TaxTMI 
TaxTMI 
2017 (10) TMI 480
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....d "the Act") for assessment year 2009-10 and secondly dated 26-03-2013 passed by AO u/s 143(3) r.w.s.147 of the 1961 Act for assessment year 2008-09. 2. At the outset with respect to A.Y 2008-09, it was submitted by learned counsel for the assessee at the outset that appeal was filed late by 123 days beyond the time stipulated u/s 253(3) for filing this appeal and prayer was made for condonation of delay of 123 days in filing this appeal which is supported by an application for condonation and the affidavit executed by the assessee. It was submitted that the assessee was suffering from huge financial losses and shock due to this huge demand raised against the assessee. It was submitted that huge demands raised against the assessee wherein additions of more than Rs. 30 crores have been made in the case of the assessee for AY 2008-09 and 2009-10 are in itself evidence that the assessee is facing huge financial difficulties. Reliance was placed on the decision of the Hon‟ble Supreme Court dated 09-06-2010 in the case of Investment Trust v. Ujagar Singh in Civil Appeal No. 2395 of 2008 and it was submitted that there is no malafide on the part of the assessee in filing t....
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.... then assessee will be left remediless in the midst of huge additions to the income to the tune of Rs. 13.67 crores made for AY 2008-09 against returned income of only Rs. 7.72 lacs. Hence, we order condonation of delay of 123 days in filing this appeal late by the assessee beyond the time stipulated u/s 253(3). We admit this appeal in ITA no. 4896/Mum/2015 for AY 2008-09 which was filed late by the assesee by 123 days than the time prescribed u/s 253(3). We order accordingly. Appeal No. ITA no. 2135/Mum/2013-Assessment Year 2009-10 3. First we shall take the appeal of the assessee in ITA no. 2135/Mum/2013 for assessment year 2009-10. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under:- 1. "The learned Commissioner of Income Tax, (Appeals)-33, Mumbai erred in confirming the addition made by the learned A.O. without appreciating the fact that your appellant has purchased the materials from various parties and sold to various parties and as such, it cannot be stated that the purchases are not genuine. 1.1 Your app....
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....g Section 40A(3)/40A(3A) to make additions. The assessee made prayer for admission of the additional grounds of appeals. The Ld. D.R raised preliminary objection to the raising of the additional grounds of appeal and prayed that the same may not be admitted. We have heard both the rival parties and perused the material on record. We are of the considered view that these grounds are legal grounds and goes to the root of matter for adjudication of this appeal . We have observed that adjudication of these additional grounds of appeal does not also require investigation of fresh facts and can be adjudicated based on material on record . Hence we are hereby directing these additional grounds to be admitted in the interest of substantial justice and thereafter to be adjudicated on merits keeping in view ratio of decision of Hon‟ble Supreme Court in the case of National Thermal Power Corp. Ltd. v. CIT (1998) 229 ITR 383(SC). We order accordingly. 6. The Brief facts of the case are that the assessee is in the business of fabric and garments export in the name of M/s. SAI and declared net profit of Rs. 7, 85, 615/- on turnover of Rs. 7.50 crores in the previous year relevant ....
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....e assessee before the AO during the course of assessment proceedings . However, books of accounts with bills and vouchers were not produced but certain ledger accounts were produced. The assessee was asked by the AO to submit details of purchase parties, the assessee submitted following details:- S.No Name Address Closing amount 1 Advance Finstock Plot no 122, Sector no 10. Juhu Gaon Panvel Dist. Raigad - 410206 42,48,075/- 2 Ajay Impex 98/100, Proqressive Bldg, Near Voltas House Byculla (E) 2,00,000/- 3 B K Enterprises Plot no 150, Nehru Road, 4882000/- Near Vishal Hall, Borivali(E) Mumbai-400092 -----------------. 58,33,524/- 4 Classic Trading 26/1, Daji colony, Vijay Nagar Road, Narangpura, Ahmedabad- 3800013 5 Devam Impex Off no 185, Jain Bldg Lajpat Nagar, Surat - 395536 21,86,712/- 6 Durga Trading 311, Gr Floor, Raoji House, Kalbadevi, Mumbai 400 002 7,95,000/- 7 Elegance Trading n Off no 50, 4th floor, Maya apartment, Dahisar E, Mumbai 400 068 3,00,000/- 8 Jayes Corporation D -281,Shiv Market, Ring Road,....
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....d 1,00,98,483/- 30 Vora Traders Suvijay Bldg, Ground Floor, Off no 08, Fish Market, NM Joshi Marg, Kurla- W 16,34,320/- The assessee was asked to submit details of all purchases above Rs. 2 lacs with sample purchase bill copy. But the assessee did not submitted the desired details despite repeated reminders by the A.O. . The A.O issued notices under 133(6) on 25th Oct, 2011 to following ten parties wherein following details were called from these purchase parties:- "I Your return of income, computation, Balance sheet and Profit & Loss account for A.Y 2009-10 II Confirmed ledger account copy of the above named assessee relevant for A.Y 2008-09, 2009-10 and 2010-11(F.Y 2007-08, 2008-09 and 2009-10) III Your bank accounts statement details and relevant statement wherein financial transactions are taken place. (Highlight my assessee's transaction) IV Copy of purchase bill/sale bills and transportation documents." The above ten parties to whom notices u/s 133(6) were issued by the AO are as under, wherein all speed post envelops containing notices u/s 133(6) were returned back by postal departme....
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....albadevi area 3 Keshav Enterprises 325 Ground floor, Mumbai 02 No such concern at Kalbadevi Road 4 Ajay Impex Address not located 5 J K Textiles Address not located 6 Kalpana Textile Incomplete address 7 Om Textiles Address not located 8 Raju Traders Address not located 9 Real Trading Incomplete address 10 Shubh Trading Co Address not located 11 Vora Associates Address not located 12 Vijay laxmi Trader Address not located 13 B K Enterprises Address not located Thus, it was observed by the A.O that not even a single party was found conducting business on the address provided by the assessee. The A.O observed as from the ledger account of one purchase party M/s. Vijay Laxmi Traders the assessee has recorded following payments to the said party:- S no Particulars Vch type Vch no Credit 1/12/08 To The North Canara GGB co op Bank Ltd Payment 372 325000 -do- . 373 325000 -do- Payment 'Pavrnent 374 350000 -do- Payment 375 200000 -do- Payment ....
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....l Parvez Ansari was not staying in the address . The occupant of the address submitted to the inspector that Mr. Suhel Parvez Ansari was their relative and now left the place. Thus, A.O concluded that Shubh Impex was a fly by night operator and no genuine business was conducted . It was observed that the assessee has given these cheques to accommodation entry operator in lieu of cash. Similar enquiry were made with respect to the other parties from whom assessee purchased the material namely K C Fab, Jain Trading Company, B K Enterprises which are detailed in the assessment order page no. 10-12 wherein similar findings were there that the cheques issued by the assessee were not account payee cheques which were deposited in some third party bank accounts which were operated by fly by night operators. The assessee admitted before the A.O that cheques issued were not account payee cheques and complete purchase bills and supporting vouchers are not available . It was submitted by assessee during the course of hearing before the A.O as under: " Shri Iqbal Subedar assessee attended without any paper or details or/explanation. He submitted that he does not ha....
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....sed additions in assessment proceedings in your case for A Y 2009-10 - reg. ***************** Please refer to the above. 2. In your case, you have filed e return of income in ITR - 4 declaring total income at Rs. 7, 00, 675/- on 26/8/2009. The return of income was selected for scrutiny after getting approval of the CCIT - XII, Mumbai. Notice u/s 143(2) and 142(1) with questionnaire were served on you on 30/9/2010 through notice server with hearing date 11/10/2010. But you did not comply. Notice u/s 142(1) with detailed questionnaire was again issued on 18/01/2011 and served on 04/02/2011. But you did not comply on hearing date on 17/02/2011. You did not file any adjournment letter ALSO. Third notice u/s 142(1) was issued on 29/7/20 11 with hearing date on 8/82011 but you did not comply in any manner again. Fourth notice u/s 142(1) was issued on 24/8/2011 with hearing date on 6/9/2011 but you did not comply or file any adjournment. On 12/09/2011, you were issued a showcause notice for initiation of penalty proceedings u/s.271 (1)(b) of the Act, 1961 and completion of assessment proceedings on ex parte basis. Hearing was fix....
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.... have account of M/s Vijay Laxmi Trader. Please explain as to why total purchase amount of Rs. 1, 00, 98, 483/- should not be added to assessee's income as per section 40A(3). V. Please submit details as per letter dated 31.10.2011." Hearing was fixed on 24.11.2011 to file reply to this showcause. On 24.11.2011, you attended without any submission or explanation any yourself was asked to go through showcause issued vide order sheet dated 21.11.2011 and submit your contentions by 25.11.2011. But you did not file any contention. On 09.12.2011, you again appeared without any written submission or details or explanation. Vide order sheet dated 09.12.2011, your explanation was recorded as under:- Shri Iqbal Subedar assessee attended without any paper or details or explanation. He submitted that he does not have complete purchase bills and other supporting vouchers as all the bills were managed by one Mr Pramod who is now not traceable. He submitted that as all purchases were made through Mr Pramod. Cheques against these purchases were prepared and handed over to Mr Pramod. He made to purchase parties payments through cheques but not account p....
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.... The sample was packed at there and exported through CFA M/s Merchant & Sons. In case, readymade items were available as per sample, Mr Pramod make arrangement for purchase of these items. Qno 23 Please provide the name and address of Mr Pramod? Ans The person left the market and I did not know anything about his where about. Qno 24 What was his shop no in Kalbadevi Market? Ans I did not remember the shop no but I can identify the shop on actual visit However, the person left the market. Q no 25 How did you transfer fabric from Kalbadevi to Govandi? Ans Throgh Tempowalas. Q No 26 Do you have L R gor the same? Ans The payments were made in cash and there was no challans or receipts are issued by these tempowalas. Q no 27 To whom did you engage (or stitching and for embroidery work? Ans, In Govandi area, the work o( stitching and embroidery is done in residential units and there are no organized units. People work from their houses on independent basis. I and my employees were used to visit Govandi area in order to supervise the job. Qno 28 For the first pu....
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....DEPB receivable? Ans DEPB had been sold out and duty draw back had also been received from the Customs Department . Qno 38 Please provide return of income, Balance sheet and tax audit report for A Y 20 10-11 and 2011-12? Ans Please give me one days time for submission of these documents for AY 2010-11. As far as return of income for AY 2011- 12 is concerned, it is not filed till date as the business is closed and I have no income and therefore no accounts maintained. Qno 39 Please give name of the auditor? Ans My auditor is Shri R H Mehta, C/62, Sector 5, Shanti Nagar, Mira Road E. Mumbai. Qno 40 Please go through your audit report and submit your auditors remark for relevant coloumn (or section 40(A)(3)? Ans The auditor submitted that "It is not possible for us to verify whether any payment in excess o( Rs. 20, OOOf- have been made through bank otherwise than by crossed cheque or bank draft as the necessary evidence is not in the possession of the assessee." 3. In view of the above proceedings, details collected from various banks and Inspectors inquiries and informati....
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....ccommodation entry provider. iii Similar inquiries were conducted in another party M/s B K Enterprises from which you shown purchases of Rs. 48, 82, 000/-. You issued five cheques ( not account payee) in the name of M/s B K Enterprises. On inquiries from AX'S Crawford Market branch and your banker Union Bank of India, Kalbadevi branch, it is found that these cheques were credited in account of M/s B K Enterprises account no 255610200012032 maintained with Prince Anwar Shah Road, Kolkata, West Bengal with AXIS Bank. On perusal of the bank account, it is seen that it was opened on 23/9/2008 and closing balance becomes zero on 31/03/2009. In the bank account, account holder's address is shown at 39/1, Sir Hariram Goenka Street, Kolkata- 700007. Perusal of the account statement, it is found that the account transaction does not show genuine business transactions and with these circumstantial facts, it can be safely concluded that the bank account of M/s B K Enterprises was used for providing accommodation entries to the assessee. iv. In your ledger account maintained for M/s K C Fab, you shown chequ....
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....sh basis and used accommodation entry operators to encash the cheques ( not account payee ) issued in the name of incorrect and bogus suppliers. Please explain as to why all purchases should not be treated as cash purchases and treated as unaccounted expenditure u/s 69C of the Income tax Act, 1961 after credit of cheques debited in your account. In order to give you credit for cheque debited in your account and received cash from the accommodation entry providers, a working sheet is prepared and provided to you alongwith the showcause notice. As per the enclosed working, maximum of negative cash balance arrives at Rs. 53, 82, 379/- on 19/05/2008. Therefore, an addition of Rs. 53, 82, 379/- is proposed for A Y 2009-10 for peak unexplained cash credit. 5. On sample basis test checking of cheques issued by you, it is found that you issued all cheques without marking "Account payee" in your Union Bank of India Bank account with Kalbadevi Branch which is violation of provision of section 40A(3) of the Income tax Act, 1961. Please explain as to why addition of Rs. 17, 99, 90, 677/- should not be made u/s 40(A(3) of the Income tax Act, 19....
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....counted for in its books of accounts and in order to generate required cash, the assessee handed over cheques which were not account payee cheques and party name were also left blank to the accommodation entry providers and received cash payment in lieu of such cheques and these accommodation entry parties were shown as purchase parties. The AO observed that these books of accounts did not reflect actual picture of business and hence books of accounts were rejected by the AO u/s. 145(3) being incorrect and incomplete books of accounts. The A.O considered all the purchases as cash payments reducing cash balance and similarly all cleared cheques in the bank account of the assessee i.e. Union Bank of India, Kalbadevi branch were considered as sources of cash. The A.O did not accepted purchases on credit basis as there were no genuine parties from whom purchases were made and there is no confirmations from these parties who could confirm that they sold goods to the assessee. The A.O worked out peak statements of the assessee for A.Y 2009-10 which was worked out to negative cash balance of Rs. 53, 82, 379/- on 19th May, 2008 and the assessee was show caused ab....
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....ssessee submitted that it has maintained books of accounts which are audited and copy of balance sheet, profit and loss account, capital accounts were submitted before learned CIT(A). It was submitted that although A.O failed to verify the purchases as notices u/s133(6) returned unserved and purchase parties could not be traced but sales were accepted by the A.O and there cannot be sales unless the purchases have been made by the assessee. The assessee relied upon the various case laws which are listed in learned CIT(A) appellate order on page no. 12 to 15. The assessee also submitted its audited accounts along with audit report u/s 44AB for the succeeding year i.e. 31-03-2010. The assessee submitted that normal gross profit in this business is 2 to 4% and it was submitted that G P Ratio of 2-4% be adopted in the case of assessee. The assessee also referred to various decisions of the courts which are listed in page 15 to support its above contentions. The learned CIT(A) rejected the contentions of the assessee. The learned CIT(A) observed that A.O has made detailed enquires after giving several opportunities to the assessee and assessee did not comply or made ....
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.... it account payee in infringement of Section 40A(3) and 40A(3A), vide appellate order dated 22-01-2013. 8. The assessment order for A.Y 2008-09 was consequential in nature to the assessment order passed for AY 2009-10 wherein all the discussions as to negative peak cash was made in assessment order for AY 2009-10, an addition of Rs. 13, 67, 62, 973/- were made u/s 69C for AY 2008-09 on account of negative peak cash balance on the grounds that the assessee has purchased material from other parties in cash, vide assessment order dated 26-03-2013 passed by the AO u/s 143(3) r.w.s. 147. The assessee carried the matter in appeal before learned CIT(A) who confirmed the additions for AY 2008-09, vide appellate order dated 25.02.2015 which was later on rectified by learned CIT(A) u/s. 154 vide orders dated 16.02.2017. The learned CIT(A) rectified the appellate order by holding that disallowance in the impugned assessment year is to be made u/s. 69C and not u/s 40A(3) and 40A(3A) as were done by learned CIT(A) in his original appellate order dated 25-02-2015 for AY 2008-09, by holding as under :- Findings in Original Appellate Order dated 25-0....
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.... account of estimation of profits after rejection of books of accounts. It was submitted that after rejection of books of accounts only trading additions can be made by estimating profits and Section 40A(3)/40A(3A) cannot be invoked as the AO cannot have recourse to same rejected books of accounts for making additions u/s 40A(3)/40A(3A) which he himself has rejected. Our attention was drawn to assessment order and also our attention was drawn to the annexure to assessment order where the AO has given working details of the disallowance on account of Section 40A(3)/40A(3A) as well working out peak negative cash balance. It was submitted that there is no dispute so far as quantum is concerned . Our attention was drawn to annexure 1 and 2 to the assessment order of the A.O wherein the peak negative cash balance has been worked out to be of Rs. 13, 67, 62, 973/- as on 26th January, 2008, while total cheques issued from 01.04.2008 to 31st March, 2009 were to the tune of Rs. 17, 99, 90, 677/- which were not account payee cheques. It was submitted that A.O has alleged that there are purchases from undisclosed sources in cash and hence addition has been made of the peak n....
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....962 and submitted that no account payee cheque were issued and only crossed cheques were issued without naming the party as the seller parties wanted to hide their identities. The assessee sought protection under rule 6DD(g) and (j) of the 1962 Rules. It was submitted that principles of Real Income will apply and holistic view of the matter is to be taken. The learned counsel for the assessee relied upon the decision of Hon‟ble Supreme Court in the case of CIT v. Smt. P.K. Noorjahan (1999) 237 ITR 570(SC) and also decision of the Hon‟ble Supreme Court in the case of Godhra Electricity Company Ltd. v. CIT (1997) 225 ITR 746(SC). Assessment Year 2008-09 It was submitted by learned counsel for the assessee that additions has been made u/s 69C as purchases could not be explained by the assessee and addition were made u/s. 69C towards peak negative cash balance which was worked out at Rs. 13.67 crores as on 26-01-2008 as it was held by the AO that actual purchases have been made in cash . It was submitted that learned CIT(A) rightly rejected the books of accounts u/s 145(3). The learned CIT(A) has confirmed the disallowance u/s. 40A(3)/40A(3A) which was later being rec....
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....ts before learned CIT(A) and A.O, which is wrong contentions made by the learned counsel for the assessee and a wrong certificate is given by the assessee before tribunal . It was submitted that Section 40A(1) has a non-obstante clause and it is clearly stated in Section 40A(1) that it will be operative notwithstanding anything to contrary contained in any other provisions in this Act . It was submitted that Section 40A(1) is not restricted to Chapter IV-D dealing with income from profits and gains from business or profession and it was claimed that Section 40A(1) is an overriding section. It was submitted that there is no merit in the arguments of the assessee and the income has been computed u/s. 144 under the head profits or gains from business or profession to the best of judgment of the A.O. . It was submitted that assessee has not disclosed identity of purchasing parties and has wrongly invoked protection under rule 6DD(g) and (j) which has no application as no evidences has been produced before the A.O. that the bank were closed due to holidays or the bank were situated in remote areas/villages . It was submitted that Section 40A(3) and 40A(3A) being deeming provision ....
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.... exporter in fabric and cloth. The assessee achieved turnover of Rs. 7.50 crores in the previous year relevant to the assessment year 2009-10, while turnover was 13.41 crores in the immediately preceding assessment year 2008-09. The assessee case was selected for scrutiny and several notices u/s 143(2) /142(1) were issued by the A.O to the assessee during the course of assessment proceedings under 143(3) r.w.s. 143(2) for AY 2009-10. The notices issued u/s 143(2) and 142(1) are tabulated below:- S.No Notices u/s. Date Hearing date Compliance Status i. 143(2) & 142(1) 29/09/10 11/10/10 Non compliance ii. 142(1) 18/01/11 17/02/2011 -do- iii. 142(1) 29/07/11 08/08/11 -do- iv. 142(1) 28/08/11 06/09/11 -do- v. Show cause for initiation of penalty and exparte assessment 12/09/11 22/09/11 -do- vi. Order Sheet on appearance of accountant 18/10/11 24/10/11 Partial compliance in tapal vii. 142(1) 31/11/11 09/11/11 Non compliance viii. Accountant appeared 21/11/11 24/11/11 Attended but without details ix. Order sheet 24/11/11 25/11/11 Non ....
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.... Nivara SJ Bldg, Marg, Lower Parel(W) 13,09,680/- 10 JMDE Pack Real Ltd Shop No.13 Gate no 5, Shanghai naqar', Pateli , Surat -394540 25,66,500 11 I Kalapna Textiles Shop no 7, Laxmi College, Dr 13,31,139/- . Ambedkar Road, Parel Mumbai 12 Karnimata Emporium Laxmi Bhawan Bldg Gokhale Road, Dadar(W), Mumbai - 28 44,80,627/- 13 Keshav Enterprises 325, Ground Floor, Kalbadevi Road, Kalbadevi,Mumbai-400002 22,67,000/- 14. KV Impex 98, Mangal Sadan Junction, Opp 7th Road, SV Road, Khar, Mumbai 15,28,110/- 15. Maruti Enterprices S-07, City Arcade, Near DSP Bunglow, Jamnagar-361008 18,95,551/- 16. Mateshwari Enterprices Raj complex Gr. Floor Off no. 8 Plot no.8/18, Vapi-396165 17,37,000/- 17. Mittal Trading Co Guru Chembers, 1st floor, Off no. 19, Soman Nagar, Surat395002 7,62,000/- 18. Mittal Enterprises 57/75, ShivShakti, Opp Krishna Zerox, Market Road, Vashi 7,20,000/- 19. Om Textiles Kapadia Mention, 322, Sir JJ Road, Opp JJ Hospital Mumbai 400008 5,80,255/- 20. Pawan Sheth Traders Shreeji....
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....p; -do- Payment 378 200000 -do- Payment 379 200000 The A.O made enquiries with the bank North Canara GGB Co. Op. Bank Ltd. and it was observed that these payments are only cash withdrawal from bank account. Similarly, it was observed by the AO that 10 cheques which were issued for an amounts of Rs. 81, 98, 483/- were not account payee cheques and have been deposited in some other bank accounts in the name of M/s. Shubh Impex which is a non genuine business entity. The A.O obtain copies of cheques issued by the assessee from his bankers Union Bank of India favouring Vijay Laxmi Traders and it was observed that cheques were for more than Rs. 20, 000/- and none of the cheques were account payee cheques as are required u/s. 40A(3). It was observed by the A.O that these cheques were presented in clearing by Rajkot Nagrik Sahakari Bank, Kaladevi branch through clearing house member HDFC Bank, Fort Branch. The AO made enquiries with RNS bank who submitted that they do not have any bank account in the name and style of M/s. Vijay Laxmi Traders . On enquiry with the bankers RNS Bank it was found by the AO that these cheques were deposit....
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.... as all the bills were managed by one Mr Pramod who is now not traceable. He submitted that as all purchases were made through Mr Pramod. Cheques against these purchases were prepared and handed over to Mr Pramod. He made to purchase parties payments through cheques but not account payee cheques. He further submitted that Mr Pramod is not traceable. He is again asked to go through order sheet showcause dated 21/11/2011 and comply.. He is asked to produce I books of accounts, purchases sale bills transportation documents up to port for AY 2008-09 and 2009-10 ii purchase parties should not be treated non genuine iii section 40A(3) should not be made applicable in view of non account payee cheques- cheques favouring of B K Enterprises, Vijay Laxmi Traders and K C Fab shown to him. Hearing is fixed on 12/12/2011 at 11 AM." The assessee categorically submitted that he did not have purchase bills and supporting . The assessee also submitted that he did not issued account payee cheques. Statement was recorded on 15.12.2011 wherein the assessee admitted that some time bearer cheques were issued and no account payee cheque were issued. The assessee in reply of question no ....
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.... of Rs. 53, 82, 379/- was below Rs. 13, 67, 62, 973/-, no addition for A.Y 2009-10 was made by the AO u/s. 69C of the Act. The A.O held that appropriate action for peak balance of Rs. 13, 67, 62, 973/- for A.Y 2009-10 will be taken separately. Additions u/s. 40A(3) and 40A(3A) - AY 2009-10- it was observed by the A.O that assessee has issued cheques without writing name of the purchasing party and without marking it 'account payee cheque' which were issued from Union Bank of India account with Kalbadevi branch . Sometime cheques were crossed and sometime cheques were issued without being crossed but in all cases these cheques were not account payee cheques nor the name of the party is written on the cheques at the time of issue of cheques . The AO observed that these cheques were issued to accommodation entry providers in lieu of cash and hence the assessee was not having genuine purchase bills from these parties. It was observed by the AO that every cheque is written by two different persons in two different hand writings. During the year, the AO observed that the assessee has issued cheques of Rs. 17, 99, 90, 677/- of which details were given by the A.O vid....
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....ollowing relevant Section 40A(1), 40A(3), 40A(3A), 145(3) and 144 as they stood at relevant point of time which held the field for deciding the controversy which has arisen in this appeal. "Expenses or payments not deductible in certain circumstances. 40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession". **** **** [ (3)(a) Where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure; (b) where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank....
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....bsp;having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors." "Best judgment assessment. 144. [(1)] If any person- (a) fails to make the return required [under sub-section (1) of section 139] and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or (b) fails to comply with all the terms of a notice issued under sub-section (1) of section 142 [or fails to comply with a direction issued under sub-section (2A) of that section], or (c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, the [Assessing] Officer, after taking into account all relevant material which the [Assessing] Officer has gathered, [shall, after giving the assessee an opportunity of being heard, make the assessment ] of the total income or loss to the best of his judgment and determine the sum payable by the assessee [* * *] on the basis of such assessment : [Provided that such opportunity shall be given by the Assess....
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....w.r.t. Block assessment framed u/s 158BC pursuant to a search u/s 132. Thus, it was not a case of regular assessment but a case of Block assessment wherein the objective is to compute undisclosed income as stipulated under Chapter XIV-B. The undisclosed transactions from business which was outside books were held to be outside the purview of Section 40A(3).It was also held that in view of consolidated figure of purchases available from seized material, it is not possible to find out disallowances of individual transactions which have infringed provisions of Section 40A(3). The AO did not invoke Section 40A(3) under said circumstances relying on decision of the tribunal, while learned CIT invoked revisionary powers u/s 263 proposing to revise the assessment on the grounds that the AO did not considered the applicability of Section 40A(3), wherein Hon‟ble Bombay High Court held that the revisional jurisdiction cannot be exercised by learned CIT as the AO has taken a possible view based on the decisions of the tribunal. This case has absolutely no relevance to the instant appeal as the fact situation are materially different as we are concerned with regul....
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.... the AO after rejecting books of accounts u/s 145(3) has not applied GP Ratio to estimate income rather Section 40A(3)/40A(3A) were invoked to estimate income whose validity is to be tested by us on the threshold of statutory provisions, their interpretation by Courts and factual matrix of the case. d) The assessee has also placed reliance on decision of Hon‟ble High Court of Rajasthan in the case of CIT v. G.K.Contractor(supra) is a case where AO estimated income by applying a higher net profit after rejection of books of accounts by invoking Section 145(3), it was held that no separate addition can be made on account of cash credit u/s 68 . But in the instant case before us, the AO after rejecting books of accounts u/s 145(3) has not applied GP Ratio to estimate income rather Section 40A(3)/40A(3A) are invoked to estimate income whose validity is to be tested by us on the threshold of statutory provisions, their interpretation by Courts and factual matrix of the case. e) The assessee has also placed reliance on the decision of Hon‟ble Supreme Court in the case of CIT v. Smt P. K. Noorjahan(supra) wherein Hon‟ble Su....
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....sion was "a crossed cheque drawn on a bank or by a crossed bank draft". Such provision was amended with effect from 13.7.2006 to substitute the expression "an account payee cheque drawn on a bank or account payee bank draft". Thus there was a conscious change in the phraseology used in the said provision and the expression "a crossed cheque drawn on a bank" was replaced by "an account payee cheque drawn on a bank". Likewise, expression "a crossed bank draft" was replaced by "an account payee bank draft". The reasons for such amendments were explained in CBDT Circular No.1 of 2007 dated 27.4.2007 providing inter alia that a crossed cheque or a crossed bank draft is not a non-negotiable instrument. This, at times, results in crossed cheques being endorsed making it difficult to trace final payee and thus defeating the provisions of section 40A(3). As per RBI instructions to banks, an account payee cheque or account payee bank draft cannot be credited to any account other than the account of the payee. The Act was accordingly amended to substitute the said expressions. 10. It is true that the terms "an account payee cheque" or "account payee bank draft....
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....dited the proceeds of individual account payee refund orders into the accounts of the brokers instead of to the individual accounts on the request of the associates of DP providers. This has resulted in manipulation of the payment system and has facilitated the perpetration of irregularities. This manipulation would not have taken place but for the banks deviating from the procedure for collection of account payee cheques. The deviations can also not be sanctified as a prudent market practice since it has the potential to expose the banks to various risks. 3. Being satisfied that in consonance with the legal requirements and in particular the intent of the Negotiable Instruments Act, and with a view to protect the banks being burdened with liabilities arising out of unauthorized collections, and in the interest of the integrity and soundness of the payment and banking systems, and in order to prevent recurrence of deviations observed in the recent past, the Reserve Bank has considered it necessary to prohibit the banks from crediting 'account payee' cheque to the account of any person other than the payee named therein. The Reserve Bank acco....
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....o withdraw the mandate in this respect. 15. Thus, by virtue of the clear understanding of an account payee cheque in commercial parlance further amplified by RBI guidelines noted above, it cannot be said that there is no distinction between a crossed cheque and an account payee cheque. The concept of an account payee cheque which is even otherwise well known in banking circles and commercial parlance; with specific unambiguous directives by RBI gets further amplified. The banks are duty bound to carry out such directions issued by the RBI in exercise of powers under section 35A of the Banking Regulations Act. 16. As we have noted, previously the expression used in section 40A(3)(a) was a crossed cheque or a crossed bank draft. With specific purpose in mind, the same was amended by the legislature to be replaced by the expression " an account payee cheque or account payee bank draft". This was done in the background of the experience that even crossed cheques were being endorsed in favour of a person other than the drawee making it difficult to trace the constituent of the money. To plug this possible loophole the requirement of section 40A(....
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....t payee cheque may still retain its negotiability unless it carries a further endorsement "non-negotiable". To this aspect of the matter we are neither called upon nor intended to give any conclusive opinion. We, however, cannot resist referring to the decision of the Calcutta High Court in the case of Tailors Priya (supra). In such decision also it was observed that a law on the point should be reconsidered and it is generally believed that by crossing a cheque with the words "a/c. Payee only", it is made not negotiable. It is clarified that according to the law as it stands at present a cheque even if it is account payee without the endorsement "not negotiable" would still be negotiable instrument. 19. In the present case, when RBI directives command the banks not to deposit the cheque amount in favour of any person other than the drawee of the cheque and correspondingly prohibit the banks from accepting any cheque, which is account payee cheque from a source other than the drawee, lack of any distinction between a crossed cheque and an account payee cheque without a further endorsement " not negotiable" would be of no further....
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....s genuine and substantially correct . In such cases, the assessments are made on the basis of the accounts maintained even though the assessing officer may add back to the accounts price of the items that might have been omitted to be included in the accounts. In such a case, the assessments made is not a best "best judgment" assessment . It is primarily made on the basis of the accounts maintained by the assessee. But, when the assessing officer comes to the conclusion that no reliance can be placed on the accounts maintained by the assessee, he proceeds to assess the assessee on the basis of his "best judgment". In doing so, he may take such assistance as the assessee's account may afford ; he may also rely on other information gathered by him as well as the surrounding circumstances of the case. The assessment made on the basis of the assessee's accounts and those made on " best judgment" basis are totally different types of assessments. .... So long as the estimate made by him is not arbitrary and has nexus with facts discovered, the same cannot be questioned. In the very nature of things the estimate made may be an over-estimate or ....
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....her material before him provided the attention of the assessee is drawn to that material .....Even where the books are held to be false, there is nothing to prevent the Income-tax Officer from using and acting on any admissions that they might contain. For instance, the Income-tax Officer may accept the figure of sales and estimate the profits without accepting the trading account as a whole or he may accept the expenditure and on this basis estimate the sales. While proceeding in this manner the Income-tax Officer is not acting under the proviso to Section 13 but on general rules of reasoning and independently of Section 13. I do not, therefore, think that unless, the proviso to Section 13 is applied to such cases there would be a hiatus in the Act and that sub-section (3) of Section 23 would not work. As I have already pointed out, sub-section (3) of Section 23 does not specify or define the material on which the Income-tax Officer may base his finding. While making the assessment under that sub-section any material which tends to show the assessable income of the assessee is good material on which assessment may be based, provided the as....
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....al contract receipt of Rs. 1, 15, 47, 373 there may be a profit to the tune of Rs. 87, 51, 092, which will come to more than 75 per cent of the contract receipt. According to us the first appellate authority was not justified on the facts of this case to totally discard the books of accounts and other documents relied on by the assessee in the matter of estimation of income. As held by the Supreme Court in CST v. Girja Shanker Awanish Kumar [1997] 104 STC 130, even after rejection of the books of account for technical and other reasons, it is for the Assessing Officer on the facts of each case to consider the materials disclosed to ascertain as to what extent the books of account can be relied on for determination of the turnover. The Tribunal in the instant case has adverted to the findings of the Assessing Officer and the first appellate authority. However, in paragraph 16 of the appellate order, which we have already extracted, the Appellate Tribunal did not consider this aspect of the matter even though the Tribunal found it difficult to accept the case of the assessee regarding payment to the sub-contractors. We notice that the Trib....
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....in accordance with law in the light of the observations made in this judgment. In the above circumstances we decline to answer the questions of law on which notice is ordered in the appeal filed by the Department." The above judgments clearly stipulates that there is no bar on taking recourse to incriminating material unearthed by the AO during the course of enquiry and/or investigations during assessment proceedings even after rejecting the books of accounts and in our considered view this is the settled position of law and the AO could not be restricted to only estimate income based on profitability and the AO can also not be restricted not to use the incriminating material unearthed during enquiry/investigation to compute income of the assessee but the AO should act honestly to estimate income of the assessee . In the instant case, it has emerged that the assessee has issued bearer cheques or crossed cheques not in favour of purchasing parties but in favour of third parties who were in the opinion of the Revenue merely an accommodation entry providers not doing any genuine business as against the so called purchasing parties from whom the assessee showed purchases . Thu....
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....nt of the total income or loss to the best of his judgment and we donot find any limitation on the powers of the AO not to take recourse to the incriminating material gathered during enquiry/investigation during assessment proceedings to compute income of the assessee while framing best judgment assessment. From the perusal of Section 144 we donot also find any restriction on the powers of the AO to only estimate income based on profitability after rejecting books of accounts. There is no equity under taxing statute and if the provision of the statute are clear and unambiguous, full effect is to be given to them to compute income of the assessee. There is no scope of adding or deleting any word in taxing statute if the language is clear, simple and unambiguous. We donot find any restricting words in Section 144 restricting the AO to only assess profitability after rejecting books of accounts to compute income of the assessee. Further perusal of Section 40A(1) also clearly reveals that it has a non obstante clause which clearly stipulates that Section 40A(which includes 40A(3)/40A(3A) ) has an overriding effect notwithstanding anything to the contrary contained in any....