THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Delivered on: 28.04.2010
+ ITA 445/2010
COMMISSIONER OF INCOME TAX-VIII ... Appellant
- versus -
M/S PARADISE HOLIDAYS ... Respondent
Advocates who appeared in this case:
For the Appellant : Ms Prem Lata Bansal
For the Respondent :
CORAM:-
HON’BLE MR JUSTICE BADAR DURREZ AHMED
HON’BLE MR JUSTICE V.K. JAIN
1. Whether Reporters of local papers may be allowed to
see the judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in Digest? Yes
V.K. JAIN, J.(ORAL)
1. This appeal is directed against the order of the Income
Tax Appellate Tribunal dated 23.12.2008, whereby it dismissed
the appeal, being ITA No.5028/Del/2007, filed by the appellant
against the order passed by Commissioner of Income
Tax(Appeals), in respect of assessment of the respondent, for
the assessment year 2004-2005.
2. The assessee firm, which is engaged in the business
of travel and tourism, as a tour operator arranging inland tour
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of foreign tourists visiting India, filed its return declaring
taxable income of Rs.42,53,536/- for the assessment year
2004-2005. The net profit shown in the return was at 7.93%
of the receipts. Since the Assessing Officer felt that the net
profit reported by the assessee was on lower side, he picked up
the expenses relating to seven tours organized by the
respondent. On a consideration of the accounts furnished by
the assessee, the Assessing Officer felt that the assessee could
not demonstrate any pattern as to uniformity of rates etc. and
the expenses debited in the tour Ledger did not reconcile with
the tour itinerary. He, therefore, rejected the book results in
terms of Section 145(3) of the Income Tax Act, 1961 and
assessed the income @ 12% of gross foreign receipts. Net rate
of 10% was applied by the Assessing Officer, to determine the
income from Indian business receipts.
3. In the appeal filed by the assessee, Commissioner of
Income Tax(Appeals) noted that not only the notices issued
under Sections 142(1), 143(2) were complied with by the
assessee, all the Books of Account and vouchers etc. were also
produced before the Assessing Officer, for scrutiny by him. He
also found that for all intents and purposes the assessment
was complete under Section 143(3), though the Assessing
ITA No.445/2010 Page 2 of 7
Officer purported to act under Section 144 of the Act. It was
further noted by CIT(A) that the assessee had not suppressed
any part of receipts and all the receipts were properly vouched.
He also found that the receipts as well as the expenses of each
tour were separately accounted for in the ledger account, and
even gross profit arising in respect of each tour was properly
ascertainable. He felt that the order passed by the Assessing
Officer was based on presumptions and conjectures, without
bringing any positive evidence on record. He, therefore,
directed the Assessing Officer to accept the income returned by
the appellant, after allowing deduction under Section 80 HHD.
4. The Income Tax Appellate Tribunal noted that
though one reason assigned by the Assessing Officer for
rejecting the Books of Account was that the net profit disclosed
by the assessee was on the lower side considering the line of
business in which it was engaged, no specific reasons of higher
profit having been declared by any similarly situated assessee
had not been found by the Assessing Officer. The Tribunal
accepted the contention of the assessee that considering the
nature of business of the assessee, a formal agreement with
the foreign principal was not imperative. As regards
reconciliation of the tour expenses with the tour itinerary, it
ITA No.445/2010 Page 3 of 7
was held that the itinerary was tentative for the purpose of
fixing the charges but the same could be changed depending
upon various factors, including the number of days of the
entire tour, period of stay in a particular place, the quality of
hotel services provided to the tourists and frequent travel of
tourists from one place to another. The Tribunal felt that the
exact bill could be raised only after execution of the tour
programme and, therefore, could not have been compared with
the agreement or contract note with the foreign principal in
order to ascertain the correct income of the assessee.
5. Section 145(3) of Act provides for assessment in the
manner prescribed in Section 144 of the Act where the
Assessing Officer is not satisfied about the correctness or
completeness of the accounts of the assessee or where either
the method of accounting provided in sub-Section (1) or the
accounting standards as notified under sub-Section (2) having
been regularly followed by the assessee. It is not the case of
the Revenue that the assessee had not followed either cash or
mercantile system of accounting. It is also not the case of the
Revenue that the Central Government had notified any
particular accounting standards to be followed by tour
operators. Hence, the second part of sub-Section (3) of
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Section 145 does not apply to this case.
6. The Assessing Officer has not pointed out any specific
defect or discrepancy in the Account Books maintained by the
assessee. Admittedly, the assessee had been maintaining
regular Books of Accounts, which were duly audited by an
independent Chartered Accountant. As noted by CIT(A), the
financial results were fully supported by the assessee with
vouchers and the Books of Account were complete and correct
in all respects. The accounts which are regularly maintained
in the course of business and are duly audited, free from any
qualification by the auditors, should normally be taken as
correct unless there are adequate reasons to indicate that they
are incorrect or unreliable. The onus is upon the Revenue to
show that either the Books of Accounts maintained by the
assessee were incorrect or incomplete or method of accounting
adopted by him was such that true profits of the assessee
cannot be deduced therefrom.
7. The question as to whether the accounts produced by
the assessee were defective/incomplete or not is a question of
fact. The Commissioner of Income Tax(Appeals) as well as
Income Tax Appellate Tribunal have found that the accounts
maintained by the respondent were neither defective nor
ITA No.445/2010 Page 5 of 7
incomplete. Even the Assessing Officer has not found any fault
as such with the system of accounting being followed by the
assessee. The Tribunal which is the final fact finding authority
has held that considering the nature of the business of the
assessee, it was not obligatory to enter into a formal agreement
with the foreign principal. Hence, non-production of formal
agreements with the foreign principals would not render the
accounts of the assessee incomplete and would not give
justification to the Assessing Officer to reject them under
Section 145(3) of the Act. Similarly, the explanation given by
the assessee for the tour expenses not reconciling with tour
itinerary having been accepted, both by Commissioner of
Income Tax(Appeals) as well as by the Tribunal, the accounts
of the assessee cannot be said to be defective on this ground
and, therefore, could not have been rejected. If any particular
expense claimed by the assessee remained unverified, the
Assessing Officer could have disallowed that particular
expense. But, that by itself cannot be a ground for rejection of
accounts as a whole under Section 145(3) of the Act. The
finding of fact recorded by the ITAT has not been shown to be
perverse, and hence cannot be interfered with by this Court.
8. For the reasons given in the preceding paragraphs,
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no substantial question of law arises for our consideration.
The appeal is, accordingly, dismissed.
(V.K. JAIN)
JUDGE
(BADAR DURREZ AHMED)
JUDGE
APRIL 28, 2010
RS/
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