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TMI Blog2012 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ishali Singh who is one of the partners of the firm. Therefore, the assessee could not produce the books of account. In support of these contentions, the assessee could not file any documentary evidence before the Assessing Officer. The Assessing Officer, however, examined the claim of expenses of the assessee under various heads and since these expenses were not open to verification, he made ad-hoc disallowances ranging from 10 to 20% of the total claim. The details of the total disallowances made by the Assessing Officer are as under:- S.No. Item Disallowance Amount 1. Purchases of Materials 10% Rs. 8,86,567 2. Labour Charges 10% Rs. 2,96,332 3. Office expenses, vehicle repairs & maintenance, travelling & Conveyance, Postage & Telephone 15% Rs. 19,388 4. Misc. Expenses including Hire charges, Rent of road Roller Repair & Maintenance 20% Rs. 21,223 5. Depreciation on Road Roller 32,000 Total Rs. 12,55,520 3. The assessee preferred an appeal before the ld. CIT(A) with the submission that the books of account could not be produced on account of its impounding by the Police in a criminal case. The assessee, however, submitted that at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that let the net profit be estimated @ 10% of the gross receipts before depreciation and interest on capital of the partners, etc. Accordingly, the order of the ld. CIT(A) is set aside and the matter is restored to the file of the Assessing Officer to recompute the net profit of the assessee in terms indicated above. 7. In the result, the appeal of the assessee is partly allowed as indicated above. B.R. Jain, Accountant Member - Unable to agree with the order proposed by learned Judicial Member, I proceed to write my own order: The appellant has raised following grounds in appeal: "1. That under the facts and circumstances of the case the Ld. CIT(A) is unjustified in confirming the addition made by the ITO, Raebareli and dismissing the appeal. 2. That the ld. CIT(A) & ITO was not justified in not allowing agreed net rate @8% before depreciation, salary to partners and intt. On partners capital as assessee is a partnership firm. 3. That the ld. CIT(A) erred on facts and in law to confirmed addition of Rs. 12,55,520.00 @ 10%, 15% & @ 20% on various expenses as below- Particulars Ad hoc Addition (a) Purchases of material 10% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enance account and despite repeated opportunities supporting vouchers for such expenses as well as the labour register for payment of labour expenses incurred were neither produced nor genuineness thereof was substantiated, the Assessing Officer after allowing reasonable deduction under various heads of expenses, proceeded to disallow 10% of the total claim thereof being unverifiable in nature as under: S.No. Head of account Total expenditure claimed Deduction allowed Amount disallowed % of disallowance 1. Purchases 88,65,674 79,79,107 8,86,567 10% 2. Labour charges 29,63,320 26,66,988 2,96,332 10% 3. Office expenses and vehicle running, travelling and conveyance, postage and telephone etc. 1,29,253 1,09,865 19,388 15% 4. Misc. expenses, hire and rent charges 1,06,164 84,391 21,233 20% 2.1 The Assessing Officer also disallowed claim of depreciation of Rs. 32,000/- on the cost of Rs. 1,60,000/- for the Road Roller claimed to have been purchased on 27/12/2004 but the assessee did not produce any proof and mode of such payments, even except producing the original bill thereof. 3. The appellant disputed the additions/disallowances in appeal before the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Labour charges (iii) Salary account (iv) Salary payable account (v) Office expenses account (vi) Travelling & conveyance account (vii) Postage & telephone expenses (viii) Vehicle running & maintenance account. 6.1 The appellant took a plea that these books could not be produced as the same have been impounded by the local police. No evidence thereof was laid on assessment record nor any such evidence has been laid by the assessee before the learned CIT(A) in that regard. When asked to produce the books before the Appellate Tribunal, the appellant took a new plea that the police returned these books in spoiled condition and thus the same were neither produced before authorities below nor can be produced before the Appellate Tribunal. On specific query to produce the proof of impounding his books by the police authorities and/or the evidence for return thereof in spoiled condition, the learned Counsel for the assessee gave evasive reply that the same may not be available with the appellant and sought to reject the books of account and assess its income by application of a net profit rate. This plea was strongly objected by the Revenue. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties to the appeal an opportunity of being heard, and pass such orders thereon as it thinks fit". Its powers, thus, are almost similar to the powers of an appellate court under the Code of Civil Procedure. A wide power, however, is not such that it can be exercised in any manner. The Tribunal can interfere with the orders of the lower authorities, but can do so only on judicial considerations and on the basis of reasons that suggest clearly that the lower authorities had committed an error of law or such fact that had vitiated its considerations and gone perverse for such reasons.............." "................Its primary task is not to go into the return of the assessee and decide what amount of tax should be levied upon his income, but to see whether the taxing authorities, including the Appellate Assistant Commissioner have committed any error of law or of fact and on account of such error, the assessee has suffered..............." 6.3 The appellant in the grounds raised in appeal as well as in the hearing before the Appellate Tribunal admits that the books of account have not been rejected by the authorities below by application of provisions of section 145 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recting the Assessing Officer to do the necessary exercise, it was not proper for the Tribunal to decide the same, converting itself to a court of first instance and deciding the factual aspect on which neither the Assessing Officer nor the Commissioner of Income-tax had returned any findings." [Emphasis supplied]. 6.4 Had the appellant produced the books of account in whatever condition before either of the authorities below or even before us for examination and enabled to reach the finding with respect to essentials contained u/s 145 of the Act, then the appellant may have a case of exercise of discretion by this Tribunal on that aspect. This, however, is not the case here. In a case like this, when the appellant has failed to do his duty for producing the books of account and supporting vouchers, he cannot be allowed to canvass to record findings on factual aspect for rejection thereof. In the event such a plea is allowed, then hardly any taxpayer would be willing to produce his books of account and vouchers for correct determination of his income and such a practice may go to frustrate the administration of IT. Act in a judicious manner. The learned CIT(A) in the impugned orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed CIT(A), I also find in conformity with the judgment rendered by Hon'ble Kerala High Court in the case of CIT v. S.P. Nayak and Ramesh M. [1999] 235 ITR 94. On the peculiar findings, the decision by learned CIT(A) requires no interference by the Appellate Tribunal. 6.6 As regards claim of statutory allowance of depreciation on Road Roller, the appellant is shown to have hired the road roller and paid rent but he has failed to prove the genuineness of purchase. It also has not been proved as to whether any actual payment thereof has been made or it was merely a bill procured by him. Since the actual cost thereof to the assessee has not been established the essentials of section 32 are not satisfied. The disallowance so made by the Assessing Authority and sustained by learned CIT(A) is found justified. This also calls for no interference. 6.7 In view of the conclusions reached hereinbefore, I find no merit in the grounds raised in appeal by the assessee and reject the same. 7. In the result, the appeal stands dismissed. THIRD MEMBER ORDER D. Manmohan, Vice-President (As a Third Member) - ITAT "B" Bench, Lucknow heard the matter on 17.11.2011. The main issue before the Bench wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or disposal of the issue are stated in brief. The assessee firm was engaged in the business of civil contracts. For the year under consideration assessee maintained books of account, which were duly audited, since the turnover of the assessee is to the tune of Rs. 1.33 crores. It declared total income of Rs. 4,43,630/-. Since the case was selected for scrutiny, the assessee was asked to produce the books of account but it failed to produce the cash book, etc.; Only ledger copies of purchase, labour charges, salary payable, etc. were produced on 09.07.2007. Assessee was repeatedly asked to produce the vouchers, etc. in support of its claim of incurring such expenses but the assessee could not produce a single bill in that regard. On 20.11.2007 assessee filed written submission wherein it was stated that assessee's books of account were impounded by the local police. The case of the assessee is that Smt. Vaishali Singh, one of the partners of the assessee-firm had kept the books of account in the premises of her husband Shri Akhilesh Kumar Singh, but the premises were seized by the local police and the books were impounded. The counsel appearing on behalf of the assessee submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to produce any evidence. As such Rs. 32,000/- depreciation claimed on account of purchase of this Road Roller was disallowed. Accordingly the assessment was completed on a total income of Rs. 16,99,150/- 6. Aggrieved, assessee contended before the learned CIT(A) that the AO was not justified in rejecting the plea of the assessee regarding estimation of income at 8% before depreciation, salary to partners, etc. It was also contended that the AO was not justified in making ad hoc addition of Rs. 12,55,520/-. It was also contended that the AO made the additions without rejecting the books of account under section 145 of the Act. Reliance was placed upon several decisions of the ITAT in support of its contention that in the absence of books of account estimation of income is the only proper course to be adopted. 7. The learned CIT(A) rejected the contention of the assessee. He observed that the assessee has not filed its return of income under section 44AD of the Act, since the total receipts or turnover of the firm was more than Rs. 40,00,000/-. Therefore it is not necessary to estimate the income under section 44AD of the Act. Moreover, as per tax audit report under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roving that the books were impounded by the police authorities. Even though a new plea was taken that the police returned these books in spoiled condition the same were neither produced before the authorities below nor was the assessee prepared to produce before the Appellate Tribunal. Hence it has to be assumed that assessee kept the books of account, vouchers and relevant material in the back seat and it is not interested in producing the books, by merely making a pretext that books were originally impounded by the police and later returned in spoiled condition and hence they cannot now be filed. (c) The production of few accounts from ledger and a solitary bill for purchase of Road Roller but non-production of the whole record is a mala fide act and assessee cannot be said to have come before the Tribunal with clean hands by furnishing books and vouchers in whatsoever condition they are available. (d) The Tribunal has to examine as to whether there is an error in the order of the CIT(A). Section 254(1) uses the expression "pass such orders thereon", which restricts the jurisdiction of the Tribunal only to the subject matter of appeal and merely because section 254 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red a bill but it does not establish that the assessee owned the Road Roller. Therefore, assessee is not entitled to depreciation. 10. In the light of the dissenting order passed by the learned Accountant Member the matter was referred to the Hon'ble President for nominating a Third Member to resolve the difference and accordingly the matter was placed before me. 11. The learned counsel submitted that if the books were subjected to tax audit it cannot be assumed that the assessee is purposely avoiding to produce the books. The office of the firm was located in the premises, which was the property of Shri Akhilesh Kumar Singh, a political leader, who was booked under the Gangsters Act. He was arrested on 17.01.2006 whereas in November 2005 the premises, where the books of the assessee-firm were placed, was also seized. On 24.01.2006 Special Judge passed an order whereby the attachment was lifted and directions were given to the police accordingly. He further contended that in the immediately preceding years regular assessments were not made under section 143(3) of the Act since the returns filed by the assessee were processed under section 143(1) of the Act. His main contention wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audited under section 44AB of the Act. In fact the Legislature places an obligation on the assessee, whose turnover is above Rs. 40,00,000/-, to maintain proper books and to obtain a tax audit report. It is not the case of the assessee, at any stage, that it has not maintained the books of account. Once it is not disputed, either by the assessee or by the Revenue, that assessee maintained books of account, the next issue to be considered is whether the AO can arbitrarily reject the book results and estimate the profit in the event of non-production of bills and vouchers. There are host of decisions on this issue that mere non-production of stock register or cash book may not necessarily lead to rejection of book results; so long as the ledger accounts are available, which can be taken as an aid by the AO to determine the true and correct profit which would have been earned by the assessee. Section 143 of the Act enjoins upon the AO the power as well as obligation to take into consideration all the evidences/particulars produced before him and to allow or reject the claim or claims and to determine the total income, The AO is also empowered to take into consideration all accounts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity by observing as under: "it is inevitable that there is some guess-work. The assessing authority while making the "best judgment" assessment, no doubt, should arrive at its conclusion without any bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his "best judgment" and not of anyone else. The High Court could not substitute its "best judgment" for that of the assessing authority." 17. Before analysing the powers of the Tribunal it is necessary to notice the hierarchy of appellate authorities and their jurisdiction. Aggrieved by the order of the AO assessee can file an appeal before the CIT(A). As can be noticed from the provisions of section 251 of the Act, the powers of the Commissioner (Appeals) are co-terminus with the powers of the AO. However, the Appellate Tribunal, which is the second appellate body, has to exercise its powers under section 254 of the Act wherein it cannot act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Arguments of the assessee's counsel, as recorded by Members of the Division Bench, shows that there is no uniformity in the statement made on behalf of the assessee; the learned Judicial Member observed that the books of account could not be produced on account of its impounding by the police in a criminal case and even after getting it from the police it could not be placed as it has been fully destroyed on account of its impounding by the police whereas the learned Accountant Member observed that on a specific query to produce the proof of impounding by the local police and return thereof in a "spoiled" condition, the learned counsel gave an evasive reply that the same may not be available with the assessee. It is strange that the assessee could not produce evidence with regard to the non-availability of books. Therefore the learned Accountant Member inferred that the books were available with the assessee but it did not produce the same either before the AO or before the CIT(A). The firm's anxiety to get the book results rejected indicates that it was trying to get advantage of its default of non-production of books. Under these circumstances the AO is vested with the discret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the books of account were stated to have been maintained the assessee did not produce complete books and assessment was made by the AO under section 144 of the Act by rejecting the book results. The Tribunal has recorded a finding that the assessee had not deliberately avoided to produce the books of account before the AO and thus remanded the matter to the file of the AO to provide an opportunity to the assessee and pass a fresh assessment order thereafter. The Department was unable to show the court that by doing so any prejudice had been caused to it. Under these circumstances the court observed that the view taken by the Tribunal do not call for interference. However, in the instant case, the AO as well as the CIT(A) observed that there are strong reasons to believe that the assessee is avoiding to produce the books of account. In fact the learned Accountant Member also observed, in para 6.1 of his order, that the plea of impounding the books by the local police and return thereof in a spoiled condition is merely a pretext and the production of few vouchers from its account, a solitary bill for purchase of Road Roller would highlight the mala fide intention of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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