JUDGMENT
Rajesh Balia, J.
Heard learned counsel for the parties.
2. The Income Tax Appeal Nos. 39 of 2004 and 48 of 2004 arise out of the order passed by the Tribunal, Jodhpur Bench, Jodhpur, dated 15-7-2003, deciding the cross-appeals filed by the revenue as well as by the assessee relating to assessment for the assessment year 1994-95. Hence, they are being heard and decided together.
2. The Income Tax Appeal Nos. 39 of 2004 and 48 of 2004 arise out of the order passed by the Tribunal, Jodhpur Bench, Jodhpur, dated 15-7-2003, deciding the cross-appeals filed by the revenue as well as by the assessee relating to assessment for the assessment year 1994-95. Hence, they are being heard and decided together.
3. The respondent-assessee is a liquor contractor who has acquired right to trade in alcohol, which is exclusive privilege of the State, relating to retail in bonded country liquor as well as Indian made foreign liquor (IMFL) for the area Jodhpur, Bilara, Shergarh, Baori and Mathania for the accounting period 1993-94 relevant to the assessment year 1994-95.
3. The respondent-assessee is a liquor contractor who has acquired right to trade in alcohol, which is exclusive privilege of the State, relating to retail in bonded country liquor as well as Indian made foreign liquor (IMFL) for the area Jodhpur, Bilara, Shergarh, Baori and Mathania for the accounting period 1993-94 relevant to the assessment year 1994-95.
On 9-8-1995, the assessee filed his return declaring a total income of Rs. 60,83,130. After the return was processed under section 143(1)(a) of the Income Tax Act, 1961, notices under sections 142(1) and 143(3) were issued for framing regular assessment.
During the course of inquiry, the assessing officer was of the opinion that while cost of purchases made by the assessee is determinable and also the stocks, but sales being unvouched, as per the auditors report, are not verifiable and there is no control on the price charged by the assessee on the alcohol vended by him, hence, it is not possible to arrive at correct profits on the basis of books of account maintained by the assessee. Hence, he rejected the books of account under section 145(2) and made a best judgment assessment on the basis of material available with him.
4. The assessing officer vide his order dated 30-9-1996, has made additions of Rs. 28,40,586 to the net income from the business of country liquor by adopting estimated NP rate or cost incurred by the assessee and Rs. 23,77,744 in case of IMFL as a result arrived at by applying GP rate to an estimated turnover by taking figures of the cost price and the estimated gross rate of profit at the rate of 18.50 per cent. Thus, addition of Rs. 52,18,330 was made in the result declared by the assessee on the aforesaid two counts.
4. The assessing officer vide his order dated 30-9-1996, has made additions of Rs. 28,40,586 to the net income from the business of country liquor by adopting estimated NP rate or cost incurred by the assessee and Rs. 23,77,744 in case of IMFL as a result arrived at by applying GP rate to an estimated turnover by taking figures of the cost price and the estimated gross rate of profit at the rate of 18.50 per cent. Thus, addition of Rs. 52,18,330 was made in the result declared by the assessee on the aforesaid two counts.
5. One significant fact which may be noticed here is that for making these additions in the case of country liquor business, the assessing officer has applied NP rate of 35 per cent on the cost price of the business namely, purchase price of the country liquor and has arrived at the net figure of profit at Rs. 1,02,70,576 in place of Rs. 74,29,990 declared by the assessee on that account.
5. One significant fact which may be noticed here is that for making these additions in the case of country liquor business, the assessing officer has applied NP rate of 35 per cent on the cost price of the business namely, purchase price of the country liquor and has arrived at the net figure of profit at Rs. 1,02,70,576 in place of Rs. 74,29,990 declared by the assessee on that account.
But from the business of IMFL, the assessee has shown its total sales at Rs. 20,83,67,697 and a trading profit of Rs. 3,69,65,535 showing a GP rate of 17.74 per cent on turnover. The assessing officer has decided to adopt 18.50 per cent GP rate on turnover and arrived at hypothetical turnover by taking the figures of purchase price and GP rate to be applied on turnover. As a result of which, additions of Rs. 21,26,66,373 in the case of country liquor and Rs. 3,93,43,279 in the case of IMFL were made for making total addition of Rs. 52,18,330 as against the GP at Rs. 3,69,65,535.
6. On appeal, the Commissioner (Appeals) vide its appellate order dated 24-3-1998 has reduced a lump sum of Rs. 18,00,000 of additions in case of country liquor business and a lump sum of Rs. 19,00,000 from the GP arrived at by the assessing officer in respect of IMFL.
6. On appeal, the Commissioner (Appeals) vide its appellate order dated 24-3-1998 has reduced a lump sum of Rs. 18,00,000 of additions in case of country liquor business and a lump sum of Rs. 19,00,000 from the GP arrived at by the assessing officer in respect of IMFL.
7. Both the parties aggrieved with the order of Commissioner (Appeals) filed appeals before the Tribunal who vide its order dated 15-7-2003 has allowed the appeal filed by the assessee and rejected the appeal of the revenue by finding that even after rejecting the books of account under section 142 (sic-145(2)) in the absence of evidence having been brought on record, additions could not have been made on estimating the income of the assessee.
7. Both the parties aggrieved with the order of Commissioner (Appeals) filed appeals before the Tribunal who vide its order dated 15-7-2003 has allowed the appeal filed by the assessee and rejected the appeal of the revenue by finding that even after rejecting the books of account under section 142 (sic-145(2)) in the absence of evidence having been brought on record, additions could not have been made on estimating the income of the assessee.
8. The learned counsel for the revenue contends that the Tribunal searching for a definite evidence to test the validity of the additions made by the assessing officer has transgressed into the realm of definiteness from the realm of guesswork for computation of income where the books of account of the assessee have been rejected by the assessing officer by finding that it is not possible to ascertain the true income of the assessee from such books of account and, therefore, the finding of the Tribunal in holding that the results shown in the books of account by the assessee ought to be accepted unless there is any material to show that variables are perverse and cannot be sustained. Learned counsel for the assessee contends that the Tribunal can interfere with best judgment of the assessment of the assessing officer, who has initially made the best judgment in the assessment because the final fact finding authority is the Tribunal. How and in what manner the estimation of the books of account is to be adjudged was within the realm of the Tribunal and if the Tribunal in its wisdom has estimated the profits and gains from the business of the assessee on the basis of material disclosed by the assessee, it does not give rise to any question of law which can be examined in this appeal, nor this court will be justified in substituting its own finding of facts, in place of Tribunals finding merely because the view sounds more reasonable. The finding of the Tribunal, in the circumstances, according to the learned counsel for the assessee cannot be said to be based on no material or perverse which requires the interference.
8. The learned counsel for the revenue contends that the Tribunal searching for a definite evidence to test the validity of the additions made by the assessing officer has transgressed into the realm of definiteness from the realm of guesswork for computation of income where the books of account of the assessee have been rejected by the assessing officer by finding that it is not possible to ascertain the true income of the assessee from such books of account and, therefore, the finding of the Tribunal in holding that the results shown in the books of account by the assessee ought to be accepted unless there is any material to show that variables are perverse and cannot be sustained. Learned counsel for the assessee contends that the Tribunal can interfere with best judgment of the assessment of the assessing officer, who has initially made the best judgment in the assessment because the final fact finding authority is the Tribunal. How and in what manner the estimation of the books of account is to be adjudged was within the realm of the Tribunal and if the Tribunal in its wisdom has estimated the profits and gains from the business of the assessee on the basis of material disclosed by the assessee, it does not give rise to any question of law which can be examined in this appeal, nor this court will be justified in substituting its own finding of facts, in place of Tribunals finding merely because the view sounds more reasonable. The finding of the Tribunal, in the circumstances, according to the learned counsel for the assessee cannot be said to be based on no material or perverse which requires the interference.
9. Having given our careful consideration to the undisputed facts which emerge on the record, it is obvious that the only ground which weighed with the assessing officer and which was accepted by the Tribunal is that the books of account of the assessee would not be helpful to arrive at correct profit and correct income of the assessee on the basis of the assessees books of account because the sales made by the assessee of the country liquor or IMFL are not verifiable and its correctness cannot be assumed and thus cannot be accepted. Precisely, the books of account produced by the assessee are the basis which have been taken by the assessing officer to make best judgment assessment as well as by the Tribunal.
9. Having given our careful consideration to the undisputed facts which emerge on the record, it is obvious that the only ground which weighed with the assessing officer and which was accepted by the Tribunal is that the books of account of the assessee would not be helpful to arrive at correct profit and correct income of the assessee on the basis of the assessees books of account because the sales made by the assessee of the country liquor or IMFL are not verifiable and its correctness cannot be assumed and thus cannot be accepted. Precisely, the books of account produced by the assessee are the basis which have been taken by the assessing officer to make best judgment assessment as well as by the Tribunal.
10. Keeping this background in mind, if one can look at the methodology adopted in making the guesswork involved in best judgment assessment, the assessing officer has taken these factors into consideration which were not in dispute and are firmly verifiable namely, the purchase price of the assessee in acquiring the liquor and the stocks, and on that premise by estimating the NP rate or GP rate, the computation of income of the assessee has been made by way of the best judgment assessment by the assessing officer.
10. Keeping this background in mind, if one can look at the methodology adopted in making the guesswork involved in best judgment assessment, the assessing officer has taken these factors into consideration which were not in dispute and are firmly verifiable namely, the purchase price of the assessee in acquiring the liquor and the stocks, and on that premise by estimating the NP rate or GP rate, the computation of income of the assessee has been made by way of the best judgment assessment by the assessing officer.
11. The Commissioner (Appeals), without going into the details of best judgment in the assessment made by the assessing officer, has in his estimation made certain lump sum deductions from the estimated income computed by the assessing officer.
11. The Commissioner (Appeals), without going into the details of best judgment in the assessment made by the assessing officer, has in his estimation made certain lump sum deductions from the estimated income computed by the assessing officer.
However, the Tribunal has rejected that basis adopted by assessing officer on the ground that assessing officer has no cogent material to adopt GP rate or the NP rate different than such rate disclosed by the assessee, nor any material has been brought on record to reject the turnover disclosed by the assessee, and has taken the very same figures of turnover, which were not acceptable as correct, and for that reason books of account were rejected by holding that it is not possible to correctly compute the profit and loss of the business, on that basis, the contention commends its acceptance.
12. In our opinion, on the face of it, it is contradictory in terms that the very foundation on which the books of account rejected by the assessing officer and which order has been affirmed by the Tribunal, should be taken to be the basis for accepting the assessees results because no material was produced by the assessing officer. It is to set at naught the initial presumption which at least shifted the burden on the assessee to prove that results declared by his books of account are still correct. The burden of proving exact facts to sustain the additions made on best judgment with definiteness is to convert best judgment, which is in the very nature a guesswork, to an assessment in accordance with rejected books of account to a definiteness. The Tribunal has failed to consider the undisputed and unquestionable fact on which the assessing officer has proceeded to make the assessment, even the fact was not disputed by the assessee that cost price was verifiable for carrying the guesswork. Therefore, in our opinion, the decision of the Tribunal in deleting the additions made by the assessing officer as reduced by the Commissioner (Appeals) cannot be sustained in law.
12. In our opinion, on the face of it, it is contradictory in terms that the very foundation on which the books of account rejected by the assessing officer and which order has been affirmed by the Tribunal, should be taken to be the basis for accepting the assessees results because no material was produced by the assessing officer. It is to set at naught the initial presumption which at least shifted the burden on the assessee to prove that results declared by his books of account are still correct. The burden of proving exact facts to sustain the additions made on best judgment with definiteness is to convert best judgment, which is in the very nature a guesswork, to an assessment in accordance with rejected books of account to a definiteness. The Tribunal has failed to consider the undisputed and unquestionable fact on which the assessing officer has proceeded to make the assessment, even the fact was not disputed by the assessee that cost price was verifiable for carrying the guesswork. Therefore, in our opinion, the decision of the Tribunal in deleting the additions made by the assessing officer as reduced by the Commissioner (Appeals) cannot be sustained in law.
13. It is true that matter of estimate cannot ordinarily be interfered with by this court as it is a finding of fact and some amount of indefiniteness and application of rule of thumb is bound to be there. But where the deduction itself being lump sum in the realm of guesswork and, therefore, could not have been interfered with, if the matter rested at that. But the Tribunal has not acted on estimates but has accepted the rejected books of account to be correct, which is a manifest misconception about nature of best judgment assessment. So far deletion made by the Commissioner (Appeals) is concerned, we are satisfied that GP and NP estimated by the assessing officer have been reduced by considering the additions to be excessive. End conclusion by the Tribunal is founded on premise which itself has been rejected as credible. The end conclusion stands vitiated.
13. It is true that matter of estimate cannot ordinarily be interfered with by this court as it is a finding of fact and some amount of indefiniteness and application of rule of thumb is bound to be there. But where the deduction itself being lump sum in the realm of guesswork and, therefore, could not have been interfered with, if the matter rested at that. But the Tribunal has not acted on estimates but has accepted the rejected books of account to be correct, which is a manifest misconception about nature of best judgment assessment. So far deletion made by the Commissioner (Appeals) is concerned, we are satisfied that GP and NP estimated by the assessing officer have been reduced by considering the additions to be excessive. End conclusion by the Tribunal is founded on premise which itself has been rejected as credible. The end conclusion stands vitiated.
14. However, one question does arise for consideration in these appeals that the assessing officer has estimated the income by resorting to NP rate in the case of country liquor but has resorted to GP rate in the case of IMFL. If the assessment is made on the basis of GP rate, when the basis available data about which there is no dispute, namely, to purchase price and stock details, why different methods have been adopted is not clear. The assessee in such event is further entitled for deductions which are allowable under the provisions of Income Tax Act before arriving at the net taxable income. However, that exercise has not been undertaken by the assessing officer and the Tribunal,
14. However, one question does arise for consideration in these appeals that the assessing officer has estimated the income by resorting to NP rate in the case of country liquor but has resorted to GP rate in the case of IMFL. If the assessment is made on the basis of GP rate, when the basis available data about which there is no dispute, namely, to purchase price and stock details, why different methods have been adopted is not clear. The assessee in such event is further entitled for deductions which are allowable under the provisions of Income Tax Act before arriving at the net taxable income. However, that exercise has not been undertaken by the assessing officer and the Tribunal,
15. In the circumstances, the judgment of the Tribunal is set aside, the case is remitted back to the Tribunal for deciding it afresh in accordance with law. No costs.
15. In the circumstances, the judgment of the Tribunal is set aside, the case is remitted back to the Tribunal for deciding it afresh in accordance with law. No costs.