Case Analysis: ITO vs. Shri Bhagchand Jain

This case involves an appeal by the revenue (ITO) against an order by the CIT(A), Ajmer, concerning assessment year 2014-15. The core issue revolves around the CIT(A)'s decision to delete an addition of over £2.2 million made by the Assessing Officer (AO) for suppressed sales and unexplained investments. The revenue argued that the CIT(A) wrongly invoked Section 145(3) of the IT Act and erred in deleting the addition without proper reconciliation of figures from VAT returns and audited accounts. The assessee's cross-objection also contested certain additions made by the CIT(A).

Name of Appeal: ITO vs. Shri Bhagchand Jain
ITA Number of the appeal: ITA No.1271/JP/2018 & CO No. 42/JPR/2018
Assessment Year of the appeal: A.Y. 2014-2015
Under Section: 143(3)
Date of order: 10/01/2022
Bench: Jaipur

PER: SANDEEP GOSAIN, J.M.

The appeal filed by the revenue and the cross objection filed by the  assessee arise against the order of the ld. CIT(A), Ajmer dated 20/09/2018 for the A.Y. 2014-15. The grounds taken in the revenue’s appeal and assessee’s C.O. are as under:

"Grounds of Revenue's appeal

1. The Ld.CIT(A) grossly erred in law, by invoking the provisions of  section 145(3) of the I.T. Act, 1961 on his own during appeal proceedings while the section unambiguously mandates that only the AO can invoke the provisions of section 145(3). Thus, the Ld.CIT(A) acted beyond jurisdiction and perversely allowed relief of Rs. 2,23,42,465/- (2,43,03,809 - 19,61,344);

1.1 Ld.CIT(A) erred in deleting the addition of Rs. 2,23,42,465/- made on account of suppressed sale and unexplained investment in purchase including expenses, without appreciating that the assessee failed to reconcile the figures of opening stock, purchase and sales, freight as shown in VAT returns with return of income & audit report, specially when the Ld.CIT(A) himself accepted that there is no explanation with regard to the difference in figures of sales and freight as appearing in the VAT returns and in the audited books of accounts;

1.2 Ld.CIT(A) erred in deleting the addition of Rs. 2,23,42,465/- by considering that the AO cannot pick and choose some figures (sales) from the VAT return and some figures (opening stock, purchase and freight) from the audited books of accounts, to assess the income of the assessee whereas the AO took the value of sales, purchases and freight expenses from audit report & ITR and compared the same with the figures of VAT returns, for making the additions;

2. The Ld. CIT(A) erred in restricting the disallowance out of various expenses from Rs. 2,31,962/- to Rs. 1,15,981/-, without appreciating that the assessee failed to produce bill/vouchers for verification before the AO;

3. The appellant craves to add, amend, alter, delete or modify the above ground of appeal before or at the time of hearing.

"Grounds of assessee's C.O.

1. That the learned Commissioner of Income-Tax (Appeals) Ajmer erred in maintaining the addition of Rs. 1961344/- by Considering the G.P. rate 4% on the estimated turnover of Rs. 10 Cross without appreciating the full facts & circumstances of the Case. The Vat returns can never be based for considering the actual sales as per audited books of accounts maintained regularly as per eternal purchase & sales Vouchers.

2. That as admitted the AO Cannot pick & Choose same figures (Sales) from the Vat return & same figures (Op-Stock purchases & freight) from the audited books of accounts to asses the actual income & specially when profit ascertained as per audited results & Vat returns both are same.

3. That as per true facts on records, the AO failed to prove any purchases recorded in books tallied with audited accounts found either bogus or inflated & there is no such finding in assessment order against the assessee in this regard.

4. That as admitted the AO has not found any adverse Comments either from tax Auditors or in his investigation for such difference in sales as per VAT returns & as per books. The books figures always accepted till not found wrong &/or false from tills. As per books all turnover as per sale bills found duly recorded & nothing was found wrong & out of the books. The reasons for difference was due to bonafide mistake of accountant & for which no show Cause notice was given for explanation &/or reply the rejection of books of accents u/s 145 (3) the addition could have been made as per GP rate of past records &/or immediate previous years which was 2.84% only as per submissions.

5. That as decided in series of judgements of higher court the post history is the best judge for estimation of profit in Case of rejection of books of accounts u/s 145(3). There was no adverse Comments of Tax Auditers as per his Audit report & past history of the Case.

6. That similarly the CIT (Appeals) also erred in maintaining the adhere disallowances of expressions @ 50% of Rs. 231962/- i.e. Rs.115981/- which is quite wrong & unjustified in view of quantum of empresses & found with external Vouchers & also showing without specific defect in vouchers.

Original copy of the judgment has also been attached herewith