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Income Tax Appellate Tribunal, KOLKATA-PATNA ‘e-COURT’, KOLKATA
Before: Shri Rajpal Yadav, Vice-(KZ) & Dr. Manish Borad
Per Rajpal Yadav, Vice-President (KZ):- The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar Tax (Appeals)-1, Patna dated 19th July, 2018 passed for A.Y. 2010-11.
The assessee has raised following grounds of appeal:- (1) For that the Ld. CIT(A) has erred in dismissing the appeal. (2) For that the Ld. CIT(A) has erred in not adjudicating Ground No.3 of Memo of Appeal which reads as under:- That the Assessing Officer has erred in not issuing the statutory notice u/s 143(2) and for this reason itself the assessment proceeding and assessment order is void ab initio. (3) For that the Ld. CIT(A) has erred in upholding the addition of Rs.7,26,001/- on account of gross profit @3.85% on turnover of Rs. 17.09 crores. (4) For that the Ld. C1T(A) has erred in upholding addition of Rs. 10,56,328/- on account of difference between the goods purchased out of books amounting to Rs.2.63 crores and its estimated sale price at Rs.2.74 crores. (5) For that the Ld. CIT(A) has erred in upholding disallowance of Rs.32,71,379/- u/s 40(a) (ia) of the Income Tax Act. (6) For that the Ld. CIT(A) has erred in upholding disallowance of expense of Rs.3,00,000/- out of expense claimed under the head 'Salary'. (7) For that the Ld. C1T(A) has erred in upholding disallowance of Rs.76,191/- @20% out of expenses claimed under various heads. (8) For that the sustenance of addition/disallowances of Rs.7,26,001/-, Rs. 10,56,328/-, Rs.32,71,379/-, Rs.3,00,000/- and Rs.76.191/- by the Ld. CIT(A) are wrong, illegal and unjustified on the facts and in the circumstances of the appellant's case. (9) For that the whole order is bad in fact and law of the case and is fit to be annulled/modified. (10) For that other grounds, if any, shall be urged at the time of hearing of appeal.
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar
Ground No. 1 is a general ground, which does not call for recording of any specific finding.
Under Ground No. 2, the assessee has challenged that no notice under section 143(2) of the Income Tax Act was issued and, therefore, assessment order is not sustainable. The assessee has further pleaded before us that the ld. CIT(Appeals) has failed to decide this ground of appeal, which was raised as Ground No. 3 in Form No. 35.
With the assistance of ld. Representatives, we have gone through the record carefully. The ld. 1st Appellate Authority has considered this aspect in paragraph no. 5 of the impugned order. The ld. CIT(Appeals) has observed that in response to the notice issued under section 148, the assessee did not file the return. A notice under section 143(2) is to be given in the cases where an assessee has filed the return. It is the first opportunity given to the assessee that what he wants to submit in support of his return. In a case when no return is being filed, the ld. Assessing Officer can initiate the investigating machinery by issuance of a questionnaire under section 142(1). Therefore, it is incorrect to suggest that ld. CIT(Appeals) has not adjudicated Ground No. 3 of asessee’ grounds of
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar appeal. We do not find any merit in this contention of the assessee. This ground of appeal is rejected.
In Ground No. 3, the assessee has challenged upholding of the addition of Rs.7,26,001/- on account of estimation of profit on the turnover of Rs.17.09 crores.
The ld. Assessing Officer on second page of the assessment order has recorded a specific finding that the assessee has expressed its inability to submit anything because according to the assessee, all its accounts have been lost and it does not have any document. Therefore, under the compelling circumstances, the ld. Assessing Officer has to determine the income according to his best judgment. He on an analysis of the record estimated the profit. The finding of the ld. 1st Appellate Authority in this connection is worth to note, which reads as under:-
“7. As regards, estimation of profit on the accounted turnover of the appellant is concerned, it is matter of record that appellant had not been found to be maintaining any books of account, which would enable the AO to correctly compute the income of the appellant. It has been further found out by the AO that without any justifiable reasons, the gross profit of the appellant had been fluctuating over the years for which no explanation has been brought on record. It is also matter of record that appellant had been found to be indulging in unaccounted purchases and sales outside the books of account. No doubt, unaccounted purchases and sales thereof has its own element of risk which is undertaken by unscrupulous traders in order to 4
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar earn higher amount of profit. Though not resorting to a exaggerated estimation of the profit, the profits disclosed by the appellant for the earlier years had been taken as guiding factor for determination of the profit and had adopted a rate of profit at the rate of 3.85% and difference in the profit so shown by the appellant and so estimated by the AO had been brought to tax against which present appeal has been filed. It is also matter of record that appellant had failed to bring on record any evidence whatsoever in support of its purchases and sales either recorded in its books of account or purchases and sales made outside the books of account, leaving no option to the AO but to estimate the profit on the basis of materials available on record which falls in the category of best judgement assessment. So far as rate of profit to be adopted in such scenario, there are several judicial pronouncements to the effect that profits of the earlier years can be taken as profit for the years under assessment or appeal. To quote a few, the hon'ble High Court Of Allahabad in the case of CIT vs. Target Construction Co Ltd 231 Taxman 55 had held that in case of government contractor engaged in construction of roads, the Tribunal was justified in relying upon profit rates of preceding three years in estimating profits earned by assessee during relevant years at 5 percent of gross receipts after rejection of the books of account And the High Court Of Himachal Pradesh in the case of New Plaza Restaurant v Income-tax Officer 309 ITR 259 had held that while making an estimation, Assessing Officer must follow some principles and he is bound to follow same yardstick for similar sorts of businesses. And in the cases of Action Electricals v Dy. CIT [2002] 258 ITR 188/[2003] 132 Taxman 640 (Delhi) and P. Venkanna v. CIT [1969] 72 ITR 328 (Mys.) it has been categorically held that a best judgement assessment based on past years results is valid and not arbitrary.
The ITAT Amritsar Bench in the case Of Bathinda Truck Operator Union V. Income-Tax Officer Ward-1 (3) [2007] 158 Taxman 148 (ASR.) (MAG.) on the ground that even if book results are rejected, Assessing Officer is duty 5
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar bound to make a fair and reasonable estimate of income based on evidence and material on record; he cannot make an addition in an arbitrary manner or on basis of personal vendetta. The Assessing Officer had neither referred to past history of case nor had made any independent enquiry and he had also not referred to any comparable case where income was estimated by applying net profit rate of 10 per cent, it invoking provisions of section 145(3), was held that estimation of income by Assessing Officer was highly arbitrary, unreasonable and without any basis even if the assessee failed to produce books of account, details of receipt, etc.
It has been laid down by Hon'ble Calcutta High Court in the case of Dabros Industries Company (P) Ltd Vs CIT (1977) 108 ITR 424 (Cal) as under - “Accounts - rejection -ITO applied s.145 and made certain additions on the basis of past performance in absence of proper accounts to arrive at a correct profit -rejection and estimation on the basis of available material justified - once the books of accounts of an assessee are rejected then profit has to be estimated on the basis of available material."
Similar decisions have been given by Hon'ble ITAT, Jaipur bench in the case of Navneet R Jhanwar Vs ITO (2004) 1 SOT 541 and Jodhpur Bench in the case of ITO Vs Kundanmal Surana (2004)3 SOT 632 as well as by the Hon’ble ITAT, Lucknow Bench in the case of M/S M. A. Builders Pvt. Ltd, vs Department Of Income Tax ITA NO.564/LKW/2011
In view of the aforesaid wherein the only material available to the AO, in order to determine the gross profit of the appellant for the previous year relevant to the assessment year under appeal is the gross profit of the 6
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar earlier years which in the light of judicial pronouncements extracted as above is considered to be justifiable, reasonable and is therefore, upheld and this ground of appeal is, accordingly, dismissed for both the assessment years”.
The assessee did not possess any material to rebut this finding. In the absence of any material, its income is to be determined on an estimate basis. The ld. Revenue authorities have rightly worked out the estimation of income and no interference is called for. This ground is rejected.
In Ground No. 4, the grievance of the assessee is that ld. CIT(Appeals) has erred in upholding the addition of Rs.10,56,328/-. The finding of the ld. Assessing Officer deserves to be noted in this regard, which reads as under:-
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar
The first finding of the ld. Assessing Officer is qua the estimation of gross profit, which we have considered while dealing with Ground No. 3 of the assessee’s grounds of appeal. Applying the same logic on unrecorded purchases, the ld. Assessing Officer has worked out gross profit at Rs.10,56,328/-. The ld. Assessing Officer was of the view that the assessee has not recorded the purchases of Rs.2,63,80,781/-. The sale value of these purchases will be enhanced by applying 3.85%, which is gross profit disclosed by the assessee on recorded sales. The additions have been made in the purchases @ 3.85%, which give rise to the sale figure of Rs.2,74,37,109/- and thus difference between this amount and Rs.2,63,80,781/- has been added back as undisclosed income on unrecorded purchases. Both the authorities have made analysis of the
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar material found during the course of survey. The assessee failed to submit any material to rebut the conclusions of facts arrived at by the revenue authorities below. Therefore, we do not find any merit in this ground of appeal. It is rejected.
In Ground No.5, the assessee has pleaded that ld. CIT(Appeals) has erred in upholding the disallowance of Rs.32,71,379/-.
The ld. Assessing Officer during the course of assessment proceedings found that the assessee had made payments to carriage outwards and commission paid to Hawkers and it has not deducted TDS on such payments. Therefore, those expenses have been disallowed with the help of section 40(a)(ia) of the Income Tax Act.
With the assistance of ld. Representatives, we have gone through the record carefully. We find that on the issue, ld. Assessing Officer has recorded the following finding:-
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar
We are of the view that ld. Assessing Officer has assumed the default of assessee based on the earlier years’ facts. He was not possessing complete details as to whom 13
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar how much payment was made. He has been determining the income of the assessee on an estimate basis because he could not identify the exact expenses incurred by the assessee. In such situation, under an assumed conception that assessee must have paid carriage outward charges in violation to the threshold limit provided under section 194C or 194(I). To our mind, the ld. Assessing Officer has not demonstrated the actual defaults committed by the assessee and, therefore, under such circumstances, he cannot disallow under a general narration. We allow this ground of appeal and delete the disallowance.
In Grounds No. 6, 7 & 8, the assessee has challenged the disallowance of salary expenses, disallowance of other minor expenses on an estimate basis and disallowance of other expenses. We have duly considered the rival contentions and gone through the record carefully. We are of the view that once books of account of the assessee are rejected, its income is estimated, then specific discussion ought not to be made under different heads. The rejection of books and estimation of income will take into consideration all the expenses, which ought to have been independently examined. For example- disallowance of car depreciation, telephone expenses, salary etc. would be part of the total expenses considered by the ld. Assessing Officer while estimating the income of the assessee out of the total sales, therefore, additionally they are not to be
ITA No. 259/PAT/2018 Assessment Year: 2010-2011 Ashok Kumar disallowed on an estimate basis. Accordingly, we allow all these grounds of appeal raised by the assessee and delete the disallowances.
On due consideration of the above facts and circumstances, Grounds No. 1, 2, 3 & 4 of the assessee’s appeal are dismissed, whereas Grounds No. 5, 6, 7 & 8 are allowed. The additions are deleted. 16. In the result, the appeal of the assessee is partly allowed as indicated above. Order pronounced in the open Court on 10.04.2024. Sd/- Sd/- (Manish Borad) (Rajpal Yadav) Accountant Member Vice-President Kolkata, the 10th day of April, 2024 Copies to :(1) Ashok Kumar, Prop. M/s. Hanuman Trading Co., Jwala Market, Near Shiv Mandir, Piro, Bhojpur, Bihar (2) Income Tax Officer, Ward-1, Ara (3) Commissioner of Income Tax (Appeals)-1, Patna; (4) CIT- (5) The Departmental Representative (6) Guard File TRUE COPY By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.