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TMI Blog2022 (12) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... s heads on account of non-compliance of various notices, whereas fact is that no ad-hoc addition has been made, rather it has been made on account of complete failure of the assessee as it has furnished no explanation and on evidence of such sundry creditors and advances from the customers, hence it is not a case of ad-hoc addition. Ld. CIT(A) therefore has based his judgments on surmises, conjectures and presumption ignoring the reasons given by the AO. 3. The Ld. CIT(A) has wrongly presumed that estimation of income has been done u/s 144 whereas has failed to explain the sundry creditors and advances from the customers, and has submitted no evidences thereof 4. The Ld. CIT(A) is not justified in deleting the addition of Rs3,52,49,419/- on account of commission expenses, not verifiable by the A.O. due to non-production If books of account by the assessee during assessment proceedings. 5. The Ld. CIT(A) is not justified in deleting the addition of Rs.1,12.02.665- on account of professional/consultancy by the assessee during assessment proceedings. 6. The Ld. CIT(A) has stated that following his notice dated 12.04.2019 the assessee has submitted response, but Ld. CIT(A) has fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the return of income of Rs. 3,34,610/- . The assessee challenged the action of the AO before the CIT(A) and explained that the current liabilities shown in the books of accounts are representing the aggregate amount of sundry creditors, advance from customers against booking and the amount of TDS payable. It was further explained that the brokerage / commission expenses are paid to the agents/brokers who help the assessee company in its business of real estate development at the initial stage of the business. 5. Similarly, the assessee explained that the expenses shown under the head consultancy fees in fact, represents the site development expenses. Thus, these are the necessary business expenditure as the site development is the basic requirement of the business of the assessee. The CIT(A) asked to assessee to produce the relevant documentary evidence, books of accounts and after considering these records produced by the assessee the additions made by the AO have been deleted by the CIT(A) while passing the impugned order. 6. Aggrieved by the impugned order of the CIT(A), the revenue has filed the present appeal. The Ld. CIT DR has submitted that despite the repeated notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order of the CIT(A) is not sustainable and liable to be set aside. He is pointed out that the CIT(A) has proceeded on the basis of the wrong presumption of the fact and citing the irrelevant provisions such as 145(3) of the Income Tax Act whereas, the AO has not made any ad hoc addition or disallowance while passing the impugned order but when the assessee has not responded to the notices issued by the AO nor appeared or filed any evidence in support of the claims than the AO was left with no option but to pass the assessment order under Section 144 of the Income Tax Act by disallowing the claim of current liability, expenses on account of commission and consultancy fees. 10. The Ld. DR has further contended that the CIT(A) has cited the irrelevant judicial precedents in respect of the rejection of books of account under Section 145(3) as well as ad hoc disallowance or estimation of the income by the AO whereas, in the case of the assessee there is no ad hoc disallowance or estimation of the income by the AO. Therefore, all those decisions as well as reasoning of the CIT(A) is absolutely irrelevant for the issues involved in this case. 11. On the other hand, the Ld. AR h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing reason:- (i) Whether Sales Turnover/receipts has been correctly offered for tax. (ii) Whether deduction claimed on account of business expenses is admissible. (iii) Whether the current liabilities shown are genuine. Accordingly notice U/s 1432) was issued on 19.09.2017 through email/registered post and property served upon the assessee fixing the date of compliance on 22.09.2017.No compliance was made .Notice u/s 142(1) dated 26.10.2017 was issued through registered post fixing the date of compliance on 07.11.2017. No compliance was made. Consequently penalty proceedings u/s 271(1)(b) of the Income Tax Act, 1961 was initiated and show cause notice was issued through registered post/email on 10.11.2017 fixing the date of compliance on 16.11.2017 .No compliance was made A penalty order u/s 271 (1) (b) of the Income tax Act, 1961 dated 20.11.2017 was passed Imposing Rs. 10,000/-. Final Show cause notice dated 04.12.2017 was issued through registered post /email, fixing the date of compliance on 11.12.2017 at 12.50 P.M at 38 M.G Marg, Kayaker Bhawan and show cause why following addition may not be made in your case for A.Y 2015-16 :- 1. Current liabilities of Rs. 20, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing evidence or record produced by the assessee. Though, the AO has not disturbed the sales and purchases shown by the assessee however, the current liability and expenditure claimed by the assessee were disallowed in toto. Therefore, the disallowance of the entire current liabilities representing the sundry creditors and advance from the purchasers as well as the expenses is also not justified. 14. The CIT(A) has deleted the entire additions made by the AO as under: "Decision: I have gone through the facts and written submission filed along with the details filed enclosed therein. The Assessing Officer made adhoc addition under various heads by passing an order u/s 144 of the Act for the reason that the appellant did not produce before AO any books of account and bills and vouchers for verification of expenses claimed. Appellant also did not comply with notices u/s 142(1). It is a fact that AO made the addition without rejecting the books of accounts u/s 145(3) of IT Act and estimating the income without any basis whatsoever of any kind purely on the basis of conjecture. It is a trite law that AO in order to ascertain what would constitute a fair and reasonable estimation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring it out in the Assessment Order by marshaling the facts encompassing the same. It is legally valid proposition that once the AO reaches a conclusion that books of a/c are not available or not produced knowingly for the best reasons known to appellant for verification then book results are liable to be rejected, then a fair estimate of income is required to be made on the basis of material available on record or some extraneous material like net profit rate of comparable cases or appellant's history. It is a fact in this case that the books of a/c were not produced and the bills and vouchers pertaining to all the expenses were not made available for verification before the AO, but the AO did not invoke S. 143(3) and did not reject the books of accounts and went on to form 'Best Judgment' u/s 144 of IT Act absolutely without any basis. The Hon'ble Allahabad High Court in the case of CIT V/S. Surjeet Singh Mahesh Kumar (1994) 210 ITR 83 has held that in every case of Best Judgment, the element of guess work cannot be eliminated so long as Best judgment has a nexus with material on record and discretion in that behalf has not been exercised arbitrarily or capric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... percentage of profit on sale fixed by the Karnataka government. It is not the case of the AO that the books were not properly maintained. Not even a word has been whispered by the AO that the books were not in accordance with the method of accounting or were incorrect/incomplete. In our view, the laws commands us to set aside the assessment made on the basis of estimation, if the AO made the estimation without rejecting the books of account. "In the matter of Anil Kumar (supra), the Hon'ble jurisdictional High Court has held as under: "11.... Section 145(3) of the Act lays down that the Assessing Officer can proceed to make assessment to the best of his judgment under section 144 of the Act only in the event of not being satisfied with the correctness of the accounts produced by the assessee. In the instant case the Assessing Officer has not rejected the books of account of the assessee. To put it differently the Assessing Officer has not made out a case that conditions laid in Section 145(3) of the Act are satisfied for rejection of the books of account. Thus, when the books of account are maintained by the assessee in accordance with the system of accounting, in the regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) Sale/Purchase Register, Stock Register including other subsidiary register. d) Copy of agreement, sale deed and other supporting bills and vouchers. Without commenting on the correctness of these books and supporting evidence produced during the appellate proceedings, it can still be appreciated that the books of accounts are being maintained which were subject to two audits during the year as evident from the audit report submitted by appellant. AO could have used it as a good material to base his assessment. In the case of Tolaram Daga Vs. CIT reported in (1966) 59 ITR 632(Gau) wherein their lordships have observed and held as under:- "It would appear that the accounts of the firm which had been produced in the case had been accepted and acted upon by the department and no serious challenge had been made to their genuineness or that they were kept regularly In the course of business. That being the case, the accounts are relevant and afford prima facie proof of the entries and the correctness thereof under section 34 of the Evidence Act. Hon'ble Delhi High Court in the case of CIT vs. Jay Engineering Works Ltd. reported in (1978) 113 ITR 389 wherein their lords ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made by the assessee in the accounts of the year to which the adjustments relates and noting a subsequent year, it is often inevitable that such adjustments relating to earlier years have to be made in subsequent years. This is specifically so, when the business, as of the assessee, is of giant proportions and the branches are farflung. The Tribunal has also very properly relied upon the auditor's report to draw the proper inference from the same". In the present case, the AO has estimated the income without any basis or any available information obtained from any independent source and disregarding the facts available in the audit report filed with the return of income. As held by Hon'ble Court in the case of Jay Engineering (Supra) even if it was not possible for the assessee 's to produce the original account books, AO should have relied upon auditors' reports that constitutes relevant material for making assessment. It is not the case of the AO that the books were not properly maintained. Not even a word has been whispered by the AO that the books were not maintained in accordance with the method of accounting or were incorrect or incomplete. If the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of allowing the assessee to discharge its primary onus in support of these claims, the CIT(A) on its own ask the assessee to produce the complete books of accounts, relevant vouchers and supporting documents including the copy of sale-deeds/agreements. The CIT (A) has stated that without commenting on the correctness of the books of accounts and supporting evidence produced during the appellate proceedings as the books of accounts are audited, the AO could have used it a good material to base his assessment. While making this observation the CIT(A) has completely ignored the fact that when there was no response or participation of the assessee in the assessment proceedings, the question of considering the books of accounts and supporting evidence as the basis of assessment does not arise. Further, once the books of accounts and other relevant records was produced by the assessee first time during the appellate proceedings before the CIT(A), the principles of natural justice demands that the other party should be given an opportunity to verify the evidence first time produced at the appellate stage. The CIT(A) without giving any reason in the impugned order as to why the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration including purchases made by the cross objector/ assessee during the year, disallowance of Rs.25.51,250/-forming part of the 'Current Liabilities' is wholly unjustified, accordingly relief allowed by Ld. CIT(A) in his appellate order dated 25.02.2020 does not at all suffers from any infirmity. 5. BECAUSE the TDS payable aggregating to Rs.34.43,109/- forming part of Current Liabilities as on 31.03.2015 was duly supported by the challans, amounts having been deposited in the government exchequer well within time, so there remains no basis for the addition so made by the ld. Assessing Officer in the assessment order be sustained in the appellate proceedings. 6. BECAUSE advances from customers aggregating to Rs.20,12,20,655/- were duly supported by books of account and other details, adjustments on materialization of deals with sale deeds in subsequent years, so the addition made by the ld. Assessing Officer of the entire figure as standing credit in the balance sheet is wholly erroneous and unjustified. 7. BECAUSE there being no dispute on the veracity of the audited books of account having been raised by the Assessing Officer at the time of assessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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