AHMED HUSSAIN KALLUR vs. DEPUTY COMMISSIONER OF INCOME TAX AND ANR

The petitioner is before this Court seeking for the following reliefs:

Issue a writ of Certiorari or direction in the nature of a writ of Certiorari quashing the order passed u/s 143(3) r.w.s 144B dated 21.03.2024 bearing No. ITBA/AST/S/143(3)/2023-24/1063070238(1) issued by the Respondent No.2 for the assessment year 20223-23 herein marked as Annexure-A;

Issue a Writ of Certiorari or direction in the nature of writ of Certiorari quashing the penalty notice u/s 274 R.W.S 270A of the Act dated 21.03.2024 bearing DIN No.ITBA/PNL/S/270A/2023- 24/1063070596(1) by the Respondent No.2 for the assessment year 2022-23 herein marked as Annexure-A1;

And pass such other orders as this Hon’ble Court deems fit and proper in the interest of justice and equity. NC: 2024:KHC-K:7467

The contention of the petitioner is that the petitioner has spent an amount of Rs.65,13,65,170/- towards the purchase of raw cotton from the farmers as regards which the said farmers have been paid by cash and they have executed necessary receipts in respect thereof.

The respondent No.2 has disbelieved the purchase made to an extent of Rs.65,13,65,170/- on the ground that the payments towards purchase of cotton was made to non GST entities and there are no records to indicate as to what is the exact amount paid and on the further ground that the onus lies on the assessee to prove the genuineness of the transaction carried out during the year by providing relevant supporting evidences.

The submission of Sri Ravi Shankar S.V., learned counsel for the petitioner is that the petitioner had submitted sample bills along with the details of the persons to whom the cash payment was made, which are also enclosed with the record of tenancy and crops which would correlate to growth of cotton by them and supply thereof to the petitioner. These aspects not having been taken into consideration. If at all, the assessing officer NC: 2024:KHC-K:7467 had any more queries, the assessing officer could have called upon the petitioner to produce those documents. No opportunity was given to the petitioner to produce the documents, despite the petitioner having offered to produce all the documents, no demand having been made, a presumption has been drawn that the payments made towards the purchase of cotton cannot be considered in view of the sellers being non GST entities is only based on assumption and as such, he submits that without rejecting the books of account, addition of the amounts estimated by the assessing officer into the income of the petitioner is unsustainable and in this regard he relies upon the decision of this Court in the case of Commissioner of Income-tax, Belgaum vs. Anil Kumar & Co.1, more particularly para 11 thereof, which is reproduced hereunder easy reference.

Insofar as the estimation of gross profit made by the Assessing Officer modified by the CIT(Appeals), tribunal has rightly held that when the books of accounts 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 1 [2016] 67 taxmann.com 278 NC: 2024:KHC-K:7467 Act lays down that the Assessing Officer can proceed to make assessment to the best of his judgment under section 144 of the Act only in the event of not being satisfied with the correctness of the accounts produced by the assessee. In the instant case the Assessing Officer has not rejected the books of accounts of the assessee. To put it differently the Assessing Officer has not made out a case that conditions laid down in Section 145(3) of the Act are satisfied for rejection of the books of accounts. Thus, when the books of accounts are maintained by the assessee in accordance with the system of accounting, in the regular course of his business, same would form the basis for computation of income. In the instant case it is noticed that neither the Assessing Officer nor CIT(Appeals) have rejected the books of accounts maintained by the assessee in the course of the business. As such tribunal has rightly rejected or set aside the partial addition made by Assessing Officer for arriving at gross profit and sustained by the CIT(Appeals) and rightly held that entire addition made by the Assessing Officer was liable to be deleted. The said finding is based on sound appreciation of facts and it does not give rise for framing substantial question of law.

His submission, therefore, is that the assessment is required to be set aside by allowing the relief sought for.

Sri.Thirumalesh, counsel for the revenue, would submit that it was the duty of the assessee to have furnished all the documents that the assessee relies upon, irrespective of whether the assessing officer had sought for or not, more so since this is a faceless assessment. The assessee NC: 2024:KHC-K:7467 knowing fully well that the assessment is being carried out in a faceless format, there is no question of any further demand being made. It was for the assessee to have submitted all the documents which would have been evaluated as per the faceless system.

Heard Sri.Ravi Shankar S.V., learned counsel for the petitioner and Sri.M.Thirumalesh, learned counsel for the respondent and perused papers.

The assessee admittedly has produced certain receipts by the farmers for having received the amounts paid thereunder by cash. The assessee ought to have furnished all the details relating to the aforesaid amount which could have been considered by the assessing authority in the faceless format. Not having done so has resulted in assumption made by the assessing officer which has resulted in the present situation. Hence, I am of the considered opinion that an opportunity would be required to be granted to the assessee to make available all the documents in his possession to evidence the NC: 2024:KHC-K:7467 payment of a sum of Rs.65,13,65,170/- to the farmers for the purchase of cotton.

The assessing officer would also have to take into consideration the quantity of cotton required for the purposes of the trading activity resorted to by the assessee by correlating the amount of raw cotton required for baleing the said cotton and selling the same as cotton bales which is the business of the assessee and it is only thereafter that the gross profit could be assessed, and not on an assumption at the rate of 12.5%. In that view of the matter, I pass the following: ORDER i) The writ petition is allowed. ii) The order dated 21.03.2024 passed by respondent No.2 for the assessment year 2022-23 vide Annexure-A is quashed. iii) The penalty notice dated 21.03.2024 passed by respondent No.2 for the assessment year 202-23 vide Annexure-A1 is quashed. NC: 2024:KHC-K:7467 iv) The matter is remitted to the assessing officer for fresh consideration by permitting the petitioner to submit all the relevant documents and the working of the assessee within a period of 30 days from date of receipt of a copy of this order. v) The assessee to furnish all the receipts supporting documents, the working of the industry of the petitioner, including the gross profit estimate of the industry. (SURAJ GOVINDARAJ) JUDGE