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Income Tax Appellate Tribunal, “F”, BENCH MUMBAI
Before: SHRI JASON P. BOAZ, AM & SHRI SANDEEP GOSAIN, JM
PER SANDEEP GOSAIN,JUDICIAL MEMBER:
The present appeal has been filed by the Revenue against the order of the learned CIT (A)-20, Mumbai dated 10-03-2010 passed in appeal No.CIT (A) -20/9(3)/I.T.553/2008-09 for assessment year 2006-07 whereby the learned CIT (A) has partly allowed the appeal filed by the assessee against levy of penalty u/s 271 (1) (c) of the IT Act, on the ground mentioned herein below:- 1. “On the facts and in the circumstances of the case, and in law the Ld. CIT (A) erred in holding that the Assessing Officer has arbitrarily estimated the gross profit despite the fact that notice u/s 133(6) of the Income-tax Act,1961 sent by the Assessing Officer were returned unserved and one of the creditors refused to acknowledge any amounts due to the assessee.
2. The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.
(A.Y.2006-07) Dy. CIT vs. M/s. Vital Healthcare P. Ltd. 3. “The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
Additional Grounds of Appeal: 1. Whether on the facts and the circumstances of the case and in law the Ld. CIT(A) has erred in holding that there was no valid reason for the rejection of books of account of the assessee by the Assessing Officer be under the provisions of section 145(3) of the I.T. Act,1961.
2. The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.
3. “The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
This appeal was fixed for hearing today and was called for several times but, nobody appeared on behalf of the assessee and even; no application for adjournment of the case was filed. As per the records it is revealed that none appeared on behalf of the assessee on the previous date of hearing also though notice was already issued by RPAD.
Therefore, it seems that the assessee is not interested to contest the present appeal. The learned DR representing the Revenue is present before the Bench and submitted that he wish to contest the same.
Therefore, we proceed to dispose of the appeal after hearing the learned DR and perusal of the materials available on record.
The brief facts of the case are that the return of income declaring total income of Rs. 12,28,130/- was electronically furnished by the assessee on 24.11.2006. The same was processed u/s143(1) adopting the total income as returned. However, the revised computation of total income was received during the scrutiny on the ground that there was (A.Y.2006-07) Dy. CIT vs. M/s. Vital Healthcare P. Ltd. some error in feeding the data at the time of filing the e-filed return, stating that the correct total income of the assessee is Rs.15,29,554/-. Later on the case was selected for scrutiny and after serving required notices and after receiving the reply the assessment order u/s 143(3) r.w.s.145(3) of the Income Tax Act,1961 was passed holding that the assessee has indulged in inflating purchases by using some names who are either non existent, etc. Therefore, the AO rejected the books of account of the assessee and determined total income as per provision of section 143(3)r.w.s. 145(3) vide order dated 16.12.2008. Aggrieved by the order of the assessment, the assessee preferred appeal before the leaned CIT (A) and the learned CIT (A) after considering the case has partly allowed the appeal of the assessee vide its order dated 10-03-2010.
Aggrieved by the order of the learned CIT (A), the Revenue is now in appeal before us on the aforementioned grounds.
Ground No.1
This ground raised by revenue thereby challenging that ld. CIT(A) has erred in holding that there was no valid reason for the rejection of books of account of the assesee by the Assessing Officer under the provisions of section 145(3) of the I.T. Act,1961.
The learned DR appearing on behalf of revenue submitted that he wants to only contest additional ground no.1 as the said ground no.1 was raised earlier at the time of filing appeal. Therefore, we have decided to dispose of the additional ground raised by the revenue.
(A.Y.2006-07) Dy. CIT vs. M/s. Vital Healthcare P. Ltd. 5. We have heard the learned DR and also perused the materials placed on record as well as the orders passed by the Revenue authorities. We have noticed that the ld. CIT(A) while dealing with the said ground has given his findings in para number 5.4,5.5&5.6 which reads as under:
5.4 I have considered the dispute. I am of the opinion that the AO has not given cogent reasons to reject the books of accounts. He has not cited any serious defects in the books of accounts or the method of accounting in vogue. The whole plank of rejection of the books of accounts is not the books of accounts as such but the discrepancies in the lists of sundry creditors furnished in course of the assessment proceedings. He has not linked the missing creditors with the books of accounts. In fact he has not questioned the correctness of the sundry creditors shown at Rs.3,00,98,947 in the audited balance sheet. He has not shown that any of the sundry creditors appearing in the balance did not appear in the books of accounts. The two statutory audits, one under the Companies Act and the other u/s 44AB of, the Income tax Act have been made with reference to rejected books of accounts and the AO has not raised any doubts on the correctness of the two audit reports. Further, the AO has relied upon the tax audit report in rectifying the error crept in the assessment order while making disallowance u/s 40(a)(ia) which I have referred earlier. He has not brought any material on record to show that sundry creditors verified by him were on account of purchases made during the current year. Without verifying a single purchase, he has held that the purchases were inflated. The burden was on the AO to establish that the books results are not reliable. He has failed to discharge this onus. I, therefore, hold that there were no valid reasons for the AD to invoke the provisions of section 145(3) and reject the books.
5.5 Without prejudice there is no merit even in the estimation made by the AO. He has adopted gross profit rate of 40% as compared to that declared at 26.84%. In support, he observed that in the kind of business carried on by the appellant the gross profit was shown in the range between 40% and 50% in comparable cases. The AO, however, did not cite any compare case. If he proposed to make an estimate in disregard of the book results, he should in all fairness disclose the materials based on which he founded that estimate. It is (A.Y.2006-07) Dy. CIT vs. M/s. Vital Healthcare P. Ltd. well-settled that in a best judgement assessment there is always a certain degree of guess work. Even then the AO has to make an honest and fair estimate of the income [see Dhakeshwari Cotton Mills Ltd. v. Commissioner of Income-tax, 26 ITR 775 (SC)]. However, the estimation made here lacks substance and reflects only imagination and conjectures on the part of the AO. The AO has acted totally arbitrarily in estimating the gross profit. There is no force in the addition made of Rs.54,45,485 to the gross profit declared by the appellant. I, therefore, delete the same. The issue is decided in favour of the appellant.”
We have analysed the orders passed by CIT(A) and we have noticed that the ld. CIT(A) has rightly held that the whole plank of rejection of the books of accounts is not the books of accounts as such but the discrepancies in the lists of sundry creditors furnished in the course of assessment proceedings. The ld. CIT(A) has also taken into consideration that AO while passing the order of assessment has not linked the missing creditors with the books of accounts and it was also considered by CIT(A) that the AO has not shown any of the sundry creditors appearing in the balance sheet did not appear in the books of accounts and has not raised any doubt on the correctness of the two audit reports, one under the Companies Act and the other u/s 44AB of the Income Tax Act. The ld. CIT(A) has also considered that the AO has not brought any material on record to show that the sundry creditors verified by him were on account of purchases made during the current year and hence without verifying a single purchase, the AO has held that the purchases were inflated. While considering these circumstances the CIT(A) has rightly held that there was no valid reason for the AO to invoke the provisions of section 145(3) and reject the books.
(A.Y.2006-07) Dy. CIT vs. M/s. Vital Healthcare P. Ltd.
6. We have further noticed that CIT(A) has rightly taken into consideration that there is no merit even in the estimation made by AO as the AO did not cited any compared case. Therefore, the estimation made by AO lacks substance and reflects only imagination and conjectures on his part and therefore, the ld. CIT(A) has rightly deleted the additions of Rs.54,45,485/-.
After analyzing the afore mentioned orders of CIT(A) we found that the CIT(A) has dealt with the issues and has passed judicious and well reasoned order and no circumstances have been brought before us in order to controvert or rebut the findings recorded by the CIT(A).
Therefore, we see no reason to deviate or interfere into the findings recorded by the CIT(A) and hence, we reject these grounds of appeal raised by the revenue and uphold the order of the CIT(A).
7. Ground No.2&3 of the revenue’s appeal are general in nature and, therefore, needs no separate adjudication.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 25-05-2016.