C.I.T.-I, JODHPUR vs. MANGILAL CHOUDHARY

-1- IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR. J U D G M E N T Commissioner of Income Tax-I, Jodhpur Vs. Shri Mangilal Choudhary D.B. INCOME TAX APPEAL NO.160/2010 Date of Order :: 18th September, 2014 P R E S E N T HON'BLE MR.JUSTICE GOVIND MATHUR HON'BLE MR.JUSTICE VIJAY BISHNOI Mr. Sheetal Kumbhat, for the appellant. .... BY THE COURT : (PER HON'BLE GOVIND MATHUR,J.) REPORTABLE The substantial question of law for adjudication before us in this appeal is “whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in holding that the provisuions of Section 145(3) of the Act of 1961 are not applicable in the present case?” The facts in the appeal are that the assessee derives income from execution of contract work awarded by different departments of the Government. During the assessment year 2006-07 the appellant declared profit of Rs.22,24,001/-

on total

contract

receipts

of Rs.3,51,51,351/- subject to depreciation and interest on third parties. A net profit in a tune of Rs.5,25,268/- including interest received on Fixed Deposit Receipts

-2- yielding a net profit rate of 1.1% as against 1.15% in the immediately preceding year. The Assessing Officer considered the declared net profit quite low, thus, called upon the assessee to explain as to why a net profit rate @ 12.5% be not applied. The Assessing Officer while rejecting the accounts books of the assessee pointed out certain discrepancies in the books of accounts with specific assertion that no stock register was maintained, attendance register-muster roll suffers from serious defects, vouchers of purchase and expenses are self-prepared, no work in progress was shown and the identity of the creditors was not borne out in the accounts books. With this background he invoked the power as per provisions of Section 145(3) of the Income Tax Act, 1961. The Assessing Officer estimated the net profit of assessee by applying a net profit rate of 12.5% on the contract receipts keeping in view certain judgments of different High Courts. Accordingly, an addition of Rs.24,67,880/- was added in the income return furnished by the assessee. An appeal preferred by the assessee before the Commissioner of Income Tax (Appeals), Jodhpur giving challenge to the order of assessment came to be rejected by judgment dated 29.7.2009. The Commissioner while rejecting

the appeal held that the Assessing Authority while invoking provisions of Section 145(3) of the Act of 1961 arrived at the conclusion that the Assessing Officer was rightly not satisfied about correctness and completeness of the account of the assessee.

-3- The assessee further challenged the order passed by the Commissioner of Income Tax (Appeals) by approaching the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur. The Income Tax Appellate Tribunal by its order dated 31.5.2010 accepted the appeal and deleted the addition made by the Assessing Officer in the income return by the assessee. In this appeal before us the submission of learned counsel for the revenue is that the Assessing Officer being not satisfied with the correctness and completeness of the accounts of assessee decided to apply the method of accounting as per Section 145(3) of the Act of 1961. The decision of the Assessing Authority was based on objective consideration of the books of accounts maintained by the assessee and, therefore, the Income Tax Appellate Tribunal erroneously interfered with the discretion of the Assessing Officer. It is emphasised that the Income Tax Appellate Tribunal has not taken into consideration the reasons given by the Assessing Officer for being not satisfied with correctness and completeness of the accounts maintained by the assessee. Heard learned counsel for the appellant. Sub-section (3) of Section 145 of the Act of 1961 provides that 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 -4- 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. In the case in hand the Assessing Officer invoked the authority under sub-section (3) of Section 145 being not satisfied about the correctness and completeness of the accounts of the assessee. The Assessing Officer in detail referred errors and incompleteness in the books of accounts. The defects/discrepancies noticed by the Assessing Officer are as under:- “(i) The assessee has not maintained any register containing details regarding purchase of materials, consumption of raw-materials etc. on day to day and site wise basis. As such the expenses incurred on material and daily and site wise consumption thereof are not subject to verification so is the position with regard to the value of closing stock. (ii) The attendance register produced revealed that no site-wise attendance register/muster- rolls have been maintained and only one register (in three volume) has been maintained for marking the attendance of all the laborers working at various sites of far away places like Jodhpur, Sirohi, Khinwara, Abu Road, Jojawar, Sadri- Ranakpur, Bijapur-Goria etc. In this Register also only names of persons are mentioned without any other identification like father's name, address, category of the worker like Mistry, Met, Karigar, Mazdoor etc. and against them “P” is marked by the assessee's men. No date wise signatures are obtained in the register though they put their signatures on the stamps affixed to it showing the payment. Even the name of the Sites is no where mentioned in the register where

-5- the laborers have worked. Marking attendance in one register for all these sites is impossible on daily basis as the assessee resides at Pali whereas the works were carried out at various far away places mentioned above i.e. Jodhpur, Sirohi, Khinwara, Abu Road, Jojawar, Sadri-Ranakpur, Bijapur-Goria etc. Further in the register stamped receipts for payments are shown almost at all pages only for 21, 22, 24 & 26 persons, whereas the payments are shown on these pages for 32 persons. When these defects are pointed out it has been submitted by the AR that the assessee used to visit all these sites daily on his vehicle and mark the attendance of the laborers by himself. As regards the non availability of revenue stamps on these registers his argument is that it happened due to non availability of the same in the site. Both the arguments are put forth only for the sake of arguments and is not acceptable. It is also noticed that the assessee has shown payment of wages to male and female workers at the same rates whereas no such practice is prevalent in the field of road construction. Thus the so-called attendance register is not reliable and hence the labour & wages payment shown at Rs.89,54,480/- is not verifiable. (iii) The vouchers produced before me for purchases of materials and expenses are self- prepared vouchers. Even these vouchers do not contain name & address of the persons to whom the payments have been made. On the cash payment vouchers for expenses no voucher No. is maintained. Payments for purchases of raw materials like, stone, grit, sand, soil etc. were made in cash also. Out of total purchase of soil at Rs.6,37,220/- only a payment of Rs.81,600/- was through cheque and the remaining payments were made in cash where identity of the recipients are not verifiable.

-6- (iv) The assessee has shown sundry creditors to the tune of Rs.1,26,56,471/-. Only names of individuals are given in respect of these creditors and identity of these creditors is not proved though sufficient opportunity has been given. Even the name of father of these creditors is not available rendering their address incomplete. (v) Verification of ledger revealed that cash payments exceeding Rs.20,000/- were made to the creditors on various dates during the year, who were last year's creditors, having opening balances and such creditors have also no address or identity,

rendering

the creditors unverifiable. Thus, the creditors shown are not verifiable, meaning thereby that the expenses/ purchases shown against them are not subject to verification.” Beside the above, the Assessing Officer found that the assessee was having continuous work in several contracts awarded to him and he was continuing with several works at various sites at the end of accounting year and it was not possible to believe that even after having work remaining to be completed with him he would have stopped his work on different sites in the month of March. The expenses claimed by the assessee were not even accrued on the last day of accounting year. The Commissioner of Income Tax (Appeals) after examining the errors and incompleteness pointed out by the Assessing Officer affirmed the order of assessment. The Income Tax Appellate Tribunal by the order impugned held that the purchase and sales are found vouched and plausible reasons has been assigned for declining profit rate, the -7- trading result shown by the assessee cannot be taken to be untrue. Under Section 145(3) of the Act of 1961 the requirement is that the Assessing Officer must be satisfied about correctness and completeness of the accounts of the assessee. Mere submission of vouchers is not sufficient to arrive at the conclusion that the trading result shown by the assessee are true. The Assessing Officer while making assessment of return can reject the same as unreliable, if important transactions are omitted therefrom or if proper particulars in vouchers are not forth coming or if they do not include entries relating to several relevant facts necessary to compute income. The rejection of accounts would always be justified when the accounts books are found unreliable, incorrect or incomplete for valid reasons. In the case in hand the Assessing Officer by relying upon several errors and incompleteness in the books of accounts decided to invoke the authority as per Section 145(3) of the Act of 1961. Suffice to mention that no plausible reason was extended by the assessee for errors in the vouchers and in other accounts books. The Income Tax Appellate Tribunal without examining the errors pointed out by the Assessing Officer reversed the order of assessment and its affirmance by Commissioner of Income Tax (Appeals) by relying upon the principle that the vouchers submitted are not required to be treated untrue. The tribunal did not choose to examine the fact that no plausible reason was extended by the assessee to satisfy the Assessing Officer about their truthfulness.

-8- The appeal, thus, deserves acceptance, hence is allowed. The order impugned dated 31.5.2010 passed by Income Tax Appellate Tribunal in ITA No.550/JU/2009 (Annexure-3) is declared illegal and, therefore, the same is quashed. The order passed by the Assessing Officer dated 22.12.2008 (Annexure-1) is affirmed. (VIJAY BISHNOI),J. (GOVIND MATHUR),J. kkm/ps.