AMBRISH SARIN,AGRA vs. ACIT CIRCLE-1(1)(1), AGRA

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH: AGRA BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER, AND DR. MITHA LAL MEENA, ACCOUNTANT MEMBER

I.T.A No. 372/Agra/2018 (ASSESSMENT YEAR: 2015-16)

Shri Ambrish Sarin, J.M.D. Vs.. ACIT-Circle 1(1)(1), International, 7 Nehru Nagar, Agra. Agra. PAN: AFDPS4979L (Appellant) (Respondent)

Appellant by Shri Pankaj Gargh, Adv. Respondent by Shri Waseem Arshad, Sr. DR.

Date of Hearing 22.02.2019 Date of Pronouncement 16.05.2019

ORDER Dr. M. L. MEENA, A. M.:

This appeal filed by the assessee is directed against the order dated 16.02.2018 passed by the Commissioner of Income Tax, (Appeals)-1, Agra, [herein after referred to as “the CIT(A)”], in the matter of assessment passed under section 143(3) of the Income Tax Act, 1961 for Assessment Year 2015-16 by the Asst. Commissioner of Income Tax, Circle-1(1)(1), Agra( In short “the AO”). 2. The assessee has raised the following grounds:

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“Ground No.1 i) Because the Ld. CIT(Appeals) has erred both in law and on facts in rejecting the appellants specific ground and submission that the Assessing Officer while passing the assessment exceeded her jurisdiction as the case was selected under limited scrutiny and the addition has been made on the issue not identified for examination. ii) Because the Ld. CIT(Appeals) has legally erred in ignoring Instructions No.20/2015 dated 29.12.2015 and No. 5/2016 dated 14.07.2016 issued by CBDT as regards assessments to be framed under limited scrutiny. The impugned assessment order is illegal, void, without jurisdiction and in violation of CBDT norms as prescribed in the Instructions. The Ld. CIT(Appeals) has erred in giving the finding that there is no infirmity in the impugned order passed. iii) Because considering the facts of the case and the legal position the Ld.CIT (Appeals) should have either quashed the assessment framed or have directed the Assessing Officer to accept the income returned. Ground No. 2 i) Because the Ld. CIT(Appeals) has erred both in law and on facts in confirming the action of the Assessing Officer who rejected the books of accounts u/s 145(3) of the I.T Act without pointing out any specific discrepancies in the books of accounts produced before her. ii) Because the appellant duly furnished the details and submission to discharge the onus cast upon him u/s 68 of the I.T Act. Rejecting books of accounts solely for the reason of non acceptance of certain unsecured loans is totally wrong, bad in law, arbitrary and unwarranted. Ld. CIT(Appeals) has legally and on wrong interpretation of facts has erred in confirming the action of the Assessing Officer. Ground No.3 i) Because the Ld. CIT(Appeals) has erred both in law and on facts in confirming the addition of Rs.25,58,259/- made by the Assessing Officer by estimating the net profit applying rate of 10%.

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ii) Because application of 10% net profit rate without mentioning any comparable case , without specifically pointing out any defects in the books of accounts under tax audit is wrong, arbitrary , bad in law and deserves to be deleted. Ld. CIT(Appeals) has grossly erred in confirming the same.

iii) Because the sundry creditors were duly explained and reconciled. Assessing Officer has wrongly interpreted the same to be not verifiable and has arbitrarily made the same the basis for rejection of books of accounts. Ld. CIT(Appeals) has erred in confirming the action of the Assessing Officer. iv) Because the appellant duly explained and furnished the evidence to prove the unsecured loans to be genuine. Assessing Officer has wrongly and arbitrarily rejected the same and has held the same to be fabrication and manipulation in books of accounts. Ld. CIT(Appeals) has erred in confirming the action of the Assessing Officer.

v) Because under the facts and circumstances of the case the addition confirmed by Ld. CIT (Appeals) deserves to be deleted. 4. That the appellant craves to add amend alter modify or delete any or all of the grounds of appeal before or at the time of hearing.”

authorities below in making trading addition by application of N.P rate

@10% on disclosed sales turnover, ignoring the past history of the

assessee and the basic issues identified for examination under limited

scrutiny which as per judicial opinion is a material consideration for

estimation of income while rejecting books of account on proceeding under

wrong section 143(3) of the Act.

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either before the AO or before him with evidence vide para 7.4 of the impugned order. 6. Shri Pankaj Garg, Advocate, Ld. Counsel for the assessee filed a Synopsis along with a Paper Book. The Ld. A.R submitted that where books of accounts are rejected and profit is to be estimated, it is the past history

which is the most relevant criteria for estimation of net profit by way of applying NP Rate. The case has not been framed u/s 144 of the I.T Act. The Assessing Officer has not specifically pointed out that the books of accounts are incorrect or there is any infirmity in audit report, or the method of accounting does not deduce correct profits. Under these circumstances books of accounts cannot be rejected. Thus, such a rejection confirmed by Ld. CIT(A) is also arbitrary without mentioning specific discrepancy in the books of account. 7. The ld. Counsel has reiterated the objections raised before the Ld. CIT(A) that the case was selected under limited scrutiny identifying the issues for examinations as selected for, and therefore the addition by rejecting books

of accounts and estimating NP rate is beyond the jurisdiction of the Assessing Officer according to the instructions issued by CBDT, in absence of approval of Pr. CIT/CIT for conducting complete scrutiny: that the estimation of NP rate at 10% is arbitrary, bad in law and beyond jurisdiction as the Assessment was framed u/s 143(3) by rejection of books of accounts u/s 145(3) based on

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wrong interpretation of facts without giving reference to section 144 and is therefore not justified. In support, he relies on the following case laws. a) ACIT vs. D. M. Brothers (2010) 44 DTR 0013 (All) b) CIT vs. Target Construction Co. Ltd. (2015) 55 taxmann.com 294 (All) c) Pragati Engineering Corporation vs. ITO (Order dated 5.04.2013 passed by Hon’ble Allahabad High Court in ITA No. 11/2012).

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there exists judicial precedents that state that Income Tax Authorities are bound by the CBDT instructions. Under the Circumstances, I am inclined to agree with the appellant that the assessment his income by the AO at a figure higher than the declared figure, is legally not sustainable. 9. The Counsel explained that the appellant assessee has taken total unsecured loans of Rs. 3,71,000/- in cash from 19 persons during the year and all the loans were repaid in cash during the year itself as per ledger accounts filed before Assessing Officer (APB, Pg. 10 to 34) and cash book (APB, Pg. 38-50); the details of sundry creditors along with ledger accounts were filed before AO vide written submission dated 15.09.2017 (APB, Pg. 67 to 70) along with reconciliation statement explaining the difference in the balance of sundry creditors (APB, Pg. 64 to 66) and that the difference was for the reason that debit notes were issued by the assessee were not properly accounted for in the books of the creditors and thereafter no further query or show cause was received by the assessee from the AO. Considering these facts, no adverse inference can be drawn to reject books of account of the assessee. Even if a particular expense claimed by the assessee remained unverified, the Assessing Officer could have disallowed that particular expense but he can not reject its books of account. In support, he placed reliance on Hon’ble Delhi High Court in the case of CIT vs. Paradise Holidays 325 ITR 13 where it was held “if any particular expense claimed by the assessee remained unverified, the Assessing Officer could have disallowed

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that particular expense. But, that by itself could not be a ground for rejection of accounts as a whole u/s 145(3) of the Act.” 10. The ld. DR. supported the impugned order.

judgments relied upon. We agree with the argument of the learned Sr. D.R

that estimation is a pure question of fact. It is also a fact on record that books

of account are rejected by invoking provisions of Section 145(3) of the Act,

pointing out discrepancies regarding details of sundry creditors and unsecured

loan even though the case was selected for limited scrutiny where we find

inconsistency in the view taken by the ld. CIT(A) on the identical fact covered

by the CBDT instruction on limited scrutiny (APB, Pg. 2-3) and his order

referred by the ld. counsel as comparable case as above and further without

either pointed out specific discrepancy in the audited books of the assessee

or bills etc, the assessee objection to the rejection of the books of account is

found justified. Moreover, the assessee has shown progressive trading result

of business (APB, Pg. 71). If, the income of the assessee is to be estimated, it

should be on some reasonable basis, either on the basis of comparable case

or history of the assessee which could be proved best guide in the peculiar

facts. The comparative chart (APB, Pg. 71) of trading results is reproduced as

under:

A.Y. Turnover Gross Profit Net Profit Interest G. P. Rate N. P. Rate on FDR (%) (%)

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2013-14 4,49,83,127/- 1,25,58,884/- 31,71,401/- 4,46,364/- 27.92 7.05 2014-15 4,98,74,984/- 1,19,68,733/- 24,29,239/- 00 24.00 4.87 2015-16 5,03,75,128 1,14,70,432/- 28,85,131/- 00 22.77 5.73

It is seen that rate applied by the authorities below is without any basis, as

no case comparable to the case of the assessee has been cited,

application of N.P rate @ 10% is applied without any material on records,

ignoring the past trends of NP rate which shows that in A.Y 2013-14 on

turnover of Rs. 4,49,83,127/- Net Profit of Rs. 31,71,401/- was shown

giving N.P rate of 7.05% which is including the amount of interest received

on FDR (6.06% excluding FDR interest), and in A.Y 2014-15 upon turnover

of Rs. 4,98,74,984/- Net Profit of Rs. 24,29,239/- was disclosed, giving N.P

rate of 4.87% as against above in the year under consideration i.e. A.Y.

2015-16 upon Turnover of Rs. 5,03,75,128/- Net Profit of Rs. 28,85,131/-

was disclosed which gives N.P rate of 5.73%. Thus, Net Profit of the

assessee in filed Returns ranges from 4.87% to 6.06% in the consecutive

three assessment years. In A.Y 2010-11, assessment was framed under

section 143(3) of the Act vide order dated 2010-11 where income was

estimated by application of N.P rate of 10%.

evidence or reason for application of N.P rate of 10%, we consider it fair,

reasonable and logical to accept 5.73% the N.P Rate disclosed by the

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assessee for the year under appeal being higher than the average rate of

the years referred above which gives average N.P rate of 5.55%, the view

of ours which is in conformity with the view recently adopted by the Division

Bench of Agra ITAT, in ITA No. 330/Agra/2016, order dated 14.05.2018, in

the case of Smt. Archana Dutta Vs ACIT, Circle-3, Matura for A.Y 2011-12

in which one of us was the party to the Bench. In this case after due

consideration of past history average N.P rate was arrived and applied by

the Division Bench. Similar view was taken by the Agra Bench in the case

of M/s Sri. Siddheshwar Engineers India (P) Ltd. Vs ACIT, Firozabad in ITA

No. 160/Agra/2015, order dated 13.03.2018. Thus, ground of appeal No.1

to 4 is partly allowed.

genuine and as such, the AO is directed to accept the N.P. rate disclosed

by the assessee. Accordingly, the addition of Rs. Rs.25,58,259/- is hereby

deleted.

Order pronounced in the open court on16/05/2019.

Sd/- Sd/- (SUDHANSHU SRIVASTAVA) (DR. MITHA LAL MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER *AKV/DOC

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