Basir Ahmed Sisodiya vs. ITO (Supreme Court)

1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6110 OF 2009
Basir Ahmed Sisodiya …..Appellant
versus
The Income Tax Officer ..…Respondent
J U D G M E N T
A.M. Khanwilkar, J.
1. This appeal takes exception to the final judgment and order
dated 21.8.2008 passed by the High Court of Judicature for
Rajasthan at Jodhpur (for short, “the High Court”) in Income Tax
Appeal No. 69 of 2006, whereby the appellant’s appeal was
dismissed and the order of Income Tax Appellate Tribunal,
Jodhpur Bench (for short, ‘the ITAT’) came to be upheld.
2. In short, the appellant/assessee was served with a notice
under Section 143(2) of the Income Tax Act, 1961 (for short,
‘1961 Act’) by the Assessing Officer (for short, ‘Officer’) for the
assessment year 19981999,
pursuant to which an assessment
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order was passed on 30.11.2000. This appeal involves limited
challenge to certain addition made under the heads “
Trading
Account” and “Credits” in the assessment order. The Officer,
inter alia, while relying on the Balance Sheet and the books of
account, took note of the credits amounting to Rs.2,26,000/(
Rupees two lakhs twentysix
thousand only). The Officer treated
that amount as “Cash credits” under Section 68 of the 1961 Act
and added the same in declared income of the assessee (for short,
‘second addition’). The Officer then proceeded to compute the
income of the assessee for the concerned assessment year. The
relevant part of the computation is mentioned below: “
Credits:
On examining the balancesheet
and accounts books
of assessee, it is apparent that the assessee has shown
credit amount of Rs.2,26,000/in
the names of the following
15 persons:
… … …
Accordingly, sufficient time and opportunity was
granted to prove the veracity of credits of Rs. 2,26,000/as
shown by assessee. However false/wrong particulars or
explanation were submitted with respect to credits shown by
assessee. In this manner, the credits of Rs.2,26,000/shown
in the name of 15 persons, is not correct and any correct
proof/evidence has not been produced by assessee with
respect to income of creditors and source of income. Besides
this, the credits of Rs.2,26,000/as
shown in the name of 15
persons is held as unexplained under Section 68 and added
in declared income of assessee.
Accordingly, the computation of income of assessee for
assessment year 199899
is as follows:
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Income shown in the Returns 87500/1.
Disallowed deduction U/s.24(1)
as per discussion 7200/2.
Additions in gross profit 10000/3.
Additions on the basis of less
Household expenses withdrawals 18000/4.
Unexplained credits as per discussions 226000/261200/
Total
taxable Income Tax 348700/Assessment
was made. Necessary forms were issued. Notice
be issued separately for imposition of penalty under Section
272(1)(c).”
3. Aggrieved, the appellant/assessee preferred an appeal before
the Commissioner of Income Tax (Appeals), Jodhpur (for short,
‘CIT(A)’). The appeal was partly allowed vide order dated
9.1.2003. However, as regards the Trading Account and Credits
in question, the CIT(A) upheld the assessment order.
4. The appellant/assessee then preferred further appeal to the
ITAT. Having noted the issues and objections raised by the
Department and the appellant/assessee, the ITAT partly allowed
the appeal vide order dated 4.11.2004. However, the order
relating to the second addition (under consideration in the
present civil appeal) regarding credits of Rs.2,26,000/(
Rupees
two lakhs twentysix
thousand only) came to be upheld.
5. The appellant/assessee then filed an appeal before the High
Court under Section 260A of the 1961 Act. The appeal was
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admitted on 27.4.2006 on the following substantial question of
law: ‘‘
Whether claim to purchase of goods by the assessee could
be dealt with under Section 68 of the Income Tax as a cash
credit, by placing burden upon the assessee to explain that
the purchase price does not represent his income from the
disclosed sources?’’
The principal argument of the appellant/assessee was that once
the books of account have been rejected and an assessment order
has been passed, the same books of account cannot be then
relied upon by the Officer to impose consequent addition(s).
6. The High Court dismissed the appeal vide impugned
judgment and order dated 21.8.2008, as being devoid of merits.
The High Court opined that the amount shown as credits was
nothing but bogus entries and was justly added to the income of
the appellant/assessee. The Court also noted other reasons to
dismiss the appeal. Relevant part of the judgment is reproduced
hereunder: ““
In our view, none of the submissions advanced by the
learned counsel for the appellant has force. Learned counsel
has proceeded on the basic assumption, about the factum of
purchase of goods, having accepted by the authorities below,
while the categoric finding of the Assessing Officer, which
has not been disturbed in appeal is, that regarding this
purchase from unregistered dealer assessee was called upon
during the course of assessment proceedings to prove the
correctness and genuineness of his claim, but he completely
failed, and therefore, the purchase cannot be accepted. In
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our view, this finding, rather is clear and categoric, that
no purchase was affected by the assessee, and amount
was shown in a bogus manner, shown to be standing to
credit of alleged purchasers, who could not be shown, to
be either existent, or to be the creditors of the assessee,
much less for the consideration alleged by the assessee.
It is clear from the assessment orders and the finding
affirmed in the appeals, that opportunity was given to
the assessee to substantiate the genuineness of the
alleged transactions, but the assessee failed, and efforts
made by the Revenue, to investigate the correctness of
the alleged transaction also could not yield any results,
in favour of the assessee.
Thus it is clear, that the amounts shown to be
standing to the credit of the persons, which had been added
to the income of the assessee, was clearly a bogus entry, in
the sense that it was only purportedly shown to be the
amount standing to the credit of the fifteen persons,
purportedly on account of assessee having purchased goods
no credit from them, while since no goods were purchased,
the amount did represent income of the assessee from
undisclosed sources, which the assessee had only brought
on record (books of accounts), by showing to be the amount
belonging to the purported sellers, and as the liability of the
assessee.
That being the position, the contention about
impermissibility of making addition under this head, in view
of addition of Rs.10,000/having
been made in trading
account, cannot be accepted, as books of accounts has
been rejected for the purpose of assessing the gross
profit, as the gross profit shown in the books has not
been accepted, on the ground, that the assessee had not
maintained day to day stock registers, nor has produced
or maintained other necessary vouchers, but then, if
those books of accounts did disclose certain other
assets, which are wrongly shown to be liabilities, and for
acquisition of which the assessee did not show the
source, it cannot be said that the Assessing Officer was
not entitled to use the books of accounts for this
purpose.”
(emphasis supplied)
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7. The appellant/assessee in the present civil appeal has
reiterated the argument that the Officer, having made the
addition under Section 144 of the 1961 Act being “best judgment
assessment”, had invoked powers under subSection
(3) of
Section 145. For, assessment under Section 144 is done only if
the books are rejected. In that case, the same books cannot be
relied upon to impose subsequent additions, as has been done in
this case under Section 68 of the 1961 Act. The
appellant/assessee adopted a threepronged
plea in support of
the above contention; First, that assessment order refers to
Section 145(2) of the 1961 Act. It should have mentioned Section
145(3) of the 1961 Act. For that, the appellant/assessee relies on
the amendment of the 1961 Act which came into effect from
1.4.1997. It is urged that Section 145(2) prior to 1.4.1997 (preamendment)
is akin to Section 145(3) post 1.4.1997 (postamendment).
It is thus urged that the
Department committed error in mentioning Section 145(2) and
not Section 145(3); Second, that the assessment order in
reference to the first addition has incorrectly mentioned the term
“not”. According to the appellant/assessee, the prefix of the
paragraph and the language used, makes it abundantly clear that
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the Department had relied upon Section 145(3) of the 1961 Act to
impose the addition. The appellant/assessee has also placed
reliance on the Hindi version of the assessment order to buttress
this submission; Third, that the assessment was made under
Section 144 as the same refers to Section 145(3). Under Section
144, the Officer has to make “best judgment assessment”. The
appellant/assessee urges that the purport of the stated provision
is that the Officer reassesses
the entire accounts and makes the
assessment of total income and thereafter computes the income
tax liability. Resultantly, the Officer (after rejecting the books of
account) cannot then rely on the same books of account to make
any subsequent addition(s). The appellant/assessee also argues
that the approach adopted by the Officer would have the effect of
taxing the same transaction twice.
8. To buttress the aforesaid contentions, reliance is placed on
Maddi Sudarsanam Oil Mills Co. v. Commissioner of IncomeTax,
Hyderabad and Andhra1; Commissioner of Income Tax
v. Aggarwal Engg. Co. (Jal.)2 and Commissioner of Income
Tax vs. G.K. Contractors3.
1 [1959] 37 ITR 369 (AP)
2 (2006) 206 CTR (P&H) 648
3 (2009) 19 DTR (Raj) 305 (IT Appeal No. 13/2009, decided on 28.1.2009)
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9. Per contra, the respondent urged that the assumption of the
appellant/assessee that the assessment order had rejected the
books of accounts under Section 145(3) of the 1961 Act is
preposterous. In that, the assessment in question came to be
made under Section 143(3) of the 1961 Act. Thus, the Officer
was justified in relying upon the said books for making
addition(s). The respondent would also urge that while imposing
the first addition, the assessment order does not reject the books
of accounts, but only that part which pertained to assessing the
gross profit, as the assessee had not maintained day to day stock
registers, nor had produced or maintained other necessary
vouchers while determining the gross profits. Additionally, the
respondent would also urge that the amount mentioned under
“Credits” in the Balance Sheet is incorrect and qualifies as “Cash
Credits” under Section 68 of the 1961 Act, as stated in the
assessment order. Indisputably, the Officer gave several
opportunities to the appellant/assessee to prove the authenticity
of the entries in question. As a matter of fact, summon notices
were issued to the named fifteen creditors, but no
evidence/explanation was forthcoming. The finding of fact so
recorded by the Officer is unexceptionable. The respondent thus
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contends that the finding relating to the cash credits, does not
give rise to any substantial question of law.
10. Before we proceed to analyze the rival submissions, we need
to advert to I.A. No. 57442/2011 for permission to bring on
record subsequent events. By this application, the
appellant/assessee has placed on record an order passed by the
CIT(A) dated 13.1.2011, which considered the challenge to the
order passed by the IncomeTax
Officer under Section 271(1)(c)
dated 17.11.2006 qua the appellant/assessee for the selfsame
assessment year 19981999.
The IncomeTax
Officer had passed
the said order as a consequence of the conclusion reached in the
assessment order which had by then become final upto the stage
of ITAT vide order dated 27.4.2006 to
the effect that the stated
purchases by the appellant/assessee from unregistered dealers
were bogus entries effected by the appellant/assessee.
Resultantly, the penalty proceedings under Section 271 were
initiated by the Officer. That order, however, has now been set
aside by the appellate authority [CIT(A)] in the appeal preferred by
the appellant/assessee, vide order dated 13.1.2011 with a finding
that the appellant/assessee had not made any concealment of
10
income or furnished inaccurate particulars of income for the
concerned assessment year. As a consequence of the decision of
the appellate authority, even criminal proceedings initiated
against the appellant/assessee have been dropped/terminated
and the appellant/assessee stands acquitted of the charges
under Section 276(C)(D)(1)(2) of the 1961 Act vide judgment and
order dated 6.6.2011 passed by the Court of Additional Chief City
Magistrate (Economic Offence), Jodhpur City in proceedings No.
262/2005. Reverting back to the decision of the appellate
authority [CIT(A)], vide order dated 13.1.2011, it considered the
explanation offered by the appellant/assessee in the penalty
proceedings concerning assessment year 19981999
and went on
to observe thus: “
17. During the course of appellate proceedings, the
appellant filed an application under Rule 46A vide letter
dated 16.10.2008 and the same was sent to the ITO, Ward1,
Makrana vide this office letter dated 28.1.2009 and
1.12.2010 to submit remand report after examination of
additional evidences. Along with the application under Rules
46A, the appellant filed affidavits from 13 creditors, sales
Tax Order for the Financial Year 9798
showing purchases
from unregistered dealer to the tune of Rs.2,28,900/,
cash
vouchers duly signed on the revenue stamp for receipt of
payment by the unregistered dealers and copy of Rasan
Card/Voter Identity Card to show identity of the
unregistered dealer. The Assessing Officer recorded
statements of 12 unregistered dealers out of 13. In the report
dated 22.12.2010, he mentioned that statements of above 12
persons were recorded on 15/16.12.2010 and in respect of
identify, the unregistered filed photo copies of their Voter
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Identity Cards and all of them have admitted that they
have sold marble on credit basis to Sh. Bashir Ahmed
Sisodia, the appellant, during the Financial Year 9798
and received payments after two or three years. However,
he observed that none of them have produced any evidence
in support of their statement since all are petty unregistered
dealers of marble and doing small business and therefore, no
books of account were maintained. Some of them have stated
that they were maintaining small dairies in the relevant
period of time but they could not preserve old dairies. Some
of them have stated that they have put their signature on the
vouchers on the date of transactions. It is therefore,
observed that the Assessing Officer has neither doubted
their identity nor any adverse comments in respect of
purchase of marble slabs in the Financial Year relevant
at AY 9899
has given in the remand report.
xxx xxx xxx
19. In respect of addition of Rs.2,26,000/,
it would be
pertinent to note here that there is no denial of
purchase of marble slabs worth Rs.4,78,900/and
sale of
goods worth Rs.3,57,463/and
disclose of closing stock
of Rs.2,92,490/as
disclosed in the trading account for
the year ended on 31.3.98.
…………….
Without purchases of marbles, there could not have been
sale and disclosure of closing stock in the trading account
and it suggests that the appellant must have purchased
marble slabs from unregistered dealers.
…………….
The explanation given by the appellant in respect of
purchases from the unregistered dealer and their
genuineness are substantiated by filing of affidavits,
producing before the Assessing Officer in the course of
remand report and the Assessing Officer did not find any
objectionable in respect identity of the unregistered
dealers and claim made for sale of marble slabs to the
appellant in the Financial Year relevant to AY 9899.
…………..
Thus, there was no justification not to accept the purchase
made from unregistered dealers. If such an addition is made,
it would give unreasonable rate of profit. The vouchers in
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respect of purchases made from unregistered dealers were
produced by the appellant.”
(emphasis supplied)
Finally, in paragraph 20, the appellate authority observed thus: ‘‘
20. Under the above facts and circumstances, I am of the
view that there was no either concealment of income or
furnishing any inaccurate particulars of income and
accordingly, the penalty order dated 17.11.2006 passed by
the Assessing Officer is cancelled. The grounds of appeal
allowed.’’
Notably, the appellant/assessee has asserted in paragraph 2 of
the application (I.A. No. 57442/2011) that consequent to the
order passed by the appellate authority dated 13.1.2011, the
Department has refunded penalty amount of Rs.98,153/(
Rupees ninetyeight
thousand one hundred fiftythree
only)
alongwith interest to the appellant/assessee. That means the
Department has allowed the said order dated 13.1.2011 to
become final.
11. We have heard learned senior counsel, Dr. Manish Singhvi
and Mr. K. Radhakrishnan appearing for the appellant and
respondent, respectively.
12. Before dissecting the rival submissions, we deem it apposite
to reproduce the relevant provisions as applicable at the relevant
time for assessment year 19981999
as below;
“Assessment
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143. (1) (a) Where a return has been made under section
139, or in response to a notice under subsection
(1) of
section 142,(
i) if any tax or interest is found due on the basis of
such return, after adjustment of any tax
deducted at source, any advance tax paid and
any amount paid otherwise by way of tax or
interest, then, without prejudice to the
provisions of subsection
(2), an intimation shall
be sent to the assessee specifying the sum so
payable, and such intimation shall be deemed to
be a notice of demand issued under section 156
and all the provisions of this Act shall apply
accordingly; and
(ii) if any refund is due on the basis of such return,
it shall be granted to the assessee:
Provided that in computing the tax or interest payable by, or
refundable to, the assessee, the following adjustments shall
be made in the income or loss declared in the return,
namely:(
i) any arithmetical errors in the return, accounts
or documents accompanying it shall be rectified;
(ii) any loss carried forward, deduction, allowance
or relief, which, on the basis of the information
available in such return, accounts or
documents, is prima facie admissible but which
is not claimed in the return, shall be allowed;
(iii) any loss carried forward, deduction, allowance
or relief claimed in the return, which, on the
basis of the information available in such return,
accounts or documents, is prima facie
inadmissible, shall be disallowed:
Provided further that where adjustments are made under
the first proviso, an intimation shall be sent to the assessee,
notwithstanding that no tax or interest is found due from
him after making the said adjustments:
Provided also that an intimation for any tax or interest due
under this clause shall not be sent after the expiry of two
years from the end of the assessment year in which the
income was first assessable.
(b) Where as a result of an order made under subsection
(3) of this section or section 144 or section 147 or section
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154 or section 155 or section 250 or section 254 or section
260 or section 262 or section 263 or section 264, or any
order of settlement made under subsection
(4) of section
245D relating to any earlier assessment year and passed
subsequent to the filing of the return referred to in clause
(a), there is any variation in the carry forward loss,
deduction, allowance or relief claimed in the return, and as a
result of which,(
i) if any tax or interest is found due, an intimation
shall be sent to the assessee specifying the sum
so payable, and such intimation shall be deemed
to be a notice of demand issued under section
156 and all the provisions of this Act shall apply
accordingly, and
(ii) if any refund is due, it shall be granted to the
assessee:
Provided that an intimation for any tax or interest due
under this clause shall not be sent after the expiry of four
years from the end of the financial year in which any such
order was passed.
(c) Where the assessee is a member of an association of
persons or body of individuals and as a result of the
adjustments made under the first proviso to clause (a) of
subsection
(1) in the income or loss declared in the return
made by the association or body, as the case may be, or as a
result of an order made under subsection
(3) of this section
or section 144 or section 147 or section 154 or section 155
or subsection
(1) or subsection
(2) or subsection
(3) or
subsection
(5) of section 185 or subsection
(1) or subsection
(2) of section 186 or section 250 or section 254 or
section 260 or section 262 or section 263 or section 264, or
any order of settlement made under subsection
(4) of
section 245D, passed subsequent to the filing of the return
referred to in clause (a), there is any variation in his share in
the income or loss of the association or body, as the case
may be, or in the manner of inclusion of his share in the
returned income, then,(
i) if any tax or interest is found due, an intimation
shall be sent to the assessee specifying the sum
so payable, and such intimation shall be deemed
to be a notice of demand issued under section
156 and all the provisions of this Act shall apply
accordingly, and
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(ii) if any refund is due, it shall be granted to the
assessee:
Provided that an intimation for any tax or interest due
under this clause shall not be sent after the expiry of four
years from the end of the financial year in which any such
adjustments were made or any such order was passed.
(1A) (a) Where as a result of the adjustments made
under the first proviso to clause (a) of subsection
(1),(
i) the income declared by any person in the return
is increased; or
(ii) the loss declared by such person in the return is
reduced or is converted into income,
the Assessing Officer shall,(
A) in a case where the increase in income under
subclause
(i) of this clause has increased the
total income of such person, further increase the
amount of tax payable under subsection
(1) by
an additional incometax
calculated at the rate
of twenty per cent on the difference between the
tax on the total income so increased and the tax
that would have been chargeable had such total
income been reduced by the amount of
adjustments and specify the additional incometax
in the intimation to be sent under subclause
(i) of clause (a) of subsection
(1);
(B) in a case where the loss so declared is reduced
under subclause
(ii) of this clause or the
aforesaid adjustments have the effect of
converting that loss into income, calculate a
sum (hereinafter referred to as additional
incometax)
equal to twenty per cent of the tax
that would have been chargeable on the amount
of the adjustments as if it had been the total
income of such person and specify the additional
incometax
so calculated in the intimation to be
sent under subclause
(i) of clause (a) of subsection
(1);
(C) where any refund is due under subsection
(1),
reduce the amount of such refund by an amount
equivalent to the additional incometax
calculated under subclause
(A) or subclause
(B), as the case may be.
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(b) Where as a result of an order under subsection
(3) of
this section or section 154 or section 250 or section 254 or
section 260 or section 262 or section 263 or section 264, the
amount on which additional incometax
is payable under
clause (a) has been increased or reduced, as the case may
be, the additional incometax
shall be increased or reduced
accordingly, and,(
i) in a case where the additional incometax
is
increased, the Assessing Officer shall serve on
the assessee a notice of demand under section
156;
(ii) in a case where the additional incometax
is
reduced, the excess amount paid, if any, shall be
refunded.
(1B) Where an assessee furnishes a revised return under
subsection
(5) of section 139 after the issue of an
intimation, or the grant of refund, if any, under subsection
(1) of this section, the provisions of subsections
(1) and (1A)
of this section shall apply in relation to such revised return
and(
i) the intimation already sent for any incometax,
additional incometax
or interest shall be
amended on the basis of the said revised return
and where any amount payable by way of
incometax,
additional incometax
or interest
specified in the said intimation has already been
paid by the assessee then, if any such
amendment has the effect of(
a) enhancing the amount already paid, the
intimation amended under this clause
shall be sent to the assessee specifying the
excess amount payable by him and such
intimation shall be deemed to be a notice
of demand issued under section 156 and
all the provisions of this Act shall apply
accordingly;
(b) reducing the amount already paid, the
excess amount paid shall be refunded to
the assessee;
(ii) the amount of the refund already granted shall
be enhanced or reduced on the basis of the said
revised return and where the amount of refund
already granted is17
(a) enhanced, only the excess amount of
refund due to the assessee shall be paid to
him;
(b) reduced, the excess amount so refunded
shall be deemed to be the tax payable by
the assessee and an intimation shall be
sent to the assessee specifying the amount
so payable, and such intimation shall be
deemed to be a notice of demand issued
under section 156 and all the provisions of
this Act shall apply accordingly:
Provided that an assessee, who has furnished a revised
return under subsection
(5) of section 139 after the service
upon him of the intimation under subsection
(1) of this
section, shall be liable to pay additional incometax
in
relation to the adjustments made under the first proviso to
clause (a) of subsection
(1) and specified in the said
intimation, whether or not he has made the said
adjustments in the revised return.
(2) Where a return has been made under section 139, or
in response to a notice under subsection
(1) of section 142,
the Assessing Officer shall, if he considers it necessary or
expedient to ensure that the assessee has not understated
the income or has not computed excessive loss or has not
underpaid
the tax in any manner, serve on the assessee a
notice requiring him, on a date to be specified therein, either
to attend his office or to produce, or cause to be produced
there, any evidence on which the assessee may rely in
support of the return:
Provided that no notice under this subsection
shall be
served on the assessee after the expiry of twelve months
from the end of the month in which the return is furnished.
(3) On the day specified in the notice issued under subsection
(2), or as soon afterwards as may be, after hearing
such evidence as the assessee may produce and such other
evidence as the Assessing Officer may require on specified
points, and after taking into account all relevant material
which he has gathered, the Assessing Officer shall, by an
order in writing, make an assessment of the total income or
loss of the assessee, and determine the sum payable by him
on the basis of such assessment.
(4) Where a regular assessment under subsection
(3) of
this section or section 144 is made,18
(a) any tax or interest paid by the assessee under
subsection
(1) shall be deemed to have been
paid towards such regular assessment;
(b) if no refund is due on regular assessment or the
amount refunded under subsection
(1) exceeds
the amount refundable on regular assessment,
the whole or the excess amount so refunded
shall be deemed to be tax payable by the
assessee and the provisions of this Act shall
apply accordingly.
(5) The provisions of this section as they stood
immediately before their amendment by the Direct Tax Laws
(Amendment) Act, 1987 (4 of 1988), shall apply to and in
relation to any assessment for the assessment year
commencing on the 1st day of April, 1988, or any earlier
assessment year and references in this section to the other
provisions of this Act shall be construed as references to
those provisions as for the time being in force and applicable
to the relevant assessment year.
Explanation.An
intimation sent to the assessee under subsection
(1) or subsection
(1B) shall be deemed to be an
order for the purposes of sections 246 and 264.
Best judgment assessment.
144. (1) If any person—
(a) fails to make the return required under subsection
(1) of section 139 and has not made a
return or a revised return under subsection
(4)
or subsection
(5) of that section, or
(b) fails to comply with all the terms of a notice
issued under subsection
(1) of section 142 or
fails to comply with a direction issued under
subsection
(2A) of that section, or
(c) having made a return, fails to comply with all
the terms of a notice issued under subsection
(2) of section 143,
the Assessing Officer, after taking into account all
relevant material which the Assessing Officer has
gathered, shall, after giving the assessee an opportunity
of being heard, make the assessment of the total income
or loss to the best of his judgment and determine the
19
sum payable by the assessee on the basis of such
assessment:
Provided that such opportunity shall be given by the
Assessing Officer by serving a notice calling upon the
assessee to show cause, on a date and time to be specified in
the notice, why the assessment should not be completed to
the best of his judgment:
Provided further that it shall not be necessary to give such
opportunity in a case where a notice under subsection
(1) of
section 142 has been issued prior to the making of an
assessment under this section.
(2) The provisions of this section as they stood immediately
before their amendment by the Direct Tax Laws
(Amendment) Act, 1987 (4 of 1988), shall apply to and in
relation to any assessment for the assessment year
commencing on the 1st day of April, 1988, or any earlier
assessment year and references in this section to the other
provisions of this Act shall be construed as references to
those provisions as for the time being in force and applicable
to the relevant assessment year.
Method of accounting.
145. (1) Income chargeable under the head “Profits and
gains of business or profession” or “Income from other
sources” shall, subject to the provisions of subsection
(2), be
computed in accordance with either cash or mercantile
system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the Official Gazette
from time to time accounting standards to be followed by any
class of assesses or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the
correctness or completeness of the accounts of the
assessee, or where the method of accounting provided in
subsection
(1) or accounting standards as notified under
subsection
(2), have not been regularly followed by the
assessee, the Assessing Officer may make an assessment
in the manner provided in section 144.”
(emphasis supplied)
13. Reverting to the findings and conclusions recorded by the
Officer and which commended to the appellate authority, as well
20
as, the High Court, it must follow that the appellant/assessee
despite being given sufficient opportunity, failed to prove the
correctness and genuineness of his claim in respect of purchases
of marbles from unregistered dealers to the extent of
Rs.2,26,000/(
Rupees two lakhs twentysix
thousand only).
Resultantly, the said transactions were assumed as bogus entries
(standing to the credit of named dealers who were nonexistent
creditors of the assessee).
14. However, it has now come on record that the
appellant/assessee in penalty proceedings offered explanation
and caused to produce affidavits and record statements of the
concerned unregistered dealers and establish their credentials.
That explanation has been accepted by the CIT(A) vide order
dated 13.1.2011. In paragraph 17 of the said decision
reproduced hitherto, it has been noted that the Officer recorded
statements of 12 unregistered dealers out of 13 and their identity
was also duly established. After analysing the evidence so
produced by the appellant/assessee, the appellate authority
[(CIT(A)] noted that the Officer had neither doubted the identity of
those dealers nor any adverse comments were offered in reference
21
to their version regarding sale of marble slabs by them to the
appellant/assessee in the financial year relevant to assessment
year 19981999
and receipt of payments after two to three years.
Further, there was no denial of purchase of marbles worth
Rs.4,78,900/(
Rupees four lakhs seventyeight
thousand nine
hundred only) by the assessee and sale thereof worth
Rs.3,57,463/(
Rupees three lakhs fiftyseven
thousand four
hundred sixty three only) with closing stock of Rs.2,92,490/(
Rupees two lakhs ninety two thousand four hundred ninety
only), as disclosed in the trading account for the year ended on
31.3.1998. The appellate authority thus found that without
purchases of marbles, there could be no sale and disclosure of
closing stock in the trading account. In other words, the
materials on record would clearly suggest that the concerned
unregistered dealers had sold marble slabs on credit to the
appellant/assessee, as claimed. As a consequence of this finding,
the appellate authority concluded that there was neither any
concealment of income nor furnishing of inaccurate particulars of
income by the assessee. We are conscious of the fact that these
observations are made by the competent forum (appellate
authority) in penalty proceedings under Section 271 of the 1961
22
Act in favour of the assessee. However, what needs to be noted is
that the stated penalty proceedings were the outcome of the
assessment order in question concerning assessment year 19981999.
Indeed, at the time of assessment, the appellant/assessee
had failed to produce any explanation or evidence in support of
the entries regarding purchases made from unregistered dealers.
In the penalty proceedings, however, the appellant/assessee
produced affidavits of 13 unregistered dealers out of whom 12
were examined by the Officer. The Officer recorded their
statements and did not find any infirmity therein including about
their credentials. The dealers stood by the assertion made by the
appellant/assessee about the purchases on credit from them; and
which explanation has been accepted by the appellate authority
in paragraphs 17 and 19 of the order dated 13.1.2011.
15. To put it differently, the factual basis on which the Officer
formed his opinion in the assessment order dated 30.11.2000 (for
assessment year 19981999),
in regard to addition of
Rs.2,26,000/(
Rupees two lakhs twenty six thousand only),
stands dispelled by the affidavits and statements of the
concerned unregistered dealers in penalty proceedings. That
23
evidence fully supports the claim of the appellant/assessee. The
appellate authority vide order dated 13.1.2011, had not only
accepted the explanation offered by the appellant/assessee but
also recorded a clear finding of fact that there was no
concealment of income or furnishing of any inaccurate
particulars of income by the appellant/assessee for the
assessment year 19981999.
That now being the indisputable
position, it must necessarily follow that the addition of amount of
Rs.2,26,000/(
Rupees two lakhs twentysix
thousand only)
cannot be justified, much less, maintained.
16. Accordingly, this appeal ought to succeed on this count
alone and it would be unnecessary for us to dilate on other
questions/contentions urged by the parties as referred to in the
earlier part of this judgment.
17. Accordingly, this appeal is allowed. The addition of
Rs.2,26,000/(
Rupees two lakhs twentysix
thousand only) by
the Officer under Section 68 of the 1961 Act, towards cash credit
amount shown against the names of concerned unregistered
dealers for the assessment year 19981999,
is hereby set aside.
The rest of the assessment order dated 30.11.2000 as modified by
24
the CIT(A) vide order dated 9.1.2003, shall remain undisturbed.
There shall be no order as to costs. All pending interlocutory
applications are also disposed of.
…………………………. J.
(A.M. Khanwilkar)
…………………………. J.
(Dinesh Maheshwari)
New Delhi;
April 24, 2020.