AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (6) TMI 36
X X X X Extracts X X X X
X X X X Extracts X X X X
....y, baseless and not justified. 2. Ld. CIT(A) erred in confirming disallowance of Rs.2,71,38,940/- made by the AO invoking provisions of sec. 40A(3). The disallowance made by AO and confirmed by CIT(A) is not justified. 3. Ld. CIT(A) erred in confirming disallowance of Rs.19,95,450/- made by the AO on account of provision for bonus to staff. The disallowance is not justified. 4. Ld. CIT(A) erred in confirming disallowance of Rs.14,28,899/- made by AO on account of amount written off by assessee as bad debt. 5. Ld. CIT(A) erred in confirming disallowance of Rs.4,04,56,014/- made by AO out of material purchase account. The disallowance made by AO alleging inflation of purchases and confirmed by CIT(A) is arbitrary and not justified. 6. Ld. CIT(A) erred in confirming addition of Rs.4,82,840/- made by the AO invoking sec. 68, on account of cash credit The addition is arbitrary and not justified. 7. Ld. CIT(A) erred in confirming addition of Rs.10,00,000/- made by AO on account of explained credit invoking sec. 68. 8. Ld. CIT(A) erred in confirming addition of Rs.27,88,260/- made by the AO on account of alleged unrecorded contract receipts. The addition made by the AO and c....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., it was observed by the A.O that the same were being regularly and meticulously maintained, wherein daily cash balances were drawn; entries were verified by responsible partners with their initials at some places; some of the entries were corrected after applying whitener; and postings were made giving ledger folio number against each entry. It was also observed by the A.O that the site-wise details giving names of the site-in- charge, persons through whom payments were made etc. were also recorded in the manual cash book. It was further observed by the A.O, that though the manual cash books made a reference to ledger folio numbers against each entry but no such corresponding ledgers were physically found available during the course of the survey proceedings. Also, it was observed by the A.O that the cash book on the basis of which the final accounts were prepared and got audited were not found available at the business premises of the assessee firm during the course of survey proceedings. On the basis of the aforesaid facts, the A.O holding a conviction that the impounded manual cash books were the actual cash books and the entries therein made were true and correct, thus called ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ness transactions. The reasons that had weighed in the mind of the A.O for rejecting the aforesaid explanation of the assessee, and concluding that the contents of the manual cash books revealed the actual business affairs of the assessee are culled out as under :- "The assessee's explanation is grossly incorrect and misleading. As pointed out above it is a cash book and maintained meticulously on day-to-day basis drawing daily cash balances and posting corresponding ledger folios. It is also contains verification marks and even at some places initials of the controlling partners. The contention that it was maintained by some old supervisor, whose name purposefully concealed as there may be none, who was not having knowledge of accounts is absurd because the cash book was maintained strictly as per requirements of accountancy, in cool and compose manner with all sincerity and diligence. Several entries are interlacing and interlocking with the tally backup of final accounts prepared for the purposes of tax authorities. Some features and reasons for maintaining this cash book are noted below :- a) This cash book mainly contains all types of labour expenses incurred on actual bas....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....6,33,28,060/- (supra). 1,04,52,789/- 3. Disallowance under Sec.40A(3) of the payments which as per the manual cash book were made by the assessee to a person on a single day in cash exceeding Rs.20,000/- . 1,66,86,151/- 4. Disallowance of the assesses claim for deduction of provision for payment of bonus to staff. 19,95,450/- 5. Disallowance of the assesses claim for deduction of bad debts. 14,28,899/- 6. Disallowance of the assesses claim for deduction of inflated purchase expenses. 4,04,56,014/- 7. Addition towards bogus cash credit under Sec.68 of the Act. 4,82,840/- 8. Addition towards unexplained cash credit under Sec.68 of the Act. 10,00,000/- 9. Addition of undisclosed contract/hiring receipts. 27,88,260/- 10. Addition of the unrecorded sale proceeds of a motor car. 8,10,000/- 11. Addition under Sec. 69C of the Act towards unexplained expenditure incurred for purchase of gold biscuit. 1,60,000/- 12. Addition of undisclosed interest income. 1,59,000/- 13. Addition as regards the unexplained credit in the capital account of Sh. D.K Jain (partner). 6,56,248/- 14. Addition of long term capital gain (LTCG) on sale of land by the assessee firm ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f which its final accounts and audit report were prepared. In our considered view the A.O had rightly triggered the provision of Sec. 145(3) of the Act, and after rejecting the accounts of the assessee, which did not inspire any confidence at all proceeded with to assess its income in the manner provided under Sec.144 of the Act. We, thus, approve the rejection of the accounts of the assessee firm under Sec.145(3) of the Act by the A.O. 10. We shall now deal with the manner in which the A.O had assessed the income of the assessee firm vide his order passed under Sec.144 r.w.s. 143(3) of the Act, dated 31.12.2016. Before proceeding any further, we may herein cull out Sub-section (3) of Section 145 of the Act, which during the year under consideration read as under :- "(3). Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144." (emphasis supplied by us) On a perusal o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessment of its total income to the best of his judgment. In sum and substance, the A.O after rejecting the books of accounts of the assessee is vested with a discretion to frame the assessment in a manner provided in Sec.144 of the Act. 11. Although, we concur with the rejection of the books of account of the assessee under sub-section (3) of Section 145 by the A.O, but at the same time are unable to persuade ourselves to subscribe to the manner in which he had thereafter assessed the income vide his order passed under Sec.144 r.w.s. 143(3), dated 31.12.2016. We, say so, for the reason that though the A.O had in clear and unequivocal terms rejected the books of accounts of the assessee under Sec.145(3) of the Act but had thereafter based his assessment on the profit that was disclosed by the said rejected books of accounts. The aforesaid factual position can safely be gathered from Page 14- Para 23 of the assessment order, wherein the A.O had worked out the assessed income of the assessee firm, as under :- "23. Subject to above discussion total income of the assessee is computed as under:- TOTAL INCOME AS PER RETURN 1,78,89,680/- Add: PRW (Labour, Machine, etc.) as claimed i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be correct. For the sake clarity the observations of the Hon'ble High Court are culled out as under:- "11. However, so far as assessment of the income of the assessee is concerned, for that purpose few facts are very relevant and which are that the total gross receipt of the assessee was Rs.4,51,01,011/- the disclosure of his income is Rs.14,13,624/- and interestingly this income was accepted by the assessing officer itself which is apparent from the assessment order. Then the assessing officer added the amount shown in the accounts of Sundry Creditors to the tune of Rs.1,59,90,274/- and assessed the total income as Rs.1,74,03,900/- meaning thereby by this order of assessment the assessing officer accepted the books of accounts for the purpose of finding out the profit shown by the assessee to be correct as disclosed in the return and thereafter added the amount of the credit shown in the account of Sundry Creditors. In view of the above it appears that the assessing officer has passed the contradictory order by holding that the books of accounts are not reliable while deciding the issue of Sundry Creditors but relied upon the return for accepting profit shown to be correct whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sary to dwell into the rival submissions made by both the parties as we find the approach of both the authorities is totally flawed for the reason that when the books of accounts stood rejected by both the authorities and when the assessee not challenged the action of the lower authorities rejecting the books of accounts then the only course of action available to the Assessing Officer is to determine the profits by application of flat rate of profits by taking into consideration the business conditions of the assessee and compare it from the profits disclosed by the assessee in the similar line of businesses. In this connection, reference can be made to the following decisions:- (i) CIT vs. K.Y. Pilliah & Sons, 63 ITR 411 (SC); (ii) Dabros Industrial Co. (P.) Ltd. vs. CIT, 108 ITR 424 (Cal.); (iii) Badrinath Agarwal vs. CIT, 65 ITR 242 (All.); and, (iv) Shri Venkteshwar Sugar Mills vs. CIT, 341 ITR 588 (All.). 13. It is also settled position of law that the Assessing Officer cannot rely on the same books of accounts which are rejected for the purpose of making any other additions as held by the Hon'ble Andhra Pradesh High Court in the case of Indwell Constructions vs. CIT, 232 ITR....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the case of CIT Vs. K.Y Pilliah & Sons (1967) 63 ITR 411 (SC). Also, we find that the Hon'ble High Court of Calcutta in the case of Dabros Industrial (P) Ltd. Vs. CIT (1977) 108 ITR 424 (Cal), had observed that once the books of account of an assessee are rejected, then profit has to be estimated. The Hon'ble High Court of Allahabad in the case of Shri Venkteshwar Sugar Mills Vs. CIT(Appeals), (2012) 20 taxmann.com 650 (All), had observed, that once the books of accounts are rejected, then there is no option before the Assessing Officer except to estimate the sale and G.P rate which in the case before them was determined by taking comparative figures of the assessee for the previous assessment year. We, thus, on the basis of our aforesaid deliberations and the settled position of law expounded in the aforesaid judicial pronouncements, are of the considered view, that the A.O after rejecting the books of accounts of the assessee could not have based his assessment on the said books of accounts and should have judicially determined the business profits in the manner provided in Sec. 144 of the Act. 12. In so far the determination of the business profits of the assessee is concer....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee firm vide the statement of its partner, viz. Shri. Dilip Kumar Pincha that was recorded u/s 131 of the Act on 23.10.2017, had though agreed to disclose its income @8% for A.Y 2010-11 to A.Y 2013-14 and A.Y 2015-16 but had not made any such offer for the year under consideration i.e A.Y 2014-15. However, considering the fact that the returned income of the assessee firm for the aforesaid preceding years, involving identical facts, had been accepted by the the A.O vide his respective orders passed u/s 143(3) r.w.s 147, therefore, in all fairness the same can safely be adopted as a sound basis for estimating its income for the year under consideration, i.e A.Y 2014-15. We, thus, on the basis of our aforesaid observations, though approve the rejection of the books of accounts of the assessee firm u/s 145(3) of the Act by the A.O, but direct him to determine its business profits in the alike manner as was adopted by him while framing the respective assessments u/ss. 143(3)/147 in the case of the assessee firm for the preceding years, i.e A.Y 2010-11 to A.Y 2013-14, i.e @ 8% of its for the year under consideration. 14. However, the maintainability of the additions made by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is absolutely fallacious. On a perusal of the confirmation of Ms. Anita Gajwani, Page 98-99 of APB, it transpires that the payment of Rs. 4,82,841/- was made by the assessee firm vide Cheque no. 184207 on account of the outstanding liability of Rs. 4,82,841/- (Cr.) that was due towards her on 01.04.2013. As stated by Ms. Anita Gajwani (supra) the outstanding liability of Rs. 4,82,841/-(Cr.) on 01.04.2013 was comprised of a loan of Rs. 2.50 lac (Cr.) that was advanced by her on 02.04.2007 to the assessee firm, while for the balance amount was the interest component that had accrued on the same till date. As the assessee had received the loan from Ms. Anita Gajwani in the year relevant to A.Y 2008-09 which a/w the interest element over the preceding years had swelled to an amount of Rs. 4.82 lac (approx.), therefore, there was no justification for the A.O to have held any part of the said amount that was received/generated in the preceding years as an unexplained cash credit u/s 68 of the Act in the hands of the assessee firm. We, thus, finding no justification in treating of the aforesaid amount of Rs. 4.82 lac (supra) as an unexplained cash credit u/s 68 of the Act by the A.O direc....