DHANALAXMI JEWELLERS,ANGUL vs. ITO, ANGUL WARD, ANGUL

Per N.S.Saini, AM This is an appeal filed by the assessee against the order of the CIT(A)-2, Bhubaneswar dated 25.1.2017 for the assessment year 2012-

that the assessee was asked to furnish all purchase and sales bills of the current year and of the preceding previous year. The assessee was also asked to submit the purchase and sales registers. The assessee

submitted that the purchase and sales bills for the financial year 2010- Asse ssment Year : 20 12- 201 3

2011 has been kept by the assessee and not traceable at present and as such the assessee produced stock register to justify the closing stock of the financial year 2010-2011. The Assessing Officer observed that from SI.No. 9(b) and (9(c) of Form No.3CD of the audit report for the year

shows that the assessee maintains Ledger, Purchase Register, Sales

Register, Cash Book through computerized system and the auditor has also examined these books. The Assessing Officer observed that no where

it is mentioned that the stocks register is maintained either manually or through computerized system. Therefore, he held that in absence of Purchase invoices and sales memos, the figures mentioned in the alleged

stock register of the current year produced is not believable. With regard

to maintenance of stock register of the current year, he observed that the assessee-firm did not furnish the purchase and sales bills of the current

year to verify the genuineness of entries in the stock register. The quantitative information given in the SI. No.28(a) of Form No.3CD could

not be verified due to non-production of bills and vouchers. He relied on various case laws and observed that in view of non-production of required

details and purchase invoices and sales memos, the correctness and completeness of those books of account basing on which the accounts are prepared are not satisfactory. Further, assessment cannot be completed

on the basis of bank statement. Hence, the book result is rejected and assessment is made by invoking the provisions of section 145(3) r.w.s

144 of the Act. Hence, he estimated the income of the assessee by applying rate of 4% of the turnover of Rs.97,12,652/- and estimated the Asse ssment Year : 20 12- 201 3

income at Rs.3,88,506/-. The Assessing Officer thereafter observed that since assessment is made u/s.144, no salary and interest is allowed to the partners from the net profit from business as per provisions of section 184(5) of the I.T.Act, 1961. 4. On appeal, the CIT(A) held that as per provisions of section 184(5)

of the Act, when the assessment is completed u/s.144 of the I.T.Act,

1961, salary and interest paid to the partners is not allowed as expenditure. He, therefore, confirmed the action of the Assessing Officer.

vs ITO, Ward 2(1), Cuttack in ITA No.542/CTK/2013 order dated

case has not produced the books of account and evidences in support of the expenses claimed as is evident from the order of the AO, therefore,

there is always a possibility of leakage of the revenue. To plus the same

and to end the litigation and on perused the past record of the assessee,

we direct the Assessing Officer to estimate the net income at 1% of the gross turnover and thereafter allow salary and interest paid to partners

subject to income does not fall below the returned income. He, therefore,

submitted that where books of account of the assessee is rejected and profit was estimated on the gross turnover of the assessee, deduction for salary and interest paid to partners was allowed from the income so estimated. He prayed that following the same, the assessee should be Asse ssment Year : 20 12- 201 3

allowed deduction of salary and interest paid to partners from the estimated income.

authorities.

authorities and materials available on record. In the instant case, the undisputed facts are that the Assessing Officer not being satisfied with the books of account of the assessee and related vouchers, rejected the book

results of the assessee and estimated the income by applying rate of 4%

on the gross turnover of the assessee of Rs.97,12,652/- and arrived at income of Rs.3,88,506/-. However, he did not allow deduction for salary

and interest paid to the partners from this estimated income by invoking

the provisions of section 184(5) of the Act on the ground that since the income of the assessee was assessed under the provisions of section 144

of the Act, no deduction of salary and interest to partners was allowable.

This was confirmed in appeal by the CIT(A).

Corporation(supra) this Bench of the Tribunal has allowed deduction for salary and interest paid to partners from the income estimated after

rejecting the book results of the assessee and, therefore, following the same, salary and interest paid to the partners should be allowed as deduction to the assessee. Asse ssment Year : 20 12- 201 3

anything contained in any other provisions of this Act, where, in respect

of any assessment year, there is on the part of a firm any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission

or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable

under the head “Profits and gains of business or profession” and such interest, salary, bonus, commission or remuneration shall not be chargeable to income tax under clause (v) of section 28. Thus, it is seen

that the section provides that where in respect of any assessment year,

there is on the part of a firm any such failure as mentioned in section 144

of the Act. Section 144 of the Act provides that if any person fails to make the return required under sub-section (1) of Section 139 and has not made a return or a revised return under sub-section(4) or sub-section (5) of that section, or fails to comply with all the terms of a notice issued

under sub-section (1) of section 142 or fails to comply with a direction

issued under sub-section (2A) of that section and 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 shall make the assessment of the total income or loss to the best

of his judgment and determine the sum payable by the assessee on the basis of such assessment. Asse ssment Year : 20 12- 201 3

has not filed its return of income. It is also not a case where the assessee

fails to comply with the notice u/s.142(1) and also it is not a case where

the assessee fails to comply with all the terms of a notice issued under section 143(2) of the Act. The assessment has been made by the Assessing Officer by estimating the income of the assessee by rejecting

the books of account by invoking the provisions of section 145(3) of the Act as he was not satisfied about the correctness of the book results of the assessee. Thus, it is not a case where the assessment is made by the Assessing Officer u/s.144 of the Act. It is a case where assessment

u/s.143 of the Act is made in a manner laid down u/s.144 of the Act. Our

view finds support from the decision of this Bench of the Tribunal in the case of M/s. Agarwal Transport Corporation(supra). Therefore,

respectfully following the same, we set aside the orders of lower

authorities and direct the Assessing Officer to determine the income of the assessee after allowing deduction for payment of salary and interest

to partners from the estimated income of the assessee of Rs.3,88,506/-.

Order pronounced on 15 /05/2018. (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 15 /05/2018 B.K.Parida, SPS Asse ssment Year : 20 12- 201 3

Copy of the Order forwarded to :

SR.PRIVATE SECRETARY ITAT, Cuttack