Income Tax Appellate Tribunal - Kolkata
Dcit, Cir-32, Kolkata, Kolkata vs Spml Cisc (Jv), Kolkata on 3 February, 2017
I . T. A . N o. 6 3 5 / KO L . / 2 0 1 4
Assessment year: 2009-2010
Page 1 of 7
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'B' BENCH, KOLKATA
Before Shri P.M. Jagtap, Accountant Member and
Shri S.S. Viswanethra Ravi, Judicial Member
I.T .A. No. 635/KOL/ 2014
Assessment Year: 2009-2010
Deputy Commissioner of Income Tax,........ .....................Appellant
Circle-32, Ko lkata,
10B, Middleton Row, 2 n d floor,
Kolkata-700 071
-Vs.-
M/s. SPML C ISC (JV ),. ......................................................Respondent
22, Camac Street,
Kolkata-700 016
[PAN: AACAS 4605 G]
Appearances by:
Shri Rajat Kumar Kureel, JC IT, Sr. D.R., fo r the Depart ment
Shri Sajjan Kumar Tulsiyan, Advocate, for the assessee
Date of concluding th e hearing : January 02, 2017
Date of pronouncing the order : February 03, 2017
O R D E R
Per Shri P.M. Jagtap, A.M..:
This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-XIX, Kolkata dated 15.01.2014 on the following grounds:-
(1)On the facts and circumstances of the case, ld. CIT(A) erred in reversing assessing officer's decision to reject books of accounts and estimate the profit at a certain percentage of the gross receipts.
(2)On the facts and circumstances of the case, ld. CIT(A) erred in observing that no sufficient and specific findings were brought on record which could have warranted rejection of books of accounts.
(3)On the facts and circumstances of the case, ld. CIT(A) erred in observing that non-furnishing of details of sundry creditors in a proper way was not sufficient reasons to reject books of accounts.
I . T. A . N o. 6 3 5 / KO L . / 2 0 1 4 Assessment year: 2009-2010 Page 2 of 7
2. The assessee in the present case is a joint venture between M/s. SPML and M/s. CISC Limited for carrying out some works contract jointly. The return of income for the year under consideration was filed by it on 08.02.2010 declaring a loss of Rs.1,36,71,480/-. During the course of assessment proceedings, the assessee could not produce the complete details of sundry creditors as required by the Assessing Officer, inasmuch as the addresses of some of the creditors were not furnished by the assessee and the details of only 106 creditors could be furnished by the assessee out of total 155 creditors appearing in the list. On the basis of this failure on the part of the assessee, the Assessing Officer was not satisfied about the correctness and completeness of the accounts of the assessee and rejecting the same by invoking the provisions of section 145(3), he proceeded to determine the income of the assessee on estimated basis. In this regard, he estimated the income of the assessee from the business of execution of works contract by applying a G.P. rate of 5.15% and determined the loss of the assessee at Rs.1,01,02,822/- in the assessment completed under section 143(3)/144 of the Act vide orde r dated 30.12.2011.
3. Against the order passed by the Assessing Officer under section 143(3)/144, an appeal was preferred by the assessee before the ld. CIT(Appeals) challenging the action of the Assessing Officer in rejecting the books of account and estimating the income of the business of execution of works contract by applying a higher Gross Profit rate of 5.15%. In support of its case on this issue, the assessee made the following submission in writing before the ld. CIT(Appeals):-
"2.1. With regard to the above it is submitted that assessment proceedings began vide notice issued u/s 1 42(1) in August , 2011. However, det ails of credito rs were not requisitioned in the said notice. Later, in course of hearing in November the assessee was asked to produce the details of creditors.
2.2. The assessee produced the complete break -up of the credito rs (party-wise) together with their addresses in the last week of November. It was only with respect to the credito rs of Rs.43 ,95,311/- that t he addresses could no t be provided because I . T. A . N o. 6 3 5 / KO L . / 2 0 1 4 Assessment year: 2009-2010 Page 3 of 7 the pro ject (pert aining to such creditors) got terminated and all the books of account (including the credit or det ails) h ad to be transferred to different locations. To worsen the situation the concerned accountant also quit the o rganization.
2.3. Under the given circumst ances, the assessee could not produce the addresses of the balance creditors. On the other hand, the AO under th e pressure of concl uding assessment with in December, concl uded the assessment to the best of his judgment , without affording any further o ppo rtunity t o the assessee.
3.1. From the fact s stat ed above it is clear th at the assessee was prevent ed, by sufficient cause, fro m producing the said details. Further, even the AO, being under the pres sure of concluding the assessment , did not provide further opportunit y to the assessee so as to enable him to produce the balance details.
3.2. In the light of the above st ated facts, it is prayed th at the details of credito rs (enclosed as Annexure-II) be admitted at this stage under Rule 46A of the Income T ax Rules, 1962, relevant extracts of which has been produced below:
"46A. (1) The appellant shall not be ent itled to produce befo re the Deput y Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, whether oral o r documentary, other t han the evidence produced by him during the course of proceedings befo re the Assessing Officer, except in the following circumstances, namel y:-
(b) where the appellant was prevented by sufficient cause fro m producing the evidence which he was called upon to produce by the Assessing Officer; or (C) where the Assessing Officer h as made the order appealed against without giving sufficient opport unity to the appellant to adduce evidence relevant to any ground of appeal."
3.2. From the abo ve it is clear th at the CIT (A) may admit addit ional evidence under Rule 46A of Inco me Tax Rules, 1962 in case the assessee was not provided sufficient oppo rtunity by the AO and in case the assessee was prevented by suffic ient cause from producing the evidence as called upon by the AO.
3.3. Thus applying the said rule to the facts o f the case it is clear th at details of balance creditors produced at this stage should be admitted under Rule 46A.
4.1. Further, it is pointed out that the actio n of the AO in rejecting books of account u/s 145(3) and comput ing the income of the assessee by applying the average G P ratio of the indust ry is completel y unjustified.
I . T. A . N o. 6 3 5 / KO L . / 2 0 1 4 Assessment year: 2009-2010 Page 4 of 7 4.2. With regard to the above it is point ed o ut that account s of the assessee as audited and in the absence of any adverse remark in the audit or's report , there lies a presumption that books of account maintained by the assessee is correct. The same cannot be rejected u/s 145(3) in the absence of any finding recorded by the AO that the books of account were inco rrect rendering it impossible to deduce profit s therefro m. In other words, the AO has t he onus of pro ving t hat books of account maintained by the assessee are inco rrect and inco mplet e".
The assessee also relied on the following judicial pronouncements in support of its aforesaid submissions:-
(i) ITO-vs.- Girish M. Mehta [296 ITR (AT) 125 (Rajkot)];
(ii) Eagle Synthetics Pvt. Limited -vs.- ITO [8 ITR (Trib.) 211(Ahmedabad)];
(iii) Madnani Construction Corporation P. Limited -vs.- CIT [296 ITR 45 (Guwahati)].
4. After taking into consideration the submission made by the assessee as well as the case laws cited in support, the ld. CIT(Appeals) found merit in the stand of the assessee and deleted the addition made by the Assessing Officer to the total income of the assessee by estimating the gross profit of the business of execution of works contract at higher rate of 5.15% for the following reasons given in paragraph no. 10 and 10.1 of his impugned order:-
"10. The assessment order and the submissio n of the appellant have been dul y considered in the deciding the issue at hand. The list of sundry credit ors submitted at the appell ate stage has been duly considered and admitted since it is apparent th at the appellant was prevented by sufficient cause fro m producing the evidence as called upon by the AO. I find that the AO has not pointed any specific deficiency in the accounts of the appellant warranting the application of section 145 of the Act and more so since it is pointed out that acco unts of th e appellant are audited and in the absence of any adverse remark in the auditor's report , there lies a presumption that books of account maint ained by the appellant is co rrect. The same cannot be reject ed u/s 145(3) in the absence of any finding reco rded by the AO that the books of account were incorrect rendering it impo ssible to deduce profit s therefro m. In other words, the AO h as the onus of proving that books of account maintained by the assessee are inco rrect and incomplete. The appell ant's contention is squarely back ed by the case of Madnani Const ruction Co rporation P. Lt d. v. Commissioner of Inco me-t ax [296 ITR 45] wherein the Hon'ble I . T. A . N o. 6 3 5 / KO L . / 2 0 1 4 Assessment year: 2009-2010 Page 5 of 7 Court held that "the Assessing Officer did not record any finding that the books of account maintained by the assessee were incorrect rendering it impossible to deduce the profit and despite that he went on to complete the assessment invoking the principles of best judgment . The assessment order did not indicate th at the Assessing Officer had noticed any inco nsistenc y or infirmity in the audit repo rt. On the oth er hand , the Assessing Officer accepted the report relating to the precedi ng year.
10.1. Fail ure of th e appellant to give det ails of the sundry credito rs may be a ground for raising suspicion, but suspicion alone was not enough for invoking the po wers of best judgment without the suppo rt o f materials. The AO relied upon a part of a transaction for the preceding year while rejecting the other. This is not permissibl e in law. Without pointing out any error in the profit and loss account and the audited report , the powers of best judgment cannot be invoked by any means. In view of th e matter as discussed, I find th at the actio n of the AO is devoid of any merit and hence the additio n made on this count is not sust ainable and therefore deleted".
Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Tribunal.
5. The ld. D.R. submitted that specific defects were pointed out by the Assessing Officer in the books of account and other record maintained by the assessee and the same were sufficient to reject the book results declared by the assessee by invoking the provisions of section 145(3). He contended that although the said defects were claimed to be removed by the assessee before the ld. CIT(Appeals), the details filed by the assessee in this regard were not confronted by the ld. CIT(Appeals) to the Assessing Officer in order to give him an opportunity to verify the same. He contended that the issue involved in this case therefore should go back to the Assessing Officer for giving him such an opportunity.
6. The ld. counsel for the assessee, on the other hand, submitted that the reasons for the assessee's failure to furnish the complete details of creditors as required by the Assessing Officer during the course of assessment proceedings were duly explained by the assessee before the ld. CIT(Appeals) and after taking into consideration the same, the I . T. A . N o. 6 3 5 / KO L . / 2 0 1 4 Assessment year: 2009-2010 Page 6 of 7 complete details of sundry creditors filed by the assessee were taken on record by the ld. CIT(Appeals) by exercising the powers conferred upon him under Rule 46A of the Income Tax Rules. He contended that the Revenue has not raised any ground in its appeal alleging violation of Rule 46A by the ld. CIT(Appeals) and, therefore, the arguments raised by the ld. D.R. seeking opportunity to the Assessing Officer to verify the relevant details of the creditors cannot be entertained. He contended that even otherwise the so-called defect pointed out by the Assessing Officer as regards the failure of the assessee to furnish the complete details of the creditors was not a material defect to justify the rejection of books of account and the same having been removed by the assessee by filing the relevant details before the ld. CIT(Appeals), the action of the Assessing Officer in rejecting the books of account cannot be said to be tenable in the eyes of law.
7. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the books of account of the assessee were rejected by the Assessing Officer merely on the basis of the failure of the assessee to furnish the complete details of the creditors as required by him and there was no other defect pointed out by the Assessing Officer in the books of account maintained by the assessee to justify the rejection of books of account. As held by the Hon'ble Guwahati High Court in the case of Madnani Construction Corporation Pvt. Limited (supra) cited on behalf of the assessee, the failure of the assessee to give details of the sundry creditors may be a ground for raising suspicion, but suspicion alone is not enough for invoking the powers of best judgment. Moreover, the relevant details as sought by the Assessing Officer in respect of sundry creditors were completely furnished by the assessee before the ld. CIT(Appeals) and after having satisfied with the reasons explained by the assesee for not furnishing the same before the Assessing Officer during the course of assessment proceedings, the ld. CIT(Appeals) admitted the same on record and allowed relief to the assessee by relying on the same.
I . T. A . N o. 6 3 5 / KO L . / 2 0 1 4 Assessment year: 2009-2010 Page 7 of 7 Although the ld. D.R. has raised an argument that there is a violation of Rule 46A by the ld. CIT(Appeals), inasmuch as, no opportunity was given by him to the Assessing Officer to verify the said details, it is observed that there is no ground specifically raised by the Revenue in its appeal alleging violation of Rule 46A by the ld. CIT(Appeals). Even otherwise the defect as pointed out by the Assessing Officer regarding the failure of the assessee to furnish the complete details of sundry creditors not being material or sufficient enough to justify the rejection of books of account maintained by the assessee as held by the Hon'ble Guwahati High Court in the case of Madnani Construction Corporation P. Limited (supra), we are of the view that the ld. CIT(Appeals) is fully justified in deleting the addition made by the Assessing Officer by estimating the income of the assessee from the business of execution of works contract by applying higher G.P. rate of 5.15%. Accordingly, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss this appeal filed by the Revenue.
8. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on February 03, 2017.
Sd/- Sd/-
(S.S. Viswanethra Ravi) (P.M. Jagtap)
Judicial Member Accountant Member
Kolkata, the 3 r d day of February, 2017
Copies to : (1) Deputy Commissioner of Income Tax,
Circle-32, Ko lkata,
10B, Middleton Row, 2 n d floor,
Kolkata-700 071
(2) M/s. SPML C ISC (JV ),
22, Camac Street,
Kolkata-700 016
(3) Commissioner of Income Tax(Appeals)-XIX, Kolkata;
(4) Commissioner of Income Tax ,Kolkata
(5) The Depart ment al Represent ative
(6) Guard File
By order
Assistant Registrar,
Income Tax Appellate Tribunal,
Kolkata Benches, Kolkata
Laha/Sr. P.S.