PR COMMISSIONER OF INCOME TAX KOTA vs. SHRI HARBANS LAL SETHI

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR (1) D.B. Income Tax Appeal No. 348 / 2017 Pr. Commissioner of Income Tax, Kota ----Appellant Versus Shri Harbans Lal Sethi, 97, Dushera Scheme, Kota. ----Respondent (2) D.B. Income Tax Appeal No. 349 / 2017 Pr. Commissioner of Income Tax, Kota ----Appellant Versus Shri Harbans Lal Sethi, 97, Dushera Scheme, Kota ----Respondent (3) D.B. Income Tax Appeal No. 350 / 2017 Pr. Commissioner of Income Tax, Kota. ----Appellant Versus Shri Harbans Lal Sethi, 97, Dushera Scheme, Kota. ----Respondent (4) D.B. Income Tax Appeal No. 351 / 2017 Pr. Commissioner of Income Tax, Kota ----Appellant Versus Shri Harbans Lal Sethi, 97 Dushera Scheme, Kota. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anil Mehta For Respondent(s) : Mr. Lokesh Taylor for Mr. Mahendra Gargieya

(2 of 6) [ITA-348/2017] _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 06/02/2018 1. In all these appeals common question of law and facts are involved hence they are decided by this common judgment. 2. By way of these appeals, the appellant has challenged the judgment and order of the tribunal whereby tribunal has partly allowed the appeals of the assessee and dismissed the appeals of the department. 3. Counsel for the appellant has framed following substantial questionS of law:- 3.1 Appeals No.348/2017 & 349/2017 1. Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in restricting the addition for profit of Rs.14,00,000/- made by the CIT(A) to Rs.2,00,000/- only without providing any basis for such adhoc estimation of extra profit of Rs.2,00,000/- when the books of account of the assessee were properly rejected u/s.145(3)? 2. Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in deleting addition of Rs.1,24,860/-

made

disallowing depreciation on cars and mobiles on account of their use in personal capacity when the provisions of Section 32 of the Act strictly requires business use of the assets for allowing depreciation and specially when estimation of profit was made by the

(3 of 6) [ITA-348/2017] Assessing Officer and confirmed by the ITAT prior to allowance of interest and depreciation? 3.2 Appeal No.350/2017 1. Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in restricting the addition of extra profit of Rs.80,07,358/- to only Rs.3,00,000/- by estimating such amount on adhoc basis and without providing any basis specifically when the books of accounts were properly rejected u/s.145(3) and addition to the extent of Rs.25,95,796/- was agreed to by the assessee and not retracted at any stage. 3.3 Appeal No.351/2017 1. Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was justified in restricting the addition of extra profit of Rs.70,46,571/- made on agreed basis to only Rs.4,00,000/- by estimating such amount on adhoc basis and without providing any basis specifically when the books of accounts were properly rejected u/s.145(3) and addition was agreed to by the assessee and not retracted at any stage. 4. The facts of the case are that the case of the assessee was taken up after issuing notice u/s.143(2). The Assessing Officer found that the gross profit indicated in the return of income was less in comparison to past years. It was observed that complete record of the purchase bill payment made to the daily wages, transportation charges etc. were not produced by the assessee. The Assessing Officer on the examination of the books of accounts rejected the said books of accounts on the basis of the defects

(4 of 6) [ITA-348/2017] noted in sub-para 'i to x of para 3' of its order. The books of accounts were not complete nor any stock register was produced, hence the books of accounts were rejected. A show cause notice was also issued to the assessee for invoking the provisions u/s.145(3). No satisfactory explanation was submitted by the assessee. Accordingly, the assessment order was framed by applying net profit rate of 11.5% on total gross receipt subject to interest and depreciation. 5. Normally the consistent practice of this court to calculate the last five years average g.p., has been followed by the tribunal. In our considered opinion, the view taken by the tribunal is in consonance with the view taken by this court. 6. The finding of the tribunal in this regard reads as under:- “5.1 The Ground of appeal no.3 of the assessee regarding the adhoc disallowances made by the AO totaling to Rs.1,24,830/- on account of depreciation on vehicles and depreciation on mobiles which has been sustained by the ld. CIT(A). 5.2 Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us against the sustenance of disallowance of Rs. 1,24,830/- 5.3 After going through the orders of the authorities below and the materials available on record, we hold that once the books of account are rejected and income is estimated then there is no further scope for any addition out of various expenses debit in profit and loss account. Therefore, we find no merit in the order of the ld. CIT(A) which is not justified in confirming the disallowance of Rs. 1,24,830/-. In this view of the matter the Ground No. 3 of the assessee is allowed. 13.6 We have carefully considered the rival contentions and perused the material available on record. As regards the enhancement made

(5 of 6) [ITA-348/2017] by the ld. CIT(A), we have already rejected such a working after discussion made our order in A.Y.2006-07 in ITA No.495/JP/13 (supra). Following the same, working adopted by the ld. CIT(A) for making the enhancement is hereby rejected and it is held that after application of Sec.145(3) of the Act , it was only a case of fair estimation to be made keeping in mind the past history of the case or other comparable case, if any cited by the parties and relevant material hence. As regards the estimation of income after rejection of the books of account from a perusal of the comparative charts, it is seen that the assessee has declared receipts of Rs.54.73 Crores in this year as against Rs.41.15 Crores of last year and the declared NP rate (subject to interest & depreciation) this year was 8.57% which is better from A.Y.2003-04 & 2004-05 wherein, it was declared at 7.87 % & 7.99% only. It may be noted that ITAT Jaipur Co-ordinate Bench in assessee's own case in A.Y.2003-04, 2004-05, 2005-06 have upheld NP rate of 8.50% (subject to interest & depreciation). The AO himself has applied 9.50% in A.Y.2005-06. Moreover, the gross receipts have gone up from Rs.41.15 Crores last year to Rs.54.73 Crores this year, which means an increase in the receipts by 33%. It is also settled that for the purpose of fair estimation an overall view should be formed, considering the past history of few years. Accordingly, the average of immediately past five years i.e. A.Y.2003-04 to 2007-08 (considering the adjusted NP rate of 9.98% in A.Y.2006-07), the average NP rate comes to 8.72% (approx.) while assessee had declared 8.57%. There was increase in turnover by 33%. Therefore, there was no justification to apply 9.50% (subject to depreciation only) or 10.36% (subject to interest & depreciation ). Considering the totality of facts & circumstances of the case, past history and increase in turnover , we uphold the addition of Rs. 4.00 lacs only. Thus ground of appeal no. 2 of the assessee is partly allowed. “ 7. Taking into account the average g.p., the tribunal has rightly modified the order of the CIT(A) and AO.

(6 of 6) [ITA-348/2017] 8. We are in complete agreement with the view taken by the tribunal. Therefore, no substantial questions of law arises. 9. The appeals stand dismissed.

(VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 23-26.