Radhey Shyam Sita Ram and Party vs Dy. Commissioner of Income Tax

Kishan Swaroop Chaudhari, J.—Appellant has filed appeal against the order of learned Tribunal, by which appeal of the respondent was partly allowed and cross-objections of the appellant were dismissed.

Brief facts of the case are that Excise department, Government of India, issued licence to the appellant for whole region of Chittorgarh district, Rawatbhata and Begu. Appellant submitted return of Income Tax for the assessment year 1998-99 declaring the sale of country liquor to the tune of Rs. 17,20,98,045 and declared gross profit of Rs. 9,55,66,891 @ 55.53 per cent and declared sale of IMFL/beer to the tune of Rs. 11,59,44,719 and declared gross profit @ 6.04 per cent on sales. Assessing Officer applied provisions of Section 145(2), as no primary sale vouchers had been issued for retail sales, so the books of accounts were rejected and while rejecting the books GP rate of 56 per cent was applied against 55.53 per cent on sale of country liquor. Sale of country liquor was increased to the tune of Rs. 17,50,00,000 against shown in return as Rs. 17,20,98,045 and thus made an addition of Rs. 24,33,109 under the head ''Sale of country liquor'' and in the same way in case of IMFL/beer, GP rate was estimated at the rate of 6.50 per cent on estimated sales of Rs. 12,00,00,000 against GP rate of 6.04 per cent on the sale of Rs. 11,59,44,719 and thus increased income by Rs. 8,00,114 on this count. Learned Commissioner (Appeals), vide order dated 5-5-2000, partly accepted the appeal of appellant and deleted addition of Rs. 8,00,114 made by the assessing officer on the sale of IMFL/beer as well granted relief of Rs. 22,26,691 on the sale of country liquor. Learned Tribunal, by impugned order, partly accepted appeal of respondent and upheld order of assessing authority in regard to addition of gross profit on the sale of country liquor and rejected cross-objections of the appellant but upheld order of Commissioner (Appeals) regarding deletion of gross profit of Rs. 8,00,114 on the sale of IMFL/beer, against which order this appeal has been filed by the appellant.

Appeal was admitted vide order dated 7-11-2005, by this court and following substantial questions were framed:

Whether in the facts and circumstances of the case, the Tribunal was right in upholding the applicability of Section 145(3) of the Act of 1961 particularly, keeping in view the amendment brought in Section 145 with effect from 1-4-1997?

Whether in the facts and circumstances, the Tribunal was justified in upholding the additions made by the assessing officer on the basis of best judgment assessment which is founded on the very basis which has been the reason for rejecting the books of accounts as being not verifiable and not considering the available definite material on the basis of which best judgment could be made keeping in view other attending circumstances?

Heard learned Counsel for the parties and perused record.

Learned Counsel for the appellant argued that looking to the turnover of country liquor and increase in profit, learned Commissioner (Appeals) had rightly deleted additions made by learned assessing officer and learned Tribunal has committed error in restoring the order of assessing officer, hence appeal may be accepted and the order of Tribunal may be set aside, whereas learned Counsel for the respondent submitted that learned assessing officer while rejecting the books of accounts has rightly applied provisions of Section 145(3) and marginally increased profit and turnover in the absence of proper books of accounts and order passed by Tribunal is in accordance with law hence appeal may be rejected.

Learned assessing officer has mentioned in the assessment order that assessee has made retail sales in country liquor for which a consolidated register is made but neither primary sale vouchers have been issued for the retail sales, therefore, sales which have been shown, cannot be verified as no primary bills, vouchers are being issued to the customers nor produced before the assessing officer. Learned assessing officer further observed that in absence of production of primary sales bills, the books of account of appellant are liable to rejection as the same do not reflect correct income of the assessee, and in such circumstances, provisions of Section 145(3) were applied. The finding has been upheld by Commissioner (Appeals) and Tribunal. Section 145(3) of the Income Tax Act also lays down that 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 Sub-section (1) or accounting standards as notified under Sub-section (2) have not been regularly followed by the assessee, the assessing officer may make an assessment in the manner provided in Section 144. This provision clearly shows that when the assessing officer is not satisfied about the completeness of accounts of the assessee, he can make an assessment in the manner provided in Section 144 i.e., best judgment assessment. In absence of proper books of accounts, the learned assessing officer has rightly made best judgment assessment and Tribunal was right in upholding the applicability of Section 145(3) of the Income Tax Act.

Learned Counsel for the appellant relied on Md. Umer Vs. Commissioner of Income Tax, , in which it was held that once the method of accounting employed by the assessee has been regularly employed and income, profits and gains could properly be deduced from such regularly employed method of accounting, that is the end of the matter for the purpose of the proviso to Sub-section (1) of Section 145. In that case, there was no finding that any of the entries in the books of account were not correct and there was no finding that such a method of accounting had been irregularly employed by the assessee. This citation does not help to the appellant because learned assessing officer has mentioned in his order that in the absence of production of any primary sales bills, the books of accounts of the assessee are liable to rejection as the same do not reflect correct income of the assessee. When profits and gains cannot be properly deduced from the account books of the assessee, assessing officer has to proceed only u/s 145(3). Thus, the Tribunal was right in holding the applicability of Section 145(3) of the Income Tax Act. Hence, question No. 1 is answered in favour of respondent and against the assessee.

Learned assessing officer has assessed income on sale of country liquor on the basis of GP rate of 56 per cent against 55.53 per cent, shown by the appellant, and has estimated sale of country liquor at Rs. 17,50,00,000 against shown by assessee at Rs. 17,20,98,045. This fact clearly shows that he has made insignificant addition in GP rate as well as sale and learned Tribunal after detailed discussion has rightly upheld order of assessing officer in increasing the quantum of sales as well as rate of gross profit. Appellant himself has shown GP rate of 59.59 per cent in the previous year and in such circumstances in the absence of proper books, learned assessing officer has not committed any error in increasing the GP rate to the tune of 56 per cent against 55.53 per cent shown by appellant himself.

Learned Counsel for the appellant also relied upon Commissioner of Income Tax Vs. Nathekkattu Constructions, , in which it was held that the first appellate authority without considering the case of the assessee based on the books of account and other records, had straightaway thought that this was a fit case for estimation of profit on percentage basis. It was observed that the Tribunal had also committed a mistake in approving the estimation of income adopted by the first appellate authority, the question of estimation of income from the contract receipt was a matter to be considered by the assessing officer himself in accordance with law. This citation also does not help the appellant rather helps the respondent as it was held in the aforesaid case that question of estimation of income from the contract received (sic.-receipt) is a matter to be considered by the assessing officer himself in accordance with law. In the present case, learned assessing officer after considering all aspects has increased sale as well as gross profit marginally in a reasonable manner and learned Tribunal after discussing these facts in detail has arrived at correct conclusion in upholding the order of learned assessing officer.

Learned Counsel for the appellant also placed reliance on (1954) 25 ITR 216 in which it was held that if the assessee fails to satisfy the Income Tax Officer as to the correctness of the percentage of profits returned by him, it is open to the officer to take, a higher percentage consistent with the state of trade in the locality or with any special circumstances of the assessee, which warrant a higher rate of profits, but the Income Tax Officer must disclose the basis and manner of computation and make his order a speaking one. This citation rather helps the respondent as assessing officer as well as the learned Tribunal has given cogent reasons for increasing the rate of gross profit as well as turnover in absence of proper books of accounts.

Learned Counsel for the appellant has also placed reliance on CST v. Girja Shanker Awanish Kumar 104 STC 130 (SC), in which it was observed that as the respondent, a manufacturer of silver ornaments, did not maintain any book as contemplated by Section 12(2) of the UP Sales Tax Act, 1948, the account books were rejected and turnover of the respondent was estimated by the assessing authority to the best of his judgment. The High Court in revision held that the defect being technical in nature, the turnover disclosed in the account books of the respondent should be accepted. The Supreme Court on appeal, set aside the decision of the High Court and restored the estimated turnover. This citation also does not help the appellant because in the present case learned assessing officer has rejected the books of accounts and has properly estimated turnover and gross profit on sale of country liquor.

On the other hand, learned Counsel for the respondent placed reliance on Commissioner of Income Tax Vs. Bhawan and Path Nirman Bohra and Co., in which assessee had shown net profit rate of 8.10 per cent but the assessing officer while noticing various defects in the books of account rejected net profit rate and applied net profit rate of 12.5 per cent u/s 145 of the Income Tax Act. Commissioner (Appeals) reduced net profit rate to 10 per cent, which was upheld by Tribunal as well as by this court. In the case in hand, assessing officer marginally increased turnover and GP rate on the sale of country liquor, which has properly been upheld by Tribunal after detailed discussion and there appears no ground to interfere with the finding of Tribunal.

That apart, all said and done, if the books of accounts have been found to have been rightly rejected, the assessing officer is to proceed u/s 144, which is best judgment assessment. Obviously, what is the best judgment assessment is a pure question of fact and the assessment has been made a subject-matter of scrutiny by the two appellate forums. Thus, it clearly acquires status of brass finding of fact as recorded by the learned Tribunal. In that view of the matter, it cannot be said that it gives rise to any substantial question of law as contemplated by Section 260A of the Income Tax Act. Thus, question No. 2 is answered in favour of revenue.

In the light of reply to the aforesaid two questions, appeal of the appellant is dismissed.