TMI Blog2017 (9) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial audit and the AO has made certain additions based on the observations of the special auditor, it cannot be held that the AO has rejected the books of account of the assessee. There has to be a specific finding given by the AO in terms of satisfaction of any or all of the conditions as specified under section 145(3) before he rejects the books of accounts of the assessee. Further, the AO has to specify the reasons as to why he feels that the results declared by the assessee as per the books of accounts are not acceptable. All the AO has done is that he has accepted the book results in respect of recorded transactions and in addition, the unrecorded transactions relating to sales/income, unrecorded purchase and other expenditure have also been brought to tax. In any case, there cannot be a presumption regarding rejection of books of accounts in absence of specific exercise of powers under section 145(3) of the Act. Can rejection of books of accounts be at the instance of the assessee? - Held that:- It is for the assessee to declare its results and offer its books of accounts for verification and then, it is for AO to determine whether the book results so declared are corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and used for computing the income of assessee. Addition on account of unrecorded sales of grit - unrecorded loading receipts from Railways - Held that:- Taking into consideration the suppressed sales on account of undisclosed production of ₹ 36,01,132/- as decided above, has given a benefit of telescoping to the assessee and has brought to tax the undisclosed sale figure at at ₹ 36,01,132/- being higher of the two. We donot see any infirmity in the same and the said finding of the ld CIT(A) is hereby confirmed. Ground no. 3 to this limited extent is dismissed. Undisclosed receipt of lease rent - Held that:- As per ld. CIT(A), as the assessee has already shown lease rent in the profit & loss account, there is no need for making any separate addition and the A.O. was directed to delete the addition. We donot see any infirmity in the order of ld CIT(A) and the same is hereby confirmed and the ground of appeal is dismissed. Undisclosed interest income on loan - Held that:- As there was a typographic error in the agreement instead of 3, a figure of 30 was wrongly typed. The amount of loan is clearly mentioned in figure and words and the same stood at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no useful purpose would be served in adjourning the matter any further. Accordingly, based on material available on record and taken into consideration the contentions of the ld. DR, the appeal is being disposed off on merits. 2. Briefly the facts of the case are that survey under u/s 133A was carried out at the business premises of the assessee on 01.10.2008. Given the nature and complexity of accounts, loose papers and incriminating documents found during the course of survey, the matter was referred for special audit u/s 142(2A) of the I.T. Act. The assessment proceedings were thereafter completed by passing an order under section 143(3) of the Act wherein an addition of ₹ 2,42,47,241/-was made by the Assessing Officer under various heads as against the return income of ₹ 11,54,207/- 3. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has given certain relief to the assessee against which the Revenue is in appeal before us. 4. In its appeal, the Revenue has taken as many as 10 grounds of appeal. In most of the grounds, we find that the matter relating to rejection of books of accounts, determination of suppressed tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven disputed the quantum of addition which indicates that he was agreed with the quantum of additions but only he has repeatedly argued to reject the books of account as done in the assessment of the previous assessment year s and requested to apply the NP rate. All the replies filed by assessee during the course of assessment proceedings have been reproduced in every addition in which the assessee has repeated the same about applicability of NP rate and rejection of books. The contention of assessee for rejection of books on the basis of the judgment of Hon ble ITAT is also not seems correct because the judgment of the Hon ble ITAT is not applicable on this assessment as AO has not rejected the books of the assessee and has made the additions on the basis of impounded books and documents and regular books of account of assessee. Further, the Department has moved an appeal before the Hon ble Rajasthan High Court against said order of the Hon ble ITAT. 7. In this regard, we also refer to the finding of the ld. CIT(A) wherein he has upheld the action of the AO in referring the matter for special audit u/s 142(2A) of the Act. The ld CIT(A) has upheld the action of the AO r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems on which the special auditor has to give his report. Such items contained in the form No. 6B was also intimated to the special auditor. It is true that the A.O. required the auditor to examine all the account books, bills, vouchers, loose papers, documents, bank statement etc. and to prepare the cash inflow/outflow statements, cash books, ledger, trail balance, final accounts, trading and profit and loss account, balance sheet etc. for different assessment years as mentioned above with the aim to enable the Department to arrive at the true state of affairs of various concerns in which the assessee is associated either as a proprietor or partner. The basic purpose was for examined of the books of accounts and to give the comments on different issues including the violation of provisions of section 269SS, 269T and section 40A(3) of the IT Act. The A.O. has mentioned in the letter that audit is to be carried out in view of the provisions of Rule 14A. One has to read entire letter together and from this letter one cannot infer that the A.O. referred the matter for special audit for getting the books of accounts prepared. The facts in the instant case are distinguishable from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act provides that if any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the account, multiplicity of the transactions in the accounts or specialized nature of business activities of the assessee and the interest of the Revenue, is of the opinion that it is necessary to do so, he may with the previous approval of the Principal CIT direct the assessee to get the accounts audited by an accountant and to furnish a report of such audited accounts in the prescribed form duly signed and verify by such accountant setting forth such particulars as may be prescribed and such other particulars of the Assessing Officer may require. 11. In the instant case, a survey u/s 133A was carried out on 01.10.2008 at the business premises of the assessee. On the basis of nature and complexity of the accounts, loose papers and incriminating documents found during the course of survey, the case was referred for special audit u/s 142(2A) by CIT, Kota. The Assessing Officer has stated at para-3 of his assessment order as to the precise reasons as to why the case was referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther income as found out based on examination of the documents so impounded have been incorporated in the re-casted balance sheet and profit and loss account for the limited purposes of depicting a clear picture of fund flow of the assessee. The Assessing Officer has considered the defects so observed by the special auditor in his report and after giving an opportunity to the assessee made specific additions/disallowance as we have noted above. 14. However, we find that there is no specific finding which has been recorded by the Assessing Officer in the assessment order recording his satisfaction as to rejection of the books of accounts and the result so declared by the assessee. It is true that the matter was referred for special audit u/s 142(2A) but that by itself will not result in an implied finding of the AO about his non-satisfaction about the books of accounts and rejection thereof. As noted by the Coordinate Bench as well, the basic purpose for special audit was for examination of the books of accounts and to give specific comments on specific issues and it cannot be inferred that the matter for special audit was referred for getting the whole of the books of account re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,96,02,462 30,79,266 1,65,23,196 84.29% 16. As it is apparent from above table, turnover to the extent of 84.29% is as per the recorded transactions in the books of accounts of the assessee which has been considered by the AO and only the balance turnover to the extent of 15.71% is as per unrecorded transactions which has been found out based on the impounded documents. And there are corresponding expenses as recorded in the books of accounts which have been considered by the AO other than those which have been discovered and reported as per special audit. In light of the same, can it be inferred that the AO has rejected the whole of the books of accounts of the assessee. In our view, such a conclusion would be wholly untenable and incorrect in the present facts of the case. The reasons for the same is that firstly, the AO has not made any adjustment in relation to the books results so declared by the assessee in respect of reported transactions and infact, has accepted the same. When the book results relating to more than 84% of turnover have been accepted, can it be inferred that the books of accounts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct state of affairs of the assessee. In our considered view, there is nothing in the said provisions when empower the assessee to request the AO to reject his books of accounts. 19. Further, each year is separate year and the principle of res-judicata doesn t apply in the income tax proceedings. And we agree with the view of the AO that the contention of assessee for rejection of books on the basis of the past decisions of the Coordinate Bench also not seems correct because the judgment of the Coordinate Bench is not applicable on this assessment as AO has not rejected the books of the assessee and has made the additions on the basis of regular books of account of assessee as well as taking into consideration documents impounded during the course of survey and the report of the special auditor thereon. 20. In light of above discussions and in the entirety of facts and circumstances of the case, we are of the view that the books of accounts have not been rejected in the instant case. The findings of the ld CIT(A) to this extent is set-aside and the findings of the AO are confirmed. Estimation of net profit vis-a-vis specific disallowances/additions done by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were not rejected and therefore each addition should be considered separately. I have gone through the observation of A.O. and it was seen that in substance the A.O. never relied on the books of accounts of assessee and time and again this fact was mentioned by A.O. in the assessment order. Therefore, it is held that A.O. has in substance rejected the books of accounts after doing so, the A.O. should have computed estimated income by estimating turnover of assessee and should have applied net profit rate for computing the income of assessee. The net profit shown by assessee was ₹ 10,95,464/- on a turnover of ₹ 1,37,62,240/- which gave net profit rate of 7.96%. The net profit as per auditor was ₹ 8,81,116/- on a turnover of ₹ 1,57,64,044/- which gave a net profit rate of 5.59%. On the basis of facts before me, discrepancies pointed point by A.O., Hon ble ITAT s order, net profit rate on declared turnover is estimated @ 9% which gives net profit of ₹ 12,38,602/- resulting into addition of ₹ 1,43,138/-. The assessee, itself, has disclosed net profit rate of 8% on disclosed sales. As held by Hon ble ITAT ( in earlier years) some of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses since the A.O. neither rejected Books of Account of assessee nor estimate income by applying fixed net profit rate on assessee s sales. 24. The relevant findings of the ld. CIT(A) are as under:- I have gone through the AO s finding and assessee s submission and counter comments of A.O. The nature of transaction (labour transportation) itself shows that no work can be done without understanding between the parties. No person will carry out work without understanding about the scope of work and resultant consideration. The fact that work was done and payments were made itself shows that there was oral understanding between the parties about the scope of work and consideration. It is therefore held that there was contract between the parties. The assessee further submitted that once books of accounts are rejected no separate disallowance can be made. He placed his reliance on the following judgments:- i). CIT Vs. GK contractors (2009)19 DTR 305(Raj.). ii). Choudhary Bros. Vs. ITO 135 TTJ 55 (JP.) iii). ITO Vs. Sadhwani Bros. 58 DTR 368 (JP.) iv). Rajendra Kumar Kedia 22 TW 506 Kiran Udhyog 34 TW 80 While deciding the aforesaid iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rejected, estimation of net profit should be made in the instant case. Further, ld CIT(A) has held that where books of accounts have been rejected and net profit has been estimated, no separate additions can be made relying on the same books of accounts. The ld. CIT(A) has accordingly estimated net profit at 10% of the undeclared turnover and 9% of the declared turnover of the assessee and has deleted specific additions/disallowances of various expenses. 28. As we have held above, there is no basis to hold that the books of accounts have been rejected in the instant case. Where the books of accounts have not been rejected, there is no basis to estimate the net profit as done by the ld CIT(A). Consequently, there is no estoppel to make specific additions/disallowances in terms of section 40(a)(i), 40A(3) and other specific disallowances towards unexplained expenditure. In our view the Assessing officer has made the specific additions/disallowances based on specific material which is available on record and which has not been controverted by the assessee either during the assessment or appellate proceedings. During these proceedings, the contention of the assessee all along has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO are hereby confirmed. 30. Regarding other expenses namely excessive/ bogus expenses amounting to ₹ 2,63,189, unrecorded marble and granite purchase of ₹ 98,948, unrecorded purchases/labour and transportation charges of lime amounting to ₹ 8,49,286, unexplained expenses amounting to ₹ 1,14,800, unexplained expenses being repair maintenance of plant and machinery amounting to ₹ 2,64,877, unexplained transportation expenses amounting to ₹ 6,49,962, the assessee has again failed to offer any explanation in spite of specific show-cause by the AO and the additions have rightly been made by the AO which are hereby confirmed. Ground no. 3 (other than it relates to unrecorded sales/receipts/income discussed subsequently), ground 4 relating to additions u/s 40(a)(ia) and ground no. 6 relating to additions u/s 40A(3) are thus allowed in favour of the Revenue and the findings of the ld CIT(A) are set-aside. Suppressed production and unrecorded sales/receipts/income 31. Ground no. 2 relates to addition on account of suppressed production of ballast from Dabora and sales thereof. Ground no. 3 relates to unrecorded sales of grit of ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our explanation in this regard. In this reference the assessee in his reply dated 18.07.2012 submitted that we submit our gitti/dabora sales during FY 2008-09 is ₹ 9671086/- whereas during FY 2009-10 it is ₹ 1,79,90,046/-. In FY 2008-09 our disclosed NP is ₹ 10,95,464/- which is ₹ 1447526/- in FY. 2009-10. Rate of tax both in A.Y. 2009-10 2010-11 is same. There is therefore no reason for suppression of any income in A.Y. 2009-10 and pay tax thereon in A.Y. 2010-11. We, however, submit that if on this account any addition is made, it should be @ 6% of deemed disclosed sales and it s corresponding relief be provided in next year i.e. A.Y. 2010-11 wherefrom profit so worked out be reduced. Further vide this office letter dated 02.08.2012 the assessee was asked that he has not replied o the Query No. 12 of this office s questionnaire dated 25.06.2012 vide which in nut shell it was asked that out of total purchases of 60356 M.Tons dabora/ballast you have sold 31766.299 M.Tons as per recasted books and you have supplied 3339.450 M.Tons in the month of March 2009 as discussed in para 2 of letter dated 02.08.2012. Therefore, total sales of dabora/ballast com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra purchases 54595 M.Tons During the year The production at 80% comes to 43676 M.Tons During the year The assessee has also purchased Ballast 5761 M.Tons During the year Total ballast available 49437 M.Tons The assessee has sold 26017 M.Tons to Railway upto Feb. 2009 The assessee has sold 5749 M.Tons to persons other than Railway The assessee has sold 2717 M.Tons to Railway in March 2009 Total Sales 34483 M.Tons In this way, the assessee has suppressed the sales of 14954 Tones. The assessee has not shown the closing stock of the Dobara/ballast so 14954 M.Tons ballast is suppressed sales of the assessee. The assessee has sold ballast to the railway @ 367.50 per M.Ton so the total value comes to ₹ 54,95,595/- when the assessee has debited the expenditure upto March 2009 relating to manufacturing/ transportation for these sales he was maintaining his books of account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This gives a difference of 9799 metric ton. Taking the value of sale at ₹ 367.5 per metric ton, the suppressed sale figure comes to ₹ 36,01,132/-. The same is considered as undisclosed turnover of assessee and used for computing the income of assessee. This ground of appeal is therefore treated as partly allowed. 34.1 Ground no. 2 of the Revenue is therefore dismissed. 35. In Ground no. 3, the Revenue has challenged the deletion of addition on account of unrecorded sales of grit of ₹ 14,02,856, unrecorded loading receipts from Railways of ₹ 1,95,889, unrecorded sales of March 2009 of Dabora/ballast to Railway of ₹ 12,27,248, unrecorded income from crusher hire charges of ₹ 10,000, unrecorded sales as per Annexure-17 of ₹ 1,44,325. The total undisclosed turnover therefore comes to ₹ 30,69, 266. 36. The ld CIT(A) after taking into consideration the suppressed sales on account of undisclosed production of ₹ 36,01,132/- as decided above, has given a benefit of telescoping to the assessee and has brought to tax the undisclosed sale figure at at ₹ 36,01,132/- being higher of the two. We donot see any infirmity i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenged the deletion of addition of ₹ 5,03,251/- out of total addition of ₹ 8,67,670/- made by A.O. on account of peak of negative cash balance since the decision of Ld. CIT(A) rejecting the Books of Account of the assessee and estimating undisclosed income of the assessee at ₹ 5,03,251/- by applying net profit rate has not been accepted by the Department. 45. The relevant finding of the ld. CIT(A) is as under:- Considering the above the reply of the assessee cannot be accepted and on merits the findings of A.O. is confirmed. However, it would be fair and justified, if assessee is allowed benefit of telescoping. I have confirmed addition of ₹ 1,43,138/- on disclose sale and ₹ 3,60,113/- on undisclosed sales, totalling to ₹ 5,03,251/-. It is therefore held that this additional amount was available with assessee and to the extent of this amount negative cash balance is treated as explained. In the result, addition of ₹ 3,64,419/- (8,67,670-5,03,251) is confirmed. The A.O. is directed to delete balance addition of ₹ 5,03,251/-. This ground of appeal is therefore partly allowed. 46. We have pursued the material available on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled this amount in his cash book to increase his cash balance. This cash balance was introduced by the assessee in his cash book out of his income from undisclosed sources. Therefore, the same is added to the total income of the assessee. B. The assessee has given a cheque of ₹ 21,000/- to Patel Tyres on 13.08.08 from Bank A/c No. 8034 of PNB as evident from Ann- 30. The assessee has shown it as cash withdrawal in his audited books of account. Assessee filed reply stating that tyres for truck were intended to be purchased from Patel Tyres, and cheque was prepared, however neither tyres were purchased nor payment was made and therefore money withdrawn from Bank on strength of bearer cheque was taken in cash book. I have gone through the reply of the assessee and have not found it as tenable, because the assessee has opted some operandi, as he has taken above, and similarly he has made payment of ₹ 21,000/- to Patel Tyres on 13.08.2008 but simultaneously, he entered this cash in his cash book also Actually, this cash was earned by assessee from his undisclosed sources, therefore, it is added to his total income. C. The assessee has given a cheq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrong/suppressed sales purchases and inflated expenses entered in the books of account of the assessee. Looking to facts and circumstances of the case, an amount of ₹ 4,16,000/- (100000 + 21000 + 50000 + 245000) relating to paras A to D above is hereby added to the total income of the assessee. 50. The comment of the AO in the remand report called by the ld CIT(A) are reproduced below: i) The submission and certificate submitted by the appellant is baseless misleading and false. I am enclosing herewith the photocopy of Annexure- 1 (Page No. 26) in which it is clearly mentioned that this payment has been received by Swastik Crusher by self cheque which is marked now as exhibit ......B. ii) The payment of ₹ 21,000/- has been made by the appellant by cheque to Patel Tyres. I am enclosing herewith the photocopy of Annexure-30 Page No. 11 which is now marked as exhibit.....C and this is not cash withdrawal made by the appellant. Here the appellant is misleading your honour by saying that he has not made the payment to Patel Tyre and this is a withdrawal in cash from bank. The appellant has also made payment of ₹ 50,000/- by cheque to M/s S.S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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