TMI Blog2017 (10) TMI 480X X X X Extracts X X X X X X X X Extracts X X X X ..... gains of business or profession’ . Section 28 deals with computation of income from profits and gains of business or profession which is to be computed in accordance with the provisions contained in Section 30 to 43D which included Section 40A(3)/40A(3). Section 40A(1) has a non obstante clause ‘notwithstanding anything to the contrary contained in any other provision of the 1961 Act relating to the computation of income under the head ‘Profit and gains of business or profession’’ as is contained in Section 40A(1) and in our considered view even if accounts are rejected u/s 145(3), the AO can estimate income of the assessee by taking recourse to Section 40A(3) which has an overriding effect over Section 145(3) r.w.s. 144. The assessee in the instant case has admitted that books of accounts were rightly rejected by the AO u/s 145(3) and hence in our considered view, the AO has rightly framed assessment for AY 2009-10 which was upheld by learned CIT(A) which we are not inclined to interfered and hence we uphold/sustain the appellate order of learned CIT(A) and the additions are confirmed. The assessee fails in this appeal. So far as appeal of the assessee for AY 2008-09 AO shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that appeal was filed late by 123 days beyond the time stipulated u/s 253(3) for filing this appeal and prayer was made for condonation of delay of 123 days in filing this appeal which is supported by an application for condonation and the affidavit executed by the assessee. It was submitted that the assessee was suffering from huge financial losses and shock due to this huge demand raised against the assessee. It was submitted that huge demands raised against the assessee wherein additions of more than ₹ 30 crores have been made in the case of the assessee for AY 2008-09 and 2009-10 are in itself evidence that the assessee is facing huge financial difficulties. Reliance was placed on the decision of the Hon‟ble Supreme Court dated 09-06-2010 in the case of Investment Trust v. Ujagar Singh in Civil Appeal No. 2395 of 2008 and it was submitted that there is no malafide on the part of the assessee in filing this appeal later beyond the time stipulated u/s 253(3). Learned DR objected to the condonation of delay of 123 days in filing of this appeal late beyond the time stipulated u/s 253(3). It was submitted by learned DR that there was a delay of 123 days in filing this ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee beyond the time stipulated u/s 253(3). We admit this appeal in ITA no. 4896/Mum/2015 for AY 2008-09 which was filed late by the assesee by 123 days than the time prescribed u/s 253(3). We order accordingly. Appeal No. ITA no. 2135/Mum/2013-Assessment Year 2009-10 3. First we shall take the appeal of the assessee in ITA no. 2135/Mum/2013 for assessment year 2009-10. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as under:- 1. The learned Commissioner of Income Tax, (Appeals)-33, Mumbai erred in confirming the addition made by the learned A.O. without appreciating the fact that your appellant has purchased the materials from various parties and sold to various parties and as such, it cannot be stated that the purchases are not genuine. 1.1 Your appellant submits that your appellant has given the details as well as various judgments of High Courts which the learned CIT(A) ought to have considered. 1.2 Your appellant submits that while passing the order the learned A.O. has accepted the sales made by your appellant without considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered view that these grounds are legal grounds and goes to the root of matter for adjudication of this appeal . We have observed that adjudication of these additional grounds of appeal does not also require investigation of fresh facts and can be adjudicated based on material on record . Hence we are hereby directing these additional grounds to be admitted in the interest of substantial justice and thereafter to be adjudicated on merits keeping in view ratio of decision of Hon‟ble Supreme Court in the case of National Thermal Power Corp. Ltd. v. CIT (1998) 229 ITR 383(SC). We order accordingly. 6. The Brief facts of the case are that the assessee is in the business of fabric and garments export in the name of M/s. SAI and declared net profit of ₹ 7, 85, 615/- on turnover of ₹ 7.50 crores in the previous year relevant to the assessment year 2009-10, as against profit of ₹ 7, 50, 786/- on turnover of ₹ 13.41 crores declared in the assessment year 2008-09 . The case of the assessee for AY 2009-10 was selected for the scrutiny for framing assessment u/s 143(3) r.w.s. 143(2). Several notices were issued to the assessee during the course of assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortunity of being heard was provided to the assessee but the assessee did not either attended the hearing nor necessary documents were filed by the assessee. The A.O observed that assessee has deliberately delayed the proceedings and took it to the fag end till the time barring date i.e. 31st December 2011 so that proper enquiry could not be made by the Revenue. The assessee, however, produced copies of return of income filed, computation of income, Balance Sheet, Profit and Loss account, Tax audit report in form no. 3CB and 3CD, Party wise sale and purchase details were also submitted by the assessee before the AO during the course of assessment proceedings . However, books of accounts with bills and vouchers were not produced but certain ledger accounts were produced. The assessee was asked by the AO to submit details of purchase parties, the assessee submitted following details:- S.No Name Address Closing amount 1 Advance Finstock Plot no 122, Sector no 10. Juhu Gaon Panvel Dist. Raigad - 410206 42,48,075/- 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mateshwari Enterprices Raj complex Gr. Floor Off no. 17,37,000/- 8 Plot no.8/18, Vapi-396165 17. Mittal Trading Co Guru Chembers, 1st floor, Off no. 19, Soman Nagar, Surat395002 7,62,000/- 18. Mittal Enterprises 57/75, ShivShakti, Opp Krishna Zerox, Market Road, Vashi 7,20,000/- 19. Om Textiles Kapadia Mention, 322, Sir JJ Road, Opp JJ Hospital Mumbai 400008 5,80,255/- 20. Pawan Sheth Traders Shreeji Mention, 3rd floor, Off no 21, Gurudwara Lane, Kandivali(E) 36,00,000/- 21 Raju Traders 9, Ram Niwas Opp B P PetRam ro, PuNiwasmp, Dr Ambedkar l Road , Parel Mumba. i 14,40,000/- 22 Ratan Enterprises 47,Astavinayak, Sai Marg, Old Hanuman Lane, Malad E 56,03,500/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : S no Purchase party name Remark 1 B K Enterprises Not known 2 Vijay Laxmi Traders Not known . 3 Advance Finstock Try vashi Post office 4 Soni Brothers Not Known 5 Shubh Trading Co Not Known 6 Karnimata Emporium Not known 7 Ratan Enterprises Not Known 8 Keshav Enterprises Not known 9 Sona Traders No remark 10 Pawansheth traders No remark Thereafter, A.O issued notices to the remaining 20 purchasing parties u/s. 133(6) which envelops containing notices u/s 133(6) also returned unnerved by the postal department with the following remarks. No Purchase party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is no such Raoji House on 311 Kalbadevi and no such concern known at 311 Kalbadevi 2. Karnimata Emporium Laxm Building Gokhle Road Kalbadevi Mumbai 02 There is no Gokhale Road in Kalbadevi area 3 Keshav Enterprises 325 Ground floor, Mumbai 02 No such concern at Kalbadevi Road 4 Ajay Impex Address not located 5 J K Textiles Address not located 6 Kalpana Textile Incomplete address 7 Om Textiles Address not located 8 Raju Traders Address not located 9 Real Trading Incomplete address 10 Shubh Trading Co Address not located 11 Vora Associates Address not located 12 Vijay laxmi Trader Address not lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber HDFC Bank, Fort Branch. The AO made enquiries with RNS bank who submitted that they do not have any bank account in the name and style of M/s. Vijay Laxmi Traders . On enquiry with the bankers RNS Bank it was found that these cheques were deposited in the other bank account maintained by Shubh Impex proprietor Mr. Suhel Parvez Ansari Current Account no. 1054 which is a third party account for the assessee. It was observed by the A.O that cheques has been deposited in the third party bank accounts because the same were not marked as account payee cheques. The A.O called for the bank account opening form and bank statement of M/s. Shubh Impex from RNS bank and it was observed it was open only on 17th July, 2008 and was closed on 6th March, 2009 which means it was in existence for part of the financial years and huge entries of big amounts with no small amount transactions in the said bank account led AO to conclude that the bank accounts were used for accommodation entries. The AO observed that the said bank account was having good daily turnover but suddenly on 6th March, 2009 it was closed. Summons were issued u/s. 131 to Shubh Impex but the said summons returned uns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 15.12.2011 wherein the assessee admitted that some time bearer cheques were issued and no account payee cheque were issued. The assessee in reply of question no 32 and 33 submitted as under:- Q no. 32 Whether the cheques were issued as bearer cheque? Ans. Sometimes the cheque were issued bearer but mostly crossed cheque were issued. Q no. 33 Whether the cheques for purchases were issued account payee? Ans As far as I remember, the cheques were crossed only because as per my understanding, as and when cheque is crossed, it goes in the account for which name the cheque is issued . Show cause notices were issued by the A.O to the assessee with respect to the proposed addition of ₹ 53, 82, 379/- u/s. 69C for peak unaccounted expenditure and addition of ₹ 17, 99, 90, 677/- u/s. 40A(3) of the Act .The content of the notice is as under:- No.ITO 22( I )-2/scrutiny/shocause/20 I 1-12/64 Dated: 22/12/2011 PAN: AGPPS 6788L Mr Iqbal Ahmed Khalil Ahmed Subedar Shop no I, Jamnabai Chawl, Opp Naval Depot, Chirag Nagar, Ghatkopar W, Mumbai 86 Sub: Final showcause notice for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parte basis u/s 144 as details are not complete. II Please explain as to why penalty proceedings u/s 271(1)(b) should not be initiated. III Notices u/s 133(6) for purchase verification issued the following parties but returned unserved by the postal department: M/s B K Enterprises; M/s Vijay Laxmi Traders; M/s Soni Brothers; M/s Shubh Trading Co; M/s Karnimata Emporium; M/s Ratan Enterprises; M/s Keshav Enterprises; M/s Sana Tradings and M/s Pawan Sheth Traders. Please explain as to why there purchase parties should not be treated as the parties who did not supply any material to assessee and the transactions are non genuine transactions. Please provide names and addresses (latest/ changed) of all purchase parties with purchase amounts for A Y 2008-09 and 2009-10. IV He is confronted UBI letter dated 16/11/2011 enclosing copy of cheque issued to M/s Vijay Laxmi Trader wherein the cheque is not crossed and letter from Rajkot Nagrik Sahakari Bank dated 18.11.2011 wherein the presenter bank of the cheque favouring M/s Vijay Laxmi Trader stated that the presenter bank does not have account of M/s Vijay Laxmi Trader. Please explain as to why total purchase amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 20 To whom you were exporting! Ans I was exporting to different parties in Dubai, Saudi Arab, Lagos (SA) etc Qno 21 How was you procuring orders for the export? Ans There was one person from our residential area Chirag Nagar Mr Javed Manjuti who was working in Dubai. Besides working as salesman for some garment trading firm, he was also working as part time commission agent for garment traders in Dubai. I contacted him and he was used to provide me sample of required material with rate and quantity through courier to my office address. Q no. 22 What were you doing after getting the orders? Ans. Mainly the orders were received for ladies items which require fabric with embroidery or stitching. There was one person Mr Pramod in the local Garment market at Kalbadevi. Mr Pramod were used to make arrangement for fabric purchases on credit basis. After getting fabric, embroidery and stitching work was arranged by me at Govandi on the basis of sample. The sample was packed at there and exported through CFA M/s Merchant Sons. In case, readymade items were available as per sample, Mr Pramod make arrangement for purchase of these items. Qno 23 Please p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only because as per my understanding, as and when cheque is crossed, it goes in the account (or which name the cheque is issued. Qno 34 Do you have any labour bills for Govandi labour parties? Ans In order to be cost effective, the stitching or embroidery jobs were completed through Govandi household parties and these person works from their home and they did not issue any bill. Q no 35 How did you make payment to these parties? Ans Payments to all the stitching or embroidery workers from Govandi area were made in cash only. Q no 36 How did you make arrangement (or the cash as your bank statement does not show cash withdrawal? Ans Mainly, the required cash was arranged against cheques through Mr Pramod. Qno 37 What is the status of duty draw back and DEPB receivable? Ans DEPB had been sold out and duty draw back had also been received from the Customs Department . Qno 38 Please provide return of income, Balance sheet and tax audit report for A Y 20 10-11 and 2011-12? Ans Please give me one days time for submission of these documents for AY 2010-11. As far as return of income for AY 2011- 12 is concerned, it is not filed til ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2008 and closed on 06/03/2009. Nature of entries in the bank account shows that the account was used to give accommodation entries and the account was operated fly by night operators and no genuine business was conducted by M/s Shubh Impex. Furthermore, you have shown payment of ₹ 19, 00, 000/- to M/s Vijay Laxmi Traders through your North Canara GSB Co op Bank, Ghatkopar W Branch. But on perusal of your bank statement with the bank, it is seen that you yourself withdrawn cash amount from the bank account and no cheque payment was made. This is a purely cash withdrawal transaction. This again shows that M/s Vijay Laxmi Traders was nothing but only accommodation entry provider. iii Similar inquiries were conducted in another party M/s B K Enterprises from which you shown purchases of ₹ 48, 82, 000/-. You issued five cheques ( not account payee) in the name of M/s B K Enterprises. On inquiries from AX S Crawford Market branch and your banker Union Bank of India, Kalbadevi branch, it is found that these cheques were credited in account of M/s B K Enterprises account no 255610200012032 maintained with Prince Anwar Shah Road, Kolkata, West Bengal with AXIS Bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission agent in making purchases. But when inquiries from all modes started and you were showcaused vide order sheet dated 21/11/2011 and 24/11/2011, you changed your stand in planned manner and vide order sheet dated 09/12/2011, you submitted that these purchases were arranged through Mr Pramod. Furthermore, in order to lead the inquiries to dead end, you strategically submitted that Mr Pramod left the business and you do not know anything about him. 4. With these facts, it is found that you purchased the material on cash basis and used accommodation entry operators to encash the cheques ( not account payee ) issued in the name of incorrect and bogus suppliers. Please explain as to why all purchases should not be treated as cash purchases and treated as unaccounted expenditure u/s 69C of the Income tax Act, 1961 after credit of cheques debited in your account. In order to give you credit for cheque debited in your account and received cash from the accommodation entry providers, a working sheet is prepared and provided to you alongwith the showcause notice. As per the enclosed working, maximum of negative cash balance arrives at ₹ 53, 82, 379/- on 19/05/200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hases on credit basis as there were no genuine parties from whom purchases were made and there is no confirmations from these parties who could confirm that they sold goods to the assessee. The A.O worked out peak statements of the assessee for A.Y 2009-10 which was worked out to negative cash balance of ₹ 53, 82, 379/- on 19th May, 2008 and the assessee was show caused about the same. The assessee in reply produced purchase register for relevant period for A.Y 2008-09 and A.O on that basis arrived at peak statement of negative cash balance for A.Y 2008-09 and 2009-10 which worked out to be ₹ 13, 67, 62, 973/- on 26th Jan, 2008 which pertain to the assessment year 2008-09 . Since for the current previous year relevant to A.Y 2009-10, negative peak balance of ₹ 53, 82, 379/- was below ₹ 13, 67, 62, 973/-, no addition for A.Y 2009-10 was made by the AO u/s. 69C of the Act. The A.O held that appropriate action for peak balance of ₹ 13, 67, 62, 973/- for A.Y 2009-10 will be taken separately. Additions u/s. 40A(3) and 40A(3A) AY 2009-10- it was observed by the A.O that assessee has issued cheques without writing name of the party and without m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of assessee. The assessee also referred to various decisions of the courts which are listed in page 15 to support its above contentions. The learned CIT(A) rejected the contentions of the assessee. The learned CIT(A) observed that A.O has made detailed enquires after giving several opportunities to the assessee and assessee did not comply or made partial compliance to such opportunities granted by the AO. The learned CIT(A) observed that the A.O has made detailed enquiries after giving number of opportunities to the assessee and the assessee has on majority of dates did not appeared before the AO or made partial compliances. The learned CIT(A) observed that field enquiries in the case of 30 parties were conducted wherein information were called u/s. 133(6) . The learned CIT(A) observed that the AO deputed Inspector to verify the purchase parties and it was observed that not even a single party was conducting business at the addresses provided by the assessee . The learned CIT(A) observed that information was called by the AO from various banks with respect to the purchase parties and it was observed that payments were either made in cash to these parties as there were cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified the appellate order by holding that disallowance in the impugned assessment year is to be made u/s. 69C and not u/s 40A(3) and 40A(3A) as were done by learned CIT(A) in his original appellate order dated 25-02-2015 for AY 2008-09, by holding as under :- Findings in Original Appellate Order dated 25-02-2015 - AY2008-09 Since the facts of the case and issues in the year under consideration remaining the same, respectfully, following the order of my predecessor, the disallowance made by the Assessing Officer is hereby confirmed by invoking sections 40A(3) and 40A{3A) of the I.T. Act, 1961. Grounds raised by the appellant are accordingly dismissed The learned CIT(A) made the following amendments by holding as under vide rectification order dated 16-02-2017 passed u/s 154 by learned CIT(A) for AY 2008-09:- Since the facts of the case and issues in the year under consideration remaining the same, respectfully, following the order of my predecessor, the disallowance made by the A.O is hereby confirmed by invoking section 69C of the I.T. Act, 1961, Grounds raised by he appellant are accordingly dismissed. 9. Aggrieved by appellate orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .04.2008 to 31st March, 2009 were to the tune of ₹ 17, 99, 90, 677/- which were not account payee cheques. It was submitted that A.O has alleged that there are purchases from undisclosed sources in cash and hence addition has been made of the peak negative cash balance and it was found by the AO that peak negative cash balance was of ₹ 13, 67, 62, 973/- as on 26-01-2008 which was added in AY 2008-09 u/s 69C while no additions were made in AY 2009-10 towards peak negative cash balance . It was submitted that assessee has started his business on 02.07.2007. It was submitted that books of accounts were rejected for A.Y 2009-10 u/s 145(3) . It was submitted that once the AO has rejected the books of accounts, then he cannot have recourse to the same books of accounts and make additions u/s. 40A(3)/40A(3A) . It was submitted that no additions has been made by the AO u/s. 69C for the A.Y. 2009-10. It was submitted that Section 40A(3)/40A(3A) cannot be invoked in case books of accounts are rejected. The Ld. Counsel of the assessee relied upon the decision of Hon‟ble Bombay High Court in the case of Ranka Jewellers v. ACIT (2011) 238 CTR 153 (Bom). He also relied upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it was held by the AO that actual purchases have been made in cash . It was submitted that learned CIT(A) rightly rejected the books of accounts u/s 145(3). The learned CIT(A) has confirmed the disallowance u/s. 40A(3)/40A(3A) which was later being rectified by an order passed by learned CIT(A) dated 16-02-2017 u/s 154 wherein additions have been affirmed u/s 69C. It was submitted that the books of accounts were rightly rejected u/s 145(3). It was further submitted that Section 145(3) does not allow the A.O power to make assessment in the manner done by the A.O. as after rejecting books of accounts, the AO has to estimate profits and he cannot have recourse to Section 69C. The Ld. Counsel for the assessee submitted that parties could not be produced before the authorities below as assessee does not have control over purchasing parties . It was submitted that books of accounts could not be produced before the authorities below. It was submitted only ledger accounts were produced and even purchase bills were not submitted . It was submitted that notices u/s 133(6) were issued to various parties by the A.O but the said parties did not existed at the known addresses. 11. The Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no application as no evidences has been produced before the A.O. that the bank were closed due to holidays or the bank were situated in remote areas/villages . It was submitted that Section 40A(3) and 40A(3A) being deeming provision which creates fiction and income is to be deemed under certain situation and as real income cannot be brought to tax then deeming provision will come into picture and income will be brought to tax under deeming fiction. It was submitted that no disallowance has been made under Section 69C for A.Y 2009-10. Our attention was drawn to rectification order passed by learned CIT(A) u/s 154 on 16.02.2017 where in disallowance has been confined to section 69C for AY 2008-09 instead of Section 40A(3) / 40A(3) as was earlier upheld by learned CIT(A). It was submitted that the purchasing parties from whom assessee made purchases were not genuine and only purchase register was produced. It was submitted that for A.Y 2008-09 books of accounts were not rejected. It was submitted the entire addition u/s. 69C for A.Y 2008-09 be upheld and he relied upon the decision of ITAT-Ahmedabad in the case of Vijay Proteins Ltd. v. ACIT reported in (1996) 58 ITD 428(Ahd.) . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29/07/11 08/08/11 -do- iv. 142(1) 28/08/11 06/09/11 -do- v. Show cause for initiation of penalty and exparte assessment 12/09/11 22/09/11 -do- vi. Order Sheet on appearance of accountant 18/10/11 24/10/11 Partial compliance in tapal vii. 142(1) 31/11/11 09/11/11 Non compliance viii. Accountant appeared 21/11/11 24/11/11 Attended but without details ix. Order sheet 24/11/11 25/11/11 Non compliance x. Assessee appeared on dated 09/12/11 without any paper or details 09/12/11 12/12/11 Non compliance xi. Assessee appeared on dated 16/12/11 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Bldg Lajpat Nagar, Surat - 395536 21,86,712/- 6 Durga Trading 311, Gr Floor, Raoji House, Kalbadevi, Mumbai 400 002 7,95,000/- 7 Elegance Trading n Off no 50, 4th floor, Maya apartment, Dahisar E, Mumbai 400 068 3,00,000/- 8 Jayes Corporation D -281,Shiv Market, Ring Road, Surat -395002 3,22,134/- 9 J K Textiles 12, Pardiwala Chawl, Opp Sidhivinayak, Nivara SJ Bldg, Marg, Lower Parel(W) 13,09,680/- 10 JMDE Pack Real Ltd Shop No.13 Gate no 5, Shanghai naqar', Pateli , Surat -394540 25,66,500 11 I Kalapna Textiles Shop no 7, Laxmi College, Dr 13,31,139/- . Ambedkar Road, Parel Mumbai 12 Karnimata Emporium Laxmi Bhawan Bldg Gokha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sapna Hsg CHS, 1st floor, Off 19, M F Road O Ganesh Lno ibr Mulund(E) , p 47,94,900/- 28 Soni Brothers Mulund[E) 346-A, Seffroan House ,Link 19,55,242/- Road, Khar (West). Mumbai -52 29 Vijay Laxm' Traders Mahalaxmi Bldg 1st floor, Off no 14, Near Durga Hotel, Ram Nagar, Mira Road 1,00,98,483/- 30 Vora Traders Suvijay Bldg, Ground Floor, Off no 08, Fish Market, NM Joshi Marg, Kurla- W 16,34,320/- In order to verify purchases from the said parties, notices u/s 133(6) were issued by the AO to these purchasing parties asking for details but the said notices u/s 133(6) could not be served on these parties and most of the notices returned unserved as the said parties were not existing at those addresses . Enquiries were also made through ward inspector who also reported that these purchasing parties are not existing at the given addresses. The A.O, then proceede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bankers RNS Bank it was found by the AO that these cheques were deposited in the other bank account maintained by Shubh Impex proprietor Mr. Suhel Parvez Ansari Current Account no. 1054 which is a third party account for the assessee. It was observed by the A.O that cheques has been deposited in the third party bank accounts because the same were not marked as an account payee cheques. The A.O called for the bank account opening form and bank statement of M/s. Shubh Impex from RNS bank and it was observed that it was open only on 17th July, 2008 and was closed on 6th March, 2009 which means it was in existence for part of the financial years and huge entries of big amounts with no small amount transactions in the said bank account led AO to conclude that the bank accounts were used for accommodation entries. The AO observed that the said bank account was having good daily turnover but suddenly on 6th March, 2009 it was closed. Summons were issued by the AO u/s. 131 to Shubh Impex but the said summons returned unserved by postal authorities with remarks left‟. The inspector was deputed to verify the address and he reported that Mr. Suhel Parvez Ansari Prop Shubh Imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply of question no 32 and 33 submitted as under:- Q no. 32 Whether the cheques were issued as bearer cheque? Ans. Sometimes the cheque were issued bearer but mostly crossed cheque were issued. Q no. 33 Whether the cheques for purchases were issued account payee? Ans As far as I remember, the cheques were crossed only because as per my understanding, as and when cheque is crossed, it goes in the account for which name the cheque is issued . Show cause notice was issued by the AO to the assessee but the assessee did not submit any reply before the A.O to the SCN issued by the AO despite several opportunities being granted by the AO to the assessee .The A.O observed that the assessee have made actual purchases in cash above of ₹ 20, 000/- without bills which are not accounted for in its books of accounts and in order to generate required cash, the assessee handed over cheques which were not account payee cheques and party name were also left blank to the accommodation entry providers and received cash payment in lieu of such cheques and these accommodation entry parties were shown as purchase parties. The AO observed that these books of accounts di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O vide annexure attached to the A.O assessment order, which cheques were issued without marking account payee by the assessee. The A.O observed that there is no business expediency or any other factor for issuing cheques other than account payee cheques. The AO also observed that the assessee works in Mumbai and banking facilities are excellent. The A.O observed that it has infringed section 40A(3) and 40A(3A) of the Act and hence additions were made to the tune of ₹ 17, 99, 90, 677/- by the AO. Later learned CIT(A) dismissed the appeal of the assessee and confirmed the additions made by the AO for AY 2009-10 for which detailed discussions are there in preceding para‟s of this order which are not repeated here for sake of brevity. The books of accounts of the assessee were rejected u/s 145(3) of the Act for AY 2009-10, the assessee is not disputing the action of Revenue in rejection of the books of account u/s.145(3) of the Act and the assessee is submitting before the Bench that books of accounts were rightly rejected by the AO and it was submitted that there is no dispute as far as rejection of books of accounts by Revenue for AY 2009-10 is concerned. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the amount of payment exceeds twenty thousand rupees: Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under this sub-section where any payment in a sum exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.] The following sub-sections (3) and (3A) shall be substituted for sub-section (3) of section 40A by the Finance Act, 2008, w.e.f. 1-4-2009 : (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payeee cheque drawn on a bank or account payeee bank draft , exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. (3A) Where an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section.] [(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.] [ Method of accounting. 145. (1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Hon‟ble Punjab and Haryana Court in the case of CIT v. Smt. Santosh Jain(supra). It is a case where there was some part of the business which was conducted outside books of accounts which was unearthed during the course of search by Revenue. The AO computed income from said business by applying GP rate and the Hon‟ble Courts held that the application of GP rate will takes care of the expenditure otherwise than by way of crossed cheques in violation of Section 40A(3) r.w.r. 6DD(j) of Income-tax Rules, 1962 as no deduction was allowed to and claimed by the assesse in respect of the purchases. It was held that when GP rate is applied, that would take care of everything and there is no need to make scrutiny of the amount incurred on the purchases by the assessee. The Hon‟ble High Court relied upon decision of Hon‟ble Allahabad High Court in the case of CIT v. Banwarilal Banshidar(supra) for coming to aforesaid conclusion . But in the instant case before us, the AO after rejecting books of accounts u/s 145(3) has not applied GP Ratio to estimate income rather Section 40A(3)/40A(3A) were invoked to estimate income which is to be tested by us on the threshol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Hon‟ble Supreme Court to the factual matrix of the instant case before us in succeeding para‟s of this order. f) The assessee has also placed reliance on the decision of Hon‟ble Supreme Court in the case of Godhra Electricity Co. Ltd v. CIT(supra) wherein Hon‟ble Supreme Court has held that only real income which has accrued to the assessee can be brought to tax. We will apply this proposition of law as laid down by Hon‟ble Supreme Court to the factual matrix of the instant case before us in succeeding para‟s of this order. The learned DR has relied upon decision of Hon‟ble High Court of Gujarat in the case of Rajmoti Industries v. ACIT(supra) wherein it is held that if payment exceeding ₹ 20000/- was made otherwise than by account payee cheque or draft, Section 40A(3) stood infringed even if payment is made by crossed cheque after amendment to Section 40A(3) w.e.f. 13-07-2006. The learned DR also relied upon decision of Hon‟ble Supreme Court in the case of N K Proteins Limited (Supra) wherein Hon‟ble Supreme Court has upheld additions to the tune of 100% of bogus purchases.The learned DR also relied upon decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either in inclusive, expansive or exhaustive manners or even giving rise to deeming fictions. It is not mandatory that every term used in the statute must carry its definition under the Act itself. Terms which are not defined would be open to interpretation in its ordinary sense of the term. 11. It is indisputable that the term an account payee cheque is well understood and signifies cheque which carries a mandate to have the amount mentioned in the cheque to be paid to the drawee of the cheque. In common parlance and as per RBI directives, it would, thereafter, not be open to the drawee of the cheque to endorse the cheque in favour of another person. In this context, we may refer to RBI directives contained in its circular dated 23.1.2006 to the banks. 12. Though this circular was not presented before the Tribunal, the Tribunal did take note of RBI directives in this respect. We notice that the circular provides as under:- As banks are aware an account payee cheque is required to be collected for the payee constituent. As regards, account payee cheques drawn in favour of the banks, it had been indicated, vide our circular DBOD.No.BC.23/21.01.001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect to the cheques drawn by a bank payable to another bank. Instructions contained in the Bank's circular DBOD No.BC.23/21/01.001.92 dated September 9, 1992 shall stand modified to that extent. 5. These directions are issued in exercise of the powers conferred under section 35A of the Banking Regulation Act, 1949. 13. This circular was issued by RBI in exercise of powers under section 35A of the Banking Regulations Act, 1949, which empowers the Reserve Bank of India to give directions where it is satisfied that in the public interest or in the interest of the banking policy or to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company or to secure the proper management of any banking company generally. Thus in exercise of statutory powers such directions came to be issued. Such directions clearly mandate that the banks would be prohibited from crediting account payee cheque to the account of any person other than the payee named therein. RBI further directed the banks that they should not collect account payee cheques for any perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t addition of the words A/c Payee or A/c. Payee only referred to the payee named in the cheque and not the holder at the time of the presentation and that would not prevent further negotiability of the cheque. For the same purpose reliance was also placed on the decision of the Calcutta High Court in the case of Tailors Priya v. Gulabchand Danraj AIR 1963 Cal. 36. In the three Judge Bench judgment, Justice D.N. Sinha in separate concurring judgment touched the aspect of negotiability of an account payee cheque and observed as under:- '18. This curious position in law is not known to the public at large. It is generally believed that by crossing a cheque with the words a/c payee only , it is made non-negotiable. Indeed, such endorsements are made in order to render it non-negotiable, and as a measure of safety. In my opinion, the law on the point should be reconsidered and there is no reason why we should blindly follow the English law on the point. However, the position seems to have been so uniformly accepted by text book writers, both in England and India, that I am unable to depart from that view on the strength of my own feelings about it. The matter shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing incriminating material and there is prohibition to use such material against the assessee under such situations . We have carefully gone through the cited judgments and perusal thereof but we could not find any absolute bar on the AO to use incriminating material unearthed as a result of an enquiry and / or investigation while computing income while framing best judgment assessment after rejecting books of accounts rather relied upon judgments by the assessee itself have held that only when AO chooses to estimate profits while framing best judgment assessment, then there is no need to apply provisions of Section 40A(3), 68 and 69 but it is not so otherwise round that when books of accounts are rejected by the AO u/s 145(3) and he did not estimate income by applying profitability, then there is embargo on applying section 40A(3), 68 and 69. Herein the instant case, the AO has not applied the profitability rates to compute income. It is important at this stage to refer to following important judicial pronouncements on the relevant subject: a) Hon‟ble Supreme Court in the case CST v. H.M.Esufali H.M.Abdulali reported in (1973) 90 ITR 271(SC) has explained the distinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The law relating to best judgment assessment is the same both in the case of income-tax assessment as well as in the case of sales tax assessment. Reference is also drawn to decision of Hon‟ble High Court of Lahore in the case of Seth Gurmukh Singh v. CIT reported in (1944) 12 ITR 393|(Lah), wherein Justice Mohammad Munir writing his separate judgment held in context of Income-tax Act, 1922 as under: When an assessee produces books of account either in support of his return or as special evidence on a point specified by the Income-tax Officer, the Income-tax Officer has to examine the books in the same way as he would examine any other evidence produced by the assessee under rub-section (3) of Section 23. If the objection to the books is merely one of method or if the books are unreliable merely in the sense that, though they are a correct record of the assessee's transactions, they have been kept in such a manner that they do not ex facie reveal the true result of the assessee's trading activity during the previous year, and the Income-tax Officer can, in some manner, make them the basis of computation of the assessee's income for the previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deducted from the gross receipt of the sum of ₹ 87, 51, 092 received under the award of the Arbitrator. It is in that view of the matter he has treated the entire sum of ₹ 87, 51, 092 as income. The first appellate authority had adverted to the contentions of the assessee with reference to the payments made to the sub-contractors. However, the first appellate authority has taken the view that this is at the most a case for rejection of the accounts and that if the accounts are rejected the income has to be estimated. The first appellate authority was of the view that when the income is being estimated there is no question of making separate additions in the light of certain decisions of the other courts. The first appellate authority, therefore, after rejecting the books, had resorted to the estimation of income on percentage basis. Here, it must be noted that the first appellate authority did not thereafter make any reference to the books of accounts and other documents relied on by the assessee for the purpose of estimation of income. In other words he had totally discarded the materials available in the form of books of accounts and other documents. He had re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. We note that apart from the general observations made by the Tribunal on the merits of the matter, there is no due consideration of the case of the assessee or of the Department in regard to the acceptance of the books of accounts or the estimation of the income with reference to all the materials available on record including the books of account and documents. 6. The question on which notice was issued in the departmental appeal relates to the justification for interfering with the order of the Assessing Officer in estimating the income with reference to the books of accounts and other documents by substituting it with determination of profit on percentage basis. As we have already noted the first appellate authority, without considering the case of the assessee based on the books of accounts and other records, had straightaway thought that this is a fit case for estimation of profit on percentage basis. We do not think that on the facts of this case the first appellate authority was justified in adopting such a course. The Tribunal has also committed the mistake in approving the estimation of income adopted by the first appellate authority. In these circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn in Section 144 of the Act. The courts shall not normally interfere with the best judgment of the AO in framing best judgment assessment to compute income of the tax-payer unless perversity is shown to have occurred in the decisions of the AO or it could be shown that AO did not acted honestly in computing income of the assessee after taking recourse to best judgment assessment. The assessee has also raised a feeble plea to seek protection u/r 6DD(g) and (j) of the 1962 Rules but no material is placed on record as to how the assessee is covered by said rule and this contention is merely a bald condition as no material on record supports the contention of the assessee. Perusal of Section 144 clearly reveals that in case the AO is not satisfied with the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144. Perusal of Section 144 would clearly reveals that the AO , after taking into account all relevant material whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered and hence we uphold/sustain the appellate order of learned CIT(A) and the additions are confirmed. The assessee fails in this appeal. We order accordingly. 19. In the result appeal of the assessee in ITA no. 2185/Mum/2013 for AY 2009-10 is dismissed . 20. So far as appeal of the assessee in ITA no. 4896/Mum/2015 for AY 2008-09 is concerned, we are of the considered view that our decision in ITA no.2185/Mum/2013 for AY 2009-10 shall apply mutatis mutandis to the appeal for AY 2008-09 as facts situation are similar in both the appeals and the AO shall work out disallowance in the similar manner as for AY 2008-09 as was done for AY 2009-10 by invoking applicable provisions of Section 40A(3)(a) and (b). We also have noticed that assessment for AY 2008-09 was framed by the AO by invoking Section 69C wherein all purchases stood dismissed, while for framing assessment for AY 2009-10, the AO invoked Section 40A(3)/40A(3A) wherein disallowance has been made based on payments made to the so called purchasing parties in excess of ₹ 20000/- otherwise than by account payee cheque or account payee draft which has led to double jeopardy to the assessee as the assessee has open ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
