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Income Tax Appellate Tribunal, ALLAHABAD BENCH ‘SMC’ ALLAHABAD
Before: SHRI.VIJAY PAL RAO
O R D E R PER SHRI VIJAY PAL RAO, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order dated 03.11.2017 of ld. CIT(A)- Gorakhpur for the AY 2014-15. The assessee has raised the following grounds: “
1. BECAUSE the Ld. CIT(A) has erred in law and on facts in dismissing the appeal without appreciating the facts and law as narrated before him through written and oral submission.
2. BECAUSE the Ld. CIT(A) has erred in law and on facts in confirming the addition of Rs. 7,06,920/-, excluding the returned income, as made by the ITO, without considering the factual position as narrated before him.
3. BECAUSE the Ld. CIT(A) has erred in law and on facts by holding that profit of earlier year cannot be basis of ascertaining the profit rate of impugned assessment year and confirmed the addition of Rs.7,06,920/.
4. BECAUSE the appellant was prevented by reasonable clause for making compliance as per the provision of Income Tax Act, 1961 in the impugned assessment year whereas in subsequent assessment year the appellant made full compliance and punishment given by the ITO and confirmed by the Ld. CIT(A) is too harsh and illegal. 5. BECAUSE the in the subsequent assessment year, in the case of appellant himself, the better net profit rate of 2% was disclosed on turnover of more than 3.4 Crores which itself is an evidence. 6. BECAUSE the Ld. CIT(A) has failed to appreciate this factual position and confirmed the addition without bringing any adverse material on record against the appellant. 7. BECAUSE the net profit of 2% as accepted by the appellant before the ITO in the assessment proceedings on the total turnover of Rs.l,80,25,198/- is reasonable in this line of business which may kindly be accepted. 8. BECAUSE the appellant provided comparative chart of net profit disclosed by other business entities in same line of business is guiding factor in determining the net profit rate which the Ld. CTT(A) ignored without any basis. 9. BECAUSE the application of net profit rate of 5% in the case of appellant deserves to be reduced at 2% looking to the entire facts and circumstances of the case in the impugned assessment year, 10. BECAUSE without prejudice to abovementioned grounds the application of net profit rate at 5% is too much high and excessive. 11. BECAUSE the assessment order dated 24.12.2016 and the order passed by Id. CIT (Appeals) dated 03.11.2017 is wholly illegal and unjustified on legal grounds as also on facts of the case. 12. BECAUSE the appellant denies the liability of interest under various section independent of quantum of assessment.”
2. The assessee is an individual and proprietor of M/s Jai Krishna Vastralaya. The assessee is dealing in wholesale cloth business and filed his return of income on 2 28.03.2015 declaring total income of Rs.2,18,970/-. The assessee has declared the total turnover of Rs.28,56,255/-. During the course of scrutiny assessment, the Assessing Officer noted that there are various deposit entries in the bank account of the assessee during the year under consideration and total deposit for the year comes to Rs.1,84,69,376/-. When the Assessing Officer asked the assessee to explain the cash deposit in the bank account the assessee submitted that the deposit is representing the sale proceed of cloth on wholesale basis and offered the income by considering net profit at the rate of 2% on such deposit. The Assessing Officer while framing the assessment has estimated the income of the assessee by applying net profit @ 5% on the total turnover i.e. Rs.1,84,69,376/-. Hence, the Assessing Officer has assessed the total income of the assessee at Rs.9,25,586/- as against the return of income of Rs.2,18,970/-. The assessee challenged the action of the Assessing Officer before the CIT(A) and particularly challenged the adoption of 5% N.P by the Assessing Officer as against 2% admitted by the assessee. The ld. CIT(A) has not accepted the contention of the assessee and confirmed the addition made by the Assessing Officer.
3. Before this Tribunal, ld. AR of the assessee submitted that the business of the assessee was managed by his father who expired on 29.09.2014 . The father of the assessee was illiterate and was having no knowledge about the provisions of income tax and thus the books of account of the assessee could not be audited through auditor. The ld. AR has pointed out that the Assessing Officer has recorded in the assessment order that the assessee produce purchase and sale bills/vouchers, invoices as well as other details. Thus, the assessee was maintaining proper books of account though same was not audited. He has further submitted that the assessee has also given the comparative cases of various other entities in the same business wherein the N.P. ratio was less than 2% as declared by the assessee. Thus, the assessee has offered the income on the turnover at N.P. rate of 2% which is proper and justified, whereas the Assessing Officer has not given any basis for adopting the N.P. at 5% which is highly arbitrary and unjustified. The ld. AR has referred to the submissions of the assessee before the CIT(A) and submitted that when the assessee has explained the basis of 2% of N.P which is also supported by the comparative cases then adoption of N.P at 5% is not warranted. Hence, the ld. AR has pleaded that the addition made by the Assessing Officer and confirmed by the ld. CIT(A) may be deleted and N.P. declared by the assessee at 2% may be upheld.
On the other hand, ld. DR has submitted that though the assessee has given the comparison NP cases however, in those cases, the parties were maintaining proper books of account and got audited the same whereas, the assessee’s case is no account case, therefore NP rate in the comparative cases cannot be applied to the case of the assessee. He has relied upon the orders of the authorities below.
I have considered the rival submissions as well as relevant material available on record. There is no dispute that the assessee has suppressed the turnover/ sales, which was detected by the Assessing Officer from the deposits made in the bank account of the assessee. The assessee in the return of income has disclosed the turnover of Rs.28,56,255/- whereas the total deposit in the bank account of the assessee was found at Rs.1,84,69,376/-. The assessee admitted the fact that the deposit in the bank account represent the sale consideration of wholesale business of cloth of the assessee. Thus, as far as the total turnover of the assessee is concerned, it is admitted by the assessee at Rs.1,84,69,376/- which is also not recorded in the books of account of the assessee. The assessee has accepted the fact that the assessee has not recorded these transactions in the books of account and there is no audit of the books of account of the assessee. In these facts and circumstances, the income of the assessee is required to be estimated by adopting some proper and reasonable criteria being GP/NP on the turnover of the assessee. The assessee has surrendered the income at N.P. rate of 2% on the total turnover as detected by the Assessing Officer whereas the Assessing Officer has estimated the income of the assessee by adopting NP at 5% on such turnover. There is no quarrel on the point that while estimating the income come the Assessing Officer has to apply some reasonable and proper criteria and the comparative rate of profit in the same trade/business is a proper guidance for estimation of income. In the case in hand, the assessee has produced the comparative cases, which are as under:
S.No. F.Y. Turnover Rs. Name of Parties GP Ratio NP Ratio In lac 1. M/s Hari Om Vastralaya 2015-16 478.06 2.16% 1.13%
M/s Deluxe Emporium 2014-15 136.57 2.29% 1.58%
2015-16 150.14 3.03% M/s Radhey Govind 1.99% Saree Center
The Assessing Officer as well as ld. CIT(A) has declined to accept the comparative cases as reasonable N.P. for the purpose of estimation of the income on the ground that since the assessee is not maintaining the books of account therefore, those rates cannot be applied to the case of the assessee. This approach/view of the authorities below is highly arbitrary and without any basis as the question of estimation of income arises only when the book result of the assessee are rejected. Therefore, the estimation of the income is consequential to the rejection of books of account and there is no pick and choose so far as the reasonable and proper criteria is to be applied for the purpose of best assessment. Once the book results are rejected and the Assessing Officer proceeded to assess the income of the assessee on estimate basis then the criteria which is to be applied by the Assessing Officer shall be some reasonable and proper GP/NP. It is settled preposition of law that the past history of the assessee regarding GP/NP is a proper guidance and in the absence of past history the prevailing GP/NP in the same trade/business is also considered as a proper guidance. Therefore, there cannot be different para meters for estimation of income in case of assessee who is maintaining books of account but were rejected by the Assessing Officer and in the case where the 5 assessee is not maintaining the books of account. Accordingly, the estimation of the income of the assessee should be based on some reasonable and proper criteria and not based on an arbitrary rate adopted by the Assessing Officer. The Assessing Officer has not given any reasonable basis of adopting NP rate at 5% except the fact that the assessee is not maintaining the books of account. Therefore, not maintenance on books of account cannot be a ground leading to higher NP to be adopted by the Assessing Officer. Hence, in the facts and circumstances of the case, the income of the assessee ought to have been estimated by adopting the prevailing rate of N.P. in the same trade/business. Looking into the comparative cases produced by the assessee, it is found that the N.P. declared by those entities/persons in the same trade is less than 2%, whereas the assessee has offered the income at N.P. of 2% which in line with the prevailing rate of NP in the business of wholesale trading of cloth. Hence, in the facts and circumstances, the income offered by the assessee by applying NP at 2% is proper and is reasonable, whereas the adoption 5% by the Assessing Officer is without any basis and consequently the addition made by the Assessing Officer is deleted. In the result, appeal filed by the assessee is allowed. 7. (Order pronounced on 13/01/2021 at Allahabad in the open Court through Video Conferencing)