TH /}j^-- 13 .ol-TO WtW COWTOf CWATTISGAW AT BILASFUR TaxCase No,46 pf 2009 '> APPELLANT: (Assessee) Ws Shyamlal AgnwK^ Versus RESPONDENT: (Revenue) Income Tax C?fficer OR&ER FOR CONSIDERATEON HON-BLE SHRI R.N. CHANDRAKAR. J Sd/- Dhirendra Mishra Judge OL<^-t-ejz_ ~<f ~~~ Sd/- R.N. Chandrakar Judge POST FOROR&ER ON •S-f 'JAWAW. 2010 Sd/- Dhirendra Mishra Judge sv'~f. 1 ir—y^'~"£;i ^c •'sS^ ^- HI6H COURT OF CHHATTIS6ARH AT BILASPUR Tax Case No.46 of 2009 APPELLANT: (Assessee) M/s Shyamlal Agrawal (Sohagpur) 36 Subhash Nagar, Kotra Road, Raigarh (CG) Versus RESPONDENT: (Revenue) Income Tax Officer Ward I, Aoyakar Bhawan, Chakradhar Nagar, Raigarh (C&) (Appeals under Section 260-A of the Income Tax Act, 1961) Present. Shri Neelabh Dubey, counsel for appetlant/assessee. Shri Rajeev Shrivastava, Standing Counsel for the respondent/revenue. Division Bench: Honlale Shri Dhirendra Mishra & Hon'ble Shri ft.N. Chandrakar. JJ. OR & E R (Passed on °5'?'f^January. 2010) The foilowing order of the Court was passed by Dhirendra Mishra, J. 1. The appetlant/assessee has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short- "the Act") against the order of Annexure A/3 of the Income Tax Appetlate Tribunal, Bttaspur Bench, Bilaspur (in short "Tribunoil") on the foltowing substantiat questions of law: /. 'Whether on the facts cnd in circumstances of the case by finding of the Tribunal that Sross profit rate shown was low is contresry to focts and perverse? ^&^A^M^^fcS'^^S^— '• ^y 2. Whether inabitity to produce account books can lead to best Judgment assessmenf when audit report is on record? 3. Whether recoveries made for delay in execution of contract ca"e apart of the gross frofit of the contractor? 2. Briefly stoted, fcrcts of the case are thoit the ossessee fited retum of income for the dssessment year 2004-05 on 31 March, 2CX)5 declaring totat income of fts.1,47,347/- along with audit report. Assessment case was fixed for hecring on 2 August.. 20Q5. However, account books could not be produced by the assessee as the bag containing books of accounts in transiT was stolen on l August, 2005 from the troin. The Assessing Officer obsefved that in the absence of books of accounts ond vouchers for expenses ctctimed, it wqyld not be possible to verify the accuracy of the income eamed and expenses claimed. Accordingty, the case was referred to the Additional CIT to issue necessary directions for guidcmee to enabte the ITO to comptete the assessment. The Additional CTT issued directions under Section 144A of the Act and accordmgly, the AO, consideringalt the facts and circumstances.of the case, rejected'the accounts by cdopting the tumover ct Rs.5,46,76,4347- and applied gross profit of 12.657o on the tumover on the basis of gross profit for the preceding yeare and made addition.of Rs.11,19,098/- in the gross profit. After deducting depreciation a\d professional tax under Section 43Bof Rs.1,47,347/-, total taxable income was assessed dt. Rs.12.66,440/-. Interest under Sections 243A, 243B, 243C was dso chcrged and penalty proceedings underSect'ion 271(l)(b)/271(l)(c) weres^parately initioted. 3. CIT(Appeals) pcrtly allowed the cypeal taking into considerotion the assessee's explanort-ion with cm observdtion thctt' gross profit in this s-^s PT ,^tt»^eK;^ yyy"-^"%^. 1 j \3-y \"~ case may reasonably be estimated @ 11% on the gross receipts of Rs.5.46,76,435/- and accordingty, addition of Rs.2,16,934/- was made and total relief of Rs.9,02.161/- was altowed. 4. Revenue went up in appeal against the order of CTT(A) before the Tribunal oind the Tribunal part-ly altowed the appeal ond estimcrt-ed gross p\3fit forthe relevant osse^ment year at' 12% instead of 11% as est-imated by CIT(A). S.Learned'counset for the cppetlant submitted tho* accounts can be rejected underSection 145(3) of the Act only when accounts are not correct or complete or method of accounting or accounting standards are not followed. In the instant case, the accounts have been rejected on the ground that the account books could not be produced, which is npt permissfble under Section l45(3). The assessee filed audit report in Form 3CB as required wider Section 44AB. It contained no adverse remarks ond certified that the balance sheet and profit A loss occount are in agreement with tte books of accounts and there is no discrepcuicy or inconsistency. Form No.SCD filed aiong with audit report- stated that books of accounts were maintained and examined ond there was no change in the method of accounting applied. It atso gaw details of deductions/expendityres ailowable and disaltowable and the work carried out, Even for the purposes of best judgment asse^ment under S®;tion144, it has to' be on the basis of retevont materid. However, while making assessment, the audit report aibmitted by the asswsee wos not taken into considerotion, which wois a relevant material. 6. Reliance is placed on the judgment in the matter of AMitlonal Commissioner of Iname Twf, Dethf-II Vs. J'ay Eiyinewlng Works Ltd.. reported w\ (19^) 113 ITR 389. /»'^f "(; "^ I 8 4 7. Qn the other hand, Shri Rajeev Shrivastava. leamed Stonding Counset for the respondent/revenue, aubmitted that the as^s®ee filed its retum for the relevaftt year, return was processed under Section 143(1) and the case was selected for scrvt'iny. Notice under Section 143(2) was issued for 2 August, 2005, the same was duly served upon the assessee, howewr, assessee did not appedr on 2 August, 2005. The assessee in sts reply received on 8 November, 2006 menfioned thort- the bag containing the books of cccounts and vouchers was stolen near Champa railway $t-ation on 1 August, 2005. In these circumstcinces, as per directions of the Additional CIT, under Section 144A the AO, in the absence of books of accqunts and vouchers, held that the profit ecrned by the ossessee cannot be arrived at and estimated profit @ 12.657s by adopting tumover at Rs.9,46,76,435/-. He further submifted that the Tribunal has right!y rejected estimationof gross profit @ 11% arrived at by CTT(A) by assigning vatid reasons and no substantial questions of taw, as proposed by the appellant, is involved for adjudication of this appesl. 8. We have heard leomed counsgl for the parties ond gone through the material avail&ble on record. 9. Observert'lons of the AO; (i) That, the assessee filed its return on 31 AAarch, 2005. After processing the retum under Section 143(1), thecoBe was ^lected for scrutiny aid notice under Section 143(2) dated 5 July, 2005 was issued for 2 August, 2005. However, none appeared on behslf of the assessee on that date. After initiating penalty proce®lings separat'ely, oinother notice under Section 143(2) was issued ond served on 22 AAay, 2006 due to change of incumbent. Notice under Section 142(l)(i)(ii) was again served on 3 November, 2006. E -a^&?; ':^r- (ii)The assessee in its reply received on 8 November, 2006, apprised that the bag containing books of erecounts and vouchers wgs stolen nearChamparailwaystation on 1 August, 20%. (iii) In these circumstances. the AO observed thorf' in the absence of books of accounts and vouchers of expenses claimed, it would not be possible to verify the accuracy of income eamed land expenses claimed, and ,sought necessary directioh from the Additionflt CIT under Section 144. As per directions of the Additional CIT, assessment was made after rejecting the accounts by applying gross profit®12.65% by adopting turnowr at Rs.5,46,76,435/-. The AO further observed thct the ossessee's gross p"ofits in the yeor 2002- 03 and 2003-04 were 15.17% and 12.65% respectively. 10. Observations of CTT(A); CIT(A) atso observed thot in the absence of books of accowits, bills and vouchers etc. it is difficult to make any observort-ion for quontifying the heed-wi'se disallowances. It has been obseryed that there has been decline in the gross profit rart'e in this case compcred to the immediotely preceding year 2003-04 by 2%, though net profit has improved from 0.19% to 0.26%. The reasons assigned by the assessee for decline in the gross profit could not be verified with reference to the books of account ond other documents since these were already lost due to theft. Howev^r, the qipetjcmt's claim for altowability of deduction in respect 6f the recoveries made by various contractees on account of deicy in-execution of the work contracts cnd inferior quality of work, was accepted ond furt-her taking into account the aforesaid fact, the gross jyofit has been estimated @ 11% on the gross receipts of Rs.5,46,76,435/-. ' / p'.sy £ ll. Observations of the Tribunal: The Tribunat has observed thcrt dT(A) has not brought any mfft'eriat on record for estimat'ing gross profit @ 11% for the relevant assessment year, particularly when the assessee himself has shown the gross profit ©12.65% even for the assessment year 2005-06. The observcri'ion of CIT(A) that ttiere has been decline in the gross profitrateby2%, though thenet profit has improved from 0.19% to 0.26% for the year 2003-04, is contrary to the submissions on behatf of the assessee, wherein it hcs been claimed that the assessee Wfls subjected to recoveries to the extent of Rs.35,26,278/- during the year, which was not there in the previous year, cmd accordingly, gross profit has been estimated @ 12%. 12. Iri Jay Engineering Works Ltd. (supra), the relevant account books for occounting years 1961-62 and 1962-63 were destroyed in fire in November, 1962. Certain deductions were claimed by the assessee along with stat'ement of profit and loss cccounts and balance sheets from the determination of profits for the assessment year 1962-63 and 1963-64 respectively. The deductions were disallowed by the Income Tax Officer. However, the same were allowed by the appellate Assistant Commissioner and by the Tribunal. The application for. reference of the question of law to the High Courl' was also ; rejected. - The Delhi High Court-, rejecting the reference appliccrtion by the revenue, held tho* under Section 143(3) of the Act, the Income Tax Officer does not only hear such evidence as the assessee moy produce or as he may riequire to be produced, but atso takes into . consideration "all relevant material which he has gathered" for the purpose of mcking on oesessment. In thort' case. the external auditors of the assessee-companies had made their annual reports ynder Section 227(2) of the Companies Act, 1956 to the members of the company on thedccoynts exomiined by them and on the batance sheets cnd profit and \oss oiccounts for these two years. These reports did not doubt the correctness of the expenses. deductions of which were claimed by the assessee. Under Section 227(3)(b) and (c),the auditor's report hoid tostate whether in their opinion proper books of account as required by Iqw hcive been kept by the company and whether the compan/s batonce sheets and profit and loss accounts were in agreerftent with the books of account and returns. In these circumstances, it was held thot the income.tcDC authorities were competent not only to accept the ouditors report', but also to draw the proper inference from the same. 13. However, in the instcmt case. the Tribunal after cwisidering the mori'erial available on record hcs pointed out inconsistency in the explcmoitionof the assessee oind crccepted by CIT(A) with respect to ctaim of the assessee thot he was subjected to recovertes of Rs.35,26,278/- in the assessmesnt yecr 2003-04. 14.0n due consideration of the findings of the AO and the reaswis assigned by the Tribunal for modifying the order of CIT(A), we are of the opinion that the procedure fotlowed by the Tribunal for estimal'ing the grossprofit @ 12% after OKlopting the total tumover* for the assessment year 2003-04 was just ond proper, and the same does not give rise to any substcntial question of law, as proposed by the appellant. 15. In the result, the appeal being without substance deserves to be dismissed and is, accordingly, disftissed. —— Sd/- Dhirendra Mishra Judge Sd/- R.N. Chandrakar Judge