TMI Blog2013 (11) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... s for a businessman remains in the "Womb of future" – In the instant case, action of the Assessing Officer in invoking section 145(3) was not in accordance with law. The CIT(A) also examined enhancement made in turnover by the Assessing Officer and found that there was no justification in enhancing the turnover and applying arbitrary G.P. of 4% - Therefore, deleted the addition of Rs.23,63,115/- made by the Assessing Officer. Increase in G.P. rate by A.O.- G.P. rate increased from 3.30% to 4 % - Held that:- Enhanced the sale at Rs.22,02,584/- by applying G.P. rate of 4% - Assessing Officer before enhancement of sales has not given any queries and reason to the assessee. Though the assessee has submitted quantities and qualitative details, produced stock register, purchase and sale register and other related record. The enhancement of the sales is an arbitrary and not legal and regular. The Assessing Officer has not given any opportunity to the assessee to rebut the same and addition made by the Assessing Officer can not be sustained - The mere fact that there was a less rate of gross profit declared by an assessee as compared to the previous year would not by itself be sufficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Considering the details and submission filed before me, non verifiability of books of accounts as discussed above and also past history of the case, and applicability of 145(3) in case of M/s Subhash Coal Traders it will be reasonable and justifiable to apply G.P. rate at 4% in place of 3.30% disclosed by the assessee. 6. Total turnover in the M/s Subhash Coal Traders is Rs.3025497416/-. Applying G.P. rate of 4% on proportionately enhanced and rounded off sale of Rs.327700000/- the G.P. comes to Rs.13108000/- deducting from this G.P. disclosed at Rs.10744885/- the extra profit worked out at Rs.2363115/- which is added in the income of M/s Subhash Coal Traders. (Extra profit addition Rs.23,63,115/-)" 4. The Assessing Officer also made addition of Rs.17,730/- on the ground that as per AIR information it was found that Rs.17,730/- was amount of interest and on the same amount TDS was deducted at Rs.2,123/-. The assessee has failed to file reconciliation for interest receipt of Rs.17,730/-. The Assessing Officer has also made addition of Rs.5,000/- out of various travelling and conveyance expenses, Rs.8,000/- out of general expenses, Rs. 27,300/- out of vehicle expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completeness of the accounts of the assessee" made in section 145(3) must be construed in conjunction with the purpose behind maintenance of such books of accounts as convey in the expression "Every person carrying on legal shall keep and maintain such books of account and other documents as may enable the (Assessing) Officer to compute his total income in accordance with the provisions of this Act" under section 44AA of the Income Tax Act. Therefore, any adverse inference of the Assessing Officer on the issue of correctness or completeness of books of accounts does not go against the assessee until there is clear cut finding of the Assessing Officer that whether or not he is able to compute total income of the assessee with such books of account in accordance with the provisions of Act. In view of above position, the Assessing Officer's action with regard to invocation of provisions under section 145(3) of the Income tax Act is not lawfully sustainable, hence the same is revoked. 6. Further, I observe that the Assessing Officer has enhanced the sale Rs.32,77,50,000 from 32,54,97,461/- and enhanced the sale at Rs.22,02,584/- without giving any reason except ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961. The addition to the profit of the assessee made solely on the ground that it was low without giving the specific finding that the accounts of the assessee were not correct and complete or that the income could not be properly determined and deduced from the accounting method employed by the assessee, is not justified. The mere fact that there was a less rate of gross profit declared by an assessee as compared to the previous year would not by itself be sufficient to justify the addition. In view of above actual position addition made under the head extra profit addition Rs.23,63,115/- is hereby deleted." 7. The CIT(A) also deleted the addition of Rs.17,730/- as under :- (Paragraph no.7) "7. As regard the addition made by the AO under the head interest received from HDFC Bank at Rs.17,730/- as per AIR information. I carefully considered the submission of the appellant Authorised Representative and case records of the assessee the assessee has received interest of FDR from HDFC Bank and bank has deducted TDS on interest which details as under :- Date Interest Amount TDS Amount 28.06.2008 5.08 - 01.07.2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being not fully verifiable. This working of the Assessing Officer only shown that the disallowances have been made capriciously without properly measuring actual extent of unverifiability. The case clearly gets hit by the decision in the case of M/s Chandra Confectionary P. Ltd. reported in 2003(2) MTC 1022, wherein it has been held by the Hon'ble I.T.A.T. Bench, Lucknow that such ad-hoc disallowances, without assigning any reasons and without pointing out any defect, are unjustifiable. In view of above factual position, the disallowances mentioned in above are herby deleted." 9. We have heard the learned Representatives of the parties and records perused. The crux of the issue to be examined in this case whether the Assessing Officer is justified in estimating the extra profit particularly under the circumstances where he did not reject the books of account in accordance with section 145(3) of the Act. 9.1 To examine the issue, we would like to refer relevant provisions of section 145 and related scheme of the Act which are as under:- "145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a particular method of accounting and if no defects are found in the method or maintenance of accounts, the taxing authority is bound to compute the profits and gains of business or profession or vocation in accordance with the method employed by the assessee. Therefore, in case where the Income-tax Officer or the taxing authority finds that in maintaining accounts, the assessee has regularly employed a particular method and does not make any investigation to find or does not find any defect in the accounts and accept the accounts as they are, he is bound to compute the income in accordance with the accounts maintained by the assessee. Therefore, when the assessee represents to the taxing authority that its accounts are maintained by a method of accounting regularly employed, he expects the Income-tax Officer to act upon such method and compute the income accordingly. 9.3 The basic question for consideration is, whether the assessee has been following an acceptable method of accounting for declaring its income and whether the method employed by the assessee is such that correct profits cannot be deduced from the accounts of the assessee, so that the provisions of s. 145 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich commends to the ITO is better. There are any number of Court pronouncements where it has been held that provisions of section 145 are mandatory and the proper method of accounting regularly followed by an assessee is binding on the assessing authorities. As early as in the case of CIT v. Sarangpur Cotton Mfg. Co. Ltd. [1938] 6 ITR 36 (PC), the Judicial Committee of the Privy Council noted that even if the profit brought out in the accounts is not the true figure for income-tax purpose, the same would be compulsory basis of computation of income if the true figure can be accurately deduced there from. Incidentally, this judgment of the Privy Council has been cited and relied upon in a number of judgments delivered thereafter by the Hon'ble Supreme Court and various High Courts in India. 9.4 In Keshav Mills Ltd. v. CIT [1953] 23 ITR 230 the Hon'ble Supreme Court held that the provisions of section 13 of 1922 Act (corresponding to section 145 of 1961 Act) was compulsory on the income-tax authorities and imposed upon them an obligation to accept the mode of accounting regularly adopted by the assessee except in cases when the proviso to that section came into operation. The prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts, the same amount of income should be assessable in the cases of all the assessees. This position has been clearly recognised by the Hon'ble Supreme Court in the case of A. Krishnaswamy Mudaliar (supra) that the quantum of allowance permitted to be deducted from the profits and gains of business would differ according to the system of accounting. In the case of CIT v. S.M. Chitnavis [1932] 2 Comp. Cas. 464 (PC), Lord Russel held that if a method of accounting is regularly employed then the assessee ought to get the advantage and suffer disadvantage of that system of accounting, and even though it may happen that in a particular year the revenue may gain in another year the assessee may gain. The Hon'ble Bombay High Court held in the case of CIT v. Tata Iron Steel Co. Ltd. [1977] 106 ITR 363 that if the method of accounting followed by an assessee cannot be said unreasonable, the same has to be given effect to even if a better method can be visualised. Following judgments may also refer on the issue:- CIT EPT v. Chari and Ram [1949] 17 ITR I (Mad) ; CIT v. Srimati Singari Bai [1945] 13 ITR 224 (All) ; CIT v. K. Doddabasappa [1964] 54 ITR 221 (Mys) ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit loss account. In Para no.4 of page no.2 of sub-clause 1 the Assessing Officer has mentioned that (EMD for gone amount of Rs.4247420.00 was first time debited in the books. It is also submitted that the assessee has virtually booked the material for purchase but the certain reasons the coal was not lifted an security amount/booking amount deposit was to be for gone by the assessee. The expenditure incurred may be treated towards businesses expediency. The submission of this point filed by the assessee appears to be reasonable. (b) The appellant has already mentioned in his reply to increase the entry tax Rs.6619919.00 has increased during the year in comparison to the A.Y. 2008-09 of 670694.00 which has already accepted to reason fall of G.P. by the assessing officer vide para no.4 page no.2 of sub-clause 2. (c) That the coal freight payment by the appellant has increased Rs.44636248.00 during the year in comparison to yearly year Rs.9642986.00 due to increase of purchase. (d) That the appellant has made payment of loading and unloading charges during the year Rs.4443090.00 in comparison to assessment year 2008-09 Rs.534051.00. (e) That the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer comes to 6.43%, such G.P. was not declared by the assessee in the past. In the light of detailed discussion, particularly under the facts and circumstances of the case, the Revenue has failed to point out any contrary material to the finding of CIT(A). We, therefore, do not find any infirmity in the order of CIT(A) in deleting the addition of Rs.23,63,115/- made by the Assessing Officer. Order of CIT(A) on the issue is confirmed. 12. As regards addition of Rs.17,730/-, we notice that the assessee has furnished reconciliation and the Revenue has failed to point out any contrary material against that reconciliation. In the light of the fact, the CIT(A) deleted the addition after considering the reconciliation filed by the assessee in respect of interest account and TDS. The Revenue has not pointed out any contrary material to the finding of CIT(A). In the light of the fact, order of the CIT(A) is confirmed. 13. As regards the disallowance of various expenses, we find that the CIT(A) has rightly deleted the adhoc addition of Rs.5,000/- out of travelling and conveyance expenses, Rs.8,000/- out of general expenses. However, the CIT(A) also deleted addition of Rs.27,300/- b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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