High Court Of Delhi
Mathur Marketing (P) Ltd. vs. CIT & Anr.
Sections 144, 145(3)
Asst. Year 1989-90
T.S. Thakur & B.N. Chaturvedi, JJ.
IT Appeal No. 90 of 2004
17th January, 2006
Counsel Appeared
Ms. Shashi Kapila, Kunal Tandon & Suresh Ramchandani, for the Appellant : R.D. Jolly with Ms. Prem Lata Bansal & Ajay Jha, for the Respondents
JUDGMENT
B.N. Chaturvedi, J. :
The assessee was engaged in trading of purchase and sale of rice during the accounting period 1st July, 1987 to 31st March, 1989, relevant for asst. yr. 1989-90. The entire trading in rice was done by the assessee through M/s Ram Krishan Dass Narinder Prakash. During the said period, four major sale and purchase transactions took place. Out of these, the assessee showed profits in two transactions and loss in the remaining two. The AO, in order to verify the genuineness of the transactions resulting into loss, examined persons concerned and also made further necessary enquiries. On verification, the AO found that sales and purchase of rice made by M/s Ram Krishan Dass Narinder Prakash on behalf of the assessee were not genuine and represented paper transactions only. He, therefore, disallowed the loss of Rs. 86.11 lakhs.
2. Against disallowance of loss of Rs. 86.11 lakhs by the AO, the assessee filed an appeal before CIT(A) but without a success as the CIT(A) confirmed the addition made by the AO while disallowing the loss, as aforesaid. Dissatisfied by such decision, the assessee further appealed to the Tribunal, Delhi Bench. The Tribunal, eventually, set aside the assessment order and directed the AO to decide the matter afresh after affording a reasonable opportunity of being heard to the assessee. Pursuant to such direction, the matter again came up before the AO, who required the assessee to furnish certain informations, as detailed in his order dt. 9th Dec., 1994. That apart, the assessee was also required to produce its books of account along with the stock register. The assessee failed to furnish all the informations required by the AO, but produced its books of account. On consideration of entire material, including account books, the AO held the loss-making transactions as bogus ones and, accordingly, the loss of Rs. 86.11 lakhs was once again disallowed.
3. In the first appeal, CIT(A) set aside the order of the AO and deleted the addition made by the AO, keeping in view certain additional evidence, which he allowed to be produced by the assessee in the course of hearing of appeal.
4. Aggrieved by the order passed by CIT(A), the Revenue went in appeal before the Tribunal. The Tribunal set aside the order passed by CIT(A) and confirmed the one passed by the AO. While setting aside the order of CIT(A), the Tribunal observed thus : “Even during the original assessment proceedings, the assessee could not lead any evidence also whether any payment was made towards advance or commission. Despite this factual position the learned CIT(A) entertained the submissions of the assessee that it had actually made the payment to M/s RKDNP. When the statement of Shri Ram Kishan, partner of M/s RKDNP is categorical that no payment is made throughout the year by the assessee and further no evidence was produced before the AO either during the original proceedings or in second round it is not known as to how the learned CIT(A) entertained the contention of the assessee with regard to the payments. Rule 46A of the IT Rules, 1962, clearly provides that the assessee shall not be entitled to produce before the first appellate authority any evidence whether oral or documentary other than the evidence produced by him during the course of the assessment proceedings. Four exceptions have been carved out to this rule and we find that the case of the assessee does not fall in any of these. In view of this fact, we hold that the learned CIT(A) was not entitled to consider any additional evidence during the course of first appellate proceedings. When the AO specifically required the assessee to produce certain evidence and despite several opportunities granted by him there is no compliance on behalf of the assessee the natural corollary that follows is that the AO is entitled to draw adverse inference against the assessee on that aspect.”
5. Learned counsel appearing for the assessee argued that while making the assessment order, the AO was not justified in accepting the two entries in the books of account relating to profits and disregarding the other two entries concerning losses. According to her, all the entries pertaining to profits and losses should have been accorded equitable treatment and the same standard ought to have been applied in respect thereto. It appears that same very argument was advanced on behalf of the assessee before the Tribunal also. The Tribunal, however, declined to accept the contention noticing that the AO had found specific defects in respect of the entries pertaining to losses, necessitating an enquiry into the two sets of transactions in regard to losses only, while having the other part of accounts relating to profits undisturbed. It was observed that since the assessee had voluntarily disclosed the profits on two sets of transactions in its return and the AO in his wisdom did not find anything wrong therewith, there was no reason for him to have not accepted the same.
6. We have heard arguments on either side.
7. Sub-s. (3) of s. 145 of the IT Act, 1961, empowers an AO to proceed to make assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee, as envisaged under s. 144, in a case where he is not satisfied about the correctness or completeness of the accounts of the assessee or where the method of accounting provided in subs. (1) or accounting standards as notified under sub-s. (2) have not been regularly followed by the assessee. In the present case, we are not concerned with latter situation. Clearly, it is only in the eventuality of the AO not being satisfied about the correctness or completeness of the accounts of the assessee that he can exercise his discretion of making the assessment based on best of his judgment. Conversely, therefore, where the AO is satisfied about the correctness of entries relating to profit-making transactions, he cannot proceed to make assessment based on best of his judgment. In the circumstances, the argument advanced on behalf of the assessee that while ignoring the two loss-making entries in its books of account, the AO could not have proceeded to accept the entries relating to profit-making transactions, cannot be appreciated. Since the assessee had in its return voluntarily made mention of the two profit-making transactions which came to be accepted by the AO, it could not turn around to question the correctness of disclosure regarding profit-making transactions in its return and that of related entries in respect thereto in its books of account simply because the AO doubted the correctness of the two entries pertaining to loss-making transactions and, consequently, proceeded to make the assessment to the best of his judgment. The books of account or any other material produced before the AO by the assessee were simply meant to support the disclosure of profit or loss set out in its return and it was always open to the AO to scrutinise such material or entries in the books of account before accepting the same for the purpose of assessment. There is, thus, no merit in the contention on behalf of the assessee that the AO could not have disregarded the two entries pertaining to loss-making transactions while accepting the other two entries in the books of account relating to profit-making transactions. The Tribunal was, in the circumstances, justified in repelling the contention so raised.
8. Finding that no substantial question of law arises for consideration in the present appeal, the same is liable to be dismissed and it is ordered accordingly.
[Citation : 281 ITR 379]
