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Deputy Commissioner of Income Tax, Circle- 32, Kolkata Versus M/s. SPML CISC (JV)

2017 (2) TMI 506 - ITAT KOLKATA

Rejection of books of accounts - estimation of profit at a certain percentage of the gross receipts - Held that:- The defect as pointed out by the Assessing Officer regarding the failure of the assessee to furnish the complete details of sundry creditors not being material or sufficient enough to justify the rejection of books of account maintained by the assessee as held by the Hon’ble Guwahati High Court in the case of Madnani Construction Corporation P. Limited (2006 (12) TMI 79 - GAUHATI HIG .....

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P. M. Jagtap, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member Shri Rajat Kumar Kureel, JCIT, Sr. D. R., for the Department Shri Sajjan Kumar Tulsiyan, Advocate, for the assessee ORDER Per Shri P.M. Jagtap, A. M. This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax ( Appeals)-XIX, Kolkata dated 15.01. 2014 on the following grounds:- (1) On the facts and circumstances of the case, ld. CIT(A) erred in reversing assessing officer s decision t .....

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2. The assessee in the present case is a joint venture between M/s. SPML and M/s. CISC Limited for carrying out some works contract jointly. The return of income for the year under consideration was filed by it on 08. 02.2010 declaring a loss of ₹ 1, 36, 71,480/-. During the course of assessment proceedings, the assessee could not produce the complete details of sundry creditors as required by the Assessing Officer, inasmuch as the addresses of some of the creditors were not furnished by t .....

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e from the business of execution of works contract by applying a G.P. rate of 5.15% and determined the loss of the assessee at ₹ 1,01, 02,822/- in the assessment completed under section 143( 3)/144 of the Act vide order dated 30.12. 2011. 3. Against the order passed by the Assessing Officer under section 143(3)/ 144, an appeal was preferred by the assessee before the ld. CIT( Appeals) challenging the action of the Assessing Officer in rejecting the books of account and estimating the incom .....

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he details of creditors. 2.2. The assessee produced the complete break-up of the creditors ( party-wise) together with their addresses in the last week of November. It was only with respect to the creditors of ₹ 43 ,95 ,311 /- that the addresses could not be provided because the project ( pertaining to such creditors) got terminated and all the books of account ( including the creditor details) had to be transferred to different locations. To worsen the situation the concerned accountant a .....

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the pressure of concluding the assessment, did not provide further opportunity to the assessee so as to enable him to produce the balance details. 3.2. In the light of the above stated facts, it is prayed that the details of creditors ( enclosed as Annexure- II) be admitted at this stage under Rule 46 A of the Income Tax Rules, 1962 , relevant extracts of which has been produced below: " 46 A. ( 1 ) The appellant shall not be entitled to produce before the Deputy Commissioner ( Appeals) or, .....

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to the appellant to adduce evidence relevant to any ground of appeal." 3.2. From the above it is clear that the CIT( A) may admit additional evidence under Rule 46 A of Income Tax Rules, 1962 in case the assessee was not provided sufficient opportunity by the AO and in case the assessee was prevented by sufficient cause from producing the evidence as called upon by the AO. 3.3. Thus applying the said rule to the facts of the case it is clear that details of balance creditors produced at th .....

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is correct. The same cannot be rejected u/ s 145 ( 3 ) in the absence of any finding recorded by the AO that the books of account were incorrect rendering it impossible to deduce profits therefrom. In other words, the AO has the onus of proving that books of account maintained by the assessee are incorrect and incomplete . The assessee also relied on the following judicial pronouncements in support of its aforesaid submissions:- (i) ITO-vs.- Girish M. Mehta [296 ITR ( AT) 125 (Rajkot)]; (ii) Eag .....

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act at higher rate of 5.15% for the following reasons given in paragraph no. 10 and 10. 1 of his impugned order:- 10. The assessment order and the submission of the appellant have been duly considered in the deciding the issue at hand. The list of sundry creditors submitted at the appellate stage has been duly considered and admitted since it is apparent that the appellant was prevented by sufficient cause from producing the evidence as called upon by the AO. I find that the AO has not pointed a .....

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le to deduce profits therefrom. In other words, the AO has the onus of proving that books of account maintained by the assessee are incorrect and incomplete. The appellant' s contention is squarely backed by the case of Madnani Construction Corporation P. Ltd. v. Commissioner of Income-tax [ 296 ITR 45 ] wherein the Hon' ble Court held that " the Assessing Officer did not record any finding that the books of account maintained by the assessee were incorrect rendering it impossible t .....

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e powers of best judgment without the support of materials. The AO relied upon a part of a transaction for the preceding year while rejecting the other. This is not permissible in law. Without pointing out any error in the profit and loss account and the audited report, the powers of best judgment cannot be invoked by any means. In view of the matter as discussed, I find that the action of the AO is devoid of any merit and hence the addition made on this count is not sustainable and therefore de .....

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d. CIT(Appeals), the details filed by the assessee in this regard were not confronted by the ld. CIT(Appeals) to the Assessing Officer in order to give him an opportunity to verify the same. He contended that the issue involved in this case therefore should go back to the Assessing Officer for giving him such an opportunity. 6. The ld. counsel for the assessee, on the other hand, submitted that the reasons for the assessee s failure to furnish the complete details of creditors as required by the .....

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erefore, the arguments raised by the ld. D. R. seeking opportunity to the Assessing Officer to verify the relevant details of the creditors cannot be entertained. He contended that even otherwise the so- called defect pointed out by the Assessing Officer as regards the failure of the assessee to furnish the complete details of the creditors was not a material defect to justify the rejection of books of account and the same having been removed by the assessee by filing the relevant details before .....

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ut by the Assessing Officer in the books of account maintained by the assessee to justify the rejection of books of account. As held by the Hon ble Guwahati High Court in the case of Madnani Construction Corporation Pvt. Limited (supra) cited on behalf of the assessee, the failure of the assessee to give details of the sundry creditors may be a ground for raising suspicion, but suspicion alone is not enough for invoking the powers of best judgment. Moreover, the relevant details as sought by the .....

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