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04-09-2019, Iqbal Ahmed Khalil, Section 254(2), 40A(3A), Tribunal Mumbai

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4 months 1 week ago #10706 by amit
Section - 254(2), 40A(3A), 144, 69C, 23, 13, 45AD
Order Date - 04-09-2019
Favouring - Revenue
Court - Tribunal Mumbai
Appellant - Iqbal Ahmed Khalil
Respondent - ITO
Citation - 919Taxpundit36
Appeal No. - ITA No.4896/Mum/2015 & 2135/Mum/2013
Asstt. Year - 2008-09 & 2009-10



These two Miscellaneous Applications bearing MA No. 150- 151/Mum/2018 arising out of ITA No. 4896/Mum/2015 and ITA no. 2135/Mum/2013 for assessment year(s) 2008-09 and 2009-10 respectively, are filed by assessee u/s 254(2) of the Income-tax Act,1961( hereinafter called “the Act”) being aggrieved by common appellate order dated 04.10.2017 passed by Income-Tax Appellate Tribunal, „I‟ Bench, Mumbai ( hereinafter called “the tribunal”) u/s 254(1) of the 1961 Act wherein assessee is seeking rectification of mistakes apparent from records. The tribunal has passed well reasoned detailed order running into 56 pages for both the ay‟s viz. ay: 2008-09 and 2009-10 wherein entire factual matrix of the case, orders passed by authorities below, contentions raised by both the parties before the tribunal were all considered and thereafter detailed well reasoned appellate order dated 04.10.2017 were passed by the tribunal for ay: 2008-09 and 2009-10 running into 56 pages. It is now well settled that scope of tribunal to rectify its own appellate order(s) , within provisions of Section 254(2) of the 1961 Act is limited to rectifying mistakes which are apparent from records. The tribunal has no powers to review its own decision within limited scope of Section 254(2) of the 1961 Act. The first grievance of the assessee is that in paragraph 10 of page 27 of the tribunal‟s orders dated 04.10.2017 it is mentioned erroneously by tribunal that:

“it was also submitted by learned counsel for the assessee that even quantum of disallowance made of Rs. 17,99,90,677/- for A.Y.2009-10 by invoking section 40A(3A) is also not challenged by the assessee.” The assessee by raising this grievance is not coming out with complete facts. The contention of the assessee during the course of hearing before the Bench when appeal was originally heard that once books of accounts are rejected by the AO u/s 145(3) , then only recourse is to estimate profits u/s 144 of the 1961 Act and recourse to provisions of Section 40A(3) and 40A(3A) cannot be taken by the AO and then in that situation the AO is bound to estimate the profits by invoking provisions of Section 144 of the 1961 Act. The assessee is contemplating in the MA by stating that total turnover for ay: 2009-10 was Rs. 7.50 crores and additions to the tune of Rs. 17,99,90,677/- could not be made , while fact of the matter is that disallowance in ay: 2009-10 were made u/s 40A(3) and 40A(3A) as the payments were made for purchases made in the preceding year viz. ay: 2008-09 also in ay 2009-10. As we see later the tribunal infact directed AO to remove double jeopardy as in ay:2008-09 entire purchases got added by invoking provisions of Section 69C while in ay: 2009-10, the AO invoked provisions of Section 40A(3) and 40A(3A) of the 1961 Act. Thus, now the assessee is trying to hair split the order of the tribunal by picking and choosing some portions of the order of the tribunal while on the other hand the tribunal dealt in details with each and every contention of the both the litigating parties to arrive at a well reasoned detailed conclusion in its common order dated 04.10.2017 for ay: 2008-09 and 2009-10. The tribunal in order to avoid double jeopardy instead directed AO not to make additions of the opening balance of creditors of Rs. 10.82 crores as on 01.04.2008 as the said balance gets virtually disallowed twice because in ay: 2008-09 all purchases stood disallowed while in ay: 2009-10 , the AO invoked provisions of Section 40A(3) and 40A(3A) to disallow payments to these parties from whom alleged purchases were made otherwise than through crossed
account payee cheques. The decision of the tribunal starts from page 32 and ends on page 56 of the aforesaid common order dated 04.10 2017. The other grievance is that there cannot be simultaneous disallowance u/s 69C in ay: 2008-09 while provisions of Section 40A(3) and 40A(3A) were invoked in ay: 2009-10 , the tribunal has dealt with these issues in details while passing detailed well reasoned common order dated 04.10.2017 for both the years.

The AO had brought on record incriminating materials after detailed enquiries which warranted these additions while led tribunal to finally upheld the additions. The tribunal has passed well reasoned common order dated 04.10.2017 for ay: 2008-09 and 2009-10 where all the contentions of both the litigating parties were dealt with. The tribunal also directed to remove double jeopardy in its order so that the assessee is not prejudiced twice for the same additions. The power of tribunal while dealing with MA u/s 254(2) is very limited to rectifying mistakes apparent from records and we have no power to review our decision . The next contention of the assessee in this MA is that the tribunal did not deal with overriding effect of Section 40A(3) wherein it is now contended that it did not override all the provisions of the 1961 Act but only override provisions of the Act dealing with computation of income under the head „Profit and Gains of Business or Profession‟. We are afraid that this contention of the assessee is also not acceptable as tribunal duly dealt with this issue in detail in page 49-55 of its appellate order dated 04.10.2017 , as under:

“The claim and contentions of the assessee is that once books of accounts are rejected by the AO u/s 145(3) , there will be absolute embargo on the AO and he cannot have any recourse to such rejected books of accounts to compute income and the AO will be left with no choice but to compute income by estimating profits. Thus as per assessee, rejection of the books of accounts by the AO will disable the AO to take benefit of any enquiry or investigation made by the AO which resulted in unearthing incriminating material and there is prohibition to use such material against the assessee under such situations . We have carefully gone through the cited judgments and perusal thereof but we could not find any absolute bar on the AO to use incriminating material unearthed as a result of an enquiry and / or investigation while computing income while framing best judgment assessment after rejecting books of accounts rather relied upon judgments by the assessee itself have held that only when AO chooses to estimate profits while framing best judgment assessment , then there is no need to apply provisions of Section 40A(3), 68 and 69 but it is not so otherwise round that when books of accounts are rejected by the AO u/s 145(3) and he did not estimate income by applying profitability, then there is embargo on applying section 40A(3), 68 and 69. Herein the instant case, the AO has not applied the profitability rates to compute income. It is important at this stage to refer to following important judicial pronouncements on the relevant subject:

a) Hon‟ble Supreme Court in the case CST v. H.M Esufali H.M.Abdulali reported in (1973) 90 ITR 271(SC) has explained the distinction between regular assessment and best judgment assessment as under:

“ …The distinction between a “best judgment” assessment and assessment based on the accounts submitted by an assessee must be borne in mind. Sometimes there may be innocent or trivial mistakes in the accounts maintained by the assessee. There may be even certain unintended or unimportant omissions in those accounts ; but yet the accounts may be accepted as genuine and substantially correct . In such cases , the assessments are made on the basis of the accounts maintained even though the assessing officer may add back to the accounts price of the items that might have been omitted to be included in the accounts. In such a case , the assessments mad is not a best “best judgment” assessment . It is primarily made on the basis of the accounts maintained by the assessee. But, when the assessing offic r comes to the conclusion that no reliance can be placed on the accounts maintained by the assessee, he proceeds to assess the assessee on the basis f his “best judgment”. In doing so , he may take such assistance as the assessee‟s account may afford ; he may also rely on other information gathered by him as well as the surrounding circumstances of the case. The assessment made on the basis of the assessee‟s accounts and those made on “ best judgment” basis are totally different types of assessments

.…. So long as the estimate made by him is not arbitrary and has nexus with facts discovered , the same cannot be questioned. In the very nature of things the estimate made may be an over-estimate or an under-estimate. But, that is no ground for interfering with his “best judgment”. It is true that the basis adopted by the officer should be relevant to the estimate made. The High Court was wrong in assuming that the assessing authority must have material before it to the prove the exact turnover suppressed . If that is true, there is no question of “best judgment” assessment. The assessee cannot be permitted to take advantage of his own illegal acts. It was his duty to place all facts truthfully before the assessing authority. If he fails to do his duty, he cannot be allowed to call upon the assessing authority to prove conclusively what turnover he had suppressed. That fact must be within his personal knowledge. Hence, the burden of proving that fact is on him.

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