JUDGMENT
G.S. Singhvi, J.
1. In this appeal filed under S. 260A of the IT Act, 1961 (for short, the Act), the assessee has prayed for determination of the following question of law : “Whether under the facts and circumstances of the case the Hon’ble Tribunal was justified in concurring with the application of the provisions of Section 145(2) of the IT Act and estimating the income at a gross profit at 0.27 per cent of the turnover resulting into the enhancement of the income maintained by the learned CIT(A) at Rs. 1,60,000 by an amount resulting into the total income at Rs. 2,60,000 approximately.”
2. The appellant-assessee is carrying on the business of sale and purchase of lottery tickets on commission basis. He did not file return of income for the asst. yrs. 1988-89 to 1994-95 till his premises were searched on 29th Oct., 1993, in terms of Section 132(1) of the Act and notices were issued by the Asstt. CIT, Investigation Circle-I, Patiala (hereinafter described as the AO). In the course of search, cash book, ledger and vouchers were seized from the premises of the appellant. He made a surrender under Section 132(4) of the Act of Rs. 1,00,000 each for the asst. yrs. 1993-94 and 1994-95. Thereafter, he filed return of income for the asst. yrs. 1989-90, 1991-92, 1992-93, 1993-94 and 1994-95. In the return filed on 30th March, 1994, for the asst, yr. 1993-94, the appellant declared an income of Rs. 1,35,000 which included an amount of Rs. 1,00,000 surrendered at the time of search. The AO issued notice to the assessee under Section 143(2) of the Act. He appeared before the AO along with his advocate and submitted reply dt. 9th Nov., 1994 stating therein that the books of account for the relevant period were in the possession of the Department. Thereupon, the AO supplied him photostat copies of the documents. However, no further return was filed by him. Vide letter dt. 12th Oct., 1994, the AO asked the assessee to disclose the basis on which he had estimated his income at Rs. 35,000. He was also asked to furnish the statement indicating the total turnover, gross profit, gross expenses and net profit of the business and indicate the basis on which the said amount was computed. In his reply dt. 9th Nov., 1994, the assessee stated that the income of Rs. 35,000 was given out on estimate basis because the books of account were not available.
3. After considering the replies filed by the assessee, the AO passed assessment order dt. 29th March, 1996. He held that the seized books of account are not correct and complete by observing that the assessee had not indicated cash balance as on 1st April, 1993, even though subsequent entries were recorded, Similarly, closing balance had not been worked out in the cash book. Accordingly, he invoked Section 145(2) of the Act and assessed the income of the assessee on estimate basis at Rs. 10,48,000 after deducting Rs. 5,00,250 as expenses on estimate basis. The AO also added Rs. 1,00,000 surrendered by the assessee on the premises that even though the assessee had claimed that amount to be agricultural income from HUF. The AO also levied interest under Sections 234A and 234B and initiated penalty proceedings under Section 271(1)(c) r/w Section 271A and 271B of the Act. The relevant extract of the order passed by the AO is reproduced below :
“A perusal of the seized documents revealed that the assessee has deliberately kept the account books incomplete as no cash balance as on 1st April, 1993, has been recorded even though the subsequent entries have been made in the cash book. Similarly closing cash balance has not been worked out in the cash book. The seized account books are not correct and complete and as such provisions of Section 145(2) are applicable in this case. The total sales for the year under consideration as per seized document No. 95 (after deduction 2 per cent security) Rs. 28,15,09,225. Since provisions of Section 145(2) are clearly attracted in this case, the assessee was requested to intimate as to why G.P. rate of .55 per cent on the gross sales may not be applied as shown by M/s Om Parkash & Co., lottery stockiest of Ludhiana.”
4. The Commissioner of Income-tax (A), Patiala (for short, CIT(A)] allowed the appeal of the assessee and granted him relief to the extent of Rs. 9,98,000 by assigning the following reasons :
“3.3 The matter was discussed at length and to ascertain the income, he was asked to furnish the details of sales and commission realised. He furnished such details for 2 days only i.e., for 20th Oct., 1993 and 21st Oct., 1993 and it was seen that G.P. rate worked out at 0.05 per cent only during these days. However, this statement of two days may not represent the entire year’s proceedings. On the other hand it was seen that the appellant had not accumulated funds for acquiring property, etc. A surrender of Rs. one lakh was made at the time of search. If the G.P. rate is taken at 0.2 per cent as in the case of another stockiest which was being relied upon by the appellant (actually the G.P. rate in that case was high as it is operating out of Ludhiana), then the G.P. would be Rs. 5,63,018 and after allowing expenditure as per the preceding year the income, in fact, would come to Rs. 63,018. As the entire exercise is being done on estimate basis, it would not be fair, and proper if the income is taken more than Rs. 1,50,000. Hence, income for this year should be taken at Rs. 1,50,000. It may be stated here that no G.P. rate as such is being accepted or laid down here which would be a precedent for the purpose of arriving at the gross profit.”
CIT(A) also deleted the addition of Rs. 1,00,000 by observing that there was no justification to add the agricultural income for the purpose of making assessment because in the previous assessment year, ownership of the agricultural land had been accepted.
5. Dissatisfied with the order of CIT(A), the Revenue approached Income-tax Appellate Tribunal, Chandigarh Bench (for short, the Tribunal). The Tribunal noted that the assessee had not challenged the rejection of books of account and held that the AO did not commit any illegality by assessing his income on estimate basis by taking into account the material available with him. The Tribunal then observed that gross profit rate of M/s Om Parkash & Co., which was sole selling agent and stockist of lottery tickets in Ludhiana could not be made basis for fixing gross profit rate of the assessee. However, by making a reference to the case of M/s R.P. Lottery, on which reliance was placed by the assessee, the Tribunal directed the AO to work out the income of the assessee by applying the gross profit rate of 0.27 per cent excluding the estimated expenses of Rs. 5,00,250. This is clearly borne out from the following extracts of para. 5 of the Tribunal’s order:
“The assessee relied on before the AO on the case of M/s R.P. Lottery, Ludhiana. We have gone through the assessment order and we find that finding given by the AO is that G.P. rate in the case of was 0.24 per cent excluding the incentive of Rs. 7,35,451 received by M/s R.P. Lottery. If these incentives are taken into account, the G.P. rate will go to 0.3 per cent, the nature of the business in the case of assessee and that M/s R.P. Lottery has not been disputed. We noted that M/s R.P. Lottery are working in Ludhiana while the assessee is working in Patiala. We also noted that in the asst. yr, 1994-95, the AO has himself accepted a G.P. rate of 0.25 per cent in the case of the assessee. We feel, under the facts and circumstances of the case, that it will be fair and just if the G.P. of the assessee is estimated at 0.27 per cent. Accordingly, we set aside the order of the CIT(A) and direct the AO to work out the income of the assessee from lottery business by applying G.P. rate of 0.27 per cent and reducing therefrom the expenses as have been estimated by the AO at Rs. 5,00,250. Accordingly this ground is partly allowed.”
The Tribunal, however, upheld the order of CIT(A) to the extent he had accepted Rs. 1,00,000 as income from agriculture.
6. Shri P.C. Jain, learned counsel for the appellant, argued that the AO and the Tribunal committed a serious error by invoking Section 145 of the Act for assessing the income of the assessee on estimate basis by taking into consideration gross profit at 0.27 per cent of the return ignoring the fact that the assessee had regularly filed returns and maintained the books of account, etc. Learned counsel submitted that the observation made by the Tribunal in the first part of para. 5 that the assessee had not challenged the rejection of books of account is based on a factually incorrect premise because the appellant had, in fact, challenged the decision of the AO on all grounds.
7. Dr. N.L. Sharda, learned counsel for the Revenue supported the order of the Tribunal and argued that the AO did not commit any illegality by invoking Section 145 of the Act because the assessee had not made complete entries in the books of account and the same were not reliable. Dr. Sharda submitted that no question of law, much less a substantial question of law, arises in the present appeal.
8. We have thoughtfully considered the respective arguments and are inclined to agree with the learned counsel for the Revenue. In the first place, it is appropriate to mention that the assertion contained in para 1 of the memo of appeal that the appellant had been filing his regular income tax returns is factually incorrect. A bare reading of the assessment orders (collectively marked as Annexure A.2) filed by the appellant shows that he had not filed return of income on due dates for the asst. yrs. 1988-89 to 1994-95 and did so only after search was carried out at his premises on 29th Oct., 1993 and notices were issued by the AO.
9. Even if the misleading twist given by the assessee to the facts relating to filing of returns is ignored, we do not find any valid ground to entertain his plea that the Tribunal has erred in fixing the gross profit rate on estimate basis at 0.27 per cent of the total turnover. A careful reading of the orders passed by CIT(A) and Tribunal shows that the appellant had not challenged the finding recorded by the AO that he had deliberately kept the account books incomplete. Therefore, no illegality can be said to have been committed by the AO when he invoked Section 145(2) of the Act and assessed the income of the assessee on estimate basis. The AO had taken into account the gross profit rate of the lottery stockist of Ludhiana & Co., M/s Om Parkash & Co. and discarded the gross profit rate worked out in the case of M/s R.P. Lottery, Ludhiana. However, the Tribunal did not rely on the gross profit rates determined in the case of M/s Om Parkash & Co. and accepted the gross profit rate determined in the case of M/S R.P. Lottery excluding the incentive of Rs. 7,35,451. The Tribunal held that if the incentives are taken into account, the gross profit rate would go to 3 per cent. However, in the case of the appellant, it applied the gross profit rate on estimate basis at 0.27 per cent of the gross turnover. In our opinion, the Tribunal did not commit any illegality by directing the assessment of the assessee’s income on estimate basis by taking gross profit rate at 0.27 per cent and no question of law, much less a substantial question of law arises in this case.
Hence, the appeal is dismissed.