The Commissioner of Income-tax, Patiala v. Ajay Kumar Singla
[Citation -2014-LL-1007-9]

Citation 2014-LL-1007-9
Appellant Name The Commissioner of Income-tax, Patiala
Respondent Name Ajay Kumar Singla
Court HIGH COURT OF PUNJAB & HARYANA
Relevant Act Income-tax
Date of Order 07/10/2014
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags gross profit rate • cash withdrawals • net profit rate • tax at source • rejecting books of account • tax deduction at source
Bot Summary: The main objection of the assessee was that it had been maintaining the books of accounts as required under Section 44A of the Act which were duly audited under Section 44AB of the Act and the audited balance sheets, profit and loss account alongwith the annexures, the statement of particulars in Form No.3CD alongwith the copy of the account 2 of 5 ::: Downloaded on - 29-01-2019 17:28:22 ::: ITA No.181 of 2014 3 were also submitted in Assessment Proceedings. The Assessing Officer rejected the books of accounts and estimated the income of the assessee by applying the net profit rate of 10 as against 5.05 declared by the assessee, thus, an addition on account of the low gross profit rate to the tune of 7,32,336/- was added and the net profit was calculated at 14,79,256/. Assessing Officer, after verifying the accounts of the assessee, found that the cash withdrawals allegedly made by the assessee for incurring various expenses was not justifiable for want of bills and vouchers, as the assessee failed to produce, much less proof thereof, thus, held the assessee liable to deduct the tax at source as required under Section 194(c) of the Act. The assessee challenged the order dated 30.12.2011 of the Assessing Officer in appeal filed under Section 250 of the Act before the Commissioner of Income Tax, Patiala. The Commissioner of Income Tax, after noticing the submissions of the assessee and as well as the fact that in course of the assessment proceedings, the assessee vide letter dated 5.5.2011 filed an explanation and reconciliation of deposits/withdrawals in the two bank accounts in relation to the audited financial statements and as per the conciliation statement, the total cash withdrawal, which was disallowed by the Assessing Officer, was actually utilized throughout the year on day to day basis, held, that Assessing Officer presumed entire cash withdrawals utilized by making cash payments which 3 of 5 ::: Downloaded on - 29-01-2019 17:28:22 ::: ITA No.181 of 2014 4 are in violation of Section 40A(3) of the Act and erroneously made exuberant addition. The revenue challenged the said finding before the Income Tax Appellate Tribunal vide appeal No.256-Chandigarh/2013, whereas, on the other hand, the assessee also filed the cross-objections bearing No.16/Chandigarh/2013 in the aforementioned ITAT. That the ITAT relying upon the judgment in the case of Santosh Jain, which followed the decision of Allahabad Court in CIT Vs. Banwari Lal case 229 vide order dated 18.10.2013 dismissed the appeal and permitted the assessee to withdraw the cross-objections. We have heard the counsel for the revenue and are of the considered view that when the income of the assessee was computed by 4 of 5 ::: Downloaded on - 29-01-2019 17:28:22 ::: ITA No.181 of 2014 5 applying gross profit rate, there is no need to look into the provisions of Section 40A(3) of the Act, inasmuch as that, when the gross profit rate is applied, then it takes care of the expenditure otherwise by way of crossed cheques.


ITA No.181 of 2014 (O&M) {1} IN HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. Income-tax Appeal No.181 of 2014 (O&M) Date of Decision: October 7, 2014 Commissioner of Income Tax, Patiala Appellant Versus Shri Ajay Kumar Singla Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE AMIT RAWAL Present:- Ms. Savita Saxena, Advocate, for appellant. AMIT RAWAL, J. revenue has approached this Court by invoking provisions of Section 260 of Income Tax Act, 1961 (hereinafter called Act ) by challenging order dated 18.10.2013 passed by Income Tax Appellate Tribunal, Chandigarh Bench B Chandigarh in ITA No.356- Chandigarh-2013 in respect of assessment year 2009-10. It has been claimed that following substantial questions of law would arise for determination of this Court:- (i) In facts and circumstances of case, whether ITAT was right in law in not sustaining addition of Rs.85,45,077/- made on account of disallowance u/s 40A(3) of Income Tax Act, 1961, even when assessee has violated provisions of Section 40A(3) and failed to furnish information and produce accounts? 1 of 5 ::: Downloaded on - 29-01-2019 17:28:22 ::: ITA No.181 of 2014 (O&M) {2} (ii) In facts and circumstances of case, whether ITAT was right in deleting addition of Rs.85,45,077/- without appreciating fact that there is no correlation between estimated G.P.rate and disallowance u/s 40A (3)? (iii) In facts and circumstances of case, whether ITAT was right in law in deleting addition and not setting it aside to file of CIT(A) or AO for ascertaining particular of specific default u/s 40A(3) without appreciating fact that AO had to make addition u/s 40A(3) on basis of cash withdrawal made by assessee from his bank account for meeting business expenses on account of failure on part of assessee to furnish relevant information and accounts? facts deduced from order of Assessing Officer indicate that assessee filed return on 29.9.2009. Assessing Officer processed return under Section 143 of Act and brought case under scrutiny. Accordingly, statutory notices as envisaged under law, i.e., notices under section 142 (1) and 143 (2) of Act alongwith questionnaire were issued and served upon assessee. assessee had declared net profit of `7,46,920/- against gross receipts of `1,47,09,566/- thereby giving net profit rate of 5.05%. In response to notices afore-mentioned, assessee filed objections. Besides various objections, main objection of assessee was that it had been maintaining books of accounts as required under Section 44A of Act which were duly audited under Section 44AB of Act and audited balance sheets, profit and loss account alongwith annexures, statement of particulars in Form No.3CD alongwith copy of account 2 of 5 ::: Downloaded on - 29-01-2019 17:28:22 ::: ITA No.181 of 2014 (O&M) {3} were also submitted in Assessment Proceedings. Assessing Officer rejected books of accounts and estimated income of assessee by applying net profit rate of 10% as against 5.05% declared by assessee, thus, addition on account of low gross profit rate to tune of `7,32,336/- was added and net profit was calculated at `14,79,256/.-. Besides this, Assessing Officer, after verifying accounts of assessee, found that cash withdrawals allegedly made by assessee for incurring various expenses was not justifiable for want of bills and vouchers, as assessee failed to produce, much less proof thereof, thus, held assessee liable to deduct tax at source as required under Section 194(c) of Act. Accordingly, Assessing Officer disallowed said expenses/cash withdrawals and added same to income of assessee, being in violation of provisions of Section 40A(3) of Act. assessee challenged order dated 30.12.2011 of Assessing Officer in appeal filed under Section 250 (6) of Act before Commissioner of Income Tax (Appeals), Patiala. Commissioner of Income Tax (Appeals), after noticing submissions of assessee and as well as fact that in course of assessment proceedings, assessee vide letter dated 5.5.2011 filed explanation and reconciliation of deposits/withdrawals in two bank accounts in relation to audited financial statements and as per conciliation statement, total cash withdrawal, which was disallowed by Assessing Officer, was actually utilized throughout year on day to day basis, held, that Assessing Officer presumed entire cash withdrawals utilized by making cash payments which 3 of 5 ::: Downloaded on - 29-01-2019 17:28:22 ::: ITA No.181 of 2014 (O&M) {4} are in violation of Section 40A(3) of Act and erroneously made exuberant addition. Tribunal while relying upon judgment rendered by this Court in case Commissioner of Income Tax Vs. Smt. Santosh Jain (2008) 296 ITR 324 P&H, held that where income of assessee is computed by applying gross profit rate, there is no requirement to invoke provisions of Section 40A(3) of Act, by applying gross profit rate, it takes care of expenditure, otherwise, than by way of cross cheque also and, thus, deleted aforementioned addition. As regards other additions ordered by Assessing Officer, Commissioner of Income Tax (Appeals) maintained said additions. revenue challenged said finding before Income Tax Appellate Tribunal vide appeal No.256-Chandigarh/2013, whereas, on other hand, assessee also filed cross-objections bearing No.16/Chandigarh/2013 in aforementioned ITAT. That ITAT relying upon judgment in case of Santosh Jain (supra), which followed decision of Allahabad Court in CIT Vs. Banwari Lal case (1999) 229 vide order dated 18.10.2013 dismissed appeal and permitted assessee to withdraw cross-objections. Counsel for revenue submitted that ITAT has not appreciated that there was violation of Section 40A(3) of Act, as assessee had not submitted books of accounts and, thus, they were rightly rejected by Assessing Officer. We have heard counsel for revenue and are of considered view that when income of assessee was computed by 4 of 5 ::: Downloaded on - 29-01-2019 17:28:22 ::: ITA No.181 of 2014 (O&M) {5} applying gross profit rate, there is no need to look into provisions of Section 40A(3) of Act, inasmuch as that, when gross profit rate is applied, then it takes care of expenditure otherwise by way of crossed cheques. It is settled law that once books of accounts are rejected, no further disallowance can be made. We are in agreement with judgment rendered in Smt.Santosh Jain's case (supra), wherein it has been held that provisions of Section 40(3) of Act could not be invoked in estimation of gross profit. counsel for revenue has not cited any judgment contrary to what has been laid down in Smt.Santosh Jain's case (supra). Thus, discretion exercised by Tribunal is based on relevant consideration and does not suffer from any legal infirmity warranting interference by this Court. No substantial question of law would arise for our determination. appeal is wholly misconceived and same is accordingly dismissed. ( RAJIVE BHALLA ) ( AMIT RAWAL ) JUDGE JUDGE October 7, 2014 ramesh 5 of 5 ::: Downloaded on - 29-01-2019 17:28:22 ::: Commissioner of Income-tax, Patiala v. Ajay Kumar Singla
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