AJAY SHARMA,DELHI vs. ITO WARD-44(6), DELHI

PER S.RIFAUR RAHMAN,ACCOUNTANT MEMBER :

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are proceeded to decide the appeal after hearing the ld. DR of the Revenue and the material available on record.
3. Brief facts of the case are, the assessee e-filed his income-tax return for the A.Y. 2020-21 on 13.02.2021, declaring total income of Rs.9,72,790/-.
The case was selected for scrutiny and accordingly, notice u/s 143(2) of the Income-tax Act, 1961 (for short ‘the Act’) was issued on 29.06.2021. Therefore, various notices were issued from time to time but the assessee has complied only on few occasions. After detailed discussion of the case, the income of the assessee was assessed by passing the assessment order u/s 144 r.w.s. 144B of the Act as under :-

Sl.No. Description
Amount
(in INR)
1. Income as per Return of income filed
9,72,790
2. Income as computed u/s 143(1)(a)
11,65,004
3. Variation in respect of issue of income from other source (para 10.i.)
2,50,210
4. Variation in respect of issue of undisclosed contractual receipt (para
10.ii)
37,75,836
5. Variation in respect of issue of business profit (10.iii)
2,70,77,815
6. Variation in respect of issue of unexplained liabilities (para 10.iv)
57,64,87,070
7. Total Income/Loss determined as per the above proposal
60,87,55,935

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the assessee finally submitted his response on 18.03.2024. After going through the submissions made by the assessee, ld. CIT (A) partly allowed the appeal by sustaining the addition of Rs.2,70,77,815/-.
5. Aggrieved, assessee is in appeal before us by raising following grounds of appeal :-
“1. That order passed u/s 250 of the Income-tax Act, 1961 by the Ld.
Commissioner of Income Tax (Appeals), Delhi is against law and facts on the file in as much as he was not justified to arbitrarily uphold the addition at Rs.2,70,77,815/-.

a)
That the Ld. CIT(A) has erred not considering that while our declared nature of business encompasses a diverse range of activities, including manufacturing, trading, and construction services, the absence of a separate Manufacturing Account in the uploaded statements does not imply non-compliance or inaccuracies in our financial reporting.

b)
That the Ld. CIT (A) has erred not considering that it may appear that quantitative details of principal items of trade were not provided in Sl.No. 35 of Form
3CD but the detailed information regarding the closing stock was indeed provided during the proceeding.

c)
That the Ld. CIT (A) has erred not considering that the loss there is low gross profit margins of 2.16% for the previous year and 1.24% for the preceding year, due to some external factors such as market conditions and competition can significantly impact profitability. We prioritize long-term growth over short-term profitability, often reinvesting earnings into strategic initiatives. Despite of increase in gross profit margin during the year the net profit margins reduced to 0.20% from 0.37% for the preceding previous year, Despite the rise in gross profit, the decrease in net profit can be attributed to an increase in certain expenses incurred during the year. These expenses is necessary for sustaining and growing our business operations.

d)
That the Ld. CIT(A) has erred not considering that detailed Current liabilities contained in schedule of the balance sheet. Confirmation of sundry creditors also produced before the Ld. AO.

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e)
That the Ld. CIT (A) has erred not considering the fact that the we have wrongly selected the head source or income under the column of TDS claiming in ITR form relating to the professional Income but we have declared professional income in profit and loss account as business income.

f)
The ld. CIT (A) has erred not considering that the contention raised regarding the consideration of various documents presented before the Ld. Assessing Officer
(AO) during the initial proceedings is crucial for a fair assessment. The absence of certain information or documents during the hearing should not automatically lead to the rejection of the books of account. We believe that the documents submitted earlier should retain their relevance and weight in the assessment process. We confirm our readiness to submit any additional documents or information deemed necessary for the fair and just resolution of this matter at the time of the hearing before this esteemed Tribunal.

g)
That the Ld. CIT(A) has erred not considering that a relevant case law that supports the notion that adverse remarks in a tax audit report do not necessarily warrant the rejection of books of account. Mere discrepancies or adverse remarks, without substantial evidence of fraud, concealment, or material misstatements, cannot be a valid basis for the rejection of books of account.

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5. Considered the submissions of the ld. DR and material placed on record.
We observed that the ld. CIT (A) sustained the addition of Rs.2,70,77,815/- made by the Assessing Officer by passing a speaking order. For the sake of brevity, we reproduce ld. CIT (A)’s order on this issue as under :-
“9. The Assessing Officer citing various reasons rejected the books of account of the appellant and estimated income @ 5% on the turnover of the appellant and arrived at an addition of Rs.2,70,77,815/-. The Assessing Officer mentioned the reasons for rejection of books of account as under:

a)
In his written response to the notice u/s 142(1) submitted on 24.12.2021, the assessee has stated his nature of business as "Manufacturing, Trading of Ladies Sleeper, Synthetic Ladies Sandals,
Ladies Shoes, Men's Shoes, AL DRG Interlock White Vest, Men's Jeans,
Arafat, Cotton Lungis, Mat Carpet, Thread Bar, Ladies Half Sleeves Set
& Construction Services". However, in the audited account statements uploaded by you, it is noted that only a consolidated "TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST
MARCH, 2020" has been uploaded without any Manufacturing Account.
No information relating to 'Construction Services' has been provided.

b)
The assessee had declared closing stock of Rs.14,77,87,560/- but in the Form 3CB the auditor has observed that no stock register has been maintained. Further, the quantitative details of the principal items of trade have also not been provided in SI. No. 35 of Form 3CD in which only
'Nil' has been declared. This raises questions on the value of closing stock and consequently the profits declared by the assessee.

c)
Compared to the turnover, the assessee has declared gross profit of only 2.16% for the previous year and 1.24% for the preceding year.
The net profit for the previous year has been declared at 0.20% compared to 0.37% in the preceding year. The declared profits are apparently very low and the quantum of divergence between the two accounting years is also substantial.

d)
The details/schedules of the balance sheet have not been submitted, even in respect of the principal liabilities. Since the assessee's liabilities are not proportionate to his business turnover and purchases, the details of the liabilities were sought from the assessee. Even after the repeated and specific requisitions the details of liabilities have not been provided and have thus remained unverified.

e)
In his reply to the notice u/s 143(2) submitted on 14.07.2021, the assessee had explained regarding his income from other sources - "Income

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under the head- Other Sources is Rs.2,50,210 as Other Interest Income and Rs.2,35,80,000 as payment in certain amounts in cash on which TDS is deducted which is showed in below table. While filing Income Tax
Return we have wrongly showed Professional Income of Rs.4,71,97,950
as Income from other Source at the time of claiming TDS .... " Whereas the assessee has declared Rs.2,35,00,000/- as payments in cash, it is evident from the quoted section that the IDS has been deducted by the bank on his cash withdrawals. The 26AS details indicate that the. assessee had received contractual payments of Rs.4,71,97,9501- from NCC
Limited. This contractual receipt is not evident among the assessee's declared receipts.

f)
The assessee's capital as on 31.03.2019 has been declared at Rs.27,00,843/-. Since the assessee's aggregate income for the F. Y. 2019-
20 has been declared at Rs.9,72,790/-, the closing capital should amount to Rs.36,73,633/- even without drawings. However, since the assessee has declared capital of Rs.53,85,281/- as on 31.03.2020, the assessee was asked to explain the source of the capital introduced No explanation was received despite issue of reminder.

g)
The amounts credited to the assessee's Trading and Profit & Loss account includes an amount of Rs.5,342/- against the head "Short &
Excess". In his reply dated 24.12.2021, the assessee has explained that "short and excess is the rounded of values which is rounded up the parties and it stud up in Credit so that's why it comes under the income from other sources". The explanation is obviously not tenable. The quantum by itself may not be substantial but the implication of the entry in the final account statement is significant especially in the light of the absence of transparency exhibited throughout the assessment proceedings.

h)
Details relating to specific expenses claimed in the assessee's profit & loss account were also sought u/s 142(1) for verification. Since no compliance has been received from the assessee, the genuineness of the expenses has remained unascertained.

In addition to the above, the Assessing Officer has quoted the remarks of the auditor of the appellant in different columns of form no 3CD where the auditors remarked that in absence of necessary evidence or documents, it was not possible for them to verify the various requirements of the audit report. Accordingly, the Assessing Officer rejected the books of account of the appellant u/s 145(3) of the Act. The Assessing Officer also quoted the following judgments in support of his action:
(S N Namashivayam Chettiyar vs. CIT (1960) 38 ITR 579 (SC);
Bombay Cycle Stores Co. Ltd., vs. CIT (1958) 33 ITR 13 (Bombay); .
CIT Vs Pareck Brothers (Patna) 167 ITR 344; Ratanlal Omprakash Vs CIT (Ori)
132 ITR 640)
The Hon'ble Calcutta High Court in the case of Amiya Kumar Roy and Brothers v/s. CIT (1994) 206 ITR 306

Vikas W.S.P. Ltd. v. Commissioner of Income-tax, Hissar [2009] 177 TAXMAN
142 (PUNJ. & HAR.).

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Therefore, the Assessing Officer calculated the income of the appellant from non contractual sales with the following remarks:

The profit on the assessee's non-contractual business turnover being
Rs.56,48,56,373/- (i.e., Gross receipts of Rs.56,51,06,583 less interest income Rs.2,50,210) will be estimated at 5% and amounts to Rs.2,82,42,819/-. The income computed u/s 143(1) being Rs.11,65,004/-, there will be a variation of Rs.2,70,77,815/-.

It is seen that the Assessing Officer has pointed out several discrepancies regarding the maintenance of account and its correctness. The appellant in its submission, has not specifically challenged this ground of appeal with any specific submission. His submission on this ground is primarily related to the addition on account of unexplained sundry creditors. This issue is being adjudicated in subsequent para. Based on the facts that the Assessing Officer has brought into record various discrepancies regarding the correctness of the account supported with various judgments of different courts of law and the fact that the appellant has not specifically challenged this ground with any specific submission, the action" of the Assessing Officer in rejecting the books of account and estimating income @ 5% of non contractual turnover is found to be sustainable, Accordingly, this ground of appeal is rejected.”

Dated: 21.05.2025
TS

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ITA No.2504/DEL/2024