SAHABAJ KHAN,BHADRAK vs. ITO BHADRAK WARD, BHADRAK

Shri Digant Das, Digant Das, ld AR assisted by Debasmita Sethy and Sri Sourav assisted by Debasmita Sethy and Sri Sourav Kumar Sahu, interns of Madhusudan Law University, Cuttack Kumar Sahu, interns of Madhusudan Law University, Cuttack Kumar Sahu, interns of Madhusudan Law University, Cuttack appeared for the assessee and Shri the assessee and Shri Charan Dass, Ld CIT DR assisted by Shri Sahil assisted by Shri Sahil

The appeal filed by the assessee is delayed by 56 days. The assessee has filed condonation petition dated 16.10.2023, stating the reasons that as the assessee was seriously ill due to spinal problem and was advised not to move. On getting recovered from the illness, the assessee consulted his counsel to file the appeal and, therefore, there was delay of 56 days. It was prayed to condone the delay in filing the appeal. Ld Sr DR did not object to the condonation petition. After considering the condonation petition and hearing the parties, we are satisfied that there was reasonable cause in not filing the appeal within the stipulated period. We, accordingly, condone the delay of 56 days and admit the appeal for hearing.

It was submitted by ld AR that the assessee is a wholesale dealer in eggs. It was the submission that the impugned assessment year 2012-13 was the first year of business of the assessee. The assessee had a turnover of Rs.5,57,61,124/- and had declared gross profit of Rs.16,03,132/- and net profit of Rs.4,47,083/-. It was the submission that the net profit ratio was 0.8%. The assessee had not filed his return of income and the notice u/s.148 of the Act had been issued to the assessee as there was substantial cash deposit in the bank. It was the submission that the return was filed in response to notice u/s.148 of the Act. The books of account P a g e 2 | 7 were rejected on account of non-compliance of notices. It was the submission that consequently, the income of the assessee was estimated at 8% of the turnover. It was the submission that there was a disallowance of Rs.1,15,76,500/- towards unexplained cash credit. On appeal, the ld CIT(A) had deleted the addition representing the unexplained cash credit but had upheld the estimation of income at 0.08% of the total turnover. It was the submission that for the subsequent assessment year being 2013-14, the assessee had shown net profit ratio of 0.44%, for assessment year 2014- 15, the net profit ratio of 0.20 %, which was accepted in scrutiny assessment u/s.143(3). For the assessment year 2015-16, the net profit ratio of 0.48%, and for the assessment year 2016-17, the net profit ratio of 0.82%. Ld AR has filed written submission as follows:

It was the submission that the Assessing Officer has not considered any comparative case when estimating the income of the assessee. It was the submission that the addition as made by the AO and as confirmed by the ld CIT(A) is liable to be reduced and if estimation has to be made, in view of the various decisions and principles laid down by the Hon’ble Supreme Court, the assessee’s past record or future record could have been considered for the purpose of estimation of income. It was the submission

In reply, ld Sr DR submitted that the assessee has not produced the books of account for examination and the books of account had rightly been rejected by the Assessing Officer. In regard to estimation of income at 8%, it was submitted by ld Sr DR that the provisions of section 44AD had been applied. When it was pointed out to ld Sr DR that the provisions of section 44 AD cannot be blindly applied, it was submitted by ld Sr DR that the Assessing Officer has not applied the provisions of section 44 AD of the Act to estimate the income at 8%. It was the submission that the order of the AO and that of the ld CIT(A) is liable to be upheld.

We have considered the rival submissions. A perusal of the assessment order clearly shows that there has been non-production of books of account and this has led to rejection of books of account of the assessee. We find no error in rejecting the books of account on account of non-production of the same before the Assessing Officer. However, coming to the issue of estimation of income of the assessee, the Assessing Officer has estimated the same at 8%. He had two option, (i) had to make comparative analysis on similar business, admittedly, this has not been done and (ii) had to consider the past and subsequent records of the assessee. Admittedly, this is the first year of business of the assessee and, therefore, the past records of the assessee are not available but the future P a g e 5 | 7 records were available, when the estimation was being done by the Assessing Officer. In fact for the assessment year 2014-15, scrutiny assessment has been done by the AO by accepting the returned figure declared by the assessee, which shows the gross profit ratio at 0.92% and net profit ratio at 0.20% of the turnover. The Assessing officer has not considered even this. In these circumstances, we are of the view that the estimation of income at 8% is not supported by any acceptable method. This being so, in the interest of justice, the Assessing officer is directed to estimate the income at 1% of the total turnover of the assessee. This is because the net profit ratio of the assessee varies between 0.20% to 0.82%. In these circumstances, we feel 1% net profit ratio would be reasonable

In the result, appeal of the assessee stands partly allowed .