TaxTMI 
TaxTMI 
2020 (2) TMI 1501
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.... 2. The Ld. CIT (A) has erred in upholding genuineness of alleged business done by the assessee in the light of enquiries and findings done by the AO. 3. The Ld. CIT (A) has erred in upholding the genuineness of the business of the assessee by holding that no specific defects were pointed out by the AO when AO mentioned various defects in his books. The Ld. CIT (A) has erred in upholding the genuineness of books of assessee when AO has specially mentioned that no stock register was maintained and neither any cash book nor other details was maintained and produced. 4. The CIT (A) has erred in law and on facts of the case in deleting the addition of Rs. 1,39,38,110/- (that is Rs. 51,00,000/- made by the assessing officer on account of unexplained cash deposit and Rs. 88,38,110/- made by the assessing officer on account of unsecured loans u/s 68 of the IT Act 1961). As the assessee failed to prove the identity, genuineness & creditworthiness of the parties, who gave the unsecured loan and paid cash to the assessee and the assessee has failed to discharge primary onus as incomplete address was provided without other details. In view of this, Ld. CIT (A) erred ....
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....ed as per Form no.3CD attached to Form no.3CB (Tax audit report), the nature of the business was mentioned as "trading/wholesaler". There was no mention of goods in which the assessee was dealing with. The opening as well as closing stock was shown at nil. Out of total sale and purchases, trading of Rs. 29 crores was shown upto the month of August, 2011. As per bank statement, it was seen that all the major withdrawals were in the name of M/s Kwality Dairy India Ltd. while all the major deposits other than cash were in the names of other five persons. 8. In view of above, the AO estimated profit @5% on the GTO. 9. Before the ld. CIT (A), the assessee submitted the explanation rebutting each and every point flagged by the AO while making addition @5% of GTO. 1. "The assessee is dealing in wholesale trading of milk. The business module of assessee is that he collects milk directly from milk plants by way of container/tanker and further sells the same container/tanker to the various wholesale milk suppliers of different areas operating from Uttar Pradesh, Rajasthan and Haryana as per the business requirements. The role of the assessee is to assist the milk plan....
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....ssessment order: 1. Soft copy of Books was not filled: Rebuttal: First objection of A.O. is that the assessee has given hard copies of books of accounts but he has not produced soft copy of books of accounts. In this regard it is submitted that the assessee is maintaining his accounts on a specialized computer software called 'Tally" and copy of these accounts can be transferred only when the corresponding computer of the recipient is also equipped with the same version of the "Tally" software. Since the AO did not have facility of 'tally software' so the soft copy could not be handed over to him. However, hard copies of books of accounts was produced and acknowledged by the AO. 2. Purchase/sale bills are computer generated and appeared to be new: Rebuttal: The objection of the A.O. is that purchase and sale bill are computer generated and appears to be very neat and dean as if these have not passed many hands. In this regard it is submitted that original sales bill are handed over to the buyer and the receipt is invariably taken on the trading invoice which is also used by the truck driver for transportation purpose. But to furnish e....
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....ot contained signature of the recipient: Rebuttal: The objection of the A.O. is that Sales bills do not contained signature of the recipient. In this regard it is submitted that when goods are transported these are invariably accompanied with "delivery challan". For the purpose of smooth accounting the assessee has adopted a uniform policy to get the signature on these delivery challan rather than Sales bills. Copy of two delivery challan of sales bills of each month are submitted here with. 6. Non maintenance of voucher in respect of transport bills: Rebuttal: The A.O. has expressed concern about non maintenance of voucher in respect of transport bills of Rs. 32,78,560. It is submitted that the observation of the A.O. is erroneous because vouchers in respect of all the transportation expenses have duly been maintained by the assessee and were produced before the AO, but regular transport Bilties could not be produced. In this regard it is submitted that the precise business of the assessee is to purchase a container load of milk from milk plant and to supply the same to the whole sale distributor of milk of various places. In order to minimize t....
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.... CIT (A). 9. Payment received through RTGS: Rebuttal: The next infirmity pointed out by the A.O. is that the assessee has received/made payments in the bank not through cheques but through RTGS. In this regard, it is submitted that RTGS is a method of transfer money through banking channel which is equivalent to transfer by cheques rather it is supported by a cheques. It is a regular method employed by all the businessman and all the banking channel throughout the country and by any stretch of imagination it cannot be equated with the "defect" within the meaning of section 145(3). 10. Books of accounts appears to be new: Rebuttal: The objection of the A.O. is that prints of books of accounts is new and are on A4 paper sheet. The assessee had very many times submitted to the A.O. that accounts are maintained on computer in software called tally and no hardcopy is preserved for day to day use. It is only when the A.O. has asked for hard copies of books of accounts that fresh print out were taken out. These fresh print out simply goes on to add on the clarity of the financial transactions and do not in any way inhibits the AO from deducing the true ....
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....imilarly all the sales were made to the established dealers. Confirmations in respect all these credit purchase and sales upto August 2011 were duly furnished to the AO. Copy is submitted again before the ld. CIT (A). As the credit purchase/sale made up to August 2011 stands paid through banking channel In the subsequent months and are part of the regular books of accounts submitted before AO, so non opening of bank account and making credit purchase and sale upto August 2011 cannot be construed as "Defect" within the meaning of section 145(3) of IT ACT 1961. 14. Withdrawal and Deposit in the Bank account through Cheques: Rebuttal: Next objection of A.O. is that major withdrawals are in the name of M/s Kwality Dairy India Ltd and the major deposits are in the name of some customers in the bank, account, but purpose of such payments is not known. In this regard it is submitted that in any business system payments are received against the sale proceeds from the customers, which the AO has termed as deposits. Similarly every business man makes payments against the sales to the supplier which the AO has termed as "withdrawal". However, the name and full parti....
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....of cash which were deposited in the bank account. Thus the sales realized through banking channel stands accepted. (e) If for argument sake it is taken that no business activity has been carried out, the obvious question arises what for the profit rate has been applied. Profit invariably follows the commercial activity. When there is no business or commercial activity, in that event there cannot be any profit. The assessee has duly carried out business activity; shown profit there on and has paid taxes on such business profit. (f) More so the Act makes it incumbent upon the AO to examine the business activities with reference to books of accounts. Books of accounts are evidence under the Indian Evidence Act and these cannot be conveniently ignored. The AO is entitled to find facts in the books of accounts reject them under section 145(3) and can proceed to estimate the income as per procedure laid down in the Act. But the statute do not empower the AO to simply ignore the books of accounts and the entire business process without pointing out any major "accounting defect" which inhibits him in deducing the true and correct profit. Obviously the action of the AO in ....
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....in the section and defines that the "defects" shall be of such nature, which prevents the AO from calculating the true and correct profit of the assessee. The definition is embedded in the phrase "Income cannot be properly deduced from the accounts maintained by the assesse". The AO has not pointed out any such accounting defects in the books of accounts which have any financial implication or impediment in the calculation the true and correct profit. The objection of the AO, regarding clarity of purchase voucher making payment through RTGS and other objections do not fall under the scope and ambit of specified definition of the word "defect" as envisaged under section 145(3). These are vague and general observations which have hardly any financial implication on the trading results, trading profit or overall returned profit of the assessee. iii. TO GIVE A CLEAR FINDING IN THE ASSESSMENT ORDER The section cast another obligation on the AO. The mandate of the section not only makes it incumbent on the AO that before estimation of income, he should reject the books of accounts in clear terms, but the section also make it obligatory on the part of the AO to record a clear sat....
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.... he has to observe all the conditions which are stipulated in section 144, which inter-alia includes confronting the material or the basis of estimation to the assessee. The AO has not confronted any such material or evidence to the assessee. Rather he has chosen to ignore the material or evidence which includes comparable cases and other factors. Thus the addition made is against the provisions of the law. The Explicit provision of the law vis-à-vis facts of the case are discussed in the order of the ld. CIT (A) with reference to grounds of appeal in the following paragraphs: At the outset, the section provides that the accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. If there was no challenge to the transactions represented in the books, then it is not open to the Department to contend that what was shown by the entries is not the real state of affairs. CIT v. Vikrarn Plastics [1999] 239 ITR 161(Guj). Thus section 45(1) cast an obligation on the AO to co....
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....visions of section 145 of the Act, M/s Paras Dyeing and Printing Mills P Ltd 004 ITR (Trib) 0029 (Ahd). "It is well settled that without rejecting the books of accounts maintained by the assessee by pointing out specific material defects therein, the results declared by the assessee on the basis of such books cannot be disturbed. Gajanan Traders Rubber Co. Pvt. Ltd. vs. ACIT ITA No. 4980/Del/2004. Action of the Assessing Officer clearly demonstrates that he could not gather any details or find any irregularity in maintenance of the books. It was also established beyond doubt that Assessing Officer could not quantify any specify amount of expenditure for disallowance. A minor irregularity cannot be blown out of proportion to resort a convenient approach of the rejection of the book results". Dhakeswari Cotton Mills Ltd. Vs CIT (1954) 26 ITR. "Insignificant mistake cannot afford a ground for resorting to section 145(3) or estimation of income. So long as it is not impossible to deduce the true income from the accounts maintained by the assessee, its computation cannot be made in any other way". CIT v Padamchand Ramgopal (1970) 76 ITR 719 (SC). "In ....
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....l under the ambit of definition of word "defect", as envisaged under section 145(3). These objections do not inhibits or come in the way of determining or calculating the correct profit. b. "Without enlisting the defects, incompletion and inaccuracies in the accounts of the assessee, AO cannot expressively or otherwise, invoke the provisions of section 145(3) of the Act. Mr. K.N. Ramchandra Naidu vs. CIT ITA No. 47 /PNJ/2013. Without pointing out any such defect in the account books or bringing on record instances of unrecorded production or unrecorded sales, or any other infirmity or definite defect which has specific bearing on calculation of profit from the books of accounts, of accounts cannot be rejected by applying provisions of section 145(3)". DCIT Vs. Associated Stone Industries Limited 22 TW 155 (Jaipur). c. Where the defects pointed out in the books of accounts were of general or technical nature and no suppression of sale or purchase was pointed out book results or books of accounts cannot be rejected". Vadayattu Jewellery Vs. State of Kerala (1997) 104 STC 121, (Ker.). The department has to prove satisfactorily that the accounts books are unr....
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....d legal preposition is that before assuming jurisdiction under section 145(3) or resorting to "Estimation" A.O. has to record a dear and definite satisfaction in the body of assessment order, that "He is satisfied that the accounts are not correct or complete and true profit cannot be deduced from such accounts. If, there is no finding that there was material before the AO to lead him to the conclusion that a proper statement of income, profits and gains could not be deduced from the material placed before him, in that event he is not entitled to estimate the profit. Pandit Bros. vs CIT 26 ITR 159 (P&H) b. The above principle was also affirmed by the supreme court in the case of Chhabildas Tribhuvandas Shah v. CIT [1966] 59 ITR 733 (SC) wherein it was held "What we have to see is whether there is any finding that the income, profits and gains cannot properly be deduced. "We are not concerned with the correctness of the conclusion and we are only concerned with the question whether there is any material in support of the finding or not". c. However the AO has not recorded any such satisfaction in the body of assessment order before making huge addition of Rs. 2.79 crore. As no....
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....E WITHOUT EVIDENCE a. The AO has estimated the profit by applying profit rate of 5% without bringing an, cogent material or evidence on record. It is a settled legal preposition that once the books of accounts are rejected, then, profit has to be estimated on the basis of proper material or evidence. AO is not entitled to make a pure guess and make assessment without reference to evidence or any material at all. There must be something more than mere suspicion to support the addition. Sheth Gurmukh Singh vs. CIT (1944) 12 ITR 393. b. The rule of law on this subject has been well settled that estimate framed without giving the basis for their fixation is bad in law. Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775. In the case of Brijbhusnan Lal Praduma Kumar v CIT [1978] 115 ITR 524 the Apex Court held an estimate, must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case. Same view has been taken in the case of State of Kerala vs. C. Velukutty [1996] 60 ITR 239 (SC). c. The principal has also been elucidated by the Apex court In the case of State of Kerala vs. C. Velukutty [1966] 60 ITR 239 (SC) where....
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....ITR 271 (SC). g. In S. M. Hasan, STO v. New Gramophone House, AIR 1977 SC 1788, a Division Bench of the Hon'ble Supreme Court held that, "if the conditions for the best judgment assessment are present, the Assessing Officer will make it not on speculative or fanciful grounds, but on reasonable guess since the best judgment assessment does not negate the exercise of judgment on the part of the officer, a fax officer who makes a best judgment assessment should make an Intelligent well-grounded estimate rather than launch upon pure surmises". h. In the case of Kachwala Gems Vs JCIT, 288 ITR 10 (2007)(SC). The apex court has held ''after rejection of book results, AO should try to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily, the AO should adopt a method which must reflect the profits truly and justly [ Gemini Pictures Ltd. vs CIT (1958) 33 ITR 547 (Mad).] i. In the instant case the AO has not given even a single reason or even a single basis for making such a huge addition of Rs. 2.5 Crore. In fact, the AO has framed the assessment on the basis conjuncture, surmises and supposition. The AO....
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....t to estimation without confronting to the assessee the "defects" in the books of accounts and "material or evidence or the basis of estimations". The AO has not discharged his primary onus as such the assessment made is bad in law. VII. REDUCING PROFIT RATE OF 5% TO 1%. a. The AO has estimated the profit rate at 5% simply by conjuncture, surmises and guess work and without any logic any relevant material on record. The conduct of the AO is obvious from the fact that in the next very assessment year, the AO reduced his on estimation of 5% to 1%, once again without assigning any reason or putting any credible material on record. The arbitrary action of the AO goes to prove that the whole exercise of making such a large addition is nothing but wild guess works, which vary from year to year and which has no relevance with comparable cases or with any other material or reason for doing so. In view of the settled legal preposition addition made on the basis of guess work may be deleted. Copy of assessment order for AY 2013-14 is on record. b. It is the settled law that unless the A.O, points out specific defects in the Books of accounts, to the extent which make it impossible o....
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....r defects in the books of account of the assessee has been pointed out nor was any material brought to establish that purchases were inflated or receipts suppressed, there is no justification In invoking the provisions of section 145 of the Act, M/s Paras Dyeing and Printing Mills P Ltd 004 ITR (Trib) 0029 (Ahd). g. "Thus, the scope of the provisions of section 145 conclusive 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". Ashok Refractories Pvt. Ltd (279 ITR 457) Calcutta High Court. h. "The power to reject the books of accounts under section 145(3) arises only if the AO is satisfy that there is a major defect in the books of accounts which comes in the way of determining the actual profit", DCIT v. Associated Petroleum Corporation [2011] 44 SOT 45 (Ahd), ITA No. 47/PNJ/2013. i. In CIT vs. Amitbhai Gunvantbhai, [1981] 129 ITR 573 (Gut), the Hon'ble jurisdictional High Court has held that the basic principle is the same in law relating to income-tax as well as in ....
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....l Trade Creditors 250,553,034 315,359,100 278,829,586 141,463,880 Total 250,801,054 315,778,640 279,316,449 142,057,116 Loan Advanced Nil Nil Nil Nil Trade Debtors 250,113,470 314,997,500 276,313,867 136,010,470 Fixed Assets 168,890 243,213 214,451 194,197 Cash in Hand 406,476 440,566 483,553 451,120 Bank Balance 112,218 97,361 2,304,578 5,401,328 Total 250,801,054 315,778,640 279,316,449 142,057,115 Comparative chart of Trading Account of Sunil Nayyar Prop. Kumar Brothers Particulars AY 2012-13 AY 2013-14 AY 2014-15 AY 2015-16 Opening ! Stock Nil Nil Nil Nil Cash Purchase Nil Nil Nil Nil Credit Purchase 861,366,340 1,103,754,138 1,195,793,275 1,021,076,444 Direct Expenses 3,278,560 4,582,800 4,186,460 4,080,510 Gross Profit 1,938,819 2,212,500 2,538,062 2,617,504 Total 866,583,719 1,110,549,438 1,202,517,797 1,027,774,457 Cash Sales 4,889,100 Nil Nil Nil Credit Sales 861,694,619 1,110,549,438 1,202,517,797 1,027,774,457 ....
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....cash sale made to the retail traders is duly supported by the corresponding purchase. The above ledger account of purchase and sale is also summarized hereunder in the tabulated form: Date of Purchase Name of the Party Quantity Purchased in Kg Purchase Value Quantity Sold in Kg Cash Sales Credit sales Total Sale Value 01.11.11 Kwality Dairy 79,285 24,97,479 79,285 4,59,800 20,50,443 25,10,243 02.11.11 Kwality Dairy 73,610 23,18,715 73,610 8,64,100 14,66,313 23,30,413 03.11.11 Kwality Dairy 80,085 25,22,678 80,085 17,72,600 7,62,938 25,35,538 05.03.12 Kwality Dairy 84,445 24,91,129 84,445 8,90,200 16,13,454 25,03,654 06.03.12 Kwality Dairy 43,030 12,75,837 43,030 9,02,400 3,73,549 12,75,949 Total 3,60,455 1,11,02,838 3,60,455 48,89,100 62,66,697 1,11,55,797 20. The above tabulated analysis clearly shows that cash sale is supported by the corresponding purchase and the facts are also collaborated with the sale ledger attached herewith. 21. The cash generated from the sale shown in the above table was de....
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....le ITAT has also held just because the amounts were received from the buyers in cash, the assessee cannot be penalized because the restriction placed for payment u/s 40A(3) of the Act applies to buyer and not the seller. There being no restriction under the Act to accept cash against sales, the assessee Company cannot be penalized. 26. Hon'ble supreme court in the case of CIT v. P. Mohan Kala 291 ITR 278 (SC) has clearly explain that the primary condition for invocation of section 68 is that there has to credit of amount in the books of the assessee and such credit shall be sum of money emphasis is placed on the physiology used in the section wherein the phrase any sum is found credited has been used and the legislation has not used the word deposited. In other word the balancing effect of the transaction has to be credit account in the books of accounts which is not the case with the assessee. 27. The assessee is dealing in purchase and sale of milk which is an unorganized sector and wherein the cash purchase is commonly prevalent and accepted business practice. Even than the assessee has tried to make maximum purchases and sales through banking channel. Thus, the total ....
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....Viiiage Thedi, Baba Sawan Singh, Tehsil Sirsa, Distt. Sirsa 13,29,253 8,70,000 4,59,253 4,59,253 15. Ramesh Sharma Viliage Jhimaravat, Tehsii Nagina, Distt. Mewat Tehsii 12,82,811 8,70,780 4,12,031 4,12,031 16. Sham Lal Rajaura Viilage Tilpat, Tehsil Faridabad, Distt. Faridabd 13,42,090 8,90,000 4,52,090 4,52,090 17. Jai Shankar Village Roshakhera, Tehsil Hisar-II, Distt. Hisar 13,34,562 8,80,000 4,54,562 4,54,562 18. Sumesh Tholiya Village Husanpur, Tehsii Rewari, Distt, Rewari 13,71,396 8,80,000 4,91,396 4,91,396 19. Suresh Raparia Village Khera Alampur, Tehsil Jatusana, Distt. Rewari 12,86,166 8,58,500 4,27,666 4,27,666 20. Ajay Yadav Village Assan, Tehsil Rohtak, Distt. Rohtak 12,89,327 8,80,000 4,09,327 4,09,327 Total 2,64,36,090 1,76,22,980 88,13,110 88,13,110 29. The above tabulated analysis clearly shows that the purchases have been made in the regular course of business. It was also submitted that the amount of credit represents the purchases made by the assessee which form part of the total purchases shown in the return and th....
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.... submitted here with. The assesse has thus discharge his complete onus, so far as section 68 is concerned. 32. However, the AO without verifying the correctness of the identity of these sundry creditors or without bringing on record any material or evident on record held that these sundry creditors are not genuine and made addition of Rs. 88,38,110/-. The AO has thus erred in not appreciating the facts that when the assessee has supplied names and addresses of sundry creditors and the nature of transaction and also the capacity of the creditors his onus stands discharged. 33. It is a settled legal preposition that addition under section 68 can be made only if "assessee offers no explanation about the nature about the nature and source of such credits". The assessee has clearly explain the nature of the credit which Is undoubtedly milk purchase from the villagers and also the corresponding source which are the regular milk suppliers to whom payments have also made, which also stand accepted by the AO in the next year. When the assessee discharged his onus, such burden, which is placed on the assessee, shifts on the AO. The AO has not verified these evidences and even the major....
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....ct the basis for his satisfaction and confront the same to the assessee. AO has not discharged his onus to this extent so the addition made needs to be deleted. 38. Thus, it has been held that if the AO rejects an explanation given by the assessee without considering its acceptability in the light of the fact and circumstances of the case, or rejects the explanation without verifying it, the addition cannot be sustained. Mehta Parikh & Co. v. CIT [(1956) 30 ITR 181 (SC)]; [K.S. KannanKunhi v. CIT, (1969) 72 ITR. 757, 765 (Ker)(SC)]. The assessee has given all probable and possible explanation about the Identity, capacity and the nature of transactions. AO has not put on any, material or evidence on record to contravene his explanation and b. record a satisfaction that the evidences are not reliable. 39. The objection of AO is that name of Tehsil, District and city is given but House No. and Street No., is not given. It is a common knowledge that in small village house numbers and street numbers are not given and name of the village and tehsil in itself is a complete postal address to verify the identity and genuineness of the creditor. The AO cannot ask the assessee to do ....
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....terate dairy owners. Therefore, there were instances of cash sale but there was no purchase in cash. Sale in cash was made of a nominal amount. All the creditors have been paid the outstanding amount in the immediate succeeding year. Complete account of sale/purchase was furnished before the AO for verification. Quantitative details of the sale/purchases were given as under: (Repetitive from page no. 36) Date of Purchase Name of the Party Quantity Purchased in Kg Purchase Value Quantity Sold in Kg Cash Sales Credit sales Total Sale Value 01.11.11 Kwality Dairy 79,285 24,97,479 79,285 4,59,800 20,50,443 25,10,243 02.11.11 Kwality Dairy 73,610 23,18,715 73,610 8,64,100 14,66,313 23,30,413 03.11.11 Kwality Dairy 80,085 25,22,678 80,085 17,72,600 7,62,938 25,35,538 05.03.12 Kwality Dairy 84,445 24,91,129 84,445 8,90,200 16,13,454 25,03,654 06.03.12 Kwality Dairy 43,030 12,75,837 43,030 9,02,400 3,73,549 12,75,949 Total 3,60,455 1,11,02,838 3,60,455 48,89,100 62,66,697 1,11,55,797 43. The ld. CIT (A) held that t....