Income Tax Appellate Tribunal - Rajkot
Shailesh K. Chauhan, Kukavav (Moti),, ... vs The Income Tax Officer, Ward-2(4),, ... on 11 September, 2018
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ ।
IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT
[Conducted through "E" Court at Ahmedabad]
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI WASEEM AHMED, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No. 60 and 76/RJT/2014
नधा रण वष /Assessment Year: 2008-09
Shailesh K. Chauhan The ITO, Ward-2(4)
Prop. Of Gopal tRaders Vs Amreli.
Opp: Bus Stand
Kukavav (Moti), Dist. Amreli.
अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)
Assessee by : Written submissions
Revenue by : Shri Praveen Verma, Sr.DR
सन
ु वाई क तार ख/Date of Hearing : 01/08/2018
घोषणा क तार ख /Date of Pronouncement : 11 /09/2018
ORDER
PER RAJPAL YADAV, JUDICIAL MEMBER : By these two appeals,
the assessee challenges orders of ld.CIT(A)-IV, Rajkot of even dated i.e. 20.11.2013 vide which the ld.CIT(A) has confirmed orders of the ld.AO passed under sections 143(3) and 271B of the Income Tax Act, 1961for the assessment year 2008-09. Since assessee being same, and facts in both the appeals are inter-related, for the sake of convenience, we dispose of both these appeals by common order.
2. First we take up ITA No.60/RJT/2014.
3. Though the assessee has taken nine grounds of appeal, but in brief his grievance revolves around a single issue viz. the ld.CIT(A) has erred ITA No.60 and 76 /RJT/2014 -2- in confirming addition of Rs.5,58,260/- after upholding rejection of book results under section 145 of the Income Tax Act, 1961.
4. In response to the notice of hearing, the ld.counsel for the assessee filed written submissions which has been taken on record.
5. Brief facts of the case are that the assessee has filed return of income on 4.3.2009 declaring total income at Rs.1,21,680/-. The assessee had at the relevant time was engaged in the trading of pan masala, cigarette etc. on whole sale basis. On scrutiny of the accounts it revealed to the AO that the assessee has also undertaken business of selling mobile re-charge vouchers. He has not disclosed this transaction to the Department. The turnover in this transaction was Rs.1.25 crores. Thus, finding these defects in the books of accounts maintained by the assessee, the ld.AO rejected book results and estimated profit in mobile vouchers by 5 percent of the turnover. In this way, he made addition of Rs.5,58,260/-. On appeal, the ld.CIT(A) has confirmed this addition by recording the following finding:
"3. I have considered carefully, the submissions made by the appellant and the assessment order passed by the assessing officer. Assessment order passed u/s. 143(3) when passed, it-is noticed that the appellant has transacted a business of Rs. 1,24,65,192 on account of trading in the mobile vouchers apart from his other business activities of wholesale trading in pan masala, gutkha & cigarettes etc. In the books of accounts produced by the appellant, he has shown only the business pertaining to pan masala, gutkha & cigarettes but not pertaining to the business of trading in mobile vouchers. The turnover from the business of pan masala/gutkha/cigarettes was shown at Rs.21,20,440 against which the gross profit of 2,07,100 was declared. Therefore, the sale transactions amounting to Rs. 1,24,65,192 pertaining to mobile vouchers remained undisclosed from the Department. Notwithstanding the fact that the appellant for the first time on 20.12.2010 during the course of assessment proceedings has admitted and disclosed the sale transactions pertaining ITA No.60 and 76 /RJT/2014 -3- to mobile vouchers which hitherto kept outside the books of accounts, the assessing officer has more than reasonable in computing profits from the unaccounted business of trading in mobile vouchers by taking the margin only at 5% of the total receipts and further given a deduction of Rs.65,000 to meet the administrative expenses. The net addition of Rs.5,58,260 on account of unaccounted business of mobile vouchers is reasonable is therefore made, which comes to 4.47% on the unrecorded sales of mobile vouchers at Rs. 1,24,65,192. the argument of AR, that the net profit margin of only 0.5% be adopted on the sale receipts from mobile vouchers is baseless as the same is not supported by any documentary evidence. In fact, the profit margin would be on a higher side in a business like this, where nothing is accounted for. I therefore uphold the addition of Rs.5,58,260 on account of undisclosed profits from the unaccounted business of trading in mobile vouchers.
6. In the written submissions, the assessee has only submitted that estimation of profit is excessive. According to the assessee, it should not be more than half percent. On the other hand, the ld.DR relied upon the order of the ld.CIT(A).
7. We have duly considered rival contentions and gone through the record carefully. A bare reading of Section 145 would reveal that it provide the mechanism how to compute the income of the Assessee. According to sub-section 1, the income chargeable under the head profit and gains of business or profession or income from other source shall be computed in accordance with the method of accountancy employed by an Assessee regularly, subject to sub-section 2 of Section 145 of the Act. Sub-section 2 provides that the Central Government may notify in the official gazette from time to time, the Accounting Standard required to be followed by any class of Assessee in respect of any class of income. Thus, it indicates that income has to be computed in accordance with the method of accountancy followed by an Assessee i.e. cash or mercantile, such method has to be followed keeping in view the Accounting ITA No.60 and 76 /RJT/2014 -4- Standard notified by the Central Government from time to time. Sub clause 3 provides a situation, that is, if the Assessing Officer is unable to deduce the true income. On the basis of method of accountancy followed by an Assessee than he can reject the book result and the assessee's income according to his estimation or according to his best judgment. The Assessing Officer in that case is required to point out the defects in the accounts of Assessee and required to seek explanation of the Assessee qua those defects. If the assessee failed to explain the defects than on the basis of the book result, income cannot be determined and Assessing Officer would compute the income according to his estimation keeping in view the guiding factor for estimating such income.
8. It is pertinent to note that that section 144 would suggest that in order to estimate income, learned Assessing Officer has to exercise his discretion which should be in consonance with best of his judgment. We are conscious of the fact that in various authoritative pronouncements, it has been propounded that in making a best judgment assessment, the Assessing Officer must not act dishonestly or vindictively or capriciously. He must make, what he honestly believe to be a fair estimate of the proper figure of assessment and for this purpose he must be able to take into consideration, local knowledge, reputation of the assessee about his business, the previous history of the assessee or the similarly situated assessee. It is also pertinent to mention that judgment is a faculty to decide matter with wisdom, truly and legally. Judgment does not depend upon the arbitrary, caprice of an adjudicator, but on settled and invariably principles of justice. Thus, in a best judgment, even if, there is an element of guess work, it should not be a wild one, ITA No.60 and 76 /RJT/2014 -5- but shall have reasonable nexus to the available material and circumstances of each assessee.
9. Considering the above proposition, and the written submissions filed by the assessee including decisions relied by the assessee viz. Brij Bhushan Lal Pardumna Kumar Vs. CIT, 115 ITR 524 (SC), K.Baliah Vs.CIT 56 ITR 182 (Mys) and CIT Vs. Laxminarain Badridas, 5 ITR 170 (PC, we are of the view that the estimation of the profit arrived at by the AO cannot be found faulted. The assessee could have easily made the job of AO more easier if he has submitted details showing commission received by him from the mobile companies. That would eliminate the guess-work for estimating the profit. But instead of agitating the issue upto the level of second appellate authority, this very easy step was not taken by the assessee. In the absence of any details, we are of the view that the ld.CIT(A) has rightly exercised his discretion of estimating the profit. We find that no error in the order of the ld.CIT(A). Thus, ground of appeal is rejected.
10. The next ground of grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.35,000/-.
11. Brief facts of the case are that the AO noticed that there was a difference in balance as per books maintained by the assessee and the bank account in respect of pan masala, gutkha transactions. This difference has been added by the AO. The ld.counsel for the assessee contended that the once the books are rejected and profit are being estimated, then separate addition ought not to be made. It is pertinent to observe that profit has been estimated qua sale of mobile recharge ITA No.60 and 76 /RJT/2014 -6- vouchers only. This is a limited rejection of books on one issue, which has been upheld by the CIT(A). With regard to the regular source of business i.e. trading in pan masala and gutkha, books have not been rejected. The profit declared by the assessee has been accepted. The closing balance difference on that activity requires to be added separately. The ld.CIT(A) has rightly confirmed this addition. We do not find any merit in this ground of appeal. It is rejected.
12. In the result, appeal of the assessee is rejected.
13. Next we take ITA no.76/RJT/2014.
14. In this appeal, grievance of the assessee is that theld.CIT(A) has erred in confirming the penalty of Rs.72,928/- which was imposed by the AO under section 271B of the Income Tax Act.
15. As observed earlier while dealing with ITA No.60/RJT/2014 we found that the assessee has only accounted transactions qua pan masala and gutka, but did not disclose transaction qua sale of mobile recharge vouchers to the tune of Rs.1.25 crores in his books of accounts. The AO observed that as per the provisions of section 44AB of the Income Tax Act, the assessee requires to get his accounts audited since the total turnover of the assessee exceeded Rs.40 lakhs, which the assessee failed to do so. AO accordingly initiated proceedings under section 271B for his failure to get accounts audited and issued show cause notice. Explanation of the assessee was not found acceptable to the AO. Accordingly, the AO levied a penalty of Rs.72,928/- under section 271B of the Act. In appeal before the first appellate authority, the action of the AO for imposing penalty under section 271B was upheld. The ITA No.60 and 76 /RJT/2014 -7- discussions made by the ld.CIT(A) while confirming order of the AO are worth to note, which read as under:
"3. Shri D. R. Adhia, AR, appearing for the appellant in the written submissions made has mainly contended that the sale of mobile recharge vouchers at Rs. 1,24,65,192 is mobile to mobile transfer of recharge amounts and not sale/purchase of goods physically. Thus, there is no question of the books getting audited u/s.44AB of the IT Act, 1961. Assessing officer, while levying penalty u/s.271B of the IT Act, 1961, at paragraph 6 of his' order has said in the following manner:
"6. The contention of the assessee is not accepted for the reason stated here under. As per the trading account of the assessee filed during the assessment proceedings, the total sales of the assessee out of both the business is Rs.1,45,85,6321-. Total sale ofRs.21,20,4401- out of the business of Gutka. Pan Masala etc. and total sales of Rs.1.24,65,1921- out of the business of mobile recharge vouchers. The assessee was required to get his account audited by an accountant before specified date in prescribed proforma and to befiledwith return of income before 31.10.2009, but the assessee failed to get his accounts audited by an accountant Assessee's pled / contention that his sales / turnover is less than Rs. 40 lacs is not correct because from the assessee's records! books of accounts, it is evident that the gross turnover of the assessee during the year was Rs.1,45,85,632/-. The sales and purchase of mobile recharge services/coupons are included as the turnover of the assessee in terms of section 44AB of the 1. T. Act. 1961,and the assessee himself has also treated the same as part of his gross turnover. The contention of the assessee is therefore not acceptable and it is held that the assessee failed to get his accounts audited as provided u/s 44AB of the I.T. Act. Since the assessee has failed to justify with reasonable cause, his failure to get his accounts audited u/s 44AB, he is held liable for penalty u/s.271B of the IT. Act, 1961."
4. I have considered carefully, the submissions made by the appellant and the penalty order passed by the assessing officer. At the outset, this is a case where the appellant has not disclosed the business of trading in mobile recharge vouchers amounting to Rs. 1,24,65,192. Instead, he has disclosed only turnover of Rs.21,20,440 from the trading in Panmasala/gutkha/cigarettes etc. in the return of income filed and the books of accounts produced before the assessing officer for A.Y.2008-09.
ITA No.60 and 76 /RJT/2014 -8- the total turnover of both disclosed and undisclosed "business comes to Rs.1,45,85,632. much more than Rs.40,00,000, accordingly attracts the provisions of compulsory audit u/s.44AB of the IT Act, 1961. To tfiat extend, the appellant is liable for penalty u/s.271B of the IT Act, 1961. Coming to the aspect that the AR raised, that the trading in mobile recharge vouchers undertaken by the appellant do not constitute purchase and sale is far from convincing. This activity is nothing but the sale of services akin to a software that 'enable communication through the mode of satellite by virtue of spectrum owned by the companies having telecom licenses in a given area. In view of this, the appellant since failed to get his accounts audited is liable for penalty u/s.271B of the IT Act, 1961. The penalty levied at Rs.72,928 U/S.271B of the IT Act, 1961 for A.Y.2008-09 stands confirmed."
16. We find that penalty under Section 271B of the Act is imposable under the Act, if any person fails to get his accounts audited in respect of any previous year and fails to furnish report thereof to the AO. The threshold limit as provided under the Act, require the assessee to compulsorily get his accounts audited before the specific date. Admittedly turnover of the assessee is more than Rs.40 lakhs and the assessee did not get his accounts audited. Since the assessee failed to comply with the statutory requirement without any valid reasons, the order imposing the penalty deserved to be confirmed. We do not find any error in orders of both the Revenue authorities below, which we confirm and this appeal of the assessee is dismissed.
17. In the result, both the appeals of the assessee are dismissed.
Pronounced in the Open Court on 11th September, 2018.
Sd/- Sd/- (WASEEM AHMED) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated, 11 /09/2018