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2023 (6) TMI 36
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....ion made by AO and confirmed by CIT(A) is arbitrary, 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/- m....
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.....e Page No.42 of impounded Article No.4) and last page (Page No.56 of impounded Article No.8). Referring to the contents of the manual cash books, 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 hold....
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....r, the A.O did not find favor with the claim of the assessee that the entries mentioned in the manual cash books did not reveal its day-to-day business 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 feat....
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....0,859/- (as debited in the audited profit and loss account) as against the corresponding expenses found in the manual cash book of Rs.6,33,28,060/-. 90,72,799/- 2. Disallowance under Sec.40A(3) of the Act out of the expenditure of Rs.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 f....
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....s from the view taken by the A.O, who on the basis of his exhaustive deliberations, had in the backdrop of the entries in the manual cash books that were impounded during the course of the survey proceedings, raised serious doubts as regards the correctness and completeness of the accounts of the assessee firm on the basis of 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 completen....
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....d that in a case where the books of accounts of an assessee are rejected by the A.O, then, in light of the term "....the Assessing Officer may make an assessment in the manner provided in section 144" used in sub-section (3) of Sec. 145, the latter after taking into account all relevant material which he had gathered, after giving the assessee an opportunity of being heard, may make the assessment 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 s....
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....sessee under Sec.145(3) of the Act, then he is precluded from relying upon the said books of accounts (rejected) while assessing the income is supported by the judgment of the Hon'ble High Court of Jharkhand in the case of Amitabh Construction Pvt. Ltd. Vs. ACIT, Tax appeal No.16 of 2010, dated 10.05.2011. In its aforesaid order the Hon'ble High Court had observed, that once the A.O had rejected the books of accounts, then, he could not have held the profit which is supported by the books of accounts to 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 assessme....
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....ooks of account for the purpose of making any addition, and the only course of action available with him is to determine the income by application of a flat rate of profit by taking into consideration the business conditions of the assessee as in comparison to profits disclosed by other assessee's in the similar line of business. The Tribunal while concluding as hereinabove had held as under: 12. We have carefully gone through the orders of the lower authorities as well as the written submissions filed before us. We consider it not necessary 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 ....
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....ssessee firm under sub-section (3) of Sec. 145 of the Act, thereafter, could not have relied upon the said books of accounts, and the proper recourse available with him was to judicially determine its business profits in the manner provided in Sec. 144 of the Act. Our aforesaid view that once the books of account of an assessee are rejected as unreliable then it is open to the A.O to estimate the assessee's profits considering the profit which was earned in similar business by other similarly placed merchants is supported by the judgment of the Hon'ble Supreme Court 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 determ....
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....e firm for the said respective years. However, as the assessee during the course of the assessment proceedings in his statement that was recorded under Sec. 131 of the Act, dated 23.10.2017 had agreed to disclose net profit @8% of its turnover and to facilitate the same revise its return of income, which it had done in its respective returns filed in response to notice(s) issued u/s 148 of the Act, therefore, the A.O had accepted its returned income for all the said respective preceding years i.e A.Y 2010-11 to A.Y 2013-14 (subject to separate addition of unexplained cash credit u/s 68 of the Act for A.Y 2011-12). 13. Admittedly, it is a matter of fact borne from record that 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....
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.... given a thoughtful consideration to the aforesaid issue in the backdrop of the observations of the lower authorities. On a perusal of the facts as can be gathered from the orders of the lower authorities, the assessee firm had paid an amount of Rs. 4,82,841/- on 02.04.2013 vide cheque drawn on PNB to Ms. Anita Gajwani. However, as observed by the A.O, the assessee as per the manual cash book (supra) had on 03.04.2013 received back the aforesaid amount in cash from Ms. Anita Gajwani. The A.O on the basis of the aforesaid facts dubbed the transaction as an accommodation entry and made an addition of Rs. 4,82,840/- u/s 68 of the Act. The aforesaid view arrived at by the lower authorities in our understanding 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....