Income Tax Appellate Tribunal (ITAT) Kolkata in a recent judgment has held that despite the fact that there were two audited profit and loss account by two different chartered accountant, it was the duty of the AO to definitely come to one conclusion or the other in regard to the reliability of the account filed by the assessee. In the absence of any such finding, it was not open to them to pick and chose one account over the other.

Case Details:
ITA No.120/Kol/2010 AY : 2004-05
M/s. Damani & Co (Appellant) vs Income Tax Officer (Respondent)
Date of Order: 10-11-2015

Brief Facts of the Case:
The assessee was a partnership firm and earning income from coordination commission received from Shaw Wallace Distilleries Ltd. (SWDL). The Asessing Officer (AO) during the course of assessment proceedings noted that during the relevant AY the assessee has filed two audit reports, one along with a letter dated 01.11.2004 which is audited by K. M. Gulgulia of M/s. K. M. Gulgulia & Co. Dated 30.10.2004 and another audit report by Shri Anurag Mathur of M/s. Anurag Mathur & Co. dated 27.10.2004 filed along with the return of income, which was filed on 20.03.2006. On query from the AO, the assessee requested that the audit report of assessee audited by Anurag Mathur of M/s. Anurag Mathur & Co. is the actual audit report filed along with the return of income but could not explain the other audit report

The AO recorded statements of both the auditors and both of them stated that they had audited the accounts of the assessee on the basis of books of account and documents provided and supplied by the assessee to them. Both of them have denied having knowledge of any other audit reports for the same Ay 2004-05 of the assessee.

The AO noted that total receipts declared by the assessee in its audited P&L Account for the AY 2004-05 as audited by K. M. Gulgulia & Co. is more than as per receipts in P&L audited by Anurag Mathur & Co by Rs. 7859892/- . Accordingly, he added the difference of as undisclosed income.

On appeal, CIT(A) upheld AO order and confirmed the addition.

Observations of ITAT:
AO merely compared the two audit reports & accounts and based on the same, added the differential amount without going into the facts of the case. AO did not try to verify with SWDL the total receipts of the assessee

The assessee furnished copy of account of SWDL in the books of assessee and also the copy of account of assessee in the books of SWDL and the total receipt in all these accounts are disclosed at Rs.2,14,70,195/- being the same amount as per Profit & Loss Account audited by Anurag Mathur & Co.

Agreement with SWDL, copies of bills raised on SWDL and TDS certificate issued by SWDL also confirm the total receipt of Rs.2,14,70,195/-

Case Laws relied by ITAT:
Indore Malwa United Mills Ltd. Vs. State of Madhya Pradesh & Anr. (1966) 60 ITR 41 (MP) (Supreme Court) ,  In the above case, the Hon’ble High Court has held as under:

“Held, that, as the appellant produced before the assessing authorities all its registers, it was their duty to definitely come to one conclusion or the other in regard to the reliability of every one of the relevant accounts filed by the appellant, and in the absence of any such finding it was not open to them to pick and choose some of the registers, which were more favourable to the revenue.”

CIT Vs. Arman Sheikh (2007) 293 ITR 266 (Gau) (Gauhati High Court) In the above case it was held as under:

“Held, dismissing the appeal, that the two amounts were received by the assessee from a Government agency by cheques and they were deposited in the bank account of the assessee and duly reflected in the regular books of account. The Assessing Officer relied upon a part of the entries in the books of account and rejected the other part. Since the entries made in the books of account before the date of search and seizure had been accepted, the amount in question ought not to have been treated as undisclosed. The search took place on July 20, 2000, and August 9, 2000, on which dates the return for the assessment years 2000-01 and 2001-02 had not fallen due. The returns for the assessment years based on regular books of account were filed after search disclosing the bank deposits. There was no material to show that the assessee intended to hide any part of his income for the assessments under appeal. Thus, the bank accounts ought not to have been treated as undisclosed bank accounts and could not be the subject matter of block assessment proceedings.”

Bansal Strips (P) Ltd. Vs. ACIT (2006) 99 ITD 177 (ITAT Kolkata) In the above case, the coordinate bench of ITAT held as under:

“While relying on the aforesaid statement of Shri V. P. Jain the Assessing Officer, in the absence of any specific material, is not justified in adopting a pick and choose policy. He cannot selectively rely upon the parts of the statement against the assessees and at the same time ignore other parts which go in favour of the assessees before us.”

Important Excerpt from ITAT Judgment

In view of the above facts and proposition of law cited above, we are of the view that in the present case the AO has not doubted the books of accounts as he has not rejected the same. Secondly, he has compared two audit reports and taken the higher figures from both the accounts accompanying the audit reports. The AO, first of all, has not given any finding which is the correct state of accounts as audited by two Chartered Accountants despite the fact that he has examined both the Chartered Accountants. It is also a fact that the assessee has produced complete address of the party SWDL and TDS certificates issued by that party clearly reveals that the total receipts are at Rs.2,14,70,195/- as against the total receipt adopted by AO Rs.2,93,30,087/-. The assessee has produced complete bills issued by SWDL and payments are received by cheque through bank accounts. The assessee filed before the authorities concerned all the books of account reflecting the receipts from SWDL and in that case it was the duty of the authorities to definitely come to one conclusion or the other in regard to the reliability of everyone of the relevant account filed by the assessee. In the absence of any such finding, it was not open to them to pick and chose one receipt or the other, which are more favourable to the revenue. They could accept the assessee’s explanation or reject them or they could check the entries therein with reference to the books of account. But they have not done none of these things. Accordingly, we are of the view that the assessee’s audit report as filed along with the return of income as audited by M/s. Anurag Mathur & Co. is the correct accounts for the reason that the receipts disclosed therein are matching with the TDS certificates issued by SWDL and also with the bills raised. Accordingly, we delete the addition and allow this issue of assessee’s appeal.

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