Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. J & G Electronics Pvt. Ltd., New ... on 1 January, 2016
1 I.T.A. No.642/Del/2013
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'D " NEW DELHI)
BEFORE SHRl J. S. REDDY, ACCOUNTANT MEMBER
AND SHRl KULDIP SINGH, JUDICIAL MEMBER
LT.A. No. 897/Del/2010
Assessment year: 1997-98
DCIT, Circle 4(1), V s. M/s. J & G Electronics Pvt. Ltd
New Delhi 7/21, Ansari Road, Daryaganj,
New Delhi
GIR 1 PAN :J-42
(Appellant) (Respondent)
Appellant by : Shri R. S. Negi, Sr. DR
Respondent by : Shri Rajeev Mago, CA
Date of hearing : 05.11.2015
Date of pronouncement : 01.01.2016
ORDER
PER KULDIP SINGH, JM:
The appellant, DCIT, Circle 4(1), New Delhi (hereinafter referred to as 'the Revenue') by filing the present appeal sought to set aside the impugned order dated 04.12.2009 passed by Ld. CIT(A) VII, New Delhi qua the assessment year 1997-98 on the grounds inter alia that:
"01. The order of the learned CIT (A) is erroneous & contrary to facts & law.
02. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in deleting the addition of Rs.12,18,000/- made by the A. O. in trading account adopting the GP rate of22% as against 5.5% as declared by the assessee.2 I.T.A. No.642/Del/2013
2.1. The Ld. CIT (A) ignored the fact that the assessee has not produced complete books of accounts and supporting vouchers / evidence for verification and books of account were correctly rejected by the AO.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in deleting the addition of Rs.1,59,528/- made by the AO being excess claim of interest. 3.1 The Ld. CIT (A) ignored the fact that the assessee has filed statement indicating interest of Rs.3,75,200/- only during assessment as well as appellate proceedings.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in deleting the addition of Rs.19,940/- made by the AO on account of repair and maintenance expenses.
4.1 The Ld. CIT(A) ignored the fact that the assessee has not produced the books of accounts for verification.
5. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) has erred in arriving at conclusion that AO was not correct in passing assessment order under section 144 of the income Tax Act, 1961.
5.1. The Ld. CIT (A) did not appreciate the fact that the assessee failed to produce the complete books of accounts. "
2. Briefly stated, the facts of the case are: during the processing of return of income filed by the assessee qua the Assessment Year 1997- 98, the assessee company claiming loss of Rs.8,94,744/-, the case was selected for scrutiny and notices were issued u/s 143(2) and 142(1) of the Income tax Act, 1961 (hereinafter referred to 'the Act'), on 22.02.2000 through RPAD seeking detailed information but none appeared on behalf of the assessee. However, on 23.03.2000, Shri S. C. Agarwal, FCA appeared but has not produced the books of accounts on 23.03.2000 as well as on 28.03.2000. Ld. A.R. however filed two letters dated 23.03.2000 regarding rental income bearing address of the 3 I.T.A. No.642/Del/2013 companies at Gurgaon. The Assessing Officer proceeded to hold that the assessee is not allow d to escape the furnishing of books of account on the mere pretext that he (assessee) has no books of accounts and invoked provisions contained under Section 144) resorted to guess work in case of Bidi manufacturing business of the assessee. Ld. A.R. pleaded that notice dated 22.02.2000 was not served on the assessee but copy of the said notice was made available to him who has again failed to produce the books and vouchers for verification. After test check, the computation of income has been made by the Assessing Officer as under:
Net Loss as per profit and loss account (-)Rs.8,11,954/- Disallowances as discussed above in detail Rs.15,70,000/- Depreciation for separate consideration Rs4,65,634/-
Rs.12.23.680/-
Less: Depreciation as per I T Rules, 1962 Rs.5,48,680/-
Total Income Rs.6,75,000/-
3. The assessee carried the matter before Ld. CIT(A) who has partly allowed the appeal vide impugned order. Feeling aggrieved, the Revenue has come up before the Tribunal by filing the present appeal.
4. Ld. D.R. challenging the impugned order vehemently relied upon the order passed by Assessing Officer. However on the other hand Ld. A.R. repelled the arguments addressed by Ld. D.R. by contending inter alia that the complete books of accounts have been produced by the Assessee which have been duly audited; that issuing of notice on wrong address does not amount to service of the assessee and moreover notices in this case have been issued on wrong address and relied upon the order passed by Ld. CIT(A).4 I.T.A. No.642/Del/2013
5. We have heard Ld. Authorized Representatives of both the parties, gone through the material placed on record in the light of facts and circumstances of the present case and orders of tax authorities below.
6. Ground No.1: Ground No.1 is general and academic in nature, hence needs no adjudication.
7. Grounds No.2 and 2.1:
The Assessing Officer made addition of Rs.12, 18,000/- in the trading account by adopting the GP rate of 22% with estimated sale of Rs.45,00,000/- as against G.P. rate of 5.5% declared by the assessee on the grounds inter alia that the assessee failed to produce complete books of accounts and vouchers that there is wide gap in the fall of sales from Rs.80,72,000/- in Assessment Year 1996-97 to RsAO,88,OOO/- in Assessment Year 1997-98; that there was unreliable sales figure against the quantity of monitors available for sale and explanation regarding per unit sale price was also not filed.
7.1 Ld. CIT(A) has deleted the addition by making observation in para 7.3 and 7.4 which are reproduced as under:
"7.3 In the case on hand, the undisputed fact is that the assessee has been consistently following a particular method of accounting. Its accounts are audited under section 44AB of the Income-tax Act. Auditors have been consistently certifying that the assessee has been regularly following the method of accounting and that the annual profits can be properly deduced from such method of accounting employed by the assessee. The auditors over the years have also been certifying that the accounts are regularly maintained and are complete in the sense that there is no significant omissions therein change in law whether enacted or declared by the Supreme Court. The 5 I.T.A. No.642/Del/2013 assessing authority has to look into the substance of the situation and decide the matter in such a manner that neither is put to unreasonable liability nor the assessee is subjected to unreasonable hardship. No doubt it is not only the right but also the duty or the Assessing Officer to consider whether or not the books disclosed the true state of accounts and the correct income can be deduced there from. But these rights and duty have to be exercised in such a manner and have to be based on cogent reasons and sufficient material. The reasons given by the Assessing Officer in this case on the facts and circumstances is demonstrated as erroneous by the assessee. Rejection of books of account should not be done light heartedly as held by the Kerala High Court in the case of St. Teresa's Oil Mills v. State of Kerala [1970) 76 ITR 365 and by the Assam High Court in the case of Tolaram Daga v. CIT [19661 59 ITR 632.
Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable and incorrect The A. O. has to prove satisfactorily that the books of accounts are unreliable or incorrect or incomplete before he can reject the accounts and this can be done by showing that important transactions are omitted or if proper particulars and vouchers are not forthcoming or the accounts do not include entries relating to a particular class of business. When a return is furnished and accounts are put in support of that return the accounts should be taken as the basis for assessment. They should not be rejected because they are complicated. The procedure of the Assessing Officer is of judicial nature and in making the assessment he should proceed on judicial principles. If evidence is produced by the assessee in support of its return it should be accepted unless it is rebutted by admissible evidence and not by mere hearsay.
7.4 Thus for all these reasons and as the assessee has produced sufficient material justifying its claim and as it has repelled the contentions advanced by the Assessing Officer with cogent material and evidence, Lam of the considered view that on the facts and in the circumstances of the case, the Assessing Officer was not correct in making the addition of Rs.12, 18,000/- by recasting the trading account. Thus for all these reasons and as the assessee has produced sufficient material justifying its claim 6 I.T.A. No.642/Del/2013 it is held that the entire exercise done by the A. O. is based on surmises and conjectures and without any evidence. The addition on account of trading to the extent of Rs.12,18,000/- is therefore directed to be deleted. "
7.2 In the face of undisputed facts and settled law concerning the issue in question, we are of the considered view that there is no illegality or perversity in the findings returned by Ld. CIT(A) in deleting the addition for the following reasons:
(i) that the Assessing Officer has rejected the books of accounts admittedly produced by the assessee solely on the ground that the same are not correct or complete without explaining the error or discrepancies therein;
(ii) that the Assessing Officer has even failed to explain the fault in the account books in his remand report; that the finding of Assessing Officer that there is no explanation regarding fall in sales from Rs.80,72,000/- for the Assessment Year 1996-97 to only Rs.40,88,000/- for Assessment Year 1997-98 are apparently based on conjectures and surmises as the sales recorded by the assessee have been duly accepted by the Sales Tax Authorities and Central Excise Authorities, which have not been disputed by the Assessing Officer.
(iii) that assessee has duly explained the fall in sales during the year under assessment because of the liberalization in the trade policy and rationalization of import duty from year to year and could not compete with the established companies like LG, Samsung, Zenith, HP, Microtech etc.;7 I.T.A. No.642/Del/2013
(iv) that Hon'ble Supreme Court in the judgement cited as Dhakershwari Cotton Mills Ltd. Vs CIT (1964), 26 ITR 775 (S.C.) held that in case the books of accounts of the assessee are rejected, the profit has to be estimated on the basis of proper material available, but in the instant case, except guess work, the Assessing Officer has no material to determine the GP rate of 22% as against (-5.58%) claimed by the assessee;
(v) that the Assessing Officer being a quasi judicial authority is required to base his decision on the basis of cogent material;
(vi) that assessee also brought on record that there is a constant fall in the GP rate' from 44.46% in Assessment Year 1994-95 to 20.21% in Assessment Year 1996-97 and that this fact has also not been taken into consideration by the Assessing Officer;
(vii) that the Assessing Officer has not disputed any entry in the books of accounts produced before him for verification nor he has disputed audit report- Annexure II, Page 24 to be read with pages 69, 75, 76 of the Paper Book;
(viii) that when the Assessee has duly produced the audit report and stock record for verification of the Assessing Officer, lying at pages 75 and 76 of the Paper Book, he (Assessing Officer) is not empowered to resort to the guess work;
(ix) that observations made by the Assessing Officer as to not producing the complete accounts books, have also not found favour with Ld. CIT(A) who has stated that the books of accounts for the entire accounting period are available;
8 I.T.A. No.642/Del/2013(x) that when the assessee has proved that the books of accounts have been maintained in the regular course of business, the same has to be taken as correct unless controverted with cogent material and the Assessing Officer has not brought on record any such cogent material.
7.3 So, we hereby determine grounds No.2 & 2.1 against the Revenue.
8. Grounds No.3 & 3.1:
The Assessing Officer has made disallowance of Rs.1,59,528/- being excess amount claimed on interest on the ground that in the P & L account Rs.5,34,728/- has been claimed as interest by the assessee as against 3,75,200/- reflected in the statement issued by Haryana Finance Corporation (HFC). Ld. CIT(A) deleted the disallowance of Rs.1,59,528/- on the ground that irreconciliation in the P & L account of HFC and assessee is due to difference in method of accounting used by assessee and HFC because assessee is following mercantile system of account whereas, HFC debit its accounts in two half-yearly interest from 1st June to 30th November and again from 01st Dec. to 31st May and arrive at the decision that since the assessee company's accounting year is from 1st April to 31st March, it had to prorate the interest which is overlapped in both half years. So, from the perusal of ledger account, books of accounts of assessee and statement of HFC which are reconcilable, it has come on record that Ld. CIT(A) has rightly deleted the disallowance of Rs.1,59,528/-. So, we hereby determine the grounds No.3 and 3.1 against the Revenue.9 I.T.A. No.642/Del/2013
9. Grounds No.4 &4.1:
Disallowance of Rs.19,940/- i.e. 50% of the claimed expenditure has been made by the Assessing Officer on the ground that no vouchers/ books have been furnished for verification. However the Assessing Officer himself admitted in the assessment order that books of accounts for the period concerned have been produced while ledger has been produced only up to 31.12.2006. So, in these circumstances, Assessing Officer is estopped from recording that no books or vouchers have been produced. Even otherwise, perusal of submissions dated 25.02.2005 shows that the assessee has filed ledger account as to repair & maintenance supported with copies of relevant invoices relating to the expenditure. So, in these circumstances, we are of the considered view that Ld. CIT(A) has rightly deleted the addition of Rs.19,940/- made by the Assessing Officer on the basis of conjectures and surmises. So grounds No.4 and 4.1 are decided against the Revenue.
10. Grounds No.5 & 5.1:
Perusal of assessment order at page 5 apparently shows that the assessee has filed books of accounts and this fact has been admitted by the Assessing Officer "that the assessee had filed the books of accounts for the entire period but produced the ledger only for the period 01st April 1996 to 31.12.1996", the Assessing Officer adopted the course of best judgment assessment on the ground that assessee has failed to respond to the notices issued to him particularly notices issued on 22.02.2000 and that the assessee has failed to produce complete record, vouchers and explanation and there are unsatisfactory trading results when compared with the past assessment records.10 I.T.A. No.642/Del/2013
10.1 However, when undisputedly, complete address of the assessee as Phase V, Udyog Vihar, Gurgaon has been provided by the notice server, and subsequent notices U/S 142(1) and 143(2) dated 22.02.2000 requiring the presence of the assessee were again issued at the wrong address i.e. Phase IV,. Udyog Vihar, Gurgaon, the Assessing Officer proceeded to adopt the course of best judgement assessment on the basis of wrong facts. Even otherwise, mere issuance of notice does not mean that the assessee has been served upon. So far as the question of non producing of books of accounts an vouchers etc, as held by the Assessing Officer, is concerned, when the Assessing Officer himself admitted that the books of accounts have been produced, he has proceeded and decided the matter on the basis of self contradictory facts. Hence, Ld. CIT(A) has rightly held that the findings of Assessing Officer on the issue of best judgement assessment are wrong and contrary to the facts and circumstances of the case. So, finding no illegality or perversity in the findings of Ld. CIT(A), Grounds No.5 and determined against the Revenue.
11. As a sequel to the above discussion, we hereby dismiss the present appeal filed by the Revenue.
12. Order pronounced in the open court on 01st Jan., 2016 2015.
Sd./- Sd./-
( J. S. REDDY) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date: 01.01.2016
Sp
Copy forwarded to:-
1. The appellant
2. The respondent
11 I.T.A. No.642/Del/2013
3. The CIT
4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy.
By Order (ITAT, New Delhi).
S.No. Details Date Initials Designation
1 Draft dictated on Sr. PS/PS
2 Draft placed before author Sr. PS/PS
Draft proposed & placed before the Second
3 JM/AM
Member
4 Draft discussed/approved by Second Member AM/AM
5 Approved Draft comes to the Sr. PS/PS 1/1 Sr. PS/PS
6 Kept for pronouncement 1/1 Sr. PS/PS
7 File sent to Bench Clerk 5/1/16 Sr. PS/PS
8 Date on which the file goes to Head Clerk
9 Date on which file goes to A.R.
10 Date of Dispatch of order