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Chaturbhuj Manoj Kumar Rajaram Hazariram and others Versus Commissioner of Income-Tax and another

[2016] 388 ITR 194 - Application of provisions of section 145 - enhanced turnover ignored - GP rate adoption - Held that:- What we notice is that the Commissioner of Income-tax (Appeals) as well as the Tribunal both ignored or did not consider the turnover and there is no finding by both the Commissioner of Income-tax (Appeals) as well as the Tribunal as to why the enhanced turnover was not considered for applying a particular gross profit rate. - We are conveyed that there are several check .....

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arlier but now as well but for the reasons best known, no action was taken by the Revenue in preferring appeal though 95 per cent. of the addition was deleted by the Commissioner of Income-tax (Appeals) and upheld by the Tribunal resulting into a relief of ₹ 6.58 crores and ₹ 10.25 crores respectively. - Equally important is the fact that when the question of law was admitted by this court on October 22, 2008, notices were sent to the Revenue and the Revenue had a chance to file .....

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K. Ranka, J. 1. These appeals under section 260A of the Income-tax Act, 1961 (for short "the Act") at the instance of the assessee are directed against orders of the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short "ITAT"). It is relevant for the assessment years 2000-01 and 2001-02 respectively, but being based on the identical substantial questions of law, have been heard together and are being decided by common order with the consent of the learned counsels .....

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court on the following substantial questions of law : D. B. I. T. A. No. 684 of 2008 "(i) Whether on the facts and in totality of the circumstances of the case and in law, the learned Income-tax Appellate Tribunal was justified in sustaining the trading addition as a result of necessary concomitant of the rejection of the books of account under section 145(3) ignoring the ratio laid down by this hon'ble court in case of CIT v. Gotan Lime Khanij Udhyog reported in [2002] 256 ITR 243 (Raj .....

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g the rejection of the books of account for want of stock register and sale bills having overlooked the provisions of sections 44AA and 145(3) of the Act and rule 6F of the Income-tax Rules, 1962 ?" D. B. I. T. A. No. 193 of 2008 "(i) Whether the learned Income-tax authorities below were justified in making/sustaining the addition of ₹ 22,48,051 as a result of necessary concomitant of the rejection of the books of account under section 145(3) in view of the ratio laid down by thi .....

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e addition as a result of necessary concomitant of the rejection of the books of account under section 145(3) in view of the ratio laid down by this hon'ble court in case of CIT v. Gotan Lime Khanij Udhyog reported in [2002] 256 ITR 243 (Raj) ? (ii) Whether the trading addition made without there being established the same to have been earned by the appellant during the year under consideration being a national, hypothetical or unreal addition the levy and recovery of Income-tax thereon is p .....

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tion 145(3) in view of the ratio laid down by this hon'ble court in case of CIT v. Gotan Lime Khanij Udhyog reported in [2002] 256 ITR 243 (Raj) ? (ii) Whether in the proceedings under section 145(3) read with section 144 of the Act, addition of ₹ 25,00,000 made without any basis of computation as also without establishing nexus thereof with the available facts and circumstances is permissible in law ?" 4. The facts of appeal in the case of Chaturbhuj Manoj Kumar v. CIT (D. B. I. .....

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failure to make adequate purchases, to deposit the deficit by way of short licence fee. The country liquor is sold by the Rajasthan State Ganganagar Sugar Mills Ltd., an undertaking of the Rajasthan Government to the assessees through the depots of Rajasthan State Ganganagar Sugar Mills Limited while the Indian made foreign liquor and beer is made available from distillery/ wholesaler against the permits issued by the Excise Department. The sale price is however not fixed by the State Excise De .....

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on the sale estimated by AO (ii) ITAT directed to apply 22.5per cent. in case of IMFL/Beer on the estimated sale made by AO 193/2008 27,76,91,665 34,48,01,640 57,34,330 7,28,61,927 70,49,259 80,00,000 199/2008 42,41,87,891 52,79,85,381 7,91,701 10,47,89,190 19,81,705 Remanded to AO to decide in the light of last year, i.e., as in D. B. I. T. A. No. 193/2008 (supra) 158/2008 6,78,63,735 9,50,70,790 34,97,280 3,06,92,336 15,00,000 25,00,000 6. The Assessing Officer examined the books of account an .....

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hers, the total turnover which was shown apparently had no basis and was rather on estimate basis, could not have been accepted and when the sale version was not open to verification then the books of account were liable to be rejected by invoking provisions of section 145(3) of the Act. Though the Assessing Officer found that the purchases can be said to be vouched as it was purchased from the Government undertakings or/and other distilleries, but the sales version was totally manipulated. It w .....

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t given hereinbefore, return of income was negligible/ very low in proportion to even the sale version by the assessee and even in some of the concerns even loss was declared. Accordingly, a show-cause notice was issued. Reply was filed and the assessee vide letter dated March 22, 2002 admitted that the defects were there. Taking into consideration the admission by the assessee that the defects were there, the Assessing Officer was of the opinion that the defects having been noticed and admitted .....

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e applicable. The Assessing Officer taking into consideration other similarly situated liquor traders estimated the sales turnover and applied a particular gross profit rate and thus made trading addition in the country liquor account as well as the Indian made foreign liquor and beer account. 7. The assessee being not satisfied with the additions assailed the said order before the Commissioner of Income-tax (Appeals), though the issue about invoking of provisions of section 145(3) was specifica .....

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l as the appellate authorities are constantly holding the provisions of section 145(3) are applicable in liquor cases. Therefore, this ground of appeal is dismissed." The Commissioner of Income-tax (Appeals) was however of the opinion that the income assessed by the Assessing Officer was higher, therefore, reduced the trading addition. 8. Both the assessee as well as the Assessing Officer being not satisfied, preferred appeals/cross objections and the Tribunal vide the impugned order taking .....

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nsel for the appellant has contended before this court that there was no justification of rejecting the books of account as the same was maintained properly and in accordance with law, all purchases are vouched and merely because sale vouchers are not maintained is no reason to reject the books of account and in the alternative he contended that once the books of account are rejected whether it should result into an addition? He contended that it is not necessary that even in a case of rejection .....

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ly increased by the Assessing Officer. He further contended that the trading results are fair and reasonable. There was no justification for the Assessing Officer as well as the Tribunal ultimately in making trading addition. 10. Learned counsel for the appellant also contended that earlier this court in the bunch of cases of liquor traders, in the case of CIT v. Ram Singh [2014] 363 ITR 417 (Raj) held that the order of the Tribunal was non speaking and without any discussion or/and even argumen .....

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ing Officer, the Commissioner of Income-tax (Appeals) as well as the Tribunal taking into consideration identical cases rightly applied particular gross profit rate and supported the order of the Tribunal. Learned counsel for the Revenue also contended that when this court in the case of CIT v. Ram Singh (supra) found the orders to be non speaking, therefore, the court was constrained to remand the matter to the Tribunal but at least in these cases, there is ample finding by the Tribunal and the .....

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gument of the counsel for the assessee, it is out-rightly rejected and we hold that the books of account were rightly rejected for the reasons assigned by all the three authorities. Needless to mention in the case of CIT v. Ram Singh (supra), this court while remanding the matter to the Tribunal expressly noticed that even the counsel who appeared before this court in the case of CIT v. Ram Singh had admitted that the provisions of section 145(3) are applicable and once there was a clear admissi .....

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unal that the books version cannot be relied on at all and the entire accounts were manipulated, the Assessing Officer or/and the Tribunal, in our view, had correctly gone into some estimation/guess work by invoking provisions of section 145(3) or in a case of a best judgment assessment under section 144, some guess work will always have to be resorted to by the authorities. However, the same should also be based on some material and should not be arbitrary or without any material. The Tribunal .....

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0/JP/1994) respectively which were decided by the Income-tax Appellate Tribunal. We have already noticed that the Tribunal has not only considered the cases relied upon by the Assessing Officer but took into consideration other latest orders of the Tribunal which were decided by the Tribunal in near vicinity of the matter disposed of, in the instant appeal. The Tribunal has also given a reference of 13 cases and after taking into consideration findings in 13 cases in addition to the cases taken .....

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to 77.78 per cent. in the case of country liquor and 26 per cent. in the case Indian made foreign liquor and beer. The comparable cases do not help much to estimate the income in the cases of such trade. The various decisions have been relied upon by the Assessing Officer. The learned authorised representative has also relied upon various decisions in support of this claim. As a matter of fact, different assessees are declaring different gross profit. Since in almost all the cases in such trade, .....

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03 dated 22-12-04 M/s. Bhanwar Ali Habib Mohd. and Party 4 789/JP/03 dated 22-12-04 ACIT v. M/s. Babudeen and Party 5 310/JP/03 dated 22-12-04 I.T.O. v. Habib Mohd. Raju Khan and Party 6 790/JP/03 dated 22-12-04 ACIT v. Balbir Singh Mahipat Singh 7 375/JP/03 dated 22-12-04 ACIT v. M/s. Vinayak Wines 8 374/JP/03 dated 22-12-04 ACIT v. M/s. Balaji Wines 9 208/JP/03 dated 15-09-06 ACIT v. Harjinder Singh and Party 10 219/JP/04 dated 15-09-06 ACIT v. Harjinder Singh and Party 11 426/JP/01 dated 31-0 .....

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appears that the learned Commissioner of Income-tax (Appeals) has made the estimates to allow the relief to the assessee. The order of the Assessing Officer appears to be reasoned one since he has relied upon various decisions of the Tribunal in support of his order. As observed by us hereinbefore that the Tribunal has held different gross profit rate in different cases mentioned hereinbefore, in the circumstances and facts of the present case, and various decisions relied upon herein before an .....

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ra) that most of the appeals were disposed of in either six lines/eight lines without even referring to the submissions of the counsel for the parties and this court has quoted and reproduced some of the orders of the Tribunal. While we notice that in the instant case the Tribunal's findings are elaborate and consider submissions of both the sides and with reasoning the appeal has been disposed, therefore, we see no reason to remand the order. 15. Learned counsel for the assessee has been un .....

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cally a finding of fact. We have already expressed earlier that when the books of account are rejected under section 145(3) and in a best judgment assessment under section 144 some guess work is required to be applied to come to a reasonable conclusion and it should be on some basis/reasoning, however, in the instant cases, we find that the Tribunal has not gone on assumptions or presumptions though ultimately there is an estimation of gross profit rate but after considering other identical simi .....

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ng addition to the tune of ₹ 3,34,960 by adopting a higher gross profit rate, the Commissioner of Income-tax (Appeals) sustained an addition of ₹ 34,000 which was also deleted by the Tribunal. On a Departmental appeal, this court found that the addition was made "to cover up the possible leakages in the books of account of unverifiability", the addition was made merely on suspicion of pilferage or leakages and this court noticed that the finding of the Tribunal was based on .....

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ions of section 44AA as also rule 6F of the Income-tax Rules, 1962, though it does not arise out of any of the three orders therefore, we would have refrained in dealing with it but since counsel vehemently argued therefore we would also consider the same. We fail to understand as to how these provisions are applicable at all in the instant case of liquor traders particularly when section 44AA applies to a person carrying on legal, medical, engineering or architectural profession or the professi .....

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ch. The assessee has also claimed that the accounts were audited and in our view, once the claim is that accounts are audited under section 44AB of the Act, then it is mandatory that the books of account have to be properly maintained along with supporting vouchers including sale and purchase vouchers. The chartered accountant auditing the accounts has to satisfy himself about the correctness and completeness of the books of account and has to examine not only the books of account but also the s .....

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carrying on the profession/business referred to hereinabove, but in our view, all other persons have to maintain complete books of account in accordance with law along with complete vouchers not only of purchase but also of sales as also other vouchers relating to the expenses or/and any expenditure claimed by the assessee. The onus of maintaining proper books of account lies upon the assessee. Audit of accounts presupposes that the assessee has maintained proper books of account and vouchers o .....

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mparing the cases of the assessee with other similarly situated liquor traders. Accordingly, in our view, the order of the Tribunal is just and proper and all the questions raised by the assessee are answered against the assessee and in favour of the Revenue. 19. Though we have dismissed all the appeals of the appellant-assessee including D. B. Income Tax Appeal No. 193 of 2008 and D. B. I. T. A. No. 199 of 2008 (Rajaram v. CIT) both appeals by assessee only, however, after having perused the or .....

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r of Income-tax (Appeals) deleted trading addition of about ₹ 6,58,12,665 and ₹ 10.25 crores respectively. The Assessing Officer estimated the turnover of ₹ 34,48,01,640 as against ₹ 27,76,91,665 in D. B. I. T. A. No. 193 of 2008 and ₹ 52,79,05,381 as against ₹ 42,41,87,891 in D. B. I. T. A. No. 199 of 2008 on the premise that the sale version had no basis and after rejecting the books of account, the turnover was taken by the Assessing Officer at ₹ 34,4 .....

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9 of 2008 there is no whisper about even enhanced turnover or any finding and the Commissioner of Income-tax (Appeals), bases its decision on the disclosed turnover and simply mentions "Therefore, the addition to extent of ₹ 12,97,310 on the declared sales and net profit is sustained and the balance addition of ₹ 7,28,61,924 - ₹ 70,49,259 - ₹ 6,58,12,655 is deleted (relief ₹ 6,58,12,665)". In D. B. I. T. A. No. 199 of 2008, the Commissioner of Income-tax ( .....

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4 and the Tribunal in para 4 also observed that "the turnover declared by the assessee was to the extent of ₹ 27,76,91,665, however, the Assessing Officer estimated the turnover to the extent of ₹ 34,48,01,640 and again while granting relief, takes into consideration the figure of total turnover to be at only ₹ 14,09,85,178 and ignores enhanced turnover and it would be appropriate to quote this portion as well : "Considering these factors and the location of the terri .....

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d by the Jaipur Bench of the Tribunal (supra), wherein the net profit rate after second appeal effect was just 0.27 per cent. He has also given other instance in the case of Rajaram and Party (Thanagaji Group) for the assessment year 1998-99, wherein the learned Commissioner of Income-tax (Appeals) had applied net profit rate of 0.30 per cent., which has been upheld by this Bench of the Tribunal in I. T. A. No. 258/JP/2000-01, a copy of which has been furnished. The learned authorised representa .....

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tative in support of the Departmental appeal discussed hereinabove, we are of the view that a lump sum addition of ₹ 80,00,000 against ₹ 70,49,259 worked out by the learned Commissioner of Income-tax (Appeals) and ₹ 57,51,948 declared by the assessee will meet the ends of justice. We order accordingly." 21. Similar is the finding in D. B. I. T. A. No. 199 of 2008 where the Income- tax Appellate Tribunal again gives a finding to base addition on declared turnover but withou .....

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number of authorities up to the Commissioner of Income-tax, Chief Commissioner of Income-tax and others but none appears to have brought this fact to the knowledge about the mistake committed by the Commissioner of Income-tax (Appeals) as well as the Tribunal. As noticed earlier, the Revenue used to file appeals in similar matters like this involving matters relating to liquor trade not only earlier but now as well but for the reasons best known, no action was taken by the Revenue in preferring .....

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