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Income Tax Appellate Tribunal, “SMC” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM ]
M/s. Khumor Investments Ltd. -vs- D.C.I.T., Circle-3, (formerly M/s. Khumor Manufacturing & Kolkata. Industries Ltd., Kolkata [PAN : AABCK 1248 A] (Respondent) (Appellant) For the Appellant : Shri Arvind Agarwal, Advocate For the Respondent : Shri Satyajit Mondal, Addl. CIT Date of Hearing : 30.01.2018. Date of Pronouncement : 02.02.2018. ORDER This is an appeal by the Assessee against the order dated 19.01.2015 of CIT(A)- 1, Kolkata relating to A.Y.2006-07.
The Assessee is a company engaged in the business of trading in shares and securities. The assessee filed return of income for A.Y.2006-07 on 28.11.2006 disclosing total income of Rs.24,55,181/-. A notice u/s 143(2) of the Income Tax Act, 1961 (Act) dated 21.11.2007 was issued by the AO fixing the date of hearing on 26.02.2008. Thereafter a notice 13.06.2008 was issued by the AO calling upon the asessee to file the Tax Audit Report, profit and loss account, balance sheet and computation of total income. Another notice dated 18.07.2008 was also issued by the AO calling for the information as were mentioned in the notice dated 13.06.2008. Another questionnaire dated 22.08.2008 was also issued by the AO calling for certain details. Another notice dated 18.09.2008 was also issued by the AO to the assessee calling for appearance of the assessee before the AO with necessary evidences.
2 M/s Khumor Investments Ltd. (formerly M/s Khumor Manufacturing & Inds. Ltd. A.Yr.2006-07 3. According to the order of AO the assessee filed copy of the accounts in response to the notice dated 18.09.2008 of the AO but the assessee did not respond to other notices. The AO therefore proceeded to frame exparte assessment u/s 144 of the Act viz. the best judgment assessment. The AO determined the total income of the assessee and added a sum of Rs.40,00,000/- with the following observations :- “Quite apparently the assessee is a habitual defaulter and have tried in ever possible way to avoid scrutiny of its accounts. On purpose the case was being dragged towards the fag end of the year. Under the circumstances, I am left with no other option but to complete the assessment exparte, u/s 144 of the Act.
In absence of requisite details, the income of the assessee is assessed at Rs.40,00,000/-.”
Aggrieved by the aforesaid order of the AO the assessee preferred appeal before the CIT(A).
The contention of the assessee before CIT(A) was that (1) without issuing a show cause notice for making best judgment Assessment as per the second proviso to section 144(1) of the Act, the AO cannot frame a best judgment. (2) while making the best judgment the AO has to keep in mind principles of justice , equity and good conscience. He cannot make an estimate of the total income in a dishonest, vindictive or capricious manner. The assessment made on the basis of best judgment and the estimate made by the AO should be honest and fair. In this regard the assessee relied on the decision in the case of CIT vs Laxminarain Badridas [1937] 5 ITR 170 (PC) and the decision of the Hon’ble Supreme Court in the case of Brij Bhushan Lal Parduman Kumar vs. CIT [1978] 115 ITR 524 (SC) and certain other decisions. (3) The assessee brought to the notice of CIT(A) that the assessment made by the AO was a wild guess which is not supported by any material on record. The assessee drew our attention of the CIT(A) to percentage of profit and gross income earned by the assessee over the 3 M/s Khumor Investments Ltd. (formerly M/s Khumor Manufacturing & Inds. Ltd. A.Yr.2006-07 past four years as well as the trend of increase in the total income declared by the assessee in the past four years . These details were as follows : Income and Profit FY 2003 FY 2004 FY 2005 FY 2006 Gross Income 3,77,80,120 4,01,03,168 4,01,26,749 3,97,43,778 Profit 2,36,274 7,56,375 12,04,979 24,19,089 Profit as a % of Gross Income 0.63% 1.89% 3.00% 6.09% Returned vs Assessed Income FY 2003 FY 2004 FY 2005 FY 2006 Returned Income 3,21,974 1,67,133 2,10,307 24,55,181 Assessed Income 3,21,974 1,67,133 2,21,039 40,00,000 Assessed U/s 143(1) 143(1) 143(3) 144 Order Dated 20/11/03 Not traced 05/12/07 24/10/08 (4) It was also pointed out that whatever documents were required in the various notices and questionnaire issued to the assessee were already available on the records of the AO in the form of TAR, books of accounts and other details.
The CIT(A) called for a remand report from the AO on the above submission of the assessee. In the remand report the AO apart from pointing out the failure of the assessee to participate in the Assessment proceedings further submitted that the past history of the assessee’s case were not relevant.
The CIT(A) after considering all the material before him estimated the total income of the assessee at Rs.30,00,000/- as against Rs.40,00,000/- as estimated by the AO. The CIT(A) has not given any reason for his estimation at Rs.30,00,000/-. The AO has also not given any basis to the total income of the assessee. The following were the relevant observations of the CIT(A):-
4 M/s Khumor Investments Ltd. (formerly M/s Khumor Manufacturing & Inds. Ltd. A.Yr.2006-07 “The submissions of the Appellant and the rejoinder to the Remand Report have been considered. It is seen that the issue is regarding assessment of the Appellant's Income at Rs.40 lakhs by the A.O. u/s.144 against Rs.24,55,181/- disclosed by the Appellant. In this regard it is seen that the A.O. has not considered the fact that the Appellants profit had Increased from the earlier years and had to shown at 6.09% as against 3 % in the immediately preceding year despite a reduction in its turnover from Rs 4.01 Crores to Rs 3.97 Crores. However, it is a fact that the Appellant had not produced its books of accounts etc before the A.O. for verification at the course of Assessment Proceedings which could not be explained or justified even in Appeal. Therefore the in absence of any verification the disclosed profit cannot be accepted to be correct and verified. There are other expenses claimed in the P &. L A/c including purchase of Shares and the profit from Share transactions is also not authenticated and could not be verified in the original Assessment proceedings. Accordingly considering the same and taking a reasonable view in this regard the Net Profit shown by the Appellant is estimated at Rs..30 lakhs as against Rs.24,55,181/· disclosed by it, therefore the addition by the A.O is restricted to this extent.”
Aggrieved by the order of the CIT(A), the assessee has preferred the present appeal before the Tribunal. The ld. Counsel for the assesee reiterated submissions as were made before CIT(A). The ld. DR relied on the order of the AO.
I have heard the rival submissions. In the given facts and circumstances of the case the estimation of the total income made by the AO and CIT(A) is contrary to the principles laid down in several judicial precedents cited by the ld. Counsel for the assessee before CIT(A). As already stated neither the estimation of the total income by the AO or the CIT(A) is based on any material or circumstances of the case. The circumstances pointed out by the assessee before the CIT(A) viz. the trend of percentage of profits and the increasing trend of the total income of the Assessee goes to show that the total income declared by the assessee ought to have been accepted by the AO. Since the estimation of the total income by the AO and the CIT(A) is based on no material on record or is not based on any other circumstances, the additions sustained by CIT(A), in my opinion, should also be deleted. Accordingly I direct the 5 M/s Khumor Investments Ltd. (formerly M/s Khumor Manufacturing & Inds. Ltd. A.Yr.2006-07 AO to accept the total income as declared by the assessee and delete the addition sustained by the CIT(A).
In the result the appeal by the assessee is allowed.
Order pronounced in the Court on 02.02.2018.