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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Yogesh Kumar US
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of the ld. CIT(A)-43, New Delhi dated 03.05.2019.
2. Following grounds have been raised by the assessee:
“1. That on the facts and circumstances of the case, the assessment order is illegal a unjustified since statutory notice u/s 143(2) was not served upon the assessee on or before the time limit laid down in proviso to section 143(2) of the Income Tax Act, 1961 and, therefore, the entire addition is liable to be deleted.
That on the facts and circumstances of the case, the assessment order passed by the Assessing Officer
2 Lion Textiles u/s 144 is illegal and unjustified since no show cause notice of his intention of completing the assessment to the best of his judgment was ever served upon the assessee nor has he made an allegation of non- compliance by the assessee of any term of notice u/s 142(1) and, therefore, the entire addition is liable to be deleted.
3. That on the facts and circumstances of the case, the rejection of accounts u/s 145(3) is illegal and unjustified since the assessment order was not passed in the manner provided in section 144 and, therefore, the entire addition is liable to be deleted.
That the Commissioner (Appeal) erred in making ad hoc addition of Rs. 5,00,000/- on the ground of low gross profit rate whereas the gross profit rate for the impugned year was almost similar to the average gross profit rate for preceding years.”
The return of income has been filed on 23.09.2010. As per the Assessing Officer, the notice u/s 143(2) of the Income Tax Act, 1961 was issued and served upon the assessee within the stipulated period. The date of issue of notice has not been mentioned in the Assessment Order.
Before us, the assessee referred to a letter dated 7th 4. January 2013 filed before the ITO, Ward 35(2) that the notice u/s 143(2) was not served on the assessee upto 30.09.2011. Further, the partner of the assessee Sh. Raj Kumar Thukral filed an affidavit stating that a notice was dispatched by the ITO, Ward-35(2) at 06:34 P.M. through speed post and the above referred notice was not served upon the firm till 30.09.2011. The ld. AR argued that since the notice has not been served within the stipulated time fixed by the provision to Section 143(2), the proceedings are void ab initio.
3 Lion Textiles 5. We have gone through the provisions of General Clauses Act.
Section 27 in the General Clauses Act, 1897 27 Meaning of service by post. Where any [Central Act] or Regulation made after the commencement of this Act authorizes or requires any document to be served by post, whether the expression serve or either of the expressions give or send or any other expression is used, then, unless a different intention appears, the service shall be deemed to be effected by properly addressing, pre-paying and posting by registered post, a letter containing the document, and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post.
In view of the provisions of Section 27, we hold that the Assessing Officer has duly “served” the notice on the assessee within the stipulated time.
Against the addition made by the AO of Rs.1,85,69,000/-, the ld. CIT(A) sustained the addition of Rs.5,00,000/-. The revenue has not challenged the deletion of Rs.1,80,69,000/-. The assessee is in appeal against the confirmation of Rs.5,00,000/-.
8. The relevant operative portion of the ld. CIT(A) is as under:
“7. During the appellate proceedings, the appellant’s Authorized Representative also submitted that the Assessing Officer had cherry picked seven transactions amounting to Rs.1,45,179/- against the 4 Lion Textiles total sales of Rs. 24,20,76,377/- to conclude that the appellant’s actual GP rate is 11.31%. According to the appellant, the GP-rate adopted by the Assessing officer after rejecting the books of accounts u/s 145(3) was arbitrary as it is not based on any comparable case. As per the Authorized Representative, the appellant’s GP rate for the previous four Assessment Years were as under:
Assessment Year Gross profit Sales Gross profit Ratio (%) 2006-07 55,31,247 18,61,60,097 2.97% 2007-08 55,53,351 16,77,66,963 3.31% 2008-09 73,15,015 16,98,83,182 4,31% 2009-10 77,83,819 17,92,39,044 4.34%
Based on the above figures, the appellant’s Authorized Representative during the -appellate proceedings submitted that the average GP rate of the appellant for the above four years comes to 3.73% almost similar to the GP rate of 3.64% for the current assessment year. The appellant’s written submissions and paper book in this regard were forwarded to the Assessing Officer for her comments vide this office letter dated 28.05.2014. The Assessing Officer submitted her remarks on the above submissions of the appellant vide her letter dated 01.08.2014 and the relevant portion of the same is as follows:
“Moreover, on 6.2.2013 when Authorized Representative of the assessee attended, Authorized Representative was confronted with discrepancies and was requested to file/produce P&L account & Balance Sheet of M/s Ashoka Dresses, (the sister concern). Case was adjourned to 11.02.2013.
Neither on 11.02.2013 nor till the finalization of assessment on 18.3.2013, anyone representing the assessee appeared. In such a 5 Lion Textiles situation ITO had no option but to complete the assessment on material available on record.”
9. Therefore, it is clear that the appellant did not produce bills of cash sales during the assessment proceedings to substantiate their books of account and also failed to appear before the Assessing Officer for hearing after 6.2.2013. The appellant’s main objection during the appellate proceedings was against the adoption of the GP rate at 11.31% based on seven sale bills amounting to sales of Rs. 1,45,179/- cherry picked by the Assessing Officer. According, to the appellant’s Authorized Representative, there is only minor variation in the GP rate as the average GP rate for the previous four Assessment Years was 3.73% against the GP rate of 3.64% for the current Assessment Year and such minor variation are part of any business. However, the difference in GP rate of 0.09% (3.73-3.64) as per the above submission based on average GP rate for the previous four Assessment Years means that the addition of Rs.2,17,869/- ( 242076377* 0.09%) made by the Assessing Officer needs to be sustained. However, if the' average GP rate of previous three Assessment Years is only taken then the difference in GP rate will be 0.35% (3.99-3.64) and then the addition to be sustained is Rs.8,47,267/- (242076377* 0.35%). Therefore, I am of the view that an ad-hoc addition of Rs. 5,00,000/- for low GP rate will be adequate to serve the interest of justice as the fact remains that the appellant failed to produce bills of cash sales during the assessment proceedings to substantiate their books of account and also failed to appear before the Assessing Officer for hearing after 6.2.2013. Thus, the addition of Rs. 5,00,000/- alone is sustained and the appellant gets a relief of Rs. 1,80,69,014/- (18569014 - 500000). Therefore, Grounds No. 1 to 6 are partly allowed.
10. Ground No. 7 is against the addition of Rs. 5,71,396/- being half the expenses on vehicle running & maintenance, insurance and 6 Lion Textiles depreciation on car on the ground that log books for cars were not maintained by the appellant. The appellant’s Authorized Representative failed to produce any log book for vehicles during the appellate proceedings. The appellant’s Authorized Representative submitted that 50% disallowance on the above expenses is excessive and therefore, I am of the view that the disallowance should be restricted to 10% of the above expenses. The total expenditure under vehicle running & maintenance, insurance and depreciation on car is Rs. 11,42,793/- as per the assessment order and therefore, the disallowance Rs. 1,14,279/-, being 10% of the above expenses, alone is sustained. Thus, the appellant gets a relief of Rs. 4,57,117/- ( 571396 - 114279) and Ground No. 7 is partly allowed.”
We have gone through the well articulated order of the ld. CIT(A). The addition as per the ld. CIT(A) himself, could be Rs.2.17,869/- or Rs.8,47,267/- and by taking into appropriate average confirmed addition of Rs.5,00,000/-. Since, these are only approximation without any tangible material on record, and also since there was no material on record to reject books of accounts and since the requisites of Section 144 has not been observed by the Assessing Officer, we hereby direct that the amount sustained by the ld. CIT(A) is liable to be deleted.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 27/06/2022.