Basir Ahmed Sisodiya v. the Income Tax Officer
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 of 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 or der 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 as sessment year
1998-1999, pursuant to which an assessment order was passed on
30.11.2000. This appeal involves limited challenge to certain addition
585 BASIR AHMED SISODIYA v. THE INCOME TAX OFFICER
[A. M. KHANWILKAR, J.]
made under the heads - “Trading Account” and “Credi ts” in the
assessment order. The Officer, inter alia, while relying on the Balance
Sheet and the books of account, took note of the credits amou nting to
Rs.2,26,000/- (Rupees two lakhs twenty-six 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 t he
assessee for the concerned assessment year. The relevant pa rt of the
computation is mentioned below: -
“Credits:
On examining the balance-sheet 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 explanatio n 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 creditor s
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 1998-99 is as follows:
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. Notic e
be issued separately for imposition of penalty under Se ction
272(1)(c).”
3. Aggrieved, the appellant/assessee preferred an appeal b efore
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 questio n, 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 twenty-six 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 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 c redit,
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 tha t once
the books of account have been rejected and an assessment or der 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 par t of the
judgment is reproduced hereunder: -
“In our view, none of the submissions advanced by the learned
counsel for the appellant has force. Learned counse l 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 bee n
587
disturbed in appeal is, that regarding this purchas e 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 our view, this finding,
rather is clear and categoric, that no purchase was affect ed
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 conside ration
alleged by the assessee. It is clear from the asses sment
orders and the finding affirmed in the appeals, tha t
opportunity was given to the assessee to substantiate the
genuineness of the alleged transactions, but the as sessee
failed, and efforts made by the Revenue, to investigate the
correctness of the alleged transaction also could not yiel d
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 tha t it was
only purportedly shown to be the amount standing to the credit of
the fifteen persons, purportedly on account of assessee hav ing
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 th e
assessee had not maintained day to day stock regist ers,
nor has produced or maintained other necessary vouchers,
but then, if those books of accounts did disclose c ertain
other assets, which are wrongly shown to be liabilities, and
for acquisition of which the assessee did not show the
BASIR AHMED SISODIYA v. THE INCOME TAX OFFICER
[A. M. KHANWILKAR, J.]
source, it cannot be said that the Assessing Officer was not
entitled to use the books of accounts for this purpose .”
(emphasis supplied)
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 sub-Section (3) of Section 145. For, assessment und er
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 three-pronged 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
(pre- amendment) is akin to Section 145(3) post 1.4 .1997
(post-amendment). 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 ha s incorrectly
mentioned the term “not”. According to the appellant/assessee, the prefix
of the paragraph and the language used, makes it abundantly clear that
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 judgme nt
assessment”. The appellant/assessee urges that the purport of the stated
provision is that the Officer re-assesses 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 tra nsaction
twice.
8. To buttress the aforesaid contentions, reliance is placed on Maddi
Sudarsanam Oil Mills Co. v. Commissioner of Income- Tax,
Hyderabad and Andhra 1; Commissioner of Income Tax v. Aggarwal
1 [1959] 37 ITR 369 (AP)
589
Engg. Co. (Jal.) 2 and Commissioner of Income Tax vs. G .K.
Contractors 3.
9. Per contra, the respondent urged that the assumption of the
appellant/assessee that the assessment order had rejected t he 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 seve ral 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 unexceptio nable. The
respondent thus contends that the finding relating to the cash cre dits,
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 recor d
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 Income-Tax Officer
under Section 271(1)(c) dated 17.11.2006 qua the appellant/assessee
for the self-same assessment year 1998-1999. The Income-Tax 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 t hat the stated
purchases by the appellant/assessee from unregistered d ealers 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
2 (2006) 206 CTR (P&H) 648
3 (2009) 19 DTR (Raj) 305 (IT Appeal No. 13/2009, de cided on 28.1.2009)
BASIR AHMED SISODIYA v. THE INCOME TAX OFFICER
[A. M. KHANWILKAR, J.]
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 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 t he 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 expla nation
offered by the appellant/assessee in the penalty proceedings concerning
assessment year 1998-1999 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, Ward-1, Makrana vide this
office letter dated 28.1.2009 and 1.12.2010 to submit remand report
after examination of additional evidences. Along wi th the
application under Rules 46A, the appellant filed affidavits from 13
creditors, sales Tax Order for the Financial Year 97-98 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 Car d/
Voter Identity Card to show identity of the unregistered deale r.
The Assessing Officer recorded statements of 12 unregister ed
dealers out of 13. In the report dated 22.12.2010, he mentioned
that statements of above 12 persons were recorded o n 15/
16.12.2010 and in respect of identify, the unregistered filed photo
copies of their V oter Identity Cards and all of them have admitted
that they have sold marble on credit basis to Sh. Bas hir
Ahmed Sisodia, the appellant, during the Financial Y ear
97-98 and received payments after two or three year s .
However, he observed that none of them have produced any
evidence in support of their statement since all ar e 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
591
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 identit y nor
any adverse comments in respect of purchase of marb le
slabs in the Financial Year relevant at AY 98-99 has given
in the remand report .
xxx xxx xxx
19. In respect of addition of Rs.2,26,000/-, it wou ld be
pertinent to note here that there is no denial of purc hase of
marble slabs worth Rs.4,78,900/- and sale of goods worth
Rs.3,57,463/- and disclose of closing stock of Rs.2,9 2,490/
- as disclosed in the trading account for the year ended o n
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 o f
purchases from the unregistered dealer and their
genuineness are substantiated by filing of affidavi ts,
producing before the Assessing Officer in the cours e of
remand report and the Assessing Officer did not find an y
objectionable in respect identity of the unregistered d ealers
and claim made for sale of marble slabs to the appellant in
the Financial Year relevant to AY 98-99 .
…………..
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 resp ect of
purchases made from unregistered dealers were produced by the
appellant.”
(emphasis supplied)
BASIR AHMED SISODIYA v. THE INCOME TAX OFFICER
[A. M. KHANWILKAR, J.]
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 ninety-eight th ousand one
hundred fifty-three 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 1998-1999 as below;
“Assessment
143. (1) (a) Where a return has been made under section 139, or
in response to a notice under sub-section (1) of section 142,-
(i) if any tax or interest is found due on the basis of such ret urn,
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 sub-section
(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 sha ll 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:-
593
(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 retur n,
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 a ssessee,
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 f irst
assessable.
(b) Where as a result of an order made under sub-section
(3) of this section or section 144 or section 147 or section 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 sub-section (4) of section 245D relating to any ear lier
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 shal l be sent
to the assessee specifying the sum so payable, and suc h
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.
BASIR AHMED SISODIYA v. THE INCOME TAX OFFICER
[A. M. KHANWILKAR, J.]
(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 sub-section (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 sub-section
(3) of this section or section 144 or section 147 or section 154 or
section 155 or sub-section (1) or sub-section (2) or sub- section
(3) or sub-section (5) of section 185 or sub-section (1) or sub-
section (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 sub-section (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 suc h
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 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 sub-section (1),-
(i) the income declared by any person in the return is incr eased;
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 sub-clau se (i)
of this clause has increased the total income of such person,
further increase the amount of tax payable under sub-section
(1) by an additional income-tax calculated at the rate of twenty
per cent on the difference between the tax on the total income
595
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 income-tax in the
intimation to be sent under sub-clause (i) of clause (a) of
sub-section (1);
(B) in a case where the loss so declared is reduced under
sub-clause (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 income-tax) equal t o
twenty per cent of the tax that would have been chargeable
on the amount of the adjustments as if it had been the tot al
income of such person and specify the additional income-tax
so calculated in the intimation to be sent under sub-clause (i)
of clause (a) of sub- section (1);
(C) where any refund is due under sub-section (1), reduce the
amount of such refund by an amount equivalent to th e
additional income-tax calculated under sub-clause (A) o r
sub-clause (B), as the case may be.
(b) Where as a result of an order under sub-section (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 income-tax is payable under clause (a) h as been
increased or reduced, as the case may be, the additional income-tax
shall be increased or reduced accordingly, and,-
(i) in a case where the additional income-tax is increased, t he
Assessing Officer shall serve on the assessee a notice of
demand under section 156;
(ii) in a case where the additional income-tax is reduce d, the
excess amount paid, if any, shall be refunded.
(1B) Where an assessee furnishes a revised return u nder
sub-section (5) of section 139 after the issue of an intimation, or
the grant of refund, if any, under sub-section
(1) of this section, the provisions of sub-sections (1) and (1A) of
this section shall apply in relation to such revised return and-
(i) the intimation already sent for any income-tax, additiona l
income-tax or interest shall be amended on the basis of the
BASIR AHMED SISODIYA v. THE INCOME TAX OFFICER
[A. M. KHANWILKAR, J.]
said revised return and where any amount payable by way of
income-tax, additional income-tax 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 is-
(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 sub-section (5) of section 139 after the service upon him of
the intimation under sub-section (1) of this section, shall be liable
to pay additional income-tax in relation to the adjustments made
under the first proviso to clause (a) of sub-section (1) and specified
in the said intimation, whether or not he has made th e said
adjustments in the revised return.
(2) Where a return has been made under section 139, or in
response to a notice under sub- section (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 under- paid the tax in any
manner, serve on the assessee a notice requiring him, on a date to
597
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 sub-section 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 sub- sect ion
(2), or as soon afterwards as may be, after hearing such evidence
as the assessee may produce and such other evidence a s 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 sub-section (3) of this
section or section 144 is made,-
(a) any tax or interest paid by the assessee under sub -
section (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 sub- section (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 fo r
the assessment year commencing on the 1st day of April, 1988, or
any earlier assessment year and references in this sect ion to the
other provisions of this Act shall be construed as references to
those provisions as for the time being in force and applicable t o
the relevant assessment year.
Explanation.- An intimation sent to the assessee under sub-section
(1) or sub-section (1B) shall be deemed to be an order for the
purposes of sections 246 and 264.
BASIR AHMED SISODIYA v. THE INCOME TAX OFFICER
[A. M. KHANWILKAR, J.]
Best judgment assessment.
144 . (1) If any person—
(a) fails to make the return required under sub-section (1)
of section 139 and has not made a return or a revised
return under sub-section (4) or sub-section (5) of that
section, or
(b) fails to comply with all the terms of a notice issued
under sub-section (1) of section 142 or fails to comply
with a direction issued under sub-section (2A) of that
section, or
(c)having made a return, fails to comply with all the
terms of a notice issued under sub-section (2) of
section 143 ,
the Assessing Officer, after taking into account all re levant
material which the Assessing Officer has gathered, sh all,
after giving the assessee an opportunity of being he ard,
make the assessment of the total income or loss to the
best of his judgment and determine the 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 t he
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 sub-section (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 fo r
the assessment year commencing on the 1st day of April, 1988, or
any earlier assessment year and references in this sect ion 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.
599
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 sub-section (2), be comput ed in
accordance with either cash or mercantile system of accounti ng
regularly employed by the assessee.
(2) The Central Government may notify in the Official Gaze tte
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
sub-section (1) or accounting standards as notified under
sub-section (2), have not been regularly followed b y the
assessee, the Assessing Officer may make an assessm ent
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 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 twenty-six th ousand
only). Resultantly, the said transactions were assumed as bogus entries
(standing to the credit of named dealers who were non-existent creditors
of the assessee).
14. However, it has now come on record that the appellant/assessee
in penalty proceedings offered explanation and cause d to produce
affidavits and record statements of the concerned unregistered dealer s
and establish their credentials. That explanation has been a ccepted by
the CIT(A) vide order dated 13.1.2011. In paragraph 17 of the s aid
decision reproduced hitherto, it has been noted that the Officer recorded
statements of 12 unregistered dealers out of 13 and their ide ntity 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 no r any adverse
comments were offered in reference to their version regardin g sale of
BASIR AHMED SISODIYA v. THE INCOME TAX OFFICER
[A. M. KHANWILKAR, J.]
marble slabs by them to the appellant/assessee in the f inancial year
relevant to assessment year 1998-1999 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 seventy-eight thousand nine
hundred only) by the assessee and sale thereof worth Rs.3,57,46 3/-
(Rupees three lakhs fifty-seven 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 re cord
would clearly suggest that the concerned unregistered dealers had sold
marble slabs on credit to the appellant/assessee, a s claimed. As a
consequence of this finding, the appellate authority concluded that there
was neither any concealment of income nor furnishing of inaccura te
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 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 1998-1999. Indeed, at th e 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 s tatements
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 O fficer
formed his opinion in the assessment order dated 30.1 1.2000 (for
assessment year 1998-1999), in regard to addition of Rs.2,26 ,000/-
(Rupees two lakhs twenty six thousand only), stands dispelle d by the
affidavits and statements of the concerned unregistered dealers in penalty
proceedings. That evidence fully supports the claim of the appellant/
assessee. The appellate authority vide order dated 13.1.2011, had not
601
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 1998-1999. That no w being the
indisputable position, it must necessarily follow that the addition of amount
of Rs.2,26,000/- (Rupees two lakhs twenty-six 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 twenty-six thousand only) by the Off icer under
Section 68 of the 1961 Act, towards cash credit amount shown against
the names of concerned unregistered dealers for the assessme nt year
1998-1999, is hereby set aside. The rest of the assessment order da ted
30.11.2000 as modified by the CIT(A) vide order dated 9.1.2003, shall
remain undisturbed. There shall be no order as to costs. All p ending
interlocutory applications are also disposed of.
Divya Pandey Appeal allowed.
BASIR AHMED SISODIYA v. THE INCOME TAX OFFICER
[A. M. KHANWILKAR, J.]