TMI Blog2020 (3) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... (10) TMI 2 - SUPREME COURT] what is therefore, required is to make an honest and fair estimate of income and such estimate of income should have a reasonable nexus to the available material and the circumstances of the case. In the instant case, we find that the Assessing officer has disallowed 15% of material, wages, office and petrol expenses amounting to ₹ 11,84,522 for the reason that the assessee has failed to substantiate these expenses, however, on what basis/rationale, he has arrived at the figure of 15% has not been specified. There is no finding that there are any specific expenses which have either not been incurred for the purposes of business or are bogus in nature, therefore, in absence of any specific finding by the Assessing officer, the disallowance so made is directed to be deleted. Further, interest and remuneration to partners have been disallowed due to specific provisions of section 184(5) which provides that where there is a failure on part of the firm as is mentioned in section 144 of the Act, no deduction by way of interest and remuneration shall be allowed. Given the specific bar in the statute against allowance of such interest and remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 4,29,625/- for shortage of cash which is covered on application of N.P. Rate on civil construction contract as the books of accounts were not accepted as correct and complete; and (b) Disallowance of 15% of expenses of ₹ 11,84,522/- incurred in carrying out contract work. 3. Ld. CIT(A) has erred in law in not admitting the additional ground in respect of alliawability of ₹ 1,56,732/- for interest on capital contribution and ₹ 2,40,000/- for remuneration to working partners which was originally allowed by the Ld. AO but later on disallowed/withdrawn through rectification order dt. 06.08.2013 u/s 154 of the IT Act i.e. after about 21 months of filing the appeal by assessee against order dt. 14.11.2011, ignoring the law laid down by Hon ble jurisdictional High Court (245 ITR 527). 4. Additional and legal ground of appeal: Ld. CIT(A) has erred in law in not allowing remaining depareciation of ₹ 2,27,013/- out of ₹ 2,38,263/- on fixed assets used in carrying on contract business by assessee {( @ 10% on shop of ₹ 22,87,000/- and @ 15% on tools plant of ₹ 63,750/-} allowable as per expl. 5 to section 32 of IT Act for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any reply to the said show cause notice and therefore, the Assessing Officer was correct in completing the assessment U/s 144 of the Act wherein he has made specific disallowances, addition has been made towards payments from its undisclosed income which resulted in negative cash balance in its cash book and the assessment was completed U/s 144 of the Act by invoking the provisions of Section 145(3) of the Act. Further, it was submitted by the ld. DR that the assessee has taken this ground as an additional ground before the ld. CIT(A) and in absence of a specific payer made by the assessee, the said ground was not admitted and dismissed by the ld. CIT(A). 5. Regarding ground no. 2, the ld. AR submitted that the assessee had made payment of certain expenses after gap of few days from the date of receipt of expenses vouchers but due to mistake of the accountant, had entered the payment of these expenses on the date of vouchers which resulted in negative cash balance on 04.03.2019. Otherwise, at the end of the year, cash balance was a positive amount as per audited statements of accounts. As per practice of Department, in given facts, had the ld. AO applied NP rate on gross re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of ₹ 2,28,700/- on fixed assets used in carrying on contract business by the assessee. In this regard, the ld. AR submitted that out of allowable depreciation of ₹ 2,39,950/- on shop and tools plants, depreciation of only ₹ 11,250/- on tools and plants was allowed as claimed by the assessee in the profit and loss account. It was submitted that as per explanation 5 to Section 32, the AO should have allowed remaining depreciation on shop even if not claimed by the assessee and in support, reliance was placed on the decision of Platiblends India Ltd. vs. Add.CIT (2017) 398 ITR 568(SC). 10. Per contra, the ld. DR submitted that in the computation of income filed by the assessee at its Paper book page 17, it has shown tools and plants under the head Fixed Assets on which depreciation of ₹ 11,250/- has been claimed and duly allowed by the Assessing Officer. Further, our reference was also drawn to the audit report wherein the auditors have also considered the fixed assets consisting of only tools and plants on which depreciation has been computed at ₹ 11,250/-. It was accordingly submitted that there is nothing on record in terms of any asset oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not produced for verification inspite of various opportunities granted by the Assessing officer as apparent from the following findings in the assessment order dated 14.11.2011 which remain undisputed before us:- The assessee is a firm engaged in the business of civil construction. During the year under consideration the assessee has shown net profit of ₹ 6,72,160/- before depreciation, interest and remuneration partners against gross receipts of ₹ 90,71,494/- i.e. 7.40%. During the immediately preceding year the assessee has declared net profit rate of 8% before depreciation, interest and remuneration to partners. During assessment proceeding written submissions were filed and copy of audit report was filed. copy of cash book and ledger was filed but bills, vouchers, wages sheets, muster rolls, vouchers for payments were not produced although sufficient opportunity was provided to the assessee. Opportunity was provided to the assessee 09-06-2011, 05-07-2011, 12-07-2011, 25-07-2011, 02- 08-2011, 08- 18-20-1I, 25-08-2011, 02-09-2011, 09-09-2011, 07-10-2011, 12-10-2011, 19-10-2011, but the assessee failed to avail these opportunities and failed to produce comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guesswork. In that sense, too, the assessment must be, to some extent, arbitrary. Since the law relating to best judgment assessment is the same both in the case of income-tax assessment and sales tax assessment, the following observations of this court in Raghubar Mandal Harihar Mandal v. State of Bihar [1957] 8 STC 770 , 778 (SC), a case under the Bihar Sales Tax Act, would be material: No doubt it is true that when the returns and the books of account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess; but the estimate must be related to some evidence or material and it must be something more than mere suspicion. Again in Stale of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC), which was a case under the Travancore-Cochin General Sales Tax Act, Subba Rao J. (as he then was), speaking for this court, observed at page 244 of the report thus: The limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally. Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been completed u/s 144, we donot see any infirmity in the action of the Assessing officer where he has strictly followed the provisions of section 184(5) of the Act. Regarding addition made on account of negative cash balance, we find that inspite of sufficient opportunities provided by the ld CIT(A) during the appellate proceedings and having called the remand report, the assessee has failed to produce the necessary documentation in support of its claim and the addition has thus rightly been made by the Assessing officer. Lastly, regarding non-allowance of full depreciation on all the fixed assets, we find that in the balance sheet as on 31.03.2009, the assessee has shown a shop with a book value of ₹ 22,87,000 besides Tools and plant with book value of ₹ 63,750. In the profit/loss account, depreciation on only tools and plant has been debited and similar is the position in the computation of income and the auditor s report where depreciation claim is limited to tools and plants. At the same time, given that value of shop has been reflected as part of block of assets in the financial statements and is a matter of record which can be verified in terms of ownership ..... X X X X Extracts X X X X X X X X Extracts X X X X
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