Principal Comissioner Of Income Tax-1 vs. M/S Vanisha Minerals Pvt. Ltd

IN THE HIGH COURT OF MADHYA PRADESH AT JABALPUR BEFORE HON'BLE SHRI JUSTICE SUSHRUT ARVIND DHARMADHIKARI & HON'BLE SMT. JUSTICE ANURADHA SHUKLA ON THE 30th OF AUGUST, 2024 INCOME TAX APPEAL No. 122 of 2023 PRINCIPAL COMISSIONER OF INCOME TAX-1 Versus M/S VANISHA MINERALS PVT. LTD Appearance: Shri Siddharth Sharma - Senior Standing Counsel for the appellant. ORDER Per: Justice Sushrut Arvind Dharmadhikari Instant appeal is filed by the appellant-Revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act of 1961') being aggrieved by the order dated 21/09/2022 passed by the Income Tax Appellate Tribunal (ITAT), Indore in ITA No. 324/IND/2020 for the Assessment Year 2016- 2017. 2. The following substantial question of law has been proposed in this appeal : "(i) Whether on facts and within the legal spectrum of the case, learned ITAT erred in law in deleting the impugned additions, maintaining that the Assessing Officer has not pointed any specific defects without appreciating that as a final fact finding authority, the learned ITAT either itself ought to have pointed out specific defects to meet the fairs ends of justice or remanded the matter back to the 1 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

Assessing Officer for building upon the observations of the learned ITAT on the issue of pointing of specific defects, especially in the rejection of books on account by the Assessing Officer under Section 145(3) of the Act. Accordingly, non-determination of "specific defects" by learned ITAT emanates a substantial question of law under Section 260A(6) on this count ? (ii) Without prejudice to the above, whether on facts and within the legal spectrum of the case, learned ITAT erred in law in deleting the impugned additional without any observations on the reliance of the Assessing Officer vis-a- vis impugned additions, on the judgment of the Hon'ble jurisdictional High Court in the case of Badri Prasad Bhagwandas & Co. vs. Commissioner of Income Tax, MCC No. 202 of 1985 dated 11/10/1984; without appreciating that the said judgment squarely covers the facts and circumstances of the instant case and that the learned ITAT was bound by the said judgment of the Hon'ble jurisdictional High Court, thus, rendering perversity to its observations in the impugned appellate order ? (iii). Whether on facts and within the legal spectrum of the case, the assessee failed to submit the Quantitative details which is apparent from the working done by CIT(A) and used by learned ITAT in its order, which establishes that Assessee has not maintained quantitative details without which. the working of Revenue is not possible and 2 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

presumptions and| assumptions have been invoked which is apparent that the CIT(A) also failed to determine the Revenue and the sector deals in different brands with different prices, the learned ITAT has erred and passed a perverse order by stating that Receipts offered by the Assessee accceptable as without the quantitative details brand wise and volume wise, the same cannot be determined? 4. Without prejudice to the above, whether on facts andwithin the legal spectrum of the case, the learned ITAT erred in law in deleting the impugned additions without appreciating that such judgments will set a wrong precedent by tacitly justifying and advancing the mischief of carrying out of business activities without maintaining proper books of account, thus, violating the essence of principle of purposive construction of law as delineated by Heydon rule of mischief which directs the courts toadopt the construction of law which "shall suppress the“mischief and advance the remedy”. Heydon's rule of purposive construction was held to be sound rule of construction by the Hon'ble Supreme Court in the case of Bengal Immunity Co. vs State of Bihar AIR 1955SC 661 p.674? 5. Without prejudice to the above, whether on facts and within the legal spectrum of the case, the Learned ITAT erred in law in deleting the impugned additions without. 3 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

appreciating that such judgments will set a wrong precedent by tacitly justifying and ‘advancing the mischief of carrying out of business activities without maintaining_ proper books of account, thus, rendering nugatory the essence of section. 145(3) of the Income Tax Act by deleting reasoned additions made by Assessing Officer. -- after rejecting books of account, hence violating the spirit‘ and substance of legal maxim ut res magis valeat quampereat i.e. It is better for a thing to have effect than to bemade void as upheld approvingly by the Hon'ble SupremeCourt in the case of Radha Sunder Dutta v. Mohd.Jahadur Rahim & Others(3) and reiteratingly enforced in the case of Delhi Development Authority vs Durga ChandKaushish whereinthe Apex Court held as under: "Now, it is a settled rule of interpretation that if there be admissible two constructions of a document, one of which will give effect to all the clauses therein while the other will render one or more of them nugatory, it is the former that shouldbe adopted on the principle expressed in the maximut res magis valeat quam pereat” 6. Whether on facts and within the legal spectrum of the case, the Learned ITAT erred in law in deleting the- impugned additions, ignoring "mens rea" on the part of the assessee in view of the proposition that if theassessee had the will to comply to the purpose and intent of section 145 of the Income Tax Act, 1961, it could have maintained requisite 4 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

quantitative details on daily basis with the help of technology such as bar code readers asis done by big retailers with huge footfalls and that in the absence of requisite quantitative details, the Assessing Officer was justifiably empowered to invoke section145(3) of the Act to make reasoned estimates which the Assessing Officer rightfully did by constructing impugned additions based on a reasoned estimate as delineated bythe Hon'ble M.P. High Court in the case of Badri PrasadBhagwandas & Co. Vs. Commissioner of Income Tax, MCC No. 202 of 1985 dated 11/10/1994? 7. Whether on facts and within the legal spectrum of thecase, if the plea of the Assessee that since the business deals with large number of brands and different sizes of bottles is to be accepted and Assessee does not maintain proper inventory or sales bills whereas in Retails business which deals with even larger variety and inventory, the Assessee is being permitted to violate lawby non-issuance of bills leading to generation of. unverifiable receipts without even maintaining quantitative details and thus, the learned ITAT has passed a perverse order which permits the Assessee to violate various laws? 8. Whether on facts and circumstances of the case, when categorical findings regarding vouchers being handmadeand self-made has been crystallized in the Assessment order by the Assessing office, the learned ITAT 5 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

has passed an perverse order stating that the expenses have never been question ignoring the Assessment order and also without bring on record any fact. which counters the findings of the Assessing officer that the bills were genuine in nature and therefore, ‘the learned ITAT has passed a perverse order without any application of mind ignoring the facts brought on record by the Assessing officer and without even making an effort to verify the expense bills and vouchers? AND/OR Any other question of law that may arise during the course ofhearing based on the relevant law in view of the factualbackdrop in the instant matter." 3 . Brief facts of the case are that the respondent-assessee company was engaged in the business of retail sale of country liquor and foreign liquor. Respondent-assessee had filed its return on 15/01/2016 vide aknowledgement No. 500955731151016 declaring a loss of Rs.3,93,04,468/-.The case of the assessee was selected under 'Competent Scrutiny' through CASS. The assessment proceedings were completed vide order under Section 143(3) of the Income Tax Act dated 17/12/2018 at assessed income of Rs.2,28,76,360/-. During assessment proceeding, the documents available on record as well as the replies and documents submitted by the assessee were carefully examined. On perusal of the documents submitted by the assessee, it is observed that the assessee has not maintained sale voucher and bills quoting nature of 6 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

business and also the daily sales and purchase record. Thus, the correctness or the completeness of the accounts of the assessee is questionable and not found satisfactory. Accordingly, Assessing Officer has rejected the books of the assessee under Section 145(3) of the Act and assessment was made ex-parte as per the manner provided in Section 144 of the Act. Assessing Officer has calculated the sales and net profit of the assessee in the light of judgment of Hon'ble M.P. High Court in the case of Badri Prasad Bhagwandas & Co. Vs. Commissioner of Income-Tax, MCC No. 202/1985 dated 11/10/1994 by estimating total sales at 2.5 times the license fees paid and Net Profit at 5% of the estimated sales. Accordingly, the total sales of the assessee was estimated at Rs.45,75,27,240/- (2.5xRs.18,30,10,896/-) and the net profit was estimated at Rs.2,28,76,362/-95% of 45,75,27,240/-) and the captioned assessment proceedings were completed vide order under Section 143(3) of the Act dated 17/12/2018 at assessed income of Rs.2,28,76,360/-. Being aggrieved by the order of Assessing Officer, the assessee has filed appeal before the CIT(A) against the order under Section 143(3) dated 17/12/2018 and the CIT(A) vide its order dated 31/08/2020 allowed the appeal of the assessee and deleted addition made in the assessment order under Section 143(3) of the Income Tax Act, 1961. Being aggrieved by the order of CIT(A), the Department filed appeal before learned ITAT, Indore, which was dismissed vide order dated 21/09/2022. Feeling aggrieved by the same, present appeal has been filed on the substantial questions of law, which has been enumerated in the preceding paragraphs. 4. Learned counsel for the appellant contended that the learned 7 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

ITAT has erred in dismissing the appeal filed by the Department, therefore, on the aforesaid substantial questions of law, this appeal is fit to be entertained. 5 . Heard learned counsel for the appellant and perused the substantial questions of law. 6. Before dealing with the aforesaid controversy, it would be expedient to refer to Section 260-A of the Act of 1961. The provisions, relevant for our purpose, read thus: " 260-A. Appeal to High Court - (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law. (2) The Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commission or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub- section shall be (a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (b) xxx (c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved. (2A) The High Court may admit an appeal after the 8 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the samewithin that period. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. (4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question : Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question, (5) The High Court shall decide the question of law so formulated and deliver such a judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit. (6) The High Court may determine any issue which- (a) has not been determined by the Appellate Tribunal; or (b) has been wrongly determined by the Appellate Tribunal, by reasons of a decision on such question of law as 9 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

is referred to in sub-Section (1). (7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section." 7. From a bare reading of the Section, it is apparent that an appeal to the High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where the High Court comes to the conclusion that a substantial question of law arises from the said order, it is mandatory that such question(s) must be formulated. The expression "substantial question of law" is not defined in the Act. Nevertheless, it has acquired a definite connotation through various judicial pronouncements. 8. While explaining the import of the said expression, the Apex Court in case of Sir Chunilal V. Mehta & Sons, Ltd. Vs. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314, observed that:

"6. The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest Court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial 10 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

question of law." 9. Similarly, in Santosh Hazari Vs. Purushottam Tiwari, (2001) 3 SCC 179 it was observed that:

"A point of law which admits of no two opinions may be a proposition of law but cannot be a substantial question of law. To be "substantial" a question of law must be debatable, not previously settled by law of the land or a binding precedent, AIR 1962 SC 1314 (2001) 3 SCC 179 and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law "involving in the case" there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis." 10. In Hero Vinoth (Minor) Vs. Seshamma, (2006) 5 SCC 545 , the Apex Court has observed that:

"The general rule is that High Court will not interfere with the concurrent findings of the courts below. But it is not an absolute rule. Some of the well recognised exceptions are where (i) the courts below have ignored material evidence or acted on no evidence; (ii) the courts have drawn wrong inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to "decision based on no evidence", it not only refers to cases where there is a total dearth of evidence, but also refers to any case, where the evidence, taken as a whole, is not reasonably capable of supporting the finding." 11. A finding of fact may give rise to a substantial question of law, 11 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. (See : Madan Lal Vs. Mst. Gopi & Anr. (1980) 4 SCC 255; Narendra Gopal Vidyarthi Vs. Rajat Vidyarthi, (2009) 3 SCC 287; Commissioner of Customs (Preventive) Vs. Vijay Dasharath Patel (2007) 4 SCC 118; Metroark Ltd. Vs. Commissioner of Central Excise, Calcutta (2004) 12 SCC 505; West Bengal Electricity Regulatory Commission Vs. CESC Ltd. (2002) 8 SCC 715). 12. The Apex Court in case of K.Ravindranathan Nair vs. CIT, (2001) 1 SCC 135 has observed as under :

''The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact finding authority. A decision on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of fact reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and to give an answer in law to the question of law that is before it.'' 13. When tested on the anvil of the afore-noted legal principles, we are of the opinion that in the instant case no substantial question of law arises from the order of the Tribunal as the appellant has raised all the question of facts and have disputed the fact findings of the ITAT in the garb of substantial questions of law which is not permitted by the statute itself. This Court refrains from entertaining this appeal as there is no perversity in the order passed by the ITAT since the ITAT has dealt with all the grounds raised by the appellant in the order impugned and has passed a well reasoned and speaking order taking into consideration all the material available on record. The Tribunal being a final fact finding authority, in the absence of demonstrated perversity in its finding, interference with the concurrent findings of the CIT (A) as well as the ITAT therewith by this Court is not warranted. 14. For the aforesaid reasons, we have no hesitation in holding that no question of law, much less any substantial question of law arises from the order of the Tribunal requiring consideration of this court. 12 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified

(SUSHRUT ARVIND DHARMADHIKARI) JUDGE (ANURADHA SHUKLA) JUDGE There is no merit in the appeal as making addition/deletion cannot be said to be erroneous and prejudicial to the interest of revenue. Thus, in our opinion, the present case does not involve any substantial question of law so as to meet the provisions of Section 260(A) of the Act for admitting the appeal. 15. In view of the aforesaid discussion, we do not find any merit in this appeal, which in our opinion deserves to be and is hereby dismissed in limine.

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13 ITA-122-2023 NEUTRAL CITATION NO. 2024:MPHC-JBP:44658 Signed by: SANTOSH KUMAR TIWARI Signing time: 9/6/2024 11:24:56 AM Signature Not Verified