RANJAN KUMAR AGARWALA,BARIPADA vs. ITO, WARD-1, BARIPADA, BARIPADA

It was submitted by the ld. AR that the assessee is an individual, who is doing the business of selling of tractor & autorikshaw in Baripada. It was submitted that the turnover of the assessee during the relevant assessment year was Rs.9.97 crores. The assessee has offered net profit of Rs.11,63,316/-, which was at the rate of 1.17%. It was the submission that the AO rejected assessee’s books of accounts and went on further to estimate income from the gross sales at the rate of 1.45%, @10% of incentive and discounts, @8% of labour charges and @10% of NIC incentives. It was further submitted that after rejecting books of accounts of the assessee, the AO further went on to make disallowance out of the closing balance of the sundry trade creditors and difference between bank Rs.5,441/-, which had been included for the next year, as also disallowance in respect of the rejection under Chapter VIA. The ld. AR placed before me copy of the profit and loss account and the balance sheet of the assessee which is as follows :-

It was the submission that the net profit of the assessee after considering all the various incomes was only 1.17%. It was the submission that by breaking down various income of the assessee relating to the same business, the AO has applied different types of percentage. It was the submission that no comparative cases were shown by the AO. Ld. AR placed before me the comparative percentage of the net profit of the assessee from the assessment years 2009-2010 to 2013- 2014 in the written submission which as follows :- BEFORE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK. In the matter of - And In the matter of RANJANKUMAR AGRAWAL Ward No.12, Prafulla Nagar, Station Bazar, Baripada, Mayurbhanj. (ADIPA5143R) Re : Asst. year - 2013-14 WRITTEN SUBMISSION The assessee is an individual derives income from selling of Tractor and Auto. Return of Income was filed for the Asst. year - 2013-14 on 29.09.2013 through E-filling, disclosing total income ofRs.10,99,470/- Selection for Scrutiny was made through CASS. Notices were issued and in response all the require documents were produced and assessment was completed rejecting the books of accounts by applying the provision of Sec.145(3). The AO assessed the income by estimating the Net Profit, adding the difference in sundry creditors and balance of the bank account, and disallowing the claim of deduction under chapter VIA. The books of accounts are duly audited and profit & loss accounts and Balance Sheet were furnished. Assessment was completed by rejecting books of accounts and applying provisions u/s.145(3) and estimating the percentage of Net Profit on Gross Turnover and also applying different rate of percentage on other income duly credited in the P&L Alc. Profit shown by the assessee includes Other Income also. No Other addition called for when books of accounts rejected and profit is estimated. CONTENTION OF THE ASSESSEE: Assessment Year 2009-10 2010-11 2011-12 2012-13 2013-14 Gross Sales 3,40,18,059 5,05,03,168 5,77,26,207 6,37,21,706 9,97,52,712 Net Profit 2,33,514 4,01,178 5,47,549 5,79,575 11,63,316 ( Incl. of all Income from other sources) %age of Net Profit 0.69 0.79 0.94 0.91 1.17 1. The AO rejecting the books of accounts calculated Net Profit separately @ 1.45% and thereafter other Income from the P&L Ale were calculated by Applying different rate percentage. The appellant begs to state the estimation of Net Profit by AO is highly excessive and the percentage Apply on different source of income is arbitrary & Unjustified. 2. Net Profit as declared by Assessee for the year under consideration is inclusive of other income credited in P&L Alc like Incentive, Discount & Incentives, Interest on FDR, Int. on SD, labour charges, NIC Incentive & shop rent (i.e. AY -2013-14) 11,63,3165 Percentage of Net Profit as declared by Assessee 1.17% for the year under consideration. If percentage of last four years taken and calculated 0.83% then the average percentage comes to (i.e A.Y. 2009-10 to 2012-13 )

If percentage calculated for five years inclusive the year under consideration then the average percentage comes to . 0.90% The appellant begs to state that the AO should have accepted Net Profit declared by appellant as the same is genuine. The return filed by the appellant should have been accepted by the AO. Cuttack. Adv.Mohit Sheth Mob: 9437027821 E-mail-mohitbhaisheth@gmail.com 4. It was the submission that the average net profit from A.Ys.2009- 2010 to 2012-2013 comes to only 0.83% and if the average is considered by including this year also, it would come to 0.9%. The assessee having declared 1.17%, the variation as made by the AO and ld. CIT(A) is liable to be deleted and so also the various disallowances made after rejecting the books and estimation of the income of the assessee.

In reply, ld. Sr. DR vehemently supported the order of the ld. AO and ld. CIT(A). It was submitted by the ld. Sr. DR that once the books of accounts are rejected, the AO was at liberty to estimate the various incomes of the assessee.

We have considered the rival submissions. A perusal of the profit and loss account of the assessee clearly shows that the AO has estimated the income of the assessee for the various heads of income from the same business. In short, the incentive received by the assessee as also the discount received by the assessee, the AO treated 10% as income. In fact, once the income from the sales is already estimated, obviously there cannot be any further expenditure in regard to the incentives. Therefore, the estimation of the income of the assessee of the incentives itself is not permissible, so also in regard to the labour charges and the NIC incentives, a perusal of the assessment order shows that the AO has not used any comparative case for the purpose of estimating the income of the assessee. This being so, the estimation as made by the AO and as confirmed by the ld. CIT(A) stands modified. The average of the net profit without considering the relevant assessment year comes to 0.83% and after including the impugned assessment year, comes to 0.9%. It is noticed that the assessee has shown 1.17% for the impugned assessment year. It is admittedly above the average. This being so, in the interest of justice, the AO is directed to estimate the income of the assessee at 1.2% on the gross receipt of the assessee and make no further estimation in respect of other incomes.

In regard to the disallowance made on the sundry trade creditors, obviously, books of accounts are rejected, trade creditors cannot be further touched. Consequently, the said addition as made by the AO and confirmed by the ld. CIT(A) stands deleted.

Coming to the difference in the bank account admittedly the assessee has shown the reason for the difference as being an amount represented by one cheque which has been included for the subsequent year. This being so, the said addition of Rs.5,441/- stands deleted.

In respect of the disallowance under Chapter VIA, it was noticed that this has been made on account of non-furnishing the evidence. As no evidence has been produced before the Tribunal the addition made by the AO and confirmed by the ld. CIT(A) on this issue to the extent of Rs.5056/-, stands upheld.