TaxTMI 
TaxTMI 
TaxTMI 
2024 (3) TMI 156
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....ucted on 15.02.2014 on the AMQ group of companies including the office premises of the respondent-assessee. Consequently, a notice under Section 153A of the Act was issued to the respondent-assessee for filing its income tax return ["ITR"] for six preceding years from the date of search i.e., for the years 2008-09 to 2013-14. 3. On 30.11.2014, the respondent-assessee filed its ITR declaring income of Rs. 66,53,882/- for AY 2014-15. A notice under Section 143(2) of the Act was issued on 10.09.2015 and another notice under Section 142(1) of the Act alongwith detailed questionnaire was subsequently issued on 06.09.2016 to the respondent-assessee. 4. Thereafter, on 27.12.2016, the Assessing Officer [AO] passed an order under Section 143(3) of the Act, assessing the income of the respondent-assessee at Rs. 11,11,66,320/- by making the following additions in the total income for the concerned AY: i. Addition of Rs. 42,53,909/- on account of estimation of unaccounted profit. ii. Addition of Rs. 19,05,653/- on account of disallowance of expenses. iii. Addition of Rs. 9,30,49,222/- on account of inflated purchases. iv. Addition of Rs. 51,72,955/- on account of deemed dividend u....
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....account of disallowance of expenses? C. Whether, in the facts and circumstances of the case, the ITAT was justified in law in deleting the addition of Rs. 9,30,49,222/- made by the AO on account of inflated purchases? D. Whether, in the fact and circumstances of the case, the ITAT was justified in law in deleting the protective addition of Rs. 1,00,000/- added on account of cash found and seized? E. Whether, in the fact and circumstances of the case, the ITAT was justified in law in deleting the addition made by the AO on account of deemed dividend by not appreciating that Section 2(22)(e) of the Act excludes the transaction of lending money in only two circumstances i.e., firstly if the company is in the business of money lending and secondly if the payment is made in the ordinary course of the business and the alleged ad-hoc money lending to its group companies in the case of the assessee does not come in the ambit of the exclusion contained in the said provision? F. Whether, in the fact and circumstances of the case, the ITAT was justified in law by not appreciating that the provision of Section 2(22)(e) of the Act creates a legal fiction whereby any payment, by any ....
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....stions E, F and G [in ITA No. 862/2019] and Questions D, E & F [in ITA No. 863/2019] would also not merit consideration as the same are covered against the appellant." 11. It is thus seen that only questions (B), (C) and (D), as mentioned above, are left for adjudication and require consideration by this Court in the given facts and circumstances. 12. With respect to the questions (B), (C) and (D), learned counsel appearing on behalf of the Revenue submitted that the findings of the CIT (A) and the ITAT are de hors the settled position of law as the respondent-assessee had failed to substantiate the claims of the expenses with supporting documents, bills or vouchers which could legitimize the allowability of the expenses. According to him, the expenses claimed by the respondent-assessee are bogus/inflated expenses in order to substantially mitigate the taxable income and therefore, the additions made by the AO to the total income of the respondent-assessee do not suffer from any perversity, material illegality or arbitrariness. 13. The Revenue has relied upon the decision in the case of Unit Construction Co. Ltd. v. Joint Commissioner of Income Tax [2003 SCC OnLine Cal 756] to ....
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....he manner provided in Section 144.]" 18. For the sake of clarity, Section 144 of the Act, which prescribes the manner in which the best judgment assessment has to be completed by the Revenue, is culled out as under:- "144. Best Judgment Assessment- (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) [or an updated return under sub-section (8A)] 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 (2-A) 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 Asse....
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....not been able to show any defect in the respondent's records which would warrant rejection of the books and making a best judgment assessment. Thus, on facts the view taken by the Tribunal is a possible view. Therefore, no substantial question of law arises. Thus not entertained." [Emphasis supplied] 21. The Division Bench of the Karnataka High Court in the case of CIT v. Anil Kumar & Co. [2016 SCC OnLine Kar 8512], has held that in cases where the Revenue had failed to reject the books of account and proceeded to an estimation of income without framing the assessment under Section 144 of the Act, such an action is unsustainable as per law. The relevant paragraph of the said decision is reproduced as under:- "11. In so far as the estimation of gross profit made by the Assessing Officer modified by the Commissioner of Income-tax (Appeals), the Tribunal has rightly held that when the books of account of the assessee had not been rejected and assessment having not been framed under section 144 of the Income-tax Act the said authorities were in error in resorting to an estimation of income and such exercise undertaken by them was not sustainable. Section 145(3) of the Act l....
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....le under the head "Profits and gains of business or profession" shall be computed in accordance with the provisions contained in sections 30 to 43A of the Act. Section 145 of the Act provides for computation of income under section 29 on the basis of books of account and the method of accounting regularly followed by the assessee. However, where the Assessing Officer is not satisfied with the correctness or completeness of the said books, he may reject the same and estimate the income to the best of his judgment in accordance with the provisions of section 144 of the Act. When an estimate is made to the best judgment of an Assessing Officer, he substitutes the income that is to be computed under section 29 of the Act. Once the best judgment assessment is made by fixing a rate of net profit, the assessee's claim for deduction on account of expenses cannot be deemed to have been ignored. The net profit rate is applied after taking into consideration all factors and it accounts for all the deductions which are referred to under section 29 and are deemed to have been taken into consideration while making such an estimate." [Emphasis supplied] 24. The series of judgments referr....