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2007 Supreme(Raj) 1686

RAJASTHAN HIGH COURT
Rajesh Balia, Bhanwaroo Khan, JJ.
Commissioner of Income - Appellant
Versus
AKJ Granites P. Ltd. - Respondent
D.B. Income-tax Appeal No. 35 of 2007.
Decided On : 6-04-2007

The legal principle established is that no presumption can be drawn that share application money belongs to the assessee unless a nexus is established, and the best judgment assessment based on estimate cannot be scaled at exactitude.

Headnote:

Income-tax - Best Judgment Assessment - Share Application Money - Trading Addition - Summary: The court considered the issue of share application money and trading addition, relying on the legal provisions laid down in Shree Barkha Synthetics Ltd. v. Asst. CIT and CIT v. Stellar Investment Ltd. The court found that no presumption can be drawn that share application money belongs to the assessee unless a nexus is established. The best judgment assessment based on estimate cannot be scaled at exactitude, and the estimate made by the Assessing Officer was rightly rejected on cogent grounds.

Fact of the Case:

The Assessing Officer made additions under section 68 of the Act for unexplained share application money and cash credit, and resorted to best judgment assessment for trading addition. The Commissioner of Income-tax (Appeals) partly sustained the additions made by the Assessing Officer.

Finding of the Court:

The Tribunal affirmed the findings of the Commissioner of Income-tax (Appeals) and dismissed the appeal, stating that no substantial question of law arises for consideration.

Issues: The substantial questions of law were whether the Tribunal was justified in upholding the decision passed by the Commissioner of Income-tax (Appeals) deleting the addition of share application money and cash credit, and whether the Tribunal was justified in allowing the relief of trading addition.

Ratio Decidendi: The court relied on legal provisions to establish that no presumption can be drawn that share application money belongs to the assessee unless a nexus is established. The best judgment assessment based on estimate cannot be scaled at exactitude, and the estimate made by the Assessing Officer was rightly rejected on cogent grounds.

Final Decision: The appeal was dismissed as no substantial question of law arises for consideration.

JUDGMENT

1. Heard learned counsel for the appellant.

2. The following two questions are stated to be substantial questions of law arising for consideration in this appeal against the order of the Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur, dated September 20, 2005 :

"(i) Whether, on the facts and in the circumstances of the case as well as in law, the learned Tribunal is justified in upholding the decision passed by the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 21,64,500 made by the Assessing Officer under section 68 of the Act have unexplained share application money and cash credit ignoring the substantial fact given by the Assessing Officer on the basis of material available on record ?

(ii) Whether, on the facts and in the circumstances and in law, the learned Tribunal was justified in allowing the relief of Rs. 9,63,744 out of trading addition of Rs. 10,48,743 made by the Assessing Officer by relying on the decision of Howrah Trading Co. P. Ltd. v. CIT, (1968) 67 ITR 582 (Cal) while approving the decision of the Commissioner of Income-tax (Appeals) in rejecting the books result ?"

3. So far as question No. 1 is concerned, it is stated by learned counsel for the appellant that the issue embedded in the said question has already been decided by this court and governed by the ratio laid down in Shree Barkha Synthetics Ltd. v. Asst. CIT, (2005) 197 CTR 432 : (2006) 283 ITR 377. It has been pointed out that share applications are made by a number of persons, may be in their own names or benami, but the fact that share applications received from different places accompanied by share application money, no presumption can be drawn that the same belongs to the assessee and cannot be assessed in his hands as his undisclosed income unless some nexus is established that the share application money for augmenting the investment in business has flowed from the assessee's own money. In coming to this conclusion, the court relied on CIT v. Stellar Investment Ltd., (1991) 192 ITR 287 (Delhi) : 99 CTR 40 , which has since been affirmed by the Supreme Court in CIT v. Steller Investment Ltd., (2001) 251 ITR 263 : (2000) 164 CTR 287. In view thereof, this question need not be decided again.

4. So far as question No. 2 is concerned, it is finding of fact and no question of law is involved.

5. The Assessing Officer has rejected the books of account of the assessee and resorted to best judgment assessment. In arriving at the best judgment assessment the Assessing Officer took the basis of applying the G. P. by estimating the turnover of the assessee at 1.5 times than what was declared by the assessee and by taking the case of one M/s Anil Marbles, as comparable case, applied the G. P. rate of 32.42 per cent. on the estimated turnover for arriving at the gross profit.

6. The Commissioner of Income-tax (Appeals) has found that the case of M/s Anil Marbles was not a comparable case for the purpose of lifting the G.P. rate to be applied to the case of the assessee by substituting the G.P. rate disclosed as per the books of account. He pointed out that the two industries were situated at far away places from each other & M/s. Anil Marbles is a settled industry whereas it is the first year of business of the assessee and taking into consideration other circumstances, estimated the sales at Rs. 46 lakhs, applied 26 per cent. of the G.P. rate on such estimated turnover. This resulted in sustaining partly the additions made by the Assessing Officer.

7. The Tribunal on considering the entirety of the facts affirmed the findings of the Commissioner of Income-tax (Appeals) in this regard.

8. The best judgment itself is based on estimate and cannot be scaled at exactitude. We do not find any question of law involved in this case. The circumstances considered by the Commissioner of Income-tax (Appeals) in substituting his opinion are not irrelevant considerations for the purpose of estimating the income of the assessee, and the es



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