TMI Blog1998 (10) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5. That disallowance of interest of Rs. 3,68,644 has been erroneously confirmed in view of the facts of the case, particularly in view of ground (4) above. Proof regarding payment of TDS on interest paid alongwith Balance sheet of all creditors as orally desired during the proceedings were placed on records. 6. That confirmation of disallowances made on account of donations, postage and telephone expenses, car petrol and maintenance and travelling expenses was uncalled for. 7. That treatment of agricultural income of Rs. 11,94,993 as income from undisclosed sources was totally uncalled for both in facts as also in law, since the order of the Hon'ble ITAT in ITA No. was placed before the CIT(A). 8. That in confirming the alleged best judgment assessment, the ld. CIT(A) did not consider the fact that the Assessing Officer had without consideration of intrinsic and Extrinsic evidence confirmed the finding of the Assessing Officer, which are punitive." 2. The Ld. D.R. relied on the order passed by the CIT(A) and the Assessing Officer. 3. Ground Nos. 1 2 are against the action of the Assessing Officer to frame the assessment under section 144 of the Income-tax Act and ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assessing Officer asked for various queries as per entries in the order-sheet and the case was finally fixed for 4-2-1997. Since no one appeared on that day, the Assessing Officer completed order under section 144. Against this action of the Assessing Officer, the appellant filed appeal, before the ld. CIT(A). The ld. CIT(A) gave following finding in his order:- "12. I have considered the above facts and contentions. In this case, it is obvious that the appellant has decided at the outset not to comply with the statutory notices. Right from the date of first hearing i.e. 16-11-1995 till the last date of hearing i.e. 4-2-1997, the conduct of the appellant can be summarised as under:- (I) Total non-compliance with various statutory notices issued from time to time. (II) Total absence of any explanation for non-compliance although adequate opportunity has been given by the Assessing Officer. (III) Seeking of adjournment on flimsy reasons without any reason at all every time, although the date of hearing has been fixed by the Assessing Officer as per the request of the appellant on the previous occasions. (IV) Non-compliance with notices under section 143(2) on various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to offer for its failure on various occasions to comply with the statutory notices. As already stated, the failure in this case is deliberate, pre-meditated and blatant. The surprising part is that both the Assessing Officers displayed such patience when confronted with such non-co-operation. Under these circumstances, the decision of the Assessing Officer to complete the assessment ex parte under section 144 was fully justified and is confirmed. In fact, in this case, the Assessing Officer was duty bound to complete the assessment under section 144. If in such case of blatant disregard of law resort is not made to the provisions of section 144, it would only seek to encourage other assessee at large to act in a similar manner and tax administration would simply collapse. As already held above, the action of the Assessing Officer in passing the order under section 144 is upheld." 4. The ld. Counsel of the appellant has vehemently pleaded that the reasons for non-co-operation was verbal request to the Assessing Officer to wait for the decision and judgment of ITAT regarding agricultural income. The ld. counsel pleaded that there was on going litigation regarding the genuineness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x file of the Directors and share-holders being assessed by the same officer. The evidence is basically tax record of those persons alongwith the assessment orders. The balance of evidence like details expenditure which were not filed before the Assessing Officer are not admitted and taken on record. 8. The very important issue that has come up in this case is to interpret the section 144 as interpreted by the Hon'ble Supreme Court. The section 144 is not a penalty provision. The assessment under section 144 is a best judgment assessment which is to be realistic, reasonable and judicious. The Assessing Officer has to take overall review of the material available and factual situation in front of the Assessing Officer and then take a reasonable, logical and rationale stand. The ld. CIT(A) has relied on the decision of the Hon'ble Supreme Court in the case of CST v. H.M. Esufali, H.M. Abdulali [1973] 90 ITR 271 and this observations are as under:- "33. It needs to be mentioned here that the assessment in this case has been completed under section 144. The Supreme Court of India have held in the case of CST v. H.M. Esufali, H.M. Abdulali [1973] 90 ITR 276 that an assessment made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the Courts may think that it is not the most appropriate basis, the estimate made by the assessing authority cannot be disturbed. In the present case, there is no dispute that the assessee's accounts were rightly disturbed." 9. The Hon'ble Supreme Court was dealing with the sales tax assessment order which was passed by an ex-parte order. The legal discussion has developed on a situation where the Hon'ble Supreme Court was dealing with the concealment of sale and entries in the seized bill book which were not reflected for the purpose of Sales Tax. In the same judgment as quoted by the ld. CIT(A), Hon'ble Supreme Court has observed that the Assessing Authority while making 'best judgment', no doubt, should arrive at its conclusion without any bias and on rational basis. The Hon'ble Supreme Court further observed in the same judgment that the Authority should not be vindictive or capricious. While making an estimate, under no circumstances the income which is not taxable should not be made as income of the appellant. How estimate is to be made, lot of discussion has taken place in large number of judgments. We restrict ourselves only to the judgment given on the issue by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounded estimate rather than launch upon pure surmises. 11. We are of the opinion that while passing the best judgment order, the Assessing Officer has to take a note of the totality of the case of all the relevant material available in the assessment record of earlier years or subsequent years. He should also keep note of the records and information available with him in the files which are closely connected with the assessment of the appellant. The assessment of income has to be fair and reasonable and should not violate principles of natural justice. Even if some evidence is to be taken note of, it is that duty of the C.I.T. (A) to take note of that evidence because the appellate authority has to review the order of subordinate authority, in a way so that the aggrieved person will get justice and all the relevant information must be taken note of which is relevant to deliver such judgment. The duty of Tax Authority to make fair taxable assessment of the income. 12. In the case of the appellant, book version of accounts have totally been accepted. Section 145 has not been applied in the case of the appellant. The additions have been made on three accounts. The first account r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs as on 31-3-1994 shows that the assessee had obtained loans from Sh. Krishan Lal, Managing Director which as on 31-3-1994 was Rs. 19,152. The balance as on 31-3-93 however was only Rs. 1,88,228 and in the statement filed alongwith the balance sheet the auditor has stated that the maximum amount outstanding at any time during the year in Annexure B in respect of Sh. Krishan Lal was to the tune of Rs. 784728 which reveals that loan from Sh. Krishan Lal, M.D. has been taken at Rs. 5,96,500 during the accounting period relevant to asstt. year 1996-97. The assessee has not produced any evidence whatsoever to prove the genuineness of these loans. Therefore, it has to be assessed under section 68 of the Income-tax Act, 1961 being income of the assessee-company introduced in the garb of the cash credit obtained from Sh. Krishan Lal which has not been proved satisfactorily. Similarly, Sh. Praveen Kumar, Director's loan account showed that balance as on 31-3-1994 was Rs. 28,15,942. Balance as on 31-3-1993 was Rs. 10, 0019, 081 which means that an amount of Rs. 18,15,861 was introduced in the name of Sh. Praveen Kumar, Director in the books of the assessee-company. No evidence worth the nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant filed appeal before the Ld. CIT(A). The Ld. CIT(A) has dealt with this issue by observing that the cash credits are accepted as genuine, if following conditions are established by the appellant:- (i) The Genuiness of the creditors; (ii) The credit-worthiness of the creditors; (iii) The identity of the creditors; He has given following finding while confirming the cash creditors:- "21. In the present case, the appellant has failed to discharge this onus. Even if it is accepted for the sake of argument that the identitiy of some of the creditors stands established as they are assessees with the same A.O., the fact remains that neither the genuineness of these credits nor the creditworthiness of the creditors has been established. The appellant had more than one year in which to furnish the necessary confirmation or copies of accounts with evidence before the Assessing Officer. The appellant, however, failed to do so. Moreoever, the appellant has failed either during proceedings or during appellate proceedings to furnish any explanation or justification for its failure. Under these circumstances, it is clear that the Assessing Officer was left with no choice whats ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the factual position of each and every creditor. The first credit is in the name of Sh. Praveen Kumar. Sh. Praveen Kumar is a Director of the Company. For the asstt. year 1994-95, ITO Pathankot has passed order assessing the income of Sh. Praveen Kumar at Rs. 1,62,070. Alongwith his returns of income Sh. Praveen Kumar has filed computation of taxable income which includes interest received from M/s. K.K. Steels. Sh. Parveen Kumar has also given details of TDS deducted by the company. Alongwith the return Sh. Parveen Kumar has given copy of the personal account and the balance sheet which shows his investment with M/s. K.K. Steels Pvt. Ltd. at Rs. 28,15,942. At the same station, the Assessing Officer has accepted the return of income and the loan advanced to the company. This information was available with the Assessing Officer. This fulfils the criteria of genuineness of the credits because the identification is established beyond doubt. The appellant has produced balance sheet in his personal account which has been accepted by the Assessing Officer. The appellant-company being a Private Ltd. Company, the investments are made by the Directors and therefore the genuineness and ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) New Delhi, has completed assessment of Smt. Poonam Arora at an income of Rs. 49,797. Alongwith her assessment record, she also filed balance, affidavit etc. Since the information was not available with the Assessing Officer because she was being assessed by Income-tax Officer at Delhi, she filed return for the assessment year 1994-1995. We are of the opinion that this credit could not have been accepted by the Assessing Officer while passing an ex parte order. 22. So far as the credit of Sh. Chander Parkash particularly credit introduced for the first, is concerned, there is opening balance amounting to Rs. 1,66,692. The appellant has received two cheques of Rs. 4 lakh each on 22-7-1993 23-7-1993. Sh. Chander Parkash is assessed to Income-tax with Income-tax Officer, Muzaffarnagar and his assessment for Assessment year 1994-1995 in the status of HUF is completed by the Income-tax Officer, Muzaffarnagar at an income of Rs. 35,300. There is a history of this creditor in the books of account of the appellant. The appellant obtained loan or Rs. 6,49,747 in the assessment year 1992-93 from Sh. Chander Parkash. The Assessing Officer made addition disbelieving the creditworthines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 1992-1993. The finding given by the CIT(A) reproduced above is part of the record available with Assessing Officer. On top of it, he is already assessed to tax and has discharged the relevant facts in his return. We cannot confirm this addition simply because an ex parte order has been passed. The confirmation of this credit will tentamount to imposing of penalty on the appellant. We are, therefore, of the opinion that the identity of the creditor stands already established. The creditor is assessed to Income-tax. The Assessing Officer can send the intimation to the concerned ITO and it is for the concerned ITO to take necessary action regarding the credit. 23. It is also important to note that all the persons mentioned are having Permanent Account No. as follows:- "Name P.A. No. Station Sh. Krishan Lal 27-003-PX-1057 Pathankot Sh. Parveen Kumar 29-002-PV-0655 Pathankot Sh. Sunil Kumar 27-003-PA-1340 Pathankot Sh. Chander Parkash GIR No. C-37 Ward-* Mazaffarnagar Smt. Kamla Rani 27-003-PZ-0978 Pathankot". The appellant made a request to the ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, keeping in view the total extent of business, we are of the opinion that 1/6th will be reasonable on the facts and circumstances of the case. The A.O. has made a disallowance of Rs. 6,000 out of travelling expenses. The travelling expenses claimed at Rs. 42,517. The details have not been filed before the AO. No disallowance is made in earlier years. We are of the opinion that disallowance of Rs. 4,000 will be reasonable. The AO has made an addition out of donation and charity amounting to Rs. 29,101. Since no proof of exemption is filed before the A.O., we are of the opinion that he was justified in making addition on account of charity and donation. 28. The A.O. has also disallowed interest amounting to Rs. 3,68,644 by invoking provision of section 40A(2)(b). In the order the ITO, has not discussed even the rate of interest the order is absolutely non-speaking on this issue. However interest has been paid on the deposit account at the rate which was being paid in earlier years. No such disallowance was, made in earlier assessment years where interest has been paid to the Directors and Depositors. We therefore, find no justification whatsoever in making this disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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