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ACIT, Sitapur Versus M/s Ashirwad Traders Hardoi

Deduction of interest and salary paid to partners u/s 40b (IV) and 40 b(V) - order u/s 144 - CIT(A) allowed the claim - Held that:- Undisputedly the Assessing Officer has afforded various opportunities to the assessee to produce complete books of account, bills and vouchers, etc. for verification. But the assessee did not produce the books of account and relevant evidence to justify the claim of expenditure, etc. In the absence of complete books of account, the Assessing Officer had no option bu .....

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, made to any partner of such firm

While issuing directions for allowance of interest and salary paid to partners, the ld. CIT(A) has not examined the provisions of section 184(5) of the Act. Therefore, we are of the view that the findings of the ld. CIT(A) are contrary to the provisions of the Act and we accordingly set aside the order of the ld. CIT(A) in this regard and restore that of the Assessing Officer. - Decided in favour of revenue.

Undisclosed income under sectio .....

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377; 29.05 lakhs, as he has made an addition of ₹ 42.08 lakhs on account of cash deposit in the bank. Therefore, once the matter is restored back for verification of cash deposits, sundry creditors of ₹ 29.05 lakhs be also verified. Accordingly we set aside the order of the ld. CIT(A) and restore the matter to the Assessing Officer with a direction to re-adjudicate the issue by making necessary verification with regard to the cash deposit of ₹ 42.08 lakhs and sundry creditors o .....

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KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER For The Appellant : Smt. Manju Thakur, D.R. For The Respondent : Shri. K.R. Rastogi, FCA & Shri. Shubham Rastogi, FCA ORDER PER SUNIL KUMAR YADAV: This appeal is preferred by the Revenue against the order of the ld. CIT(A) mainly on two grounds. 2. During the course of hearing, the ld. D.R. has filed revised grounds of appeal with a request to take the same on record. Accordingly, the revised grounds filed by the Revenue .....

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sing Officer has passed the order u/s 144 of Income Tax Act, 1961 for non compliance of legal notice u/s 142(1)(ii), the assessee was not entitled for deduction by way of any payment of interest, salary, bonus, commission and remuneration by whatever name called, made by the assessee to any partners of such firm in accordance with the specific legal provisions mentioned in section 184(5) of Income Tax Act, 1961 while computing the income under the head Profit and gains of business and profession .....

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to explain the source of these cash credits during the assessment proceedings. 4. That the order of the learned Commissioner of Income Tax (Appeals) may be cancelled and the order of the Assessing Officer may be restored. 3. Apropos grounds No.1 & 2, it is noticed that the assessee is a civil contractor and during the year he carried on work for Rajya Krishi Utpadan Mandi Parishad, Shahjahanpur and the Assessing Officer vide notice dated 30.12.2009 required the assessee to furnish/explain va .....

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opportunities, regular books of account and vouchers have not been produced though mentioned in the written submission filed before the Assessing Officer. The assessee was again specifically required to produce the books of account, vouchers, registers, if any, maintained in respect of business along with balance sheet, profit and loss account during the course of assessment proceedings, but the same were not produced before the Assessing Officer and on account of advertent failure on the part .....

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vidences or record, the profit declared by the assessee was not acceptable to the Assessing Officer. When the said facts were confronted to the assessee, the assessee came out with a proposal to apply net profit at 8% through sl. No.12 of the written explanation filed in the office on 25.8.2010. 4. During the course of assessment proceedings, though assessee has requested that the salary to partners and interest on capital be allowed, but the Assessing Officer did not allow the same having relie .....

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anations of the assessee, has directed the Assessing Officer to allow interest and salary from the net profit estimated by the Assessing Officer. 6. Aggrieved, the Revenue is in appeal before the Tribunal with the submission that where the Assessing Officer has invoked the provisions of section 144 of the Act for making best judgment assessment in the case of a firm, no deduction by way of any payment of interest, salary, bonus, commission and remuneration, by whatever name called, made by the f .....

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tive but to frame the best judgment assessment under section 144 of the Act. The findings of the Assessing Officer, for invoking the provisions of section 144 of the Act, was not disturbed by the ld. CIT(A) also. Once the best judgment assessment is to be framed under section 144 of the Act, no further deduction of interest and salary paid to the partners can be allowed as per provisions of section 184(5) of the Act. 7. The ld. counsel for the assessee, on the other hand, has placed reliance upo .....

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had no option but to proceed under section 144 of the Act for best judgment assessment. The dispute is raised with regard to further deduction of interest and salary paid to partners and firm in terms of section 40b(iv) and 40b(v) of the Act from the net profit estimated by the Assessing Officer. The provisions of section 184(5) of the Act is very clear and according to which no further deduction can be allowed by way of any payment of interest, salary, bonus, commission or remuneration, by what .....

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previous year relevant to the assessment year commencing on or after the 1st day of April, 1993, in respect of which assessment as a firm is first sought. Explanation - For the purposes of this sub-section, the copy of the instrument of partnership shall be certified in writing by all the partners (not being minors) or, where the return is made after the dissolution of the firm, by all persons (not being minors) who were partners in the firm immediately before its dissolution and by the legal re .....

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ment of partnership along with the return of income for the assessment year relevant to such previous year and all the provisions of this section shall apply accordingly. (5) Notwithstanding anything contained in any other provision of this Act, where, in respect of any assessment year, there is on the part of a firm any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by wha .....

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t the findings of the ld. CIT(A) are contrary to the provisions of the Act and we accordingly set aside the order of the ld. CIT(A) in this regard and restore that of the Assessing Officer. 10. Apropos ground No.3, it is noticed that during the course of assessment proceedings, the Assessing Officer has noticed from the scrutiny of bank account of the assessee with Oriental Bank of Commerce that the assessee has made cash deposits on different dates at ₹ 42,08,000/-. The Assessing Officer .....

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ection 142(1)(ii) of the Act on 8.9.2007 asking the assessee to furnish the source of these cash deposits, but the assessee could not produce any such record from where verification to the balance could be made. The Assessing Officer accordingly held that since the assessee could not explain the cash deposit in the bank account, the deposits remained fully unexplained, therefore, the same represents assessee s income from undisclosed source chargeable to tax under section 68 of the Act. While ma .....

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confronted to the assessee, but neither the assessee could produce a single creditor in whose name credit has been shown nor anybody responded to the notice issued from the office of the Assessing Officer on or before the scheduled date fixed for hearing. The Assessing Officer finally concluded that the unexplained credit of ₹ 29.05 lakhs was also not explained, but while making addition under section 68 of the Act, he has given credit of the same and made addition of ₹ 42.08 lakhs c .....

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ence on record to show that cash balances were available for deposit in bank. In any case, it is a settled issue that once the income was enhanced on estimate, no further addition was called for. The addition is deleted. 12. Aggrieved, the Revenue has preferred an appeal before the Tribunal with the submission that the assessee has made substantial cash deposit in bank account and in addition to that unexplained creditors were also found and the Assessing Officer has made enquiries with regard t .....

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t is clear that in compliance to the directions of the ld. CIT(A), the Assessing Officer has issued a fresh notice to the assessee to produce the cash book, ledger and other documentary evidence in support of his claim raised before the ld. CIT(A), but the assessee could only place cash book and ledger and no supporting bills and vouchers were produced. Only self-made vouchers were produced. The muster roll and stock register were not produced. The Assessing Officer has concluded that the assess .....

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sessee filed complete details before the Assessing Officer as well as the ld. CIT(A) disclosing the source of deposits in the bank account, but the same were not appreciated by the Assessing Officer in the original assessment proceedings or in the remand proceedings. Since all the materials are available before the ld. CIT(A), the ld. CIT(A) himself has examined the same and has deleted the addition. The assessee has filed the copy of ledger account and bank statement with Bank of India and Bank .....

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h Court in the case of CIT vs. Vijay Constructions, 213 CTR 105 and Hon ble Patna High Court in the case of Shyam Bihari vs. CIT and Another, 345 ITR 283 in support of his contention that once the books of account are rejected and income was estimated, no further disallowance can be made. 14. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that during the course of assessment proceedings, the Assessing Officer has afforded a number of .....

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fit rate was estimated @ 8% of the total receipts. Besides, the Assessing Officer has also examined substantial amount of cash deposits in the bank account of the assessee. The Assessing Officer was of the view that when the assessee was doing contract work for public sectors of the State Government, the contract receipt was received through cheque which was deposited in the bank account. The Assessing Officer has asked the assessee to explain the source of deposit, but the assessee could not sa .....

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ssessing Officer. The Assessing Officer has also treated these sundry creditors to be unexplained and bogus, but instead of making separate addition of the same under section 68 of the Act, he made an addition of ₹ 42.08 lakhs on account of cash deposits in the bank. Now the assessee has raised a plea that when the net profit rate has been estimated after rejecting the books of account by invoking the provisions of section 144 of the Act for framing best judgment assessment, no further add .....

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by invoking the provisions of section 144 of the Act, separate addition under section 68 of the Act are possible. The relevant observations of the Hon ble High Court are extracted hereunder:- In the instant case, the consistent plea of the assessee was that the sundry creditors are genuine but at any point of time the assessee take the stand that the sundry creditors are referable to the income of the business which has been determined on estimate basis. Hence, the assessee must be held to have .....

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particular source. It is for the assessee to prove that, even if the sundry creditors represents income, it is income from a source which has already been taxed. There is nothing in law which prevents the AO in an appropriate case in taxing both the sundry credit, the source and nature of which is not satisfactorily explained, and the business income estimate, by him after rejecting the books of account of the assessee as unreliable. In the view of above discussion and by considering the totalit .....

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ough the aforesaid latest judgment of the jurisdictional High Court, it has been made abundantly clear that even after rejecting the books of account and estimating the net profit of the assessee, unexplained cash credits in the accounts can be examined and separate addition under section 68 of the Act is possible. Since no contrary judgment of the jurisdictional High Court on this issue has been furnished, we have to decide the appeal following the legal position laid down by the Hon ble jurisd .....

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s with the submission that as and when cash was deposited there was sufficient cash balance in his cash book. Since the entire cash deposit was duly explained, no addition under this head is called for. 16. Having carefully examined these details, we find that the details were not examined by the Assessing Officer either during the course of assessment proceedings or remand proceedings. Moreover, while deleting the addition, the ld. CIT(A) has also not discussed how the cash deposits were duly e .....

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