TMI Blog2023 (6) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... direct him to determine its business profits in the alike manner as was adopted by him while framing the respective assessments u/ss. 143(3)/147 in the case of the assessee firm for the preceding years, i.e A.Y 2010-11 to A.Y 2013-14, i.e @ 8% of its for the year under consideration. Addition u/s 68 and 69C - The maintainability of the additions made by the A.O u/s 68 and u/s 69C would not be telescoped in the business profits of the assessee firm and are required to be considered separately. Addition u/s 68 - As the ld. A.R had neither come forth with any explanation to rebut the observations of the lower authorities nor led any material which would prove otherwise, therefore, we are constrained to sustain the addition made by the A.O u/s 68 of the Act. Addition u/s 69C - debit entry against the name of Partner which was apparently spent towards purchase of a gold biscuit, but the same was not found recorded in the regular books of accounts of the assessee - claim of the assessee that the same pertained to the Vishwakarma expenses that were incurred by its partners. The A.O observing that the aforesaid expenditure was not record in the books of account of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of Rs.4,04,56,014/- made by AO out of material purchase account. The disallowance made by AO alleging inflation of purchases and confirmed by CIT(A) is arbitrary and not justified. 6. Ld. CIT(A) erred in confirming addition of Rs.4,82,840/- made by the AO invoking sec. 68, on account of cash credit The addition is arbitrary and not justified. 7. Ld. CIT(A) erred in confirming addition of Rs.10,00,000/- made by AO on account of explained credit invoking sec. 68. 8. Ld. CIT(A) erred in confirming addition of Rs.27,88,260/- made by the AO on account of alleged unrecorded contract receipts. The addition made by the AO and confirmed by CIT(A) is not justified. 9. Ld. CIT(A) erred in confirming addition of Rs.8,10,000/- made by AO on account of alleged credits found in the records, on account of car sale. The addition is arbitrary and not justified. 10. Ld. CIT(A) erred in confirming addition of Rs.1,60,000/- made by the A.O on account of unexplained expenditure u/s.69C. 11. Ld. CIT(A) was not justified in confirming addition of Rs.1,59,000/- made by the AO on account of alleged unrecorded interest receipts. 12. Ld. CIT(A) was not justified in confirming the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served by the A.O, that though the manual cash books made a reference to ledger folio numbers against each entry but no such corresponding ledgers were physically found available during the course of the survey proceedings. Also, it was observed by the A.O that the cash book on the basis of which the final accounts were prepared and got audited were not found available at the business premises of the assessee firm during the course of survey proceedings. On the basis of the aforesaid facts, the A.O holding a conviction that the impounded manual cash books were the actual cash books and the entries therein made were true and correct, thus called upon the assessee to correlate the same with its audited final accounts. In reply, it was the claim of the assessee that the manual cash books found during the course of the survey were rough log books which were maintained by the staff for their own use and memory. It was the claim of the assessee that its business transactions were duly recorded in its regular books of accounts. It was further the claim of the assessee that the manual cash books impounded by the department were not the actual cash books but the log books that were maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... places initials of the controlling partners. The contention that it was maintained by some old supervisor, whose name purposefully concealed as there may be none, who was not having knowledge of accounts is absurd because the cash book was maintained strictly as per requirements of accountancy, in cool and compose manner with all sincerity and diligence. Several entries are interlacing and interlocking with the tally backup of final accounts prepared for the purposes of tax authorities. Some features and reasons for maintaining this cash book are noted below :- a) This cash book mainly contains all types of labour expenses incurred on actual basis. b) It contains machinery expenses of own machines and hired machines incurred on actual basis. c) It contains record of receipt (i) Cash received from different partners, or their relatives for meeting day to day expenses, (ii) Cash withdrawn from banks, (iii) Cash received from parties to whom cheques are issued of inflated amounts against material purchase or subcontract payment for machines or labour and amounts representing inflated part are received back in cash, (iv) Cash received on sale of scarp, material, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of bonus to staff. 19,95,450/- 5. Disallowance of the assesses claim for deduction of bad debts. 14,28,899/- 6. Disallowance of the assesses claim for deduction of inflated purchase expenses. 4,04,56,014/- 7. Addition towards bogus cash credit under Sec.68 of the Act. 4,82,840/- 8. Addition towards unexplained cash credit under Sec.68 of the Act. 10,00,000/- 9. Addition of undisclosed contract/hiring receipts. 27,88,260/- 10. Addition of the unrecorded sale proceeds of a motor car. 8,10,000/- 11. Addition under Sec. 69C of the Act towards unexplained expenditure incurred for purchase of gold biscuit. 1,60,000/- 12. Addition of undisclosed interest income. 1,59,000/- 13. Addition as regards the unexplained cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the backdrop of the entries in the manual cash books that were impounded during the course of the survey proceedings, raised serious doubts as regards the correctness and completeness of the accounts of the assessee firm on the basis of which its final accounts and audit report were prepared. In our considered view the A.O had rightly triggered the provision of Sec. 145(3) of the Act, and after rejecting the accounts of the assessee, which did not inspire any confidence at all proceeded with to assess its income in the manner provided under Sec.144 of the Act. We, thus, approve the rejection of the accounts of the assessee firm under Sec.145(3) of the Act by the A.O. 10. We shall now deal with the manner in which the A.O had assessed the income of the assessee firm vide his order passed under Sec.144 r.w.s. 143(3) of the Act, dated 31.12.2016. Before proceeding any further, we may herein cull out Sub-section (3) of Section 145 of the Act, which during the year under consideration read as under :- (3). Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r may make an assessment in the manner provided in section 144 used in sub-section (3) of Sec. 145, the latter after taking into account all relevant material which he had gathered, after giving the assessee an opportunity of being heard, may make the assessment of its total income to the best of his judgment. In sum and substance, the A.O after rejecting the books of accounts of the assessee is vested with a discretion to frame the assessment in a manner provided in Sec.144 of the Act. 11. Although, we concur with the rejection of the books of account of the assessee under sub-section (3) of Section 145 by the A.O, but at the same time are unable to persuade ourselves to subscribe to the manner in which he had thereafter assessed the income vide his order passed under Sec.144 r.w.s. 143(3), dated 31.12.2016. We, say so, for the reason that though the A.O had in clear and unequivocal terms rejected the books of accounts of the assessee under Sec.145(3) of the Act but had thereafter based his assessment on the profit that was disclosed by the said rejected books of accounts. The aforesaid factual position can safely be gathered from Page 14- Para 23 of the assessment order, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the income of the assessee firm. The self-contradictory approach adopted by the A.O is incomprehensible. On the one hand, the A.O not being satisfied about the correctness and completeness of the accounts of the assessee, had rejected the books of accounts on the basis of which the final accounts and audit report of the assessee firm were prepared; but had thereafter on the other hand, while assessing its income relied on the profit disclosed by the said rejected books of accounts. Our aforesaid view that where the A.O had rejected the books of accounts of an assessee under Sec.145(3) of the Act, then he is precluded from relying upon the said books of accounts (rejected) while assessing the income is supported by the judgment of the Hon ble High Court of Jharkhand in the case of Amitabh Construction Pvt. Ltd. Vs. ACIT, Tax appeal No.16 of 2010, dated 10.05.2011. In its aforesaid order the Hon ble High Court had observed, that once the A.O had rejected the books of accounts, then, he could not have held the profit which is supported by the books of accounts to be correct. For the sake clarity the observations of the Hon ble High Court are culled out as under:- 11. However, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order and the parties are directed to appear before the concerned authority on 13th June, 2011. Also, a similar view had been taken by a coordinate bench of the ITAT, B Bench, Pune in the case of ACIT, Central Circle-2(1), Pune Vs. M/s ISMT Limited, ITA Nos. 2751 2752/Pun/2016; dated 06.12.2021. It was observed by the Tribunal by drawing support from a host of judicial pronouncements, that once the books of accounts of an assessee are rejected by the A.O under Sec. 145(3) of the Act, then he cannot rely upon on the same books of account for the purpose of making any addition, and the only course of action available with him is to determine the income by application of a flat rate of profit by taking into consideration the business conditions of the assessee as in comparison to profits disclosed by other assessee s in the similar line of business. The Tribunal while concluding as hereinabove had held as under: 12. We have carefully gone through the orders of the lower authorities as well as the written submissions filed before us. We consider it not necessary to dwell into the rival submissions made by both the parties as we find the approach of both the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of an exact item (of expenditure) in the profit and loss account. The aforesaid view of the Hon ble High Court in the case of Indwell Constructions (supra) had thereafter been followed by the Hon ble High Court of Punjab Haryana in the case of CIT vs. Gian Chand Labour Contractors, 316 ITR 127 (P H). 11. Considering the facts involved in the case before us in the backdrop of the aforesaid judicial pronouncements, we are of the considered view that the A.O having rejected the books of accounts of the assessee firm under sub-section (3) of Sec. 145 of the Act, thereafter, could not have relied upon the said books of accounts, and the proper recourse available with him was to judicially determine its business profits in the manner provided in Sec. 144 of the Act. Our aforesaid view that once the books of account of an assessee are rejected as unreliable then it is open to the A.O to estimate the assessee s profits considering the profit which was earned in similar business by other similarly placed merchants is supported by the judgment of the Hon ble Supreme Court in the case of CIT Vs. K.Y Pilliah Sons (1967) 63 ITR 411 (SC). Also, we find that the Hon ble High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 31.03.09 01.04.09 to 30.06.09 7. 7 2014-15 2015-16 30.04.13 to 31.03.14 30.04.14 to 30.09.14 8. 8 2014-15 2015-16 11.11.13 to 31.03.14 01.04.14 to 30.04.14 9. 9 2013-14 30.04.12 to 10.09.12 10. 10 2016-17 26.12.15 to 07.03.16 On a perusal of the records, it transpires that on the basis of the entries recorded in the manual cash books/log books for the aforesaid preceding years, the concluded assessments of the assessee firm for the said respective years i.e A.Y 2010-11 to A.Y 2013-14 were reopened u/s 147 of the Act. As is discernible from the assessment orders for the aforesaid preceding years, Page 1 to 37 of APB, the A.O while framing the respective assessments for the aforesaid preceding years, had observed, that the aforesaid manual cash books/log books for the said years revealed similar discrepancies in the books of accounts of the assessee firm for the said r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back cash from Ms. Anita Gajwani. The assessee firm on being confronted with the aforesaid facts, submitted that the said noting was made in the cash book by its supervisor who was maintaining the log book/manual cash book for his memory. It was the claim of the assessee that it had given the cheque to Mr. Biswal for handing over the same to Ms. Anita Gajwani. It was submitted by the assessee that the supervisor who was maintaining the log book had wrongly recorded the transaction as a receipt and payment. However, the A.O did not find favor with the explanation of the assessee and treating the transaction as an accommodation entry made an addition of the aforesaid amount of Rs. 4,82,840/- as an unexplained cash credit u/s 68 of the Act. (ii). On appeal, the assessee filed before the CIT(Appeals) the confirmation a/w income-tax returns of Ms. Anita Gajwani. However, the CIT(Appeals) after referring to the miniscule returned income of Ms. Anita Gajwani (supra) was of the view that she clearly lacked creditworthiness. Accordingly, the CIT(Appeals) upheld the addition of Rs. 4,82,840/- made by the A.O u/s 68 of the Act. (iii). We have given a thoughtful consideration to the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 68 of the Act. (ii). On appeal, the assessee again distanced itself from the transaction in question. The CIT(Appeals) observing that the assessee firm had failed to come forth with any explanation as regards the nature and source of the cash credit as was recorded in its manual cash book that was impounded from its business premises during the course if survey proceedings conducted u/s 133A on 11.03.2016, thus, upheld the addition of Rs. 10 lac made by the A.O u/s 68 of the Act. (iii). As the ld. A.R had neither come forth with any explanation to rebut the observations of the lower authorities nor led any material which would prove otherwise, therefore, we are constrained to sustain the addition of Rs. 10 lac (supra) made by the A.O u/s 68 of the Act. 15. We shall now deal with the addition of Rs. 1.60 lac made by the A.O u/s 69C of the Act. As is discernible from the assessment order, the A.O while framing the assessment observed that though the manual cash book of the assessee revealed a debit entry of Rs. 1.60 lac against the name of Shri. Moolchand ji, which was apparently spent towards purchase of a gold biscuit, but the same was not found recorded in the regular ..... X X X X Extracts X X X X X X X X Extracts X X X X
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