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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’, NEW DELHI
Before: SH. AMIT SHUKLA & SH. O.P. KANT
Appellant by Sh. R.C. Danday, Sr.DR Respondent by None Date of hearing 07.09.2017 Date of pronouncement 04.10.2017 ORDER PER O.P. KANT, A.M.:
This appeal by the Revenue is directed against order dated 16/12/2010 passed by the Ld. Commissioner of Income-tax (Appeals)- XXII, New Delhi [in short ‘the CIT-(A)] for assessment year 2004-05 raising following grounds:
“1. On the facts and on circumstances of the case, the learned CIT(A) has erred in law and on the facts and in deleting the addition made by the A.O. by estimating the income at Rs.70,43,560/- as against Rs.20,43,564/- declared by the assessee.
2. The appellant craves leave to add, alter or amend any of the grounds of appeal before or during the course of the hearing of the appeal.”
Facts in brief of the case are that during relevant period, the assessee was running a proprietary concern M/s Aalianz Automobiles, which is a Maruti dealership concern at Delhi, including two divisions, namely, ‘True Value Division’ and ‘workshop’. For the year under consideration, the assessee filed return of income on 1/11/2004 declaring total income of Rs.20,43,564/- which included profit from M/s. Aalianz Automobiles, apart from profit derived from three film exhibition theatres located at Mumbai.
In the Tax Audit Report in respect of M/s. Aalianz Automobiles, M/s Movie Time Cinema, M/s Movie Gem, and M/s Movie Time Percent, which were enclosed with the return of income, the Assessing Officer observed the remark of the Auditor that none of the primary books of accounts, i.e., cash book, bank book, sale and purchase registers etc. were produced for audit and only computerized ledgers were only produced . The Auditor concluded that no proper books of accounts were kept by the head office and branches of the assessee. The Assessing Officer has produced the comments of the Tax Auditor in the assessment order. 4. The Assessing Officer carried out a survey action under section 133A of the Act at the showroom and workshop of M/s. Aalianz Automobiles on 28/01/2005. The survey team noticed the account maintained in computer systems at variance with the final account statements enclosed with the return of income for the year under consideration. During the survey proceedings, the assessee as well as staff of the assessee failed to explain the discrepancies satisfactorily and, thus, the survey team impounded 5 computers (i.e. CPUs). The assessee was duly confronted with the discrepancies in his statement recorded by the Assessing Officer under section 131 of the Act on various dates from 7/02/005 to 17/03/2005.
The case was selected for scrutiny and notice under section 143(2) of the Act dated 31/01/2005 was served within the stipulated period. During assessment proceedings, the Assessing Officer also examined the Tax Auditor and recorded his statement under section 131 of the Act on 16/02/2005, wherein he confirmed that vouchers, purchase vouchers, receipt vouchers and expense vouchers etc were not made available for verification and the audit was conducted from the books of accounts maintained in the computer system only and no hard copy of books of account was provided to him.
In view of discrepancies in sales, cash and petty balances and also expenditures of the other divisions, the Assessing Officer rejected the books of accounts under section 145(3) of the Act and made addition of Rs.50,00,000/- to the profits declared by the assessee.
The learned CIT-(A), though upheld the rejection of books of accounts invoking section 145(3) of the Act, but deleted the addition on the ground that sales of Vehicles were reconciled with the accounts of M/s Maruti limited and the addition of Rs.50.00 lakhs was purely on estimate basis. The relevant paragraphs of the order of the Ld. CIT-(A) are reproduced as under:
“In order to reject the accounts, the assessing officer has to come to an opinion that the income cannot be properly deduced from the accounts so maintained. Considering the ‘incompleteness’ of the books of account, whether or not destroyed in an accidental fire, there was a valid reason for the assessing officer to reject the trading results. However, the assumption of jurisdiction u/s 145(3) and 144 still requires a judicious estimation of profit on the basis of proper material.
The reconciliation of accounts with MUL has not been rebutted by the assessing officer in remand proceedings. The assessing officer has been unable to point out the transactions which have been left to be entered in the books of account nor has it been proven that the appellant has sold the vehicles at a price higher than what is disclosed in the books of account. In the case of Dhakeswari Cotton Mills Ltd. V. CIT (1964) 26 ITR 775 (SC) the Hon’ble Supreme Court had held that once the books of accounts of the appellant are rejected then the profit has to be estimated on the basis of the material available. However, the assessing officer is not entitled to make a pure guesswork estimation without reference to any evidence or any material at all. There must be something more than mere suspicion to support such addition. The Hon’ble Supreme Court in the case of CIT Vs. K.Y. Pilliah & Sons (1967) 64 ITR 411 (SC), held that any lump sum addition to the trading result, if found justified, must be done in proper exercise of discretion, objectively and judiciously on the basis of relevant material. The assessing authority has to look into the substance of the situation and decide the matter in such a manner that neither is put to unreasonable liability nor the appellant is subjected to unreasonable hardship. No doubt it is not only the right but also the duty of the assessing officer to consider whether or not the books disclosed the true state of affairs and whether the correct income could be deduced there from. But this right and duty need to be exercised in a just manner and have to be based on cogent reasons and sufficient material. The reasons given by the assessing officer in this case are demonstrated as erroneous by the appellant. I am of the considered view that on the facts and in the circumstances of the case, the assessing officer was not correct in estimating the ‘extra’ profit of Rs. 50 lakhs in a wholly arbitrary way. It is not the case of the assessing officer that any sale was made outside the books nor can it be a case of suppression of sale receipts in view of the nature of the business. It is evident that the sales made by the appellant can be confirmed from MUL and from the Transport department. It is an important fact that no vehicle could be sold without the issuance of registration number therefore the sale of vehicles outside the books of account is not possible. As regards the expenses, it is observed that the major expenses are comparable to earlier years, and the assessing officer has not pointed out any specific discrepancy, apart from absence of vouchers. Hence, estimation of extra profit on the basis of volume of receipts and expenses is unjustified. Thus the impugned addition is unsustainable and is liable to be deleted. In respect of the discrepancy of Rs.13,34,981/- between the sales of MUL, and the purchases of the appellant, I have verified the accounts of the subsequent year. In the A.Y. 2005-06, the appellant has claimed purchases of Rs.90,78,42,869/- whereas, as per the details obtained from MUL, MUL has accounted for sales of Rs.90,67,18,720/-, creating a difference of Rs.11,24,149/-. In other words, the appellant has claimed a lower total of purchases of Rs. 13,34,981/- in the A.Y. 2004-05, and higher total of purchases by Rs.l1,24,149/- in the A.Y. 2005-06, as compared with the books of MUL. The net difference of Rs.2,10,832/- could not be reconciled without going into the accounts of earlier and/or later years as well. However, in comparison with the combined turnover of Rs.l70 crores for the A.Y.s 2004-05 and 2005-06, the difference is considered too minor to draw an adverse inference upon.”
Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.
Before us, the Ld. Sr. DR submitted that no physical books of accounts or vouchers of expenses were either produced before the Tax Auditor or the Assessing Officer or the Commissioner of income tax (appeals). He further submitted that the claim of the assessee that books of accounts and vouchers could not be produced as same were burnt in fire, which took place in the workshop of the assessee, was wholly unsubstantiated as the fire actually took place in a building adjacent to the workshop of the assessee. According to him the Assessing Officer was justified in making addition of Rs. 50 Lacs in the facts and circumstances of the case. He submitted that ld. CIT-(A) has only reconciled the sales figure of one Unit of the assessee and not considered the discrepancies of expenditures and sales of other units. 10. None attended on behalf of the assessee and thus the case was heard ex-parte qua the assessee.
We have heard the submission of the Ld. senior DR and perused the relevant material on record. We find that, the Assessing Officer has not given any basis for estimating Rs. 50 Lacs as addition to the profit declared by the assessee. We also find that the learned CIT-(A) has only reconciled the sales of the unit M/s Aalinnz Automobiles and not reconciled the expenses of the unit and sales and expenses of the other units. We are of the view that learner CIT-(A) was not justified in deleting the entire addition of Rs.50,00,000/-. In our opinion, after rejecting the books of accounts of the assessee under section 145(3) of the Act, the Assessing Officer should have estimated the profit of the different divisions/units on the basis of comparable cases. In view of the facts and circumstances of the case, we feel it appropriate to restore the issue in dispute to the file of the Assessing Officer for estimating the profit of different units of the assessee on the basis of comparable cases and assess the income of the assessee accordingly. The assessee shall be afforded adequate opportunity of being heard. The grounds of the appeal are accordingly allowed.
In the result, appeal of the Revenue is allowed for statistical purposes. The decision is pronounced in the open court on 4th Oct., 2017.