BASIR AHMED SISODIA vs. THE INCOME TAX OFFICER

1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 6110 OF 2009

Basir Ahmed Sisodiya

.....Appellant versus The Income Tax Officer

..…Respondent J U D G M E N T A.M. Khanwilkar, J. 1. This appeal takes exception to the final judgment and order dated   21.8.2008   passed   by   the   High   Court   of   Judicature   for Rajasthan at Jodhpur (for short, “the High Court”) in Income Tax Appeal   No.   69   of   2006,   whereby   the   appellant’s   appeal   was dismissed   and   the   order   of   Income   Tax   Appellate   Tribunal, Jodhpur Bench (for short, ‘the ITAT’) came to be upheld. 2. In short, the appellant/assessee was served with a notice under  Section  143(2)  of  the   Income  Tax  Act,  1961   (for   short, ‘1961 Act’) by the Assessing Officer (for short, ‘Officer’) for the assessment year 1998­1999, pursuant to which an assessment Digitally signed by DEEPAK SINGH Date: 2020.04.24 12:21:43 IST Reason: Signature Not Verified

2 order was passed on 30.11.2000.   This appeal involves limited challenge to certain addition made under the heads ­ “Trading Account” and “Credits” in the assessment order.   The Officer, inter alia, while relying on the Balance Sheet and the books of account,   took   note   of   the   credits   amounting   to   Rs.2,26,000/­ (Rupees two lakhs twenty­six thousand only).  The Officer treated that amount as “Cash credits” under Section 68 of the 1961 Act and added the same in declared income of the assessee (for short, ‘second addition’).   The Officer then proceeded to compute the income of the assessee for the concerned assessment year.  The relevant part of the computation is mentioned below: ­ “Credits: On examining the balance­sheet and accounts books of   assessee,   it   is   apparent   that   the   assessee   has   shown credit amount of Rs.2,26,000/­ in the names of the following 15 persons: … … … Accordingly,   sufficient   time   and   opportunity   was granted to prove the veracity of credits of Rs. 2,26,000/­ as shown   by   assessee.   However   false/wrong   particulars   or explanation were submitted with respect to credits shown by assessee. In this manner, the credits of Rs.2,26,000/­ shown in the name of 15 persons, is not correct and any correct proof/evidence   has   not   been   produced   by   assessee   with respect to income of creditors and source of income. Besides this, the credits of Rs.2,26,000/­ as shown in the name of 15 persons is held as unexplained under Section 68 and added in declared income of assessee. Accordingly, the computation of income of assessee for assessment year 1998­99 is as follows:

3 Income shown in the Returns 87500/­ 1. Disallowed deduction U/s.24(1) as per discussion 7200/­ 2. Additions in gross profit 10000/­ 3. Additions on the basis of less Household expenses withdrawals 18000/­ 4. Unexplained credits as per discussions 226000/­  261200/­ Total taxable Income Tax

348700/­ Assessment was made. Necessary forms were issued. Notice be issued separately for imposition of penalty under Section 272(1)(c).” 3. Aggrieved, the appellant/assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Jodhpur (for short, ‘CIT(A)’).     The   appeal   was   partly   allowed   vide   order   dated 9.1.2003. However, as regards the Trading Account and Credits in question, the CIT(A) upheld the assessment order. 4. The appellant/assessee then preferred further appeal to the ITAT.     Having   noted   the   issues   and   objections   raised   by   the Department and the appellant/assessee, the ITAT partly allowed the   appeal   vide   order   dated   4.11.2004.     However,   the   order relating   to   the   second   addition   (under   consideration   in   the present civil appeal) regarding credits of Rs.2,26,000/­ (Rupees two lakhs twenty­six thousand only) came to be upheld. 5. The appellant/assessee then filed an appeal before the High Court under   Section  260A  of   the  1961  Act.     The  appeal was

4 admitted on 27.4.2006 on the following substantial question of law: ­ ‘‘Whether claim to purchase of goods by the assessee could be dealt with under Section 68 of the Income Tax as a cash credit, by placing burden upon the assessee to explain that the purchase price does not represent his income from the disclosed sources?’’ The principal argument of the appellant/assessee was that once the books of account have been rejected and an assessment order has been passed,  the  same books  of  account cannot  be  then relied upon by the Officer to impose consequent addition(s). 6. The   High   Court   dismissed   the   appeal   vide   impugned judgment and order dated 21.8.2008, as being devoid of merits. The High Court opined that the amount shown as credits was nothing but bogus entries and was justly added to the income of the appellant/assessee. The Court also noted other reasons to dismiss the appeal.  Relevant part of the judgment is reproduced hereunder: ­ ““In   our   view,   none   of   the   submissions   advanced   by   the learned counsel for the appellant has force. Learned counsel has proceeded on the basic assumption, about the factum of purchase of goods, having accepted by the authorities below, while the categoric finding of the Assessing Officer, which has   not   been   disturbed   in   appeal   is,   that   regarding   this purchase from unregistered dealer assessee was called upon during the course of assessment proceedings to prove the correctness and genuineness of his claim, but he completely failed, and therefore, the purchase cannot be accepted.  In

5 our view, this finding, rather is clear and categoric, that no purchase was affected by the assessee, and amount was shown in a bogus manner, shown to be standing to credit of alleged purchasers, who could not be shown, to be either existent, or to be the creditors of the assessee, much less for the consideration alleged by the assessee. It is clear from the assessment orders and the finding affirmed in the appeals, that opportunity was given to the   assessee   to   substantiate   the   genuineness   of   the alleged transactions, but the assessee failed, and efforts made by the Revenue, to investigate the correctness of the alleged transaction also could not yield any results, in favour of the assessee. Thus   it   is   clear,   that   the   amounts   shown   to   be standing to the credit of the persons, which had been added to the income of the assessee, was clearly a bogus entry, in the   sense   that   it   was   only   purportedly   shown   to   be   the amount   standing   to   the   credit   of   the   fifteen   persons, purportedly on account of assessee having purchased goods no credit from them, while since no goods were purchased, the   amount   did   represent   income   of   the   assessee   from undisclosed sources, which the assessee had only brought on record (books of accounts), by showing to be the amount belonging to the purported sellers, and as the liability of the assessee. That   being   the   position,   the   contention   about impermissibility of making addition under this head, in view of   addition   of   Rs.10,000/­   having   been   made   in   trading account,   cannot   be  accepted,  as  books   of   accounts   has been   rejected   for   the  purpose   of   assessing   the   gross profit, as the gross profit shown in the books has not been accepted, on the ground, that the assessee had not maintained day to day stock registers, nor has produced or   maintained   other   necessary   vouchers,   but   then,   if those   books   of   accounts   did   disclose   certain   other assets, which are wrongly shown to be liabilities, and for acquisition   of   which   the   assessee   did   not   show   the source, it cannot be said that the Assessing Officer was not   entitled   to   use   the   books   of   accounts   for   this purpose.” (emphasis supplied)

6 7. The   appellant/assessee   in   the   present   civil   appeal   has reiterated   the   argument   that   the   Officer,   having   made   the addition under Section 144 of the 1961 Act being “best judgment assessment”,   had   invoked   powers   under   sub­Section   (3)   of Section 145.   For, assessment under Section 144 is done only if the books are rejected.  In that case, the same books cannot be relied upon to impose subsequent additions, as has been done in this   case   under   Section   68   of   the   1961   Act. The appellant/assessee adopted a three­pronged plea in support of the   above   contention;   First,   that   assessment   order   refers   to Section 145(2) of the 1961 Act.  It should have mentioned Section 145(3) of the 1961 Act.  For that, the appellant/assessee relies on the  amendment  of   the   1961   Act  which  came   into  effect  from 1.4.1997.  It is urged that Section 145(2) prior to 1.4.1997 (pre­ amendment)   is   akin   to   Section   145(3)   post   1.4.1997   (post­ amendment).

thus

urged

that

the

Department committed error in mentioning Section 145(2) and not   Section   145(3);   Second,   that   the   assessment   order   in reference to the first addition has incorrectly mentioned the term “not”.     According   to   the   appellant/assessee,   the   prefix   of   the paragraph and the language used, makes it abundantly clear that

7 the Department had relied upon Section 145(3) of the 1961 Act to impose the  addition.    The  appellant/assessee has  also placed reliance on the Hindi version of the assessment order to buttress this submission; Third, that the  assessment was made under Section 144 as the same refers to Section 145(3).  Under Section 144, the Officer has to make “best judgment assessment”.   The appellant/assessee urges that the purport of the stated provision is that the Officer re­assesses the entire accounts and makes the assessment of total income and thereafter computes the income tax liability.  Resultantly, the Officer (after rejecting the books of account) cannot then rely on the same books of account to make any subsequent addition(s).  The appellant/assessee also argues that the approach adopted by the Officer would have the effect of taxing the same transaction twice. 8. To buttress the aforesaid contentions, reliance is placed on Maddi Sudarsanam Oil Mills Co. v. Commissioner of Income­ Tax, Hyderabad and Andhra1; Commissioner of Income Tax v. Aggarwal Engg. Co. (Jal.)2  and  Commissioner of Income Tax vs. G.K. Contractors3. 1 [1959] 37 ITR 369 (AP) 2 (2006) 206 CTR (P&H) 648 3  (2009) 19 DTR (Raj) 305 (IT Appeal No. 13/2009, decided on 28.1.2009)

8 9. Per contra, the respondent urged that the assumption of the appellant/assessee that the assessment order had rejected the books   of   accounts   under   Section   145(3)   of   the   1961   Act   is preposterous.   In that, the assessment in question came to be made under Section 143(3) of the 1961 Act.   Thus, the Officer was   justified   in   relying   upon   the   said   books   for   making addition(s).  The respondent would also urge that while imposing the first addition, the assessment order does not reject the books of accounts, but only that part which pertained to assessing the gross profit, as the assessee had not maintained day to day stock registers,   nor   had   produced   or   maintained   other   necessary vouchers while determining the gross profits.   Additionally, the respondent would also urge that the amount mentioned under “Credits” in the Balance Sheet is incorrect and qualifies as “Cash Credits”   under   Section   68   of   the   1961   Act,   as   stated   in   the assessment   order.     Indisputably,   the   Officer   gave   several opportunities to the appellant/assessee to prove the authenticity of the entries in question.  As a matter of fact, summon notices were   issued   to   the   named   fifteen   creditors,   but   no evidence/explanation was forthcoming.   The finding of fact so recorded by the Officer is unexceptionable.  The respondent thus

9 contends that the finding relating to the cash credits, does not give rise to any substantial question of law. 10. Before we proceed to analyze the rival submissions, we need to   advert   to   I.A.   No.   57442/2011   for   permission   to   bring   on record   subsequent   events. By   this   application,   the appellant/assessee has placed on record an order passed by the CIT(A) dated 13.1.2011, which considered the challenge to the order passed by the Income­Tax Officer under Section 271(1)(c) dated 17.11.2006 qua the appellant/assessee for the self­same assessment year 1998­1999.  The Income­Tax Officer had passed the said order as a consequence of the conclusion reached in the assessment order which had by then become final upto the stage of ITAT vide order dated 27.4.2006 ­ to the effect that the stated purchases by the appellant/assessee from unregistered dealers were   bogus   entries   effected   by   the   appellant/assessee. Resultantly,   the   penalty   proceedings   under   Section   271   were initiated by the Officer.  That order, however, has now been set aside by the appellate authority [CIT(A)] in the appeal preferred by the appellant/assessee, vide order dated 13.1.2011 with a finding that the appellant/assessee had not made any concealment of

10 income   or   furnished   inaccurate   particulars   of   income   for   the concerned assessment year.  As a consequence of the decision of the   appellate   authority,   even   criminal   proceedings   initiated against   the   appellant/assessee   have   been   dropped/terminated and   the   appellant/assessee   stands   acquitted   of   the   charges under Section 276(C)(D)(1)(2) of the 1961 Act vide judgment and order dated 6.6.2011 passed by the Court of Additional Chief City Magistrate (Economic Offence), Jodhpur City in proceedings No. 262/2005.     Reverting   back   to   the   decision   of   the   appellate authority [CIT(A)], vide order dated 13.1.2011, it considered the explanation   offered   by   the   appellant/assessee   in   the   penalty proceedings concerning assessment year 1998­1999 and went on to observe thus: ­ “17. During   the   course   of   appellate   proceedings,   the appellant   filed   an   application   under   Rule   46A   vide   letter dated 16.10.2008 and the same was sent to the ITO, Ward­1, Makrana   vide   this   office   letter   dated   28.1.2009   and 1.12.2010   to   submit   remand   report   after   examination   of additional evidences. Along with the application under Rules 46A, the appellant filed affidavits from 13 creditors, sales Tax Order for the Financial Year 97­98 showing purchases from unregistered dealer to the tune of Rs.2,28,900/­, cash vouchers duly signed on the revenue stamp for receipt of payment   by   the   unregistered   dealers   and   copy   of   Rasan Card/Voter   Identity   Card   to   show   identity   of   the unregistered   dealer.   The   Assessing   Officer   recorded statements of 12 unregistered dealers out of 13. In the report dated 22.12.2010, he mentioned that statements of above 12 persons were recorded on 15/16.12.2010 and in respect of identify, the unregistered filed photo copies of their Voter

11 Identity Cards and  all of them have admitted that they have sold marble on credit basis to Sh. Bashir Ahmed Sisodia, the appellant, during the Financial Year 97­98 and received payments after two or three years. However, he observed that none of them have produced any evidence in support of their statement since all are petty unregistered dealers of marble and doing small business and therefore, no books of account were maintained. Some of them have stated that   they   were   maintaining   small   dairies   in   the   relevant period of time but they could not preserve old dairies. Some of them have stated that they have put their signature on the vouchers   on   the   date   of   transactions.  It   is   therefore, observed that the Assessing Officer has neither doubted their identity nor any adverse comments in respect of purchase of marble slabs in the Financial Year relevant at AY 98­99 has given in the remand report. xxx xxx xxx 19. In respect of addition of Rs.2,26,000/­, it would be pertinent   to   note   here   that   there   is   no   denial   of purchase of marble slabs worth Rs.4,78,900/­ and sale of goods worth Rs.3,57,463/­ and disclose of closing stock of Rs.2,92,490/­ as disclosed in the trading account for the year ended on 31.3.98. ……………. Without purchases of marbles, there could not have been sale and disclosure of closing stock in the trading account and   it   suggests   that   the   appellant   must   have   purchased marble slabs from unregistered dealers. ……………. The   explanation   given   by   the   appellant   in   respect   of purchases   from   the   unregistered   dealer   and   their genuineness   are   substantiated   by   filing   of   affidavits, producing before the Assessing Officer in the course of remand report and the Assessing Officer did not find any objectionable   in   respect   identity   of   the   unregistered dealers and claim made for sale of marble slabs to the appellant in the Financial Year relevant to AY 98­99. ………….. Thus, there was no justification not to accept the purchase made from unregistered dealers. If such an addition is made, it would give unreasonable rate of profit. The vouchers in

12 respect of purchases made from unregistered dealers were produced by the appellant.” (emphasis supplied) Finally, in paragraph 20, the appellate authority observed thus: ­ ‘‘20. Under the above facts and circumstances, I am of the view   that   there   was   no   either   concealment   of   income   or furnishing   any   inaccurate   particulars   of   income   and accordingly, the penalty order dated 17.11.2006 passed by the Assessing  Officer is cancelled. The grounds of appeal allowed.’’ Notably, the appellant/assessee has asserted in paragraph 2 of the   application   (I.A.   No.   57442/2011)   that   consequent   to   the order   passed   by   the   appellate   authority   dated   13.1.2011,   the Department   has   refunded   penalty   amount   of   Rs.98,153/­ (Rupees   ninety­eight   thousand   one   hundred   fifty­three   only) alongwith interest to the appellant/assessee.   That means the Department   has   allowed   the   said   order   dated   13.1.2011   to become final. 11. We have heard learned senior counsel, Dr. Manish Singhvi and   Mr.   K.   Radhakrishnan   appearing   for   the   appellant   and respondent, respectively. 12. Before dissecting the rival submissions, we deem it apposite to reproduce the relevant provisions as applicable at the relevant time for assessment year 1998­1999 as below; “Assessment

13 143.  (1) (a) Where a return has been made under section 139,   or   in  response   to  a   notice   under   sub­section   (1)   of section 142,­ (i) if any tax or interest is found due on the basis of such   return,   after   adjustment   of   any   tax deducted at source, any advance tax paid and any   amount   paid   otherwise   by   way   of   tax   or interest,   then,   without   prejudice   to   the provisions of sub­section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and   all  the   provisions   of   this   Act   shall   apply accordingly; and (ii) if any refund is due on the basis of such return, it shall be granted to the assessee: Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be   made   in   the   income   or   loss   declared   in   the   return, namely:­ (i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified; (ii) any loss carried forward, deduction, allowance or relief, which, on the basis of the information available   in   such   return,   accounts   or documents, is prima facie admissible but which is not claimed in the return, shall be allowed; (iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts   or   documents,   is prima   facie inadmissible, shall be disallowed: Provided further  that where adjustments are made under the first proviso, an intimation shall be sent to the assessee, notwithstanding that no tax or interest is found due from him after making the said adjustments: Provided also that an intimation for any tax or interest due under this clause shall not be sent after the expiry of two years from  the end of the assessment year in which the income was first assessable. (b) Where as a result of an order made under sub­section (3) of this section or section 144 or section 147 or section

14 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, or any order of settlement made under sub­section (4) of section 245D relating to any earlier assessment year and passed subsequent to the filing of the return referred to in clause (a),   there   is   any   variation   in   the   carry   forward   loss, deduction, allowance or relief claimed in the return, and as a result of which,­ (i) if any tax or interest is found due, an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly, and (ii) if any refund is due, it shall be granted to the assessee: Provided  that   an   intimation   for   any   tax   or   interest   due under this clause shall not be sent after the expiry of four years from the end of the financial year in which any such order was passed. (c) Where the assessee is a member of an association of persons   or   body   of   individuals   and   as   a   result   of   the adjustments made under the first proviso to clause (a) of sub­section (1) in the income or loss declared in the return made by the association or body, as the case may be, or as a result of an order made under sub­section (3) of this section or section 144 or section 147 or section 154 or section 155 or sub­section (1) or sub­section (2) or sub­section (3) or sub­section   (5)   of   section   185   or   sub­section   (1)   or   sub­ section (2) of section 186 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, or any   order   of   settlement   made   under   sub­section   (4)   of section 245D, passed subsequent to the filing of the return referred to in clause (a), there is any variation in his share in the income or loss of the association or body, as the case may be, or in the manner of inclusion of his share in the returned income, then,­ (i) if any tax or interest is found due, an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly, and

15 (ii) if any refund is due, it shall be granted to the assessee: Provided  that   an   intimation   for   any   tax   or   interest   due under this clause shall not be sent after the expiry of four years from the end of the financial year in which any such adjustments were made or any such order was passed. (1A) (a) Where   as   a   result   of   the   adjustments   made under the first proviso to clause (a) of sub­section (1),­ (i) the income declared by any person in the return is increased; or (ii) the loss declared by such person in the return is reduced or is converted into income, the Assessing Officer shall,­ (A) in a case where the increase in income under sub­clause (i) of this clause has increased the total income of such person, further increase the amount of tax payable under sub­section (1) by an additional income­tax calculated at the rate of twenty per cent on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income   been   reduced   by   the   amount   of adjustments and specify the additional income­ tax   in   the   intimation   to   be   sent   under   sub­ clause (i) of clause (a) of sub­section (1); (B) in a case where the loss so declared is reduced under   sub­clause   (ii)   of   this   clause   or   the aforesaid   adjustments   have   the   effect   of converting   that   loss   into   income,   calculate   a sum   (hereinafter   referred   to   as   additional income­tax) equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income­tax so calculated in the intimation to be sent under sub­clause (i) of clause (a) of sub­ section (1); (C) where any refund is due under sub­section (1), reduce the amount of such refund by an amount equivalent   to   the   additional   income­tax calculated  under   sub­clause  (A)  or   sub­clause (B), as the case may be.

16 (b) Where as a result of an order under sub­section (3) of this section or section 154 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which additional income­tax is payable under clause (a) has been increased or reduced, as the case may be, the additional income­tax shall be increased or reduced accordingly, and,­ (i) in   a   case   where   the   additional   income­tax   is increased, the Assessing Officer shall serve on the assessee a notice of demand under section 156; (ii) in   a   case   where   the   additional   income­tax   is reduced, the excess amount paid, if any, shall be refunded. (1B)  Where an assessee furnishes a revised return under sub­section   (5)   of   section   139   after   the   issue   of   an intimation, or the grant of refund, if any, under sub­section (1) of this section, the provisions of sub­sections (1) and (1A) of this section shall apply in relation to such revised return and­ (i) the intimation already sent for any income­tax, additional   income­tax   or   interest   shall   be amended on the basis of the said revised return and   where   any   amount   payable   by   way   of income­tax,   additional   income­tax   or   interest specified in the said intimation has already been paid   by   the   assessee   then,   if   any   such amendment has the effect of­ (a) enhancing the amount already paid, the intimation   amended   under   this   clause shall be sent to the assessee specifying the excess amount payable by him and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; (b) reducing   the   amount   already   paid,   the excess amount paid shall be refunded to the assessee; (ii) the amount of the refund already granted shall be enhanced or reduced on the basis of the said revised return and where the amount of refund already granted is­

17 (a) enhanced,   only   the   excess   amount   of refund due to the assessee shall be paid to him; (b) reduced, the excess amount so refunded shall be deemed to be the tax payable by the assessee and an intimation shall be sent to the assessee specifying the amount so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly: Provided  that   an   assessee,   who   has   furnished   a   revised return under sub­section (5) of section 139 after the service upon him  of the intimation under sub­section (1) of this section,   shall   be   liable   to   pay   additional   income­tax   in relation to the adjustments made under the first proviso to clause   (a)   of   sub­section   (1)   and   specified   in   the   said intimation,   whether   or   not   he   has   made   the   said adjustments in the revised return. (2) Where a return has been made under section 139, or in response to a notice under sub­ section (1) of section 142, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under­ paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there,   any   evidence   on   which   the   assessee   may   rely   in support of the return: Provided  that   no   notice   under   this   sub­section   shall   be served on the assessee after  the expiry of twelve months from the end of the month in which the return is furnished. (3) On the day specified in the notice issued under sub­ section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him on the basis of such assessment. (4) Where a regular assessment under sub­ section (3) of this section or section 144 is made,­

18 (a) any tax or interest paid by the assessee under sub­ section (1) shall be deemed to have been paid towards such regular assessment; (b) if no refund is due on regular assessment or the amount refunded under sub­ section (1) exceeds the amount refundable on regular assessment, the   whole   or   the   excess   amount   so   refunded shall   be   deemed   to   be   tax   payable   by   the assessee   and   the   provisions   of   this   Act   shall apply accordingly. (5) The   provisions   of   this   section   as   they   stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation   to   any   assessment   for   the   assessment   year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. Explanation.­ An intimation sent to the assessee under sub­ section (1) or sub­ section (1B) shall be deemed to be an order for the purposes of sections 246 and 264. Best judgment assessment. 144. (1) If any person— (a) fails   to   make   the   return   required under   sub­ section (1) of section 139 and has not made a return or a revised return under sub­section (4) or sub­section (5) of that section, or (b) fails to comply with all the terms of a notice issued under sub­section (1) of section 142 or fails   to   comply   with   a   direction   issued   under sub­section (2A) of that section, or (c) having made a return, fails to comply with all the   terms   of   a   notice   issued   under   sub­ section (2) of section 143, the Assessing   Officer,   after   taking   into   account   all relevant   material   which   the Assessing   Officer   has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the

19 sum   payable   by   the   assessee   on   the   basis   of   such assessment: Provided that   such   opportunity   shall   be   given   by   the Assessing   Officer   by   serving   a   notice   calling   upon   the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment: Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub­section (1) of section   142   has   been   issued   prior   to   the   making   of   an assessment under this section. (2) The provisions of this section as they stood immediately before   their   amendment   by   the   Direct   Tax   Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation   to   any   assessment   for   the   assessment   year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. Method of accounting. 145. (1)   Income   chargeable   under   the   head   "Profits   and gains   of   business   or   profession"   or   "Income   from   other sources" shall, subject to the provisions of sub­section (2), be computed   in   accordance   with   either   cash   or   mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assesses or in respect of any class of income. (3) 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 sub­section (1) or accounting standards as notified under sub­section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.” (emphasis supplied) 13. Reverting to the findings and conclusions recorded by the Officer and which commended to the appellate authority, as well

20 as, the High Court, it must follow that the appellant/assessee despite   being   given   sufficient   opportunity,   failed   to   prove   the correctness and genuineness of his claim in respect of purchases of   marbles   from   unregistered   dealers   to   the   extent   of Rs.2,26,000/­   (Rupees   two   lakhs   twenty­six   thousand   only). Resultantly, the said transactions were assumed as bogus entries (standing to the credit of named dealers who were non­existent creditors of the assessee). 14. However,   it   has   now   come   on   record   that   the appellant/assessee   in   penalty   proceedings   offered   explanation and caused to produce affidavits and record statements of the concerned unregistered dealers and establish their credentials. That   explanation   has   been   accepted   by   the   CIT(A)   vide   order dated   13.1.2011.     In   paragraph   17   of   the   said   decision reproduced hitherto, it has been noted that the Officer recorded statements of 12 unregistered dealers out of 13 and their identity was   also   duly   established.     After   analysing   the   evidence   so produced   by   the   appellant/assessee,   the   appellate   authority [(CIT(A)] noted that the Officer had neither doubted the identity of those dealers nor any adverse comments were offered in reference

21 to their version regarding sale of marble slabs by them to the appellant/assessee in the financial year relevant to assessment year 1998­1999 and receipt of payments after two to three years. Further,   there   was   no   denial   of   purchase   of   marbles   worth Rs.4,78,900/­ (Rupees four lakhs seventy­eight thousand nine hundred   only)   by   the   assessee   and   sale   thereof   worth Rs.3,57,463/­   (Rupees   three   lakhs   fifty­seven   thousand   four hundred   sixty   three   only)   with   closing   stock   of   Rs.2,92,490/­ (Rupees   two   lakhs   ninety   two   thousand   four   hundred   ninety only), as disclosed in the trading account for the year ended on 31.3.1998.     The   appellate   authority   thus   found   that   without purchases of marbles, there could be no sale and disclosure of closing   stock   in   the   trading   account.     In   other   words,   the materials   on   record   would   clearly   suggest   that   the   concerned unregistered   dealers   had   sold   marble   slabs   on   credit   to   the appellant/assessee, as claimed.  As a consequence of this finding, the   appellate   authority   concluded   that   there   was   neither   any concealment of income nor furnishing of inaccurate particulars of income by the assessee.  We are conscious of the fact that these observations   are   made   by   the   competent   forum   (appellate authority) in penalty proceedings under Section 271 of the 1961

22 Act in favour of the assessee.  However, what needs to be noted is that   the   stated   penalty   proceedings   were   the   outcome   of   the assessment order in question concerning assessment year 1998­ 1999.  Indeed, at the time of assessment, the appellant/assessee had failed to produce any explanation or evidence in support of the entries regarding purchases made from unregistered dealers. In   the   penalty   proceedings,   however,   the   appellant/assessee produced affidavits of 13 unregistered dealers out of whom 12 were   examined   by   the   Officer.     The   Officer   recorded   their statements and did not find any infirmity therein including about their credentials.  The dealers stood by the assertion made by the appellant/assessee about the purchases on credit from them; and which explanation has been accepted by the appellate authority in paragraphs 17 and 19 of the order dated 13.1.2011. 15. To put it differently, the factual basis on which the Officer formed his opinion in the assessment order dated 30.11.2000 (for assessment   year   1998­1999),   in   regard   to   addition   of Rs.2,26,000/­   (Rupees   two   lakhs   twenty   six   thousand   only), stands   dispelled   by   the   affidavits   and   statements   of   the concerned   unregistered   dealers   in   penalty   proceedings.     That

23 evidence fully supports the claim of the appellant/assessee.  The appellate   authority   vide   order   dated   13.1.2011,   had   not   only accepted the explanation offered by the appellant/assessee but also   recorded   a   clear   finding   of   fact   that   there   was   no concealment   of   income   or   furnishing   of   any   inaccurate particulars   of   income   by   the   appellant/assessee   for   the assessment year 1998­1999.   That now being the indisputable position, it must necessarily follow that the addition of amount of Rs.2,26,000/­   (Rupees   two   lakhs   twenty­six   thousand   only) cannot be justified, much less, maintained. 16. Accordingly,   this   appeal   ought   to   succeed   on   this   count alone   and   it   would   be   unnecessary   for   us   to   dilate   on   other questions/contentions urged by the parties as referred to in the earlier part of this judgment. 17. Accordingly,   this   appeal   is   allowed.     The   addition   of Rs.2,26,000/­ (Rupees two lakhs twenty­six thousand only) by the Officer under Section 68 of the 1961 Act, towards cash credit amount   shown   against   the   names   of   concerned   unregistered dealers for the assessment year 1998­1999, is hereby set aside. The rest of the assessment order dated 30.11.2000 as modified by

24 the CIT(A) vide order dated 9.1.2003, shall remain undisturbed. There shall be no order as to costs.   All pending interlocutory applications are also disposed of. …………………………. J.

(A.M. Khanwilkar) …………………………. J.

(Dinesh Maheshwari) New Delhi; April 24, 2020.