Rajasthan High Court - Jaipur
M/S Sorabh Cement Ltd vs Assistant Commissioner Of Income Tax on 5 December, 2017
Author: K.S. Jhaveri
Bench: K.S. Jhaveri
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT
JAIPUR
D.B. Income Tax Appeal No. 135 / 2017
M/S Sorabh Cement Ltd., Kapil Mandi, Neem Ka Thana, Distt.
Sikar, Rajasthan
----Appellant
Versus
Asstt. Commissioner of Income-Tax, Circle-Sikar, Rajasthan
----Respondent
_____________________________________________________ For Appellant(s) : Mr. Tanuj Agarwal For Respondent(s) : Mr. Daksh Pareek for Mr. Sameer Jain _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 05/12/2017
1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the departmental appeal for statistical purposes and rejected the cross-objection filed by the assessee.
2. This Court while admitting the appeal framed the following substantial question of law:
"(i) Whether in the facts and in the circumstances of the case and in law, the learned ITAT has rightly upheld disallowance of service tax expenditure amounting to Rs.1,68,000/- on freight for transportation of goods by holding that the assessee is not beneficiary of such transport payment in any manner, therefore, the assessee has no liability to bear the respective service tax liability, whereas the provisions of the Finance Act, 1994, relating to service tax read with Rule 2(1) (d) of the Service Tax Rules, 1994, provides for payment of service tax by consignor/consignee on reverse charge basis on (2 of 13) [ITA-135/2017] the freight for transportation of goods through a goods transport agency.
(ii) Whether in the facts and circumstances of the case and in law, the learned ITAT has rightly upheld the rejection of entire books of account by invocation of the provisions of section 145(3) of the Income Tax Act, 1961 and that too on minor mistake in supplementary records, whereas, Hon'ble Rajasthan Court in the case of Uttam Chuna Pathar Udyog vs. ITO reported at 192 ITR 56 (Raj.) has held that minor defects should not lead to rejection of books of account."
3. On the first issue, counsel for the appellant has taken us to the order of the Tribunal wherein it has been observed as under:
"6.4 We have heard the rival contentions and perused the materials available on record. We find that the AO has rightly observed that since the assessee is not beneficiary of such transport payment in any manner, therefore, the assessee has no liability to bear the respective service tax liability. Accordingly, the service tax payment of Rs.1.68 lacs was held as not incurred wholly and exclusively for the purpose of business purposes of the assessee and the same was considered as inadmissible u/s 37 of the Act which has also been sustained by the ld. CIT(A) also. In view of the above deliberations, we feel that the ld. CIT(A) has rightly sustained the addition. Thus Ground No.3 of the C.O. of the assessee is dismissed."
3.1 It is contended that the Tribunal has not allowed the payment made for service tax which was paid to the transporter.
3.2 On issue No.2, he has taken us to of the order of AO wherein it has been observed as under:-
3.3 The explanation filed by assessee, vide para 3 of letter dated 27-12-2010 is as under:-
"Sir, the stock summery given to you on dated 1.11.2010 has same quantity of all purchases as mentioned in the details of purchases and books of accounts. All the purchases are verifiable from the bills of purchases and can be verified. You may kindly verify the quantity of both the statements. We are producing copy of stock (3 of 13) [ITA-135/2017] registers and purchase bills and all the books for your kind verification.
It is further submitted that the assessee maintains books of accounts in computer. The books are maintained at neemkathana office and stock register, excise record, wages register and other factory records are maintained at factory site. The stock register is also maintained at factory in computer system. As per company procedure, the goods are being received at factory and stock keeper/factory accountant enter the quantity at computer. No financial books are being maintained at factory except which are required. Sometimes, the stock keeper/factory accountant enter the value of the goods also. Since the goods are being received at factory during the day and night. It is the responsibility of factory staff to enter the goods received at factory immediately. Whenever the goods are received at the factory day hours or night, the entries are made by the persons in computer. But due to mistake or due to over sight or lack of account knowledge he also enter the value in the computer. Even at factory, they are suppose to maintain and control quantitative details. Again when bills of the parties are sent to factory for verification whether goods are received or not, then it seems that factory staff are enter the value of goods. Thus the quantitative has been correctly maintained but lack of knowledge of the computer and accounts, the factory persons enter the value wrongly. When your goodself asked for factory record related to quantity. We submitted the computer generated quantitative details which also produced/submitted the wrong value figure. The wrong figure may be due to computer software average system or malfunctioning/virus in computer system.
It is further submitted that coke dust, clinker and bags are excisable items. The excise paid on these purchases are input for payment of excise by the assessee. We are producing copies of the excise monthly return which is also audited/checked from time to time by excise department. The quantitative which the assessee had purchased/value has been entered and excise input has been claimed. Further we are enclosing photocopy of stock register maintained by assessee which also tally with the purchase bills. Purchase bill are being submitted and produced.
(4 of 13) [ITA-135/2017] Further we have already submitted the copy of the sales tax assessment order. This being the clerical mistake while feeding the computer entering by untrained computer staff who do not have any account background at all. The quantitative details of the statement of factory and Neemkathana is same."
The assessee had also filed similar explanation vide letter dated 29-12-2010 stating that some of the purchase bills were entered twice. 3.3 He also taken us to the remand report which reads as under:
3.5 As regards the difference in production figures of 44816 MT as per audit report and 45023 MT as per monthly returns of production, the assessee has explained alongwith evidences that by mistake, closing stock of cement of February month of 207 MT was included in production of March, which resulted in reflection of excess production as per excise records. The evidences produced by the assessee in support of such submission appear to be verifiable and hence are required to be considered accordingly.
3.4 So also the observations made by AO and contended that the books of accounts were wrongly rejected.
3.5 He further contended that the Tribunal has seriously committed an error in remanding the matter back to the AO.
3.6 While considering the issue of 145(3), he relied upon the following decisions:
(i) Commissioner of Income Tax vs. Gotan Lime Khanij Udhyog (21.07.2001 - RAJHC) : MANU/RH/1022/ wherein it has been held as under:
7. Both these provisions do not envisage that by resorting to best judgment assessment the assessing authority must reach to a different figure of income and profit than what has been disclosed by the assessee. Best judgment is also to be based on the material available on record.
Therefore, notwithstanding rejection of books of account the material disclosed by the assessee along with other material that may be collected by the Income Tax Officer forms the basis of (5 of 13) [ITA-135/2017] computation of income. On that basis what conclusions are to be reached is independent of results shown in the books of accounts, if any maintained by the assessee, section 145 only provides the basis on which computation of income is to be made for the purpose of determining the amount of tax payable by an assessee. The provision by itself does not deal with additions or deletion in the income. Therefore, merely because there is some deficiency in the books of account or merely because of rejection of books of account it does not mean that it must lead necessarily to additions in the returned income of the assessee. What changes in either case is the basis for computing the income chargeable under the head "Profit and gains of business or profession" or "Income from other sources". The result would depend on the other principles of computing the income. Therefore, we hold that merely changing the basis or method of arriving at end result of working out the computation of taxable income under the Income Tax Act, necessarily does result in devising at profit or gains from business or other sources different from one returned by assessee, where he has returned his income and different from the result reached by assessee as per method of accounting employed by him, by adopting different basis by the assessing authority.
(ii) Uttam Chuna Pathar Udyog vs Income-Tax Officer, 1998 65ITD 460 JP on 14 August, 1997 wherein it has been held as under:
11. This brings us to as to what would constitute correct accounts or correct profits as envisaged in Section 145(2). Section 145(2), no doubt, refers to correctness of the books. But simply, a few clerical errors, lack of some vouchers, non-
maintenance of a particular record, does not perse render the accounts incorrect. In spite of these defects, the profits may be deducible. Thus, before involving the provisions of Section 145(2), it is the duty of the Assessing Officer to show how, because of these defects, correct profits are not deducible; and correct books of account do not mean that it should be correct to every pie, or, that each and every record ought to have been maintained with zero error. It is a tall order to expect such state of affairs and only a utopist is entitled to have such expectation. Correct books of account has to be understood as (6 of 13) [ITA-135/2017] fairly correct books of account. Thus a few missing vouchers or a few defects here and there, strictly speaking, may render the books to be incorrect, but yet, they may be fairly correct. In such case, it is more appropriate to make legitimate disallowances, rather than reject the books whole hog. Profits deduced from such fairly correct books are near to real income liable to tax than the income determined by wild estimates. The Indian Companies Act, 1956 also envisages that the profit and loss account of a company should reflect a true and fair view of the profit or loss. Thus, in case of corporate sector, which is supposed to be more organised, the taxing authorities, though unconsciously, start the computation of income from fair profits or losses, then why that insistence of one hundred per cent accuracy and correctness in case of other assessees.
12. Thus, in the instant case, none of the reasons mentioned by the Assessing Officer are such which could have shaken the confidence of a person with average wisdom, in the books maintained by the assessee. The provisions of Section 145(2) are wrongly invoked.
(iii) The aforesaid view was confirmed by this Court in CIT Vs. Uttam Chuna Pathar Udyog, [2001]116TAXMAN524(RAJ) wherein it has been held as under:-
2. We are satisfied that there is no error in the order passed by the Tribunal, Jaipur, in rejecting the application under section 256(1) of the Income Tax Act, 1961 and holding that whether in a particular facts and circumstances, books of account could have been rejected or not is a finding of fact and does not call for interference and no question of law arises. This is more so when no perversity has been shown in reaching such finding so as to raise the question of law relating to the findings of facts by pointing out that finding of fact stands vitiated and not bindin on this court in reference application. The other conclusions are being subordinate to rejection of books also fall in the same category.
(iv) Malani Ramjivan Jagannath vs. Assistant Commissioner of Income Tax(2007)207 CTR Raj 19 (26.10.2006 - RAJHC) : MANU/RH/0436/ Wherein it has been held as under:
(7 of 13) [ITA-135/2017]
10. In the face of these undisputed facts and circumstances, the Tribunal in our opinion could not have interfered with the order of CIT(A). In doing so, it had ignored all admitted facts noticed by us above, in the face of which there was no occasion for the AO to have resorted to estimate method. The GP is primarily result of excess of sales over purchases, opening stock, closing stock, the unsold stock at two terminals is only balancing factor. Admittedly out of this four components of trading result, there could not have been any ground for the Revenue to arrive at different result. So far as closing stock is concerned, inventories of existing stock were not found to be incorrect by the AO i.e. that position of stock as shown in the account books was not incorrect. There being no dispute about the sales and purchases, non-maintenance of stock register lost its significance so far as arriving at GP is concerned. Therefore, the CIT(A) was right in his reasoning about admitted state of affairs.
Resorting to estimate of GP rate was founded on no material. It was merely a case of making certain additions on the basis of certain defects pointed out by the AO and which he has shown in different account by giving margin of unvouched expenses. He has disallowed certain expenses.
11. The Tribunal committed basic error in not appreciating the reasoning given, by the CIT(A). It is trite to say that in the facts and circumstances of present case, account books are maintained as they were ordinarily maintained years after years and which were found to yield a fair result. Mere deviation in GP rate cannot be a ground for rejecting books of account and entering realm of estimate and guesswork. Lower GP rate shown in the books of account during current year and fall in GP rate was justified and also admitted by the AO as well as CIT(A) as well as the Tribunal. Therefore, fall in GP rate lost its significance. Having accepted the reason for fall in GP rate, namely, stiff competition in market and also that huge loss caused in particular transaction, neither the rejection of books of account was justified nor resort to substitution of estimated GP by rule of thumb merely for making certain additions. We are, therefore, of the opinion that the findings arrived at by the Tribunal suffers from basic defect of not applying its mind to the existing material which were relevant and went to the root of the matter. When all the data and entries made in the trading account were not found to be incorrect in (8 of 13) [ITA-135/2017] any manner, there could not have been any other result except what has been shown by the assessee in the books of account. We are, therefore, unable to sustain the order of the Tribunal.
(v) Commissioner of Income-Tax, West.. Vs. Padamchand Ramgopal AIR 1970 SC 1575, 1970 76 ITR 719 SC Wherein it has been held as under:
1. These appeals by certificate arise from the decision given by the High Court of Calcutta in five references made by the Income-tax Appellate Tribunal, Bench 'B', Calcutta under Section 66(2) of the Indian Income-tax Act, 1922. The High Court has answered the questions referred to it in favour of the assessee.
In support of the return made by him, the assessee, a Hindu Undivided Family carrying on business in various items including money lending produced his account books. The Income- tax Officer rejected those accounts as unreliable and assessed the assessee on the basis of best judgment by adding to the income returned by him various sums ranging from Rs. 17,951 for the assessment year 1956-57, to Rs. 21,536 for the assessment year 1954-55. The five assessment years with which we are concerned in this case are 1953-54, 1954-55, 1955-56, 1956-57 and 1957-58. The Income-tax Officer in his order did not give any reason for not relying on the accounts submitted. On appeal, the Appellate Assistant Commissioner after going through the notes prepared by the Income-tax Officer found that in his investigation, the Income-tax Officer had found that one of the items of interest received by the assessee during the accounting year relating to the assessment year 1953-54 had not been brought to account and another entry relating to the receipt of income during that year was not correct. Neither the Appellate Assistant Commissioner nor the Income-tax Officer found any mistake in the accounts relating to other accounting years. The two mistakes noticed by the Appellate Assistant Commissioner are insignificant mistakes. Further they afforded no basis for rejecting the accounts for the other years. Both the Income-tax Officer as well as the Appellate Assistant Commissioner arbitrarily added to the total income returned half the amount of gross receipts shown by the assessee under the head "interest" during each year as escaped income. The tribunal did not (9 of 13) [ITA-135/2017] examine the facts of the case afresh. It just adopted the findings of the Appellate Assistant Commissioner. The questions referred to the High Court was whether upon the facts admitted or found by the Appellate Tribunal, it was justified in holding that the Income-tax Officer had rightly added an income of Rs. 18050 in the assessment year 1953-54, Rs. 21536 in the assessment year 1954-55, Rs. 18321 in the assessment year 1955-56 and Rs. 17951 in the assessment year 1956-57 and Rs. 20547 in the assessment year 1957-58.
(vi) Pr. CIT Vs. Handmade Paper & Board Industries D.B. ITA No.237/2016 (RAJHC) decided on 23.10.2017 wherein it has been held as under:
5. Counsel has also sought our attention to the order of the Tribunal, wherein t has been observed as under:-
4. Now the revenue is in appeal before us. The ld DR has vehemently supported the order of the Assessing Officer. At the outset, the ld AR of the assessee has reiterated the arguments made before the ld CIT(A). He has further argued that the assessee had not maintained the stock register and manufacturing process of products manufactured by the assessee are so complicated and number of items manufactured are in number of quantities and there are differences, finished process and also the size, length and width of production is different, which cannot be possible to maintain stock register, therefore, the assessee has not ACIT Vs. M/s Handmand Paper & Board maintained quantitative and qualitative stock register, but the assessee had recorded purchase and sale and other expenses on the basis of bills vouchers and closing stock was taken on the last of the previous date, which has been verified and valued property and disclosed in the P&L account and balance sheet. He further argued that whatever defects pointed out by the Assessing Officer are not sufficient to justify the rejection of books of account U/s 145(3) of the Act. The ld Assessing Officer made the addition on the ground that in preceding year, the GP was higher than the GP disclosed during the year under consideration but in the business line, the number of internal and external factors affect the performance of the business. Some of them are beyond the control of the assessee. The market (10 of 13) [ITA-135/2017] competitive, there is recession in other countries, which affects the assessee, demand and supply and also price. The ld Assessing Officer applied 33% GP without pointed out any specific defects in the books of account or bringing out any material on record. He further relied on the decision of Hon'ble Rajasthan High Court in the case of Gotan Lime Khanij Udhyog (supra) wherein it has been held that rejection of books of account U/s 145(3) does not always lead to an addition in every such circumstances, even if there is fall in GP ratio asACIT Vs. M/s Handmand Paper & Board such. Considering these case laws, the ld CIT(A) restricted the addition, therefore, he prayed to uphold the order of the ld CIT(A).
5. We have heard the rival contentions of both the parties and perused the material available on the record. Whatever defects pointed out by the Assessing Officer is not justified, the rejection of books of account U/s 145(3) of the Act. The assessee's manufacturing processes are so complexed that at every stage, the size, length and width of products changed and also the number of process in the manufacturing of handmade papers but the assessee has maintained proper purchase, sale and other expenses on the basis of bill/vouchers. Therefore, we uphold the order of the ld CIT(A)."
6. Counsel for the respondent has relied upon the decision of Gujarat High Court in D.B. Income Tax Appeal No.1249/2017,wherein it has been observed as under:-
6. Insofar as the question raised in Tax Appeal No. 1249 of 2007 is concerned, it is a matter of record that the assessee did maintain all the Registers, verification of which had duly been made by the A.O. The books of accounts of the assessee were periodically checked by the revenue authorities. It appears that in the subsequent year i.e. in assessment year 1995-
96, the same G.P. rate has been accepted by the Department. It is a fact that the cost of raw materials has increased. It is also seen that 100% goods are sold to its sister concern and therefore the question of GP does not arise. The A.O. could not find that the assessee had sold finished goods at a lesser price to its sister concern. In our opinion, low profits and absence of regular stock register are not sufficient reasons for rejection of the accounts of assessee. Hence, the CIT (A) and Tribunal were justified in deleting the addition. Both the authorities below (11 of 13) [ITA-135/2017] have considered the materials placed before them and we see no reason to interfere with the same. Accordingly, we answer the issue raised in Tax Appeal No. 1249 of 2007 in favour of the assessee and against the Department.
7. Now, insofar as, the questions raised in Tax Appeal No. 1250 of 2007 and Tax Appeal No. 1253 of 2007 are concerned, in paragraph No. 14 of its judgment, the Tribunal has observed as under:
"14. Now coming to the second aspect that workers engaged by labour contractors are to be counted while counting number of workers. The answer is in affirmative and it is supported by the decision of Jurisdictional High Court in the case of CIT vs. Prithviraj Bhoorachand (supra) wherein their Lordships have observed as under:-
"As can be seen, the term employed by the statute is, "employs" twenty or more workers. The plain dictionary meaning of the said term 'employ' is to use the services of a person in return for payment. Clause (iv) of s. 80I(2) of the Act does not contemplate the additional requirements - which have been read into the same by the CIT. As long as the industrial undertaking manufacturers articles or things; and where the manufacturing process is carried on without the aid of power, it employs twenty or more workers, the requirements of the provision are fulfilled. When the provision is clear and unambiguous, there is no need to read anything more into the same, as is sought to be done by the Revenue. This Court in the case of CIT v. V.B. Narania & Co. MANU/GJ/0339/2001 : 171 CTR (Guj) 416 : 252 ITR 884 (Guj), where in the facts of the said case, the ITO has disallowed the claim for deduction under Ss. 80HH and 80J of the Act, on the ground that the assessee got certain processes done from outsiders on the piecemeal basis and that the assessee had not provided regular employment to any person in its manufacturing process, held that the Tribunal was right in coming to the conclusion that the persons doing the work were employed by the assessee because the assessee was controlling not only the work to be done by those persons but also the manner of doing of the work. The Court further held that the Assessing Officer and the AAC were not right in holding that the concerned persons were not employees because they were being paid on piecerate basis or job work basis. In the present case, the Tribunal has (12 of 13) [ITA-135/2017] found that the assessee has the ultimate control over the affairs of the establishment and that the industrial undertaking of the assessee was employing more than 20 workers through the contractor. Applying the principles laid down by the aforesaid decision to the facts of the present case it cannot be said that the Tribunal was not justified in holding that the assessee is employing 20 workers in its industrial undertaking as contemplated by the provisions of cl. (iv) of sub-s.(2) of s. 80-I of the Act." There is no dispute to the extent that if number of workers employed by labour contractors is included then the number of workers employed by see is sufficient for fulfillment of the condition laid down in this regard. In our view of the situation, we hold that assessee has fulfilled the requirement of minimum number workers employed in the manufacturing process for the purpose of eligibility of deduction under section 80IA. The grant of depreciation on the items excluded by CIT (A) from plant and machinery become irrelevant in view of the decision of Hon. Jurisdictional High Court in the case of CIT vs. Prabhudas Kishordas Tobacco Products (P) Ltd. (supra) as depreciation on the relevant asset has to be allowed as per provisions of IT Act irrespective of the fact that what constitute "plant and machinery" for the purpose of determining whether a unit is small scale industrial undertaking eligible for deduction under section 80IA. Thus there is no force in the said contention of Revenue that it has been wrongly held by CIT (A) that the excluded items are eligible for depreciation at different rate. In view of above discussion, grounds No. 4 & 5 are allowed for statistical purposes."
(vii) Mehar Chand Jain And Sons Vs. CIT Jaipur & Ors. D.B. ITA No. 191/2010 (RAJHC) Decided on 29.5.2017 Wherein it has been held as under:
3. This court while admitting the appeal on 5.5.2010 framed following substantial question of law:-
"Whether the revenue authorities are permitted to invoke Section 145(3) of the Income Tax Act even in the cases where varacity and correctness of the books of accounts is substantially accepted by them?"
5. We are of the opinion that the issue is required to be answered in favour of the assessee.
(13 of 13) [ITA-135/2017] 5.1 However, it will not be treated as a precedent for the subsequent year. It will be open for the department to consider assessment of subsequent year independently.
The appeal stands allowed.
4. We have heard learned counsel for the parties.
5. On first issue, contention raised by the appellant is required to be accepted inasmuch as the cement industry when transportation is made by the manufacturer and transporter has done service on behalf of appellant assessee. In that view of the matter, he has to realize all expenses of the transporters including tax paid by the transporter. In that view of the matter, issue No.1 is required to be answered in favour of assessee and against the Department.
6. However, on issue No.2, in view of observations made by AO that there are serious discrepancies in the stock register, the view taken by the AO as well as CIT (A) is required to be accepted.
However, it will be open for the appellant assessee to rely upon the decision of this Court in the case of books of accounts where this Court has taken a view of average GP or NP on the basis of last five years.
7. Thus, the issue No.2 is answered in favour of Department and against the assessee.
The appeal stands partly allowed to the extent as indicated above.
(VIJAY KUMAR VYAS) J. (K.S. JHAVERI)J. bm gandhi 81