BHOLANATH R.SHUKLA,MUMBAI vs. ACIT CIRCLE-2, THANE

O R D E R Per Bench :

2 Shri Bholanath R. Shukla

These are cross appeals by the Revenue and assessee arising out of common order of learned CIT(A) dated 5.7.2018 and pertain to A.Ys. 2009-10 to 2013-14.

Assessee’s appeal 2. Common grounds of appeal for A.Y. 2009-10 to A.Y. 2011-12 challenging the validity of reopening is as under :-

On the facts and circumstances of the case and law learned CIT(A) erred in confirming reopening u/s. 148 holding that the reopening was valid.

Revenue’s appeal

6. For A.Y. 2012-13 one more ground raised is regarding addition under section 68.

A.Y. Section under which Returned Assessed income Reassessment u/s Date of the order passed income u/s 143(3) 147 order

2009-10 143(3) r.w.s 94,13,900 98,13,900 17,79,34,471 28.03.2016 147 2010-11 Do 1,15,27,910 1,24,70,060 22,36,86,679 28.03.2016 2011-12 Do 1,66,32,300 1,76,73,406 20,11,02,880 28.03.2016 2012-13 143(3) 2,45,33,573 25,30,26,853 NA 27.03.2015 2013-14 143(3) 2,48,15,500 34,23,36,617 NA 28.03.2016

4 Shri Bholanath R. Shukla expenses are incurred on daily basis at various Toll Nakas managed by the assessee and expenses details month wise are mailed to main administrative office i.e. C-14/15, Dolphin Garden, Poonam Sagar Complex, Mira Road (E). Also the collection after incurring these expenses on daily basis are deposited into the bank accounts maintained by the proprietary concern of the assessee i.e. M/s S. S. Enterprises. During the survey action, no evidences of such expenses were found nor produced by Shri Rajesh Nagar and even not furnished during, post survey proceedings, Even in the statement recorded during survey proceedings, Shri Rajesh Nagar stated that there is no basis to claim these expenses, During post survey proceedings, statement of Shri Bholanath Shukla was also recorded and he has confirmed the statement given by Shri Rajesh Nagar during the survey action.

10. For AY 2009-10, the assessee has claimed expenses in the P&L A/c enclosed with the return of income filed, under the heads "Salary & Wages, Conveyance, Vehicle, Printing & Stationery and Sundry expenses at Rs. 27,09,2 1,390/-, Rs. 25,64,814/-, Rs. 9,64,523/-, Rs. 29,20,319/- and Rs. 46,85,817/- respectively. During the assessment proceedings, the assessee produced ledger accounts of expenses under the heads Salary, Conveyance, Telephone, Sundry expenses and vehicle expenses but did not file any supporting bills & vouchers for claiming these expenses. Moreover, it is seen that the assessee has incurred all these expenses in cash only but no cash flow statement was filed by the assessee during assessment proceedings in support his claim that the assessee had sufficient cash in hand to incur these expenses. The Assessing Officer observed that during the assessment proceedings for AY 2012-13, it was found that the assessee could not produce supporting bills and also did not file cash flow statement to justify his claim of incurring huge expenses under various heads in cash and the same facts are noticed in the case of the assessee even for AY 2009-10 as evident from the details available on record for AY 2009-10, the claim of expenses made by the assessee for AY 2009-10 under various heads mentioned above are not genuine

5 Shri Bholanath R. Shukla beyond doubt as can be seen from the details filed by the assessee during the assessment proceedings, which are on record.

6 Shri Bholanath R. Shukla

Register submitted by us fat-various of Toll Plaza and Parking maintained by us from the Government Agencies during the above said period. Besides the above facts, we also state that the Name, Nature & Style of our business is the same as was during the preceding years with no change. It has also to be taken into consideration that most of such employees are probably a temporary basis and it is not an easy task to find such sincere staff regularly, hence we need to pay them a bit on the higher side, since working hours for them is also not than 12 hrs a day.

In addition to the above, it is further stated that the salary register is already submitted NAMES & ID's of employees employed by us during the said tenure. We are ready to produce the necessary evidence as may be required by you for any specific employee.

Considering the above facts, explanation required to be submitted is in satisfaction and leave no place of disallowance of any expenses nor from the salary paid.”

7 Shri Bholanath R. Shukla incurred, for the purpose of business duties is not ascertainable to the extent of such unverifiable expenses. In background, the expenses to the extent cannot be said to have been laid wholly and exclusively for the business purposes. Further the onus is on assessee to prove the genuineness of the expenses claimed, in the return filed. Mere filing of vouchers without supporting bills does not prove the genuineness of the claim of having incurred the expenses. Reliance is placed on the judgment in the case of C1T Vs, Chandravilas Hotel (Gujarat) 164 ITR 102 and CIT Vs. Modi Stone Ltd. (Delhi) 203 Taxman 123, Moreover, it is also ascertained after field enquiry that the assessee has claimed much higher than the salary payment actually made to his employees. The Assessing Officer held that on the basis of the facts that emerged during the course of survey action with, regard to claim of salary & wages expenses and findings after field enquiry and also considering that the assessee has failed, to furnish any supporting evidences, I disallow Rs. 16,25,52,834/- out of Rs.27,09,21,390/- as per the lines of disallowance made in the subsequent year i.e. AY 2012-13 (60% of total Salary & Wages). Thus, an amount of Rs.16,25,52,834/- (60% of Rs. 27,09,21,390) is added to the income of the assessee.

Sr.No. Head of expenses Amount (Rs.) 1 Conveyance Expenses 25,64,815 2 Vehicle Expenses 9,64,523 3 Sundry Expenses 46,85,817 4 Printing & Stationery 29,20,319 Total 1,11,35,474

8 Shri Bholanath R. Shukla

9 Shri Bholanath R. Shukla

"The first contention of the appellant is that as the original assessments were completed u/s. 143(3) and the A.O. has made additions on account of salaries & wages and other expenses, the reopening for disallowing the same expenses on higher side is not justified as the same amounts to change of opinion. This contention of the appellant cannot be accepted as in survey action it was revealed that the appellant is claiming substantial expenditure towards salaries & wages and other expenses which are not supported by vouchers. Therefore the change of opinion of the A.O., reopening the assessment is due to the facts revealed in the course of survey action and hence the contention raised by the appellant is rejected.

The second contention of the appellant is that the A.O. has not brought on record any new material reopening the assessment and the reassessments were completed on the basis of same books of accounts and vouchers which were produced before the Assessing Officer during original assessments. This contention of the appellant cannot be accepted as the new material was brought on record in the form of the facts revealed in survey proceedings which are mentioned in the preceding paragraphs. This contention of the appellant is therefore rejected.

The third contention of the appellant is that the assessments were completed prior to 4 years from the end of the A.Ys. 2009-10 & 2010-11 and there was no failure on the part of the assessee to disclose fully and truly all material facts. This contention of the appellant is also rejected as during survey action, it has been revealed that the appellant has claimed expenses on account of salaries & wages and other expenses without supporting vouchers. This contention of the appellant is therefore rejected.

The assessee has relied upon plethora of decisions to claim that the re- opening is invalid. Without going into the details of each case, the basic contention of the assessee is that there was change of opinion of the AO and there was no new material to justify the reopening. Before discussing various case laws which are in favour of the Revenue, where the courts have approved reopening on similar facts as that of the assessee, it is important to appreciate the circumstances which forced the AO for such 10 Shri Bholanath R. Shukla reopening. It is an undisputable fact that the business done by the assessee is entirely cash based. Not only the receipts/toll collections are in cash but the majority of expenses including salary and related expenses are in cash. The purpose of survey was to ascertain genuineness of such expenses. The AO during survey proceedings is able to find evidence of such inflated expenses which are not supported by proper vouchers or supported by self made vouchers and which cannot be cross verified. Not only the Accountant of the assessee, Rajesh Nagar who had appeared during original assessment proceedings admitted in statement during survey that the expenses are not properly vouched but the same was confirmed by the assessee himself during post survey statement. The assessee does not produce the relevant vouchers for other years where there is likelihood of similar inflation despite specifically asked by the AO. The assessee takes a plea that the basic documents are maintained at respective toll plaza and not available in office. Under such circumstances, when the AO is reasonable satisfied that there is inflation in expenses by self made vouchers and these facts were not available during original proceedings, when the AO has made routine additions, he is left with no option but to reopen the proceedings. Though the AO in original assessment ha mentioned that the books of accounts were produced but he has not specifically discussed the basis of routine disallowance, which clearly shows that in original assessment the AO has not investigated the matter in the light of findings of survey proceedings. The very fact that the assessee never challenged reopening during assessment proceedings for AY 2009-10, 2010-11 and 2011-12 itself shows that the assessee had no objection to such reopening and he was d that the reopening is justified. Secondly the assessee is contending on one hand that the books and relevant documents are not available at the head office, take an argument to challenged reopening with the Assessing Officer reopens assessment on the same logic. The AO may not have resorted to reopening for other years, had the assessee produced the documents during survey proceedings or even post survey proceedings and satisfied the AO that the vouchers supporting the cash expenses are reliable and genuine, but he did not do so. Under such circumstances the AO cannot just sleep over the non compliance of the assessee and the only option available with him was to reopen the proceedings and satisfy himself by asking the assessee to produce basic documents in respect of other years. The intention of the AO during the survey proceedings was to collect evidence in respect of alleged inflation of expenses in respect of year of scrutiny and other years. He cannot be forced to restrict himself when he finds an evidence of inflation of expenses and the assessee does not provide complete and correct information to satisfy him. There can be different opinion as how the assessment is to be framed and profits estimated when the books are unreliable but there cannot be two views on reopening, as without reopening, the AO was not in a position to verify the allegations in other years for which the evidence was found during survey

11 Shri Bholanath R. Shukla and admitted by the trusted accountant and the assessee himself/The above view is supported by various judgments.

Thereafter learned CIT(A) has referred to following case laws :-

 PCIT Vs. Laxmiraj Distributors (P) Ltd. (85 taxmann.com 357)  Dalmia (P) Ltd. Vs. CIT (14 taxmann.com 106)  MSK Real Estate Pvt. Ltd. (2018 TIOL 907)”

10.1. Before the ground of appeal on account of addition in Salaries and other expenses is discussed, it is important to know the business model of Toll Agents. The assessee was having Tolls which were mainly granted by the NHAI or the State Government, which are auctioned by competitive bidding by e-tender basis. The Bidder which pays the highest licence fee to the government is awarded the tender. From the details submitted by the assessee and perusal of the P & L accounts, it is seen that licence fee of about 50% is paid to the government. The assessee submitted tender documents of NHAI and State Government to show that the tender documents stipulates various conditions on the assessee, which include remittance of the agreed amount of license fee to NHAI on weekly basis. The NHAI also takes into account the annual potential collection and the category of the vehicles which pass through the Toll before issuing a tender. The tender documents also require minimum number of staff which is to be deployed by the Toll Operator. The NHAI requires 109 person on each toll, which includes minimum number of persons on each tolling booth, supervisors, shift incharge, Plaza manager, Security Officials, Barrier man, electricians, Safai Karamcharies. The Tolling Agent has to submit details of such persons and the NHAI Authorities do regular inspections whether such number has been deployed. If the information in the required format is not submitted by the Toll Agent, there is provision of penalty. It was confirmed by Project Director Rajkot NHAI vide letter dated 08.05.2018

12 Shri Bholanath R. Shukla that as per agreement the user fee collection agency has to submit the list of personal (as per schedule IV) of the contract agreement to NHAI and non compliance of which attracts penalty @ Rs. per month. This shows that the Toll Agent is under scrutiny of the NHAI and cannot be excessive or abnormal because of the transparent competitive bidding. All the expenses after payment of license fee are to be borne by the toll agent. From perusal of the accounts, it is noticed that the major expenditure of such business is payment of salaries as the tolls are manually managed. The assessee during the course of appellate proceedings submitted photographs of various tolls and made an attempt to reconcile the number of staff who were required to manage tolls in the light of requirement of NHAI and the number of booths in each toll. It was also explained that the tolls operated by the assessee are generally in the outskirts of the city and have to face wrath of local politicians who insist upon keeping their workers and staff on the roll.

10.2. It has also been noticed from the submission of the appellant and the assessment orders that the appellant has maintained salary registers containing names of employees etc. details. The impugned record such as books of accounts, salary registers and vouchers were maintained by the assessee at the sites of toll plazas which are located at different places in different States. Therefore it was logical that all the registers will not be available at one place at head office and could not be found during survey. It is in this back ground that the AO was handicapped from verifying the inflation of expenses which he found during survey for other years and forced him to reopen the assessment for other years. Even during assessment, the assessee could not satisfy the AO with the completeness and correctness of documentation in support of expenses claimed which resulted in rejection in books of accounts.

10.3. The appellant has stated to have maintained books of accounts in the regular course of business and has audited the same regularly and has also filed returns of income u/s. 139 of the Act for all the years under appeal. It needs to be noted that the audited accounts only reflect and consolidate all the income and expenses incurred during the year. However the books of accounts cannot be stated to be correct and complete till the basic documents in the form of bills and vouchers are cross verifiable, genuine and reasonable. Though the assessee is able to justify the numbers of employees shown in the register and as required by NHAI, at the same time it is a fact that the documentation of the assessee is not up to mark. The assessee has put various other expenses like food, travel, Mobile recharge, Tea, under the head salaries. Therefore for ascertaining the quantum of expenditure, the assessee is required to submit the evidence, which he has not been able to do. It is admitted by the assessee that the vouchers are not maintained properly. Even the handwriting and signatures in the salary

13 Shri Bholanath R. Shukla register point out various discrepancies. Though the assessee has explained the justifications for cash payment as the tolls are located in rural areas and the petty nature of expenses for which regular bills are not received, at the same time since the payments are in cash and vouchers not properly maintained, he has not been able to satisfy during assessment and appellate proceedings on quantum of expenses. If verification of cash expenses is not possible, there is always possibility of inflation of expenses. In fact the accountant Rajesh Nagar during survey and the assessee during post survey proceedings admitted that the expenses claimed are not proper.

10.4. The A.O. has also disallowed various expenses like Stationery, Staff welfare, conveyance, petrol and diesel, Kirana Items, Paper roll, water, Nasta, Mobile charges, Room rent and medical expenses. The AO is of the opinion that impugned expenditure on various heads is not as the vouchers for expenses was not properly maintained; the said expenses were incurred in cash and the impugned expenses were mostly supported by self made vouchers. On the other hand, it is explained by the assessee that the shift of the employees is generally 8 hours and during the period they have to be provided tea, food on the seat. It they are not provided with such facilities, they will leave the seat and time taken for food and tea will result in requirement of extra man power at each booth. It was also explained that the staff is generally provided accommodation and medical facilities near the toll site to avoid disruption at the toll plaza. All these expenses are debited under the head Salary.

10.5. In respect of disallowance of other expenses on various heads the appellant has submitted that the quantum of the impugned expenses incurred on various heads is very reasonable as the same is only 1% to 2% of the turnover. The argument of the assessee is impugned expenses has been incurred in smaller amount in remote rural area below Rs. 20,0007- and as per the provisions of the Income-tax Act, the cash payment on a day is permissible. In respect of the contention of the A.O. that the most of the vouchers were self made, the appellant has submitted that in respect of conveyance expenses like rikshaw, taxi etc. telephone recharge expenses for workers and employee, kirana expenses for workers and repairs and maintenance expenses incurred in remote rural area is bound to be supported by self made vouchers duly signed by the payees as the said payees staying in remote rural areas cannot be expected to print their own bills and receipts. It is also pleaded that the A.O. has made adhoc estimated disallowance @ 45% to 50% of the impugned expenses on various heads is excessive & without any proper basis. On going through the rival contentions I am of the opinion that though the AO has not doubted the purpose and nature of the expenses but since the expenses are incurred in cash, therefore he has made the addition mainly because the documentation is not proper

14 Shri Bholanath R. Shukla in respect of cash expenses and so quantum of expenses claimed by the assessee is doubtful.

10.6. The appellant has pleaded that the A.O. has estimated the disallowance out of salaries & wages to the extent of 55% to 67% and out of various other expenses to the extent of 45% to 50% which is not based on any basis and the same appears to be excessive. He has also stated that after payment of license fee he is required to incur the expenditure on running and maintenance of toll plaza. With the quantum of disallowance by the AO the net profit to the net business receipts would be more than 60% which is not possible in this type of business which is high volume with low profit margin has also been noticed that either during survey proceedings or in post survey proceedings no undisclosed investment or expenditure has been brought on record to justify the huge additions made by the A.O. for the years under appeal. In support of the disallowance of salaries & wages and other expenses, the A.O. has relied on the decisions of CIT Vs. Chandravilas Hotel (Gujarat) 164 ITR 102 and CIT Vs. Modi stone Ltd. (Delhi) 203 Taxman 123, which are distinguishable on facts. The appellant has pointed out in his written submission reproduced above, as to how the impugned decisions are distinguishable on facts.

10.7. The A.O. has rejected the book results by applying the provisions of section 145(3) of the Act, however, the A.O. has not estimated income of the appellant on the basis of his turnover by applying net profit percentage considering the same in the cases of persons carrying on similar business. The A.O. has made addition mainly on account of disallowance of salaries & wages and other expenses. It is settled law that the disallowance of expenses or estimation of profit after rejection of books of accounts should be fair and reasonable estimate and arbitrariness should be avoided and the estimate should not be wild or vindictive. It has been laid down by Hon'ble Supreme Court in the case of Brij Bhushan Lal Parduman Kumar Vs CIT (1978) 115 ITR 524 (SC) that the authority making the best judgment assessment must make an honest and fair estimate of income of the assessee. Further the Hon'ble Supreme Court, in the case of State of Kerala Vs C. Velukutty (1966) 60 ITR 239 (SC) has laid down that best judgment is a faculty to decide matters with wisdom truly and legally; judgment does not depend upon the arbitrary caprice of a judge but settled invariable principles of justices; though there is an element of guess work in best judgment assessment which shall not be wild one; the default of the assessee does not enable the assessing authority to function capriciously. Further Hon'ble Supreme Court, in the case of State of Orissa Vs. Maharaja Shri B.P. Singh Deo (1970) 76 ITR 690 (SC) has laid down that the mere fact that the material placed by the assessee before the Assessing Officer is unreliable does not empower the officer to make arbitrary order. On similar facts Punjab and Haryana High Court in case of C. B. Aggarwal

15 Shri Bholanath R. Shukla upheld the invoking the section 145(2) and assessing income on estimate basis. Hon'ble Supreme Court in Kanchwala Gems 206 CTR 585 SC laid guidelines on rejecting the books of accounts of the assessee and also held that in a best judgment assessment there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrary. In Nathuram Natha lal (1954) 25 ITR 216 (Nag) and in Salem Steel 322 ITR 349 , the appellate authorities held that while estimating profits, the basis and manner of computation should be disclosed and the order should be a speaking one. Hon'ble Courts also held that any special circumstances of the assessee, which warrant a higher rate of profits should also be into account.

10.8 It is also a fact that the major expenses are in cash and appellant has not maintained proper vouchers and relevant record in respect of salary and wages and other expenses. Therefore the books of accounts have been rejected u/s. 145(3) of the Act. The profit of the business of the appellant should therefore be estimated at some reasonable percentage of profit. In the cases of following assesses, the profit percentage of toll business is as under:

Name of the company MEP Infrastructure Skylark Infra Engineering developers Ltd. Pvt. Ltd.

Gross Revenue 695.33Crores 127. 30 Crores Net Profit 43.98 Crores 10. 08 Crores Net Profit % 1.86% 3.7%

The assessee has shown net profit percentage as under:

A.Y. Turnover Business income as per ITR Profit %

2009-10 53,54,25,236 95,11,704 1.78% 2010-11 68,36,22,703 1,16,85,942 1.71% 2011-12 66,32,40,266 1,67,85,942 2.53% 2012-13 1,13,13,94,064 2,47,08,573 2.18% 2013-14 1,13,54,32,143 2,15,95,431 1.90%

10.9. The AR of the appellant has alternatively claimed that considering the totality of the facts the profit of the appellant may be estimated @ 3% for the years under appeal. However, considering the totality of the facts and to meet the ends of justice, the profit of the appellant's business is estimated @ 5% of the turnover. The profit of the appellant for the years under appeal works out as under:-

16 Shri Bholanath R. Shukla

A.Y. Turnover Business income Business Income Addition to as per ITR @5% business income

2009-10 53,54,25,236 95,11,704 2,67,71,262 1,72,59,558 2010-11 68,36,22,703 1,16,85,942 3,41,81,135 2,24,95,193 2011-12 66,32,40,266 1,67,85,942 3,31,62,013 1,63,76,071 2012-13 1,13,13,94,064 2,47,08,573 5,65,69,703 3,18,61,130 2013-14 1,13,54,32,143 2,15,95,431 5,67,71,607 3,51,76,176

The additions made by the A.O. out of salary & wages and other expenses has been deleted and addition has been partly confirmed by estimating profit @ 5% of the turnover by upholding the rejection of book results u/s. 145(3) of the Act. The A.O. is directed to assess business income of the appellant for the years under appeal as above.

12.3. I have carefully considered the facts of the case and rival contentions. On perusal of the same it has been noticed that the impugned entries considered by the A.O. are consolidated entries which consists of many small entries of the printing & stationery and other expenses incurred at different sites of toll plazas, which are below Rs. 20,000/-. During appellate proceedings, the assessee explained that on 04.03.2013 there are two entries of Rs. 3,00,000 each, one at serial No. 1 and second at sr. no.

17 Shri Bholanath R. Shukla addition in A.Y. 2013-14 and hence separate addition u/s. 40A(3) is not justified. This proposition of law supported by following decisions: i. ITO Vs. Sadananda Singha (2014) 151 ITD 0714 (Kol) ii. Armour Chemicals Ltd. Vs. JCIT ( 2007) 17 SOT 0467 (Mum-ITAT) iii. Sandeep Mangla Vs. ITO (2016) 47 CCH 0362 (Del-Trib).

Similar order was passed for A.Y. 2012-13.

3.3. I have carefully considered the facts of the case and rival contentions. On perusal of the same it has been noticed that there are two loans, one of Rs. 40,00,000 from Raghavendra Singh and the other of Rs. 10,00,000 from Haribhai Chaudhary. In respect of loan from Raghavendra Singh, the evidence filed by the appellant in support of the loan is in the form of copy of confirmation letter, Acknowledgement of return, Profit & Loss Account and Balance sheet of the lender for A.Y. 2012-13. As it was additional evidence which was not filed before the A.O, the impugned evidence was sent to the A.O. for his remand report vide letter dated 12.03.2013. In the said letter, the AO was also asked to send his comments on the objection taken by the assessee on reopening the assessment without there being fresh material for reopening (Ground no. 1 of appeal). However it was submitted by the AO vide letter dated 10.05.2018 that due to change in jurisdiction, the undersigned is not able to send the report. In view of submission of the AO the issue is decided on merits. The ground of appeal regarding reopening of assessment has already been dismissed as discussed above.

Regarding addition of Rs. 50,00,000 u/s 68, the assessee has submitted evidence of Rs. 40,00,000 in respect of Raghuvendra Kumar Singh regarding identity of the creditor by submitting confirmation letter, acknowledgement of return, Profit and loss a/c and balance sheet, wherein in the books of the creditor & audited balance sheet, the said loan is shown on the asset side. As the assessee has discharged his onus regarding identity, creditworthiness and genuineness, therefore the addition of Rs. 40,00,000/- is deleted.

31. In respect of remaining loan of Rs. 10,00,000/- the assessee could not furnish any documentary evidence. Regarding plea of the 18 Shri Bholanath R. Shukla

assessee on telescoping, after carefully perusing the submission of the assessee, I am of the opinion that the addition made on account of disallowances of expenses cannot be given benefit of telescoping against cash credits shown in the books of a/c. The benefit of telescoping is not allowable on this account. Therefore addition of Rs. 10,00,000/- is confirmed. The ground of appeal is therefore partly allowed.

As regards validity of reopening :

19 Shri Bholanath R. Shukla and hence there was escapement of evidence. Hence the assessment was reopened.

20 Shri Bholanath R. Shukla

“It is settled law that the disallowance of expenses or estimation of profit after rejection of books of accounts should be fair and reasonable estimate and arbitrariness should be avoided and the estimate should not be wild or vindictive. It has been laid down by Hon'ble Supreme Court in the case of Brij Bhushan Lal Parduman Kumar Vs CIT (1978) 115 ITR 524 (SC) that the authority making the best judgment assessment must make an honest and fair estimate of income of the assessee. Further the Hon'ble Supreme Court, in the case of State of Kerala Vs C. Velukutty (1966) 60 ITR 239 (SC) has laid down that best judgment is a faculty to decide matters with wisdom truly and legally; judgment does not depend upon the arbitrary caprice of a judge but settled invariable principles of justices; though there is an element of guess work in best judgment assessment which shall not 21 Shri Bholanath R. Shukla be wild one; the default of the assessee does not enable the assessing authority to function capriciously. Further Hon'ble Supreme Court, in the case of State of Orissa Vs. Maharaja Shri B.P. Singh Deo (1970) 76 ITR 690 (SC) has laid down that the mere fact that the material placed by the assessee before the Assessing Officer is unreliable does not empower the officer to make arbitrary order. On similar facts Punjab and Haryana High Court in case of C. B. Aggarwal upheld the invoking the section 145(2) and assessing income on estimate basis. Hon'ble Supreme Court in Kanchwala Gems 206 CTR 585 SC laid guidelines on rejecting the books of accounts of the assessee and also held that in a best judgment assessment there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrary. In Nathuram Natha lal (1954) 25 ITR 216 (Nag) and in Salem Steel 322 ITR 349 , the appellate authorities held that while estimating profits, the basis and manner of computation should be disclosed and the order should be a speaking one].

22 Shri Bholanath R. Shukla The average of the profit of other two units in the same industry are 1.86% and 3.7% respectively. In these circumstances in our opinion the estimate of profit at the rate of 3% offered by the assessee before learned CIT(A) served the interest of justice. We also note that rate of profit is a matter of fact and it has been so admitted by the assessee before learned CIT(A). We direct accordingly.

38. As regards deletion of addition u/s. 68 of the Act, we note that the Assessing Officer has made the addition as necessary evidences in this regard were not provided at the time of assessment. Before learned CIT(A), the assessee submitted confirmation letter, acknowledgment of return, profit and loss account and the balance sheet of the lender. These were additional evidences and the same were remanded to the Assessing Officer by learned CIT(A). But learned CIT(A) has noted that the Assessing Officer did not provide the remand report. In these circumstances, learned CIT(A) rightly decided the issue on merits on the submissions before him. As regards the addition of Rs.

23 Shri Bholanath R. Shukla 40 lakhs, learned CIT(A) has noted that the identity of the creditor is on record. He noted the submission of confirmation letter, acknowledgement of return, profit and loss account and the balance sheets. In these circumstances learned CIT(A) has found that the identity, creditworthiness and genuineness of the creditor is established. Hence, learned CIT(A) has deleted the addition. On this issue nothing has been produced before us by the Revenue that the deletion of addition by learned CIT(A) was not justified. In these circumstances, we do not find any infirmity in the well reasoned order of learned CIT(A). Accordingly, we confirm the same.

Order has been pronounced in the Court on 2.5.2019.