SHRI BABU LAL SOMANI vs. THE ITO

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 36/2018 Shri Babu Lal Somani, Prop. M/s Somani And Company And Somani Carrier, Bundi Road, Kota, S/o Shri Kishan Lal, aged about 78 years, R/o Somani And Company, Bundi Road Kota Rajasthan ----Appellant Versus The ITO, Ward- 2(1), Kota ----Respondent For Appellant(s) : Mr. Prakul Khurana on behalf of Mr. Sanjay Jhanwar For Respondent(s) : Ms. Parinitoo Jain HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 16/08/2019 1. The appeal was admitted on the following questions of law:- “i) Whether the ld. ITAT is not bound by the principle of Judicial consistency and uniformity and therefore the ld. ITAT ought to have confirmed the order of ld. CIT(A) estimating profit rate by following its previous decisions in the case of ITO vs. Shri Ritesh Kumar Somani bearing ITA No.415/JP/2014 and decision in the case of appellant itself for previous year? ii) Whether under the facts and circumstances of the case and in law the ld. ITAT having held that books of accounts have not been rejected by the AO ought to have remanded the matter back to ld. CIT(A) having conterminous power to reject books of accounts for giving specific findings regarding rejection of books of account?” 2. The relevant facts are that a survey took place on the appellant’s premises on 01.10.2008. As a consequence, several books of account and other documents were seized and (Uploaded on 28/08/2019 at 02:59:08 PM) (Downloaded on 30/10/2026 at 10:28:22 AM) (2 of 5) [ITA-36/2018] impounded. The assessee was subjected to special audit for the years between 2004-05 up to 2009-10. Like in his case, similar proceedings under Section 133A were carried out on the premises in relation to the accounts of his son and his wife for the same years. Furthermore, in their cases too, special audit was directed. The Assessing Officer(AO) brought to tax various amounts which became the subject matter of appeal to the Commissioner. The Commissioner noted inter alia that even though the special auditor has re-cast accounts, the AO did not specifically reject the books of account, and following the precedent of the assessess’s son, applied the profit ratio of 8% NP in respect of suppressed income. The CIT(A)’s order became the subject matter of appeal by the Revenue on various counts. The ITAT, we notice, rejected most of the grounds of the appeal, especially the deletion of the addition made and affirmed by the CIT(A) to the tune of `14,02,856/-. The surviving ground however of the Revenue, was upheld. The ITAT added unrecorded sales of grit and brought the entire amount of tax at `36,01,132/-. 3. It is argued on behalf of the assessee, firstly that the the principle of consistency applies squarely in the facts and circumstances of the case. Learned counsel highlighted that once there was nearly a common operation of the survey under Section 133A in relation to the assessee and his close relatives, the Revenue’s approach cannot differ, having accepted that in the case of other assessees, unrecorded sales too had to be subjected to NP rate, and secondly adopted an approach that without rejection of the books of account, the addition could not have been made. In the present case the Revenue could not have argued otherwise. 4. It was argued next that addition of `14,02,856/- in the present case was entirely unwarranted. It is submitted that there is no dispute that the amounts denote the unrecorded sales and in such an event, the entire sum could not have been brought to tax, rather the NP rate ought to have been applied after accepting that the books of account have been impliedly rejected. Learned counsel relied upon the ruling of the Uttaranchal High Court in Smt. Kiran Lata Vs. ITAT, (2009) 318 ITR 44. 5. The Court has considered the circumstances. (Uploaded on 28/08/2019 at 02:59:08 PM) (Downloaded on 30/10/2026 at 10:28:22 AM) (3 of 5) [ITA-36/2018] 6. The crucial findings of the ITAT in this regard, i.e. that there was no specific finding with respect to books of account are as follows:- “14. However, we find that there is no specific finding which has been recorded by the Assessing Officer in the assessment order recording his satisfaction as to rejection of the books of accounts and the result so declared by the assessee. It is true that the matter was referred for special audit u/s 142(2A) but that by itself will not result in an implied finding of the AO about his non-satisfaction about the books of accounts and rejection thereof. As noted by the Coordinate Bench as well, the basic purpose for special audit was for examination of the books of accounts and to give specific comments on specific issues and it cannot be inferred that the matter for special audit was referred for getting the whole of the books of account recasted and preparation thereof afresh. The defects so pointed out by the special auditor have been incorporated in the recasted books of accounts effectively means taking into consideration the results already declared by the assessee in respect of its declared transactions and the results as per unrecorded transactions relating to purchase and sales and other income, presenting an overall position regarding the business results in relation to activities carried out by the assessee. Therefore, we are of the considered view that merely because the matter was referred for special audit and the AO has made certain additions based on the observations of the special auditor, it cannot be held that the AO has rejected the books of account of the assessee. There has to be a specific finding given by the AO in terms of satisfaction of any or all of the conditions as specified under section 145(3) before he rejects the books of accounts of the assessee. Further, the AO has to specify the reasons as to why he feels that the results declared by the assessee as per the books of accounts are not acceptable.” 7. As far as the specific finding regarding addition of `36,01,132/- is concerned, the ITAT held as follows:- “35. In Ground no. 3, the Revenue has challenged the deletion of addition on account of unrecorded sales of grit of Rs 14,02,856, unrecorded loading receipts from Railways of Rs 1,95,889, unrecorded sales of March 2009 of Dabora/ballast to Railway of Rs 12,27,248, unrecorded income from crusher hire charges of Rs 10,000, unrecorded sales as per (Uploaded on 28/08/2019 at 02:59:08 PM) (Downloaded on 30/10/2026 at 10:28:22 AM) (4 of 5) [ITA-36/2018] Annexure-17 of Rs 1,44,325. The total undisclosed turnover therefore comes to Rs 30,69, 266.” 36. The ld CIT(A) after taking into consideration the suppressed sales on account of undisclosed production of Rs. 36,01,132/- as decided above, has given a benefit of telescoping to the assessee and has brought to tax the undisclosed sale figure at at Rs. 36,01,132/- being higher of the two. We donot see any infirmity in the same and the said finding of the ld CIT(A) is hereby confirmed. Ground no. 3 to this limited extent is dismissed.” 8. The assessee’s argument essentially as narrated previously, is twofold- first, that the principle of consistency has to be applied in this case. By and large, the argument is sound, but at the same time the argument of consistency has to be considered in the context of each case. In the present case, the mere circumstance that the assessee’s relatives were subjected to similar additions, whereas assessee for the concerned year (A.Y. 2009-10) has not been accorded the same treatment is, per se, not contrary to law. It is established (and cannot be disputed) that each assessment year has to be dealt with separately by the AO who is charged by law to examine the books and documents presented, and determine the tax liability of every assessee. 9. The Court also notices that the amounts brought to tax were not declared at all, but rather they surfaced during course of the survey. If we accept the position that in the course of business, an assessee is required to prove the entries especially relating to expenditure, the fact that the accounts were recast in relation to the declared amount, based on the books, per se weakens the assessee’s argument. This is because the assessee argues, there has to be parity of treatment inasmuch as the NP rate has to be applied for the amount not declared. This would mean that without establishing the three essential characteristics, to get out of the clutches of Section 68, the assessee can nevertheless claim legitimate deductions. In the opinion of this Court, this argument is unsound as it would promote two criteria, first whereby the deductions are claimed based upon the receipts and invoices declared, and second the other based upon no such evidence, but rather of parity with the legitimate part of the (Uploaded on 28/08/2019 at 02:59:08 PM) (Downloaded on 30/10/2026 at 10:28:22 AM) (5 of 5) [ITA-36/2018] income. Therefore, the question of consistency, in the opinion of the Court, is not substantial. 10. As regards the second argument, which is the applicability of NP rule, based upon deemed rejection, the ITAT has recorded cogent reasons why according to it, there was no rejection of the books of account. Furthermore, the entire effort of the Revenue in getting the accounts audited under Section 142(2A) of the Income Tax Act, was to discern whether the accounts were correct, and not the rejection of the books of account, as is sought to be urged. Furthermore, having regard to the imperatives of Section 145(3), there is no question of deemed rejection, as is sought to be urged. 11. For the above reasons, both the questions of law are answered against the assessee. 12. The appeal is, therefore, dismissed. All pending applications too are disposed of. (INDERJEET SINGH),J (S. RAVINDRA BHAT),CJ KAMLESH KUMAR /10 Powered by TCPDF (www.tcpdf.org) (Uploaded on 28/08/2019 at 02:59:08 PM) (Downloaded on 30/10/2026 at 10:28:22 AM)