning of the learned Commissioner of Income-tax (Appeals) to reduce the quantum of total sales to Rs. 2 crores and for adoption of net profit rate in disregard of the scientific analysis of all these facts made by the Assessing Officer. As against it, learned counsel for the assessee, Shri S. H. Talati has placed reliance on the order of the Commissioner of Income-tax (Appeals) and submitted one chart giving out the sales, purchases, gross profit, expenses and net profit for the assessment years 1983-84 to 1986-87 of the assessee-firm and it was ....
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....oks and the same were not traceable. The learned Assessing Officer has examined each and every aspect of this theory in detail from page 4 onwards to page 11 of the assessment order and the first point relating to it is about the date of hearing when books were brought to the office of the Assessing Officer. In paragraph 4 of his order, the Assessing Officer specifically mentioned that March 10, 1989, was not the date fixed in the case of the assessee. He referred to a statement of Tahilram Parimal recorded on May 26, 1989, under section 131(1) in which he admitted that March 10, 1989, was not the date fixed in the case. Even on prior dates no books of account of the assessee were called by the Assessing Officer nor were presented. On account of these facts, it was concluded by him that it was highly improbable that the Assessing Officer would be calling for the books of account on March 10, 1989, which was not even the date fixed nor even the necessity for books of account. Further, Mr. Manchhani is said to have taken the books of account to the office of the Assessing Officer on March 10, 1989, but when he was examined on this point, he was not able to give out the correct name o....
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....tion was actually given by the assessee on March 10, 1989, nor on March 13, 1989. The above conclusion of the Assessing Officer is supported by another important circumstance that in case the books were lost on March 10, 1989, then the assessee-firm should have reported this fact to the auditors also in their correspondence but in the letter dated March 27, 1989, issued by the assessee-firm in response to letter dated March 20, 1989, of Shah Dalal Shroff and Associates, the assessee has stated to have maintained all the books and has nowhere stated that the books had since been lost. In spite of 17 days that passed, the assessee did not bring the fact to the notice of the auditors even though the auditors called for the books, goes to show that this theory was not a believable one. Further, in paragraph 5(IV), the Assessing Officer has dealt with the statement of Pratap L. Avtani recorded on May 30, 1989, and in reply to question No. 24 he stated that audit of all the five firms in relation to the assessment year 1986-87 was being done by Arvind Kr. R. Shah. It shows that on May 30, 1989, itself the audit of books of the assessee-firm which is one of those five firms was in p....
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....85, to October 22, 1985, during which period the firm was in existence, at Rs. 2.9 crores as the sales register for the period from April 1, 1985, to May 31, 1985, revealed total sales of Rs. 90,92,953 and for the remaining period of 4 months 20 days, he estimated the sales at Rs. 2 crores. The reply of the assessee on this point as mentioned by the Assessing Officer in paragraph 6 of his order was that sales of June, July and August months were lower than the sales of April and May and he proposed the sales at Rs. 10 lakhs per month for June, July and August, 1985, and Rs. 15 lakhs for September and Rs. 13 lakhs for October, 1985. However, the Assessing Officer has observed that there was no documentary evidence or other materials in support of this contention to believe that sales which were at Rs. 33.66 lakhs in April, 1985, and Rs. 57.26 lakhs in May, 1985 (as per sales register in the possession of the Assessing Officer), fell to Rs. 10 lakhs in the months of June, July and August, 1985. The assessee could have furnished comparative chart of such stiff fall in the earlier years but nothing was done and the Assessing Officer was justified in estimating the sales at Rs. 2 crores....
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....ucted to work out the total income. The Assessing Officer was having rough cash books and some debit notes for the period from April 1, 1985, to May 20, 1985, and out of those some expenses in debit notes were found unstamped and unsigned. The Assessing Officer called upon the assessee as to why the expenses relating to unstamped/unsigned debit notes should not be disallowed. The Assessing Officer also worked out the expenses for the remaining period on the basis of those expenses. The assessee gave reply thereto, vide letter dated June 23, 1989, in which he divided the expenses into the following categories : 1. Expenses directly relating to the figures of sales ; 2. Expenses not relating to the sales ; and 3. Miscellaneous petty expenses. The assessee also furnished a detailed working of the percentagewise calculation of each type of expenses along with its relation to the figures of sales for the assessment year 1983-84, the assessment year 1984-85 and the assessment year 1985-86. It was further asserted by the assessee that as its expenses were unverifiable and unvouched, 25 per cent. of the expenses claimed may be disallowed and the rest may be allowed as worked ou....
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....Assessing Officer to give credit to the assessee for all the amount of expenses as claimed by it and to work out the amount of expenses on the same percentage for the remaining amount for the remaining period without any deduction what to say of 40 per cent. and 25 per cent. The result is that the Assessing Officer's view about treating the amount of sales at Rs. 2.90 crores and rate of gross profit at 6.5 per cent. stands confirmed subject to the allowability of the expenses to be worked out without any deduction. The order of the Assessing Officer stands restored with that modification and the appeal of the Revenue is allowed to that extent. ORDER OF REFERENCE TO THIRD MEMBER The Members having differed we refer the following question for the opinion of the President : "Whether, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) is justified in reducing the business income from Rs. 14,16,912 to Rs. 1 lakh ?" ORDER OF THIRD MEMBER NATHU RAM (Accountant Member). There being a difference of opinion between the learned Accountant Member and the learned Judicial Member on the issue involved the following question has b....
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....der section 142(2A) after obtaining prior approval of the Commissioner of Income-tax requiring the assessee to get its books of account audited by an appointed auditor and to submit an audit report in the prescribed Form No. 6B. Meanwhile the Assessing Officer is alleged to have asked the accountant of the assessee on March 9, 1989, to produce the completed books of account and as per his directions an employee of the assessee brought the completed books of five concerns of the group to the Income-tax Office on March 10, 1989, in seven bundles in an autorickshaw and after making the payment of Rs. 15 for hire charges of the autorickshaw he went to seek assistance for carrying the 7 bundles to the office of the Assessing Officer, the autorickshaw driver drove away taking the said books in seven bundles. The assessee filed a first information report about the loss of the books with the police authorities on March 17, 1989, and advertisement was also given in the local daily newspaper Sandesh on March 24, 1989. According to the assessee, the accountant, Shri Motwani, reported the incident to the Assessing Officer on March 10, 1989, and again on March 13, 1989. When the books of accoun....
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....reon at 6.5 per cent. He has, however, directed the Assessing Officer to allow the expenses as per the vouchers found for the limited period and the amount of expenses for the remaining period at the same percentage without making any deduction at 40 per cent. I have heard the representatives of the Revenue as well as the assessee. The learned Departmental Representative advanced arguments in support of the order of the Assessing Officer whereas learned counsel for the assessee submitted that income adopted by the first appellate authority at Rs. 1 lakh for a period of six months and 22 days is most fair and reasonable looking to the past history of the assessee as well as results for other concerns of the same group dealing in cloth on wholesale basis. He also invited attention to various documents and statements placed in the compilation relevant for the purpose. I have given careful consideration to the facts, material on record and rival submissions. It is evident from the facts given that books of account prepared by the assessee for the period from April 1, 1985, to October 22, 1985, were not available before the Assessing Officer for whatever reason so as to enable him....
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....ation and the same are as under : (Rs.) 1987-88 23-10-85 to 30-6-86 1,69,26,507 1988-89 1-7-86 to 30-6-87 1,55,59,596 1989-90 1-7-87 to 31-3-89 2,06,89,028 According to the assessee, it had also sister concerns engaged in similar business of dealing in cloth on wholesale basis. The sales declared in the cases of sister concerns in the preceding years are as under : Name Assessment year Sales (Rs.) 1. K. Tahilram 1983-84 1,51,31,857 1984-85 1,23,61,029 1985-86 1,32,31,314 2. P. Tahilram 1983-84 1,13,21,747 1984-85 1,53,75,481 1985-86 1,09,51,266 It appears from the sale figures available of earlier years that there was a peak season in the months of April and May for sales and thereafter there was a downward trend in sales. Moreover the accounting year for the current year comprised only six months and 22 days whereas the earlier accounting years were of 12 months. Looking to the sales effected by the assessee in the preceding three years and also succeeding three years the sales adopted by the first appellate authorit....
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....nt to determine the total income. The first appellate authority found such a method adopted as cumbersome and faulty. He, therefore, applied a net profit rate of 0.5 per cent. based on the results of the earlier three years on the sales estimated. The learned Judicial Member has sustained application of gross profit rate at 6.5 per cent. on the sales estimated and has further directed the Assessing Officer to allow the expenses as claimed and to work out the amount of expenses on the same percentage for the remaining period without making deduction at 25 per cent. or 40 per cent. As mentioned above the vouchers in the custody of the Department for a period of about 2 months are not complete as these contain no details for vatav, interest, depreciation, etc. Further, certain deductions are claimed by way of adjustment at the close of the accounting year by way of commission, etc., or certain expenses committed but not paid during the year. Thus, the expenses relating to the profit and loss account to be computed in the manner indicated would not be complete and adequate to arrive at the correct income. Under the circumstances, it would be fair and reasonable if the net profit rate i....