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TMI Blog2014 (7) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Coming to the grounds of appeal raised before us, they are as follows: "1. Ld. CIT (Appeal) has grossly erred both on as well law in upholding addition of Rs. 5,00,000/- u/s 68 of the I.T. Act 1961 by ignoring the entire crucial material held on record: (a) Additional evidence filed and admitted u/r 46A of the Income Tax Rules, 1962 vide orders CIT (A)/11-12/333 dated 18.3.2011; (b) Remand report of AO company ward 7(2); (c) Statement of lender Sh. Sudesh Joshi recorded during appellate proceedings; (d) Documents submitted during appellate proceedings that established the due compliance of conditions of section 68 and erroneously invoking section 68. 2. Ld. CIT (Appeal) has grossly erred in sustaining the addition of Rs. 3,50,343/- made by estimating profits at 10% in lieu of the returned business income Rs. 1,17,784/- by Ld. AO without any basis. 3. The appellant craves leave to amend, alter, add, any of the above grounds of appeal." 3. Apropos upholding of addition of Rs. 5 lacs u/s 68 of the Income Tax Act, 1961 ("hereinafter the Act") 4. Brief facts of the case is that in the AY 2007-08, the AO made an addition of Rs. 10,40,000/-(Rs.5,00000, and Rs. 5,40,000) u/s 68 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) and pleaded that the order of the ld CIT(A) may not be disturbed. 6. We have heard both the sides and perused the records. We find that Shri Sudesh Joshi has retracted his earlier statement during the remand proceedings and has stated that the Account Payee cheque for Rs. 5 lakh was handed over to the brother of the accountant of the assessee and the said amount has been received back from the assessee through banking channel. We find force in the argument of the ld AR that the statement of a witness, who has not been given the opportunity to cross-examine, cannot be the sole basis of impugned addition. In this case, we find that the initial statement of Shri Sudesh Joshi dated 30.12.2009 was infact handed over to the assessee only during the appellate proceedings before the ld CIT(A); which was the sole basis of the impugned addition and the said Shri Sudesh Joshi has retracted his statement during remand proceeding. However the ld CIT(A) has disbelieved the retracted statement of Shri Sudesh Joshi and went ahead to sustain the addition made by the Assessing Officer on the strength of the earlier statement of Shri Joshi. Here we would like to point out that only on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar nature of business or for previous year. Therefore, the profit margin is assumed at 10% of total turnover, which appears to be reasonable under the circumstances Rs. 3,50,343/- is estimated as income of the assessee from the head „income from business." 9 Aggrieved by the said order of the Assessing Officer, the assessee preferred an appeal before the ld CIT(A) who was pleased to dismiss the same. Aggrieved by the said order the assessee is before us. 10. The ld AR contended that the Books of accounts were rejected on flimsy grounds; and the reasons stated by the AO for making the impugned addition are based on doubt entertained by him about certain expenses, suspicion about cash receipt from Army units against sales of Rs. 1,89,280/- from CMHO Dantewari; and cash receipt of training charges, Rs. 3,55,763/-. According to the ld AR, It is not uncommon that the army battalion posted in remote areas purchase the medicine „Quick Lot‟ from the appellant because it is an essential item to apply for instant blocking of blood oozing if hit by bullet. According to the ld AR, if at all the AO had any doubt about these cash receipts, it was incumbent upon him to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year declared an income of Rs. 1,17,784/- on the basis of audited financial statements. As per the audited financial statements the appellant declared sales of Rs. 35,03,435/- and, profit of Rs. 5,221/-. The books of accounts were produced before the AO, who rejected the same on following basis:- a) No stock register and journal was produced. b) Bill of taxi of Rs. 15,850/- was not produced. c) Payment of commission of Rs. 50,000/- was not supported by any evidence. d) Cash receipts of Rs. 1,79,280/- and 3,55,763/- were not supported by any evidence. 12. In the appellate proceedings, as regards Rs. 10850/- appellant submitted that sum of Rs. 10,250/- was paid by cheque and balance Rs. 600/- by cash. The expenditure was supported by bill and vouchers (93 to 97 of PB). So far as sum of Rs. 50,000/- is concerned, the bill/ vouchers/ TDS Challans/ copies of cheques / ledger accounts of Payee Mr. B. D. Choudhury were furnished (98 to 110 of PB). So far as cash receipts, the appellant furnished, sales accounts, invoices/ vouchers and extracts of cash books (Page 111 to 132 of PB) to prove the genuineness of the income declared by assessee. The AO examined the above evidence and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted does not afford a true picture of the profits, it would be rejected, but such rejection should be based on cogent evidence and would be done with caution. The power can be exercised by the Assessing Officer to choose the basis and manner of computation of income but he must exercise his discretion and judgment judicially and reasonably." In the instant case we find that the decision of the AO to reject the audited books of account is vitiated without him spelling out the cogent reasons for doing so and has failed to satisfy the requirement of Section 145(3) before doing so and therefore the said decision to reject the books of account cannot be countenanced in the aforesaid facts and circumstances. And coming to the ad-hoc disallowance of 10% of the sales, we find that simply because the assessee has engaged in a monopoly business where there is no competitor, cannot be a ground to make an ad-hoc addition of 10% without any basis. The audited account with details of sales and sale tax assessment shows that the sales purchases and expenses as well the net profit is verified by the auditors and cannot be interfered by the Assessing Officer on surmises, presumptions or doubts. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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