SAI RAMESH CHODAVARAPU,BHIMAVARAM vs. INCOME TAX OFFICER, BHIMAVARAM

The grounds of appeal taken by the assessee in Form No. 36 are as under: -

Brief facts emerging from records are that, assessee is an individual engaged in the business of purchase and sale of prawns but in absence of any return on record, proceedings were initiated vide notice under section 148 of the Act dated 20.03.2024. (as per procedure), in response to which return has been filed disclosing a total income of Rs.2,35,150/-. Subsequent notices issued under section 143(2) and 142(1) of the Act has been complied with by the assessee, explaining the credits in his bank account to have been sourced out of sale proceeds of prawn business and the withdrawals from the said bank has been explained to have been made for purchase of prawns from various farmers engaged in fish farming , in support of which copies of profit and loss account and Balance Sheet along with bank statements were filed.

It was observed by the AO that the total credits considering all the bank accounts of the assessee amounted to Rs.8.53 crores ( as evident from Para No. 4.6 of the Assessment Order ) , which was not exactly matching with the sales / turnover disclosed by the assessee in his profit and loss account at Rs.6.39 crores and corresponding purchases disclosed at Rs.6.33 crores. On account of failure on the part of the assessee to reconcile the difference arising from his financials, submitted with the return vis-à-vis the total credits in the bank accounts , the AO proceeded to reject the book results and has estimated the net profit @8% ( eight percentage ) on gross credits in bank ( considering the same as total sales from prawn business ) and completed the assessment on a total income of Rs.76,67,002/- ( including the addition of Rs.68,31,854/- being the business profits derived on the basis of credits in the bank account ).

The matter carried in appeal before the Ld. First Appellate Authority has been dismissed in absence of proper representation in course of appellate proceedings , by observing as follows: -

Now the assessee is before the Tribunal on the grounds contained in the memorandum of appeal and in course of hearing the Learned Authorized Representative (for short “Ld.AR”) of the assessee has filed a Paper Book consisting 89 pages which included the copies of the bank statements of Karnataka Bank (Account No..xxxx205601), Andhra Bank (Account No. xxxx0080), IDBI Bank (Account No. xxxx4060) where all the amounts in cash/credits has been deposited by the assessee and the Ld AR submitted that the assessee is engaged as a Commission Agent in the business of wholesale trading of prawns where the percentage of commission earned is very less ranging from one to one point five percentage , and during the year under appeal the books of accounts has been rejected by taking recourse to section 145 , and the total credits in all banks taken together has been considered to be a gross turnover of the assessee. He further submitted that since the books are rejected ( and the assessee has not challenged the said rejection ) the sales determined should be subjected to taxation at a fair percentage depending on the nature of business carried on by the assessee, even though in the instant case, Tax Audit Report has been ( claimed to have been uploaded ) in the portal, but has not been considered by the Ld.AO. ( However, we find that no copy of such TAR for the year under appeal has been filed before us , even though copies of TAR for subsequent years has been made a part of the paper book ).

Ld.AR further submitted that in the instant case the estimation of the AO @8% of gross sales is very much arbitrary and perverse, considering the fact that the assessee is a commission agent ( and not exactly a trader ) and he submitted that he intends to rely upon identical cases of prawn trading business where business is carried on under similar circumstances and net profit percentage is determined in between 1% to 1.5% of total turnover. He further submitted that the Ld. First Appellate Authority has not considered all the materials available on record filed in course of appellate proceedings and has not adjudicated the appeal on the grounds contained in Form No.35 on the merits of the case and he prayed for an opportunity of hearing before the Ld first appellate authority to explain his case with supporting documents.

Ld. Departmental Representative (hereinafter in short “Ld. DR”) relied on the order of the Ld. CIT(A) and submitted that the financials produced by the assessee before the Ld.AO does not match with the deposits in bank accounts and even though the turnover is more than the stipulated limit, no Tax Audit Report has been filed before the AO and the financials submitted by the assessee are all unaudited and cannot be relied upon in absence of supporting documentary evidences of purchases and sales . She further pointed out that in the case of wholesale trading of prawns the net profit margin ( within the State of Andhra Pradesh ) varies from 10% to 20% and in case of commission agents, the commission earned is in between 5% to 10% , but in the instant case in absence of any supporting documents and papers to establish the exact nature of business , whether the assessee is a trader or a commission agent , the AO was justified in estimating the percentage @ 8% , and she prayed for sustaining the appeal order.

We have heard the rival submissions and considered the materials on record and we find that before the AO , the assessee stated to be engaged in the business of trading in prawn , and before the tribunal the Ld AR pleaded that the assessee is a commission agent dealing in prawn, but no documentary evidence has been furnished in support of either at any stage, except bank accounts. We are also of the opinion that in absence of any books of accounts being regularly maintained , income either from commission or prawn trading , has to be determined at a fair percentage either on past records of the assessee or on the basis of any comparative cases of persons engaged in similar nature of trade ( prawn trading ) under similar circumstances , because trading in prawn is different from ordinary fish trade , and the tribunal decisions filed before us by the assessee does not relate to identical business carried out by the assessee.

Further in absence of any representation by the assessee before the Ld. First Appellate Authority, in spite of opportunities of hearing being issued on three separate occasions as ( evident from Para No. 5 of the Appellate Order) , the Ld.CIT(A) has dismissed the appeal by sustaining the addition on the basis of statement of facts and the grounds of appeal. As such, in the interest of justice, we are of the opinion that another opportunity should be allowed to the assessee to produce necessary documentary evidences in support of his claim before the Ld. First Appellate Authority and to submit all supporting papers and judicial precedents on which the assessee wishes to rely upon for the purposes of his arguments.

However, we are also of the opinion that in the instant case, the assessee has carried out business of considerable volume (exceeding Rs. Eight crores ) and he has not taken any steps to appear and plead his case with documentary evidence before the Ld.AO and also before the Ld. First Appellate Authority, when various notices have been issued, which proves that the assessee was negligent and had willfully refused to cooperate in Appellate Proceedings, resulting in loss of judicial hours. As such, we are of the opinion that , it is a fit case where cost should be imposed on the assessee and we hereby impose a token cost of Rs10,000/- (Rupees Ten Thousand only) on the assessee to paid to the credit of “AP State Legal Services Authority ” payable within 30 days from the date of communication of this order ( evidence to be produced before Jurisdictional Assessing Officer ).

As such, we are of the opinion that, the interest of justice, will be served if the matter is remanded back to the Ld. First Appellate Authority for providing one more opportunity to the assessee to submit all documentary evidences in contention of grounds of appeal along with supporting judicial decisions and to cooperate fully in Appellate Proceedings for proper disposal of the appeal. Assessee will be allowed a reasonable opportunity of being heard and notice to be issued in the e-mail ID as per Form No.35 i.e., sairamesh143@gmail.com and also in the e-mail ID as available in ITBA portal.

We have not expressed any opinion on the merits of the case and all legal issues are kept open.

In the result, appeal filed by the Assessee is Allowed for statistical purposes.