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Facts
The assessee, a liquor dealer, had their books rejected by the Assessing Officer (AO) u/s 145(3) due to non-response to notices, leading to an estimated net profit addition of 3% of turnover. The CIT(A) confirmed this addition. During appellate proceedings, the assessee submitted all required documents, and the AO's remand report found the books of accounts and records to be in order.
Held
The Tribunal held that since the assessee's books were audited u/s 44AB and all supporting documents were verified and found satisfactory by the AO during remand, the estimation of profit by rejecting the books of accounts was not justifiable. The additions sustained by the CIT(A) were quashed.
Key Issues
Whether the estimation of net profit was justified despite the assessee's audited books and supporting documents being found in order during remand proceedings.
Sections Cited
145(3), 44AB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
ORDER Per: SHRI. SANDEEP GOSAIN, J.M.: The present appeal filed by the assessee arises out of final assessment order passed by National Faceless Appeal Centre (NFAC), Delhi dated 16/10/2024 for assessment year 2017-18 on following grounds of appeal: “Grounds:
1. 1. The order dated 16/10/2024 bearing No. ITBA/NFAC/S/250/2024- 25/1069704382[1] passed by the Hon'ble CIT[A], NFAC, Delhi, is excessive, unreasonable, arbitrary, against the provisions of Income Tax Act, 1961 and therefore liable to be quashed.
AY: 2017-18 Late Mr. Shankerlal Doulatram Ramani 2. On facts and circumstances of the case and in law, the Honourable C.I.T.(A) has erred in confirming the addition of Rs.19,99,860/- made by the Assessing Officer on account of estimation of net profit @3% of the turnover of the Appellant. 3. The appellant craves to alter, add, delete, substitute, or modify and other grounds of appeal
.”
2. The only effective Ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the additions made by the AO on account of estimation of net profit, at the rate of 3% of the turnover of the assessee.
We have heard the counsel for both the parties. Perused the material placed on record and orders passed by the revenue authority’s.
From the records, we noticed that assessee is a dealer of liquor and running his business under the name and style of M/S. Vintage Wines and during the year under consideration the assessee has shown gross profit @ 10.11% of total turnover and after claiming various expenses, the assessee has shown net profit @ 1.72% of the total turnover. Since the assessee could not respond to several notices served upon him by the AO therefore, book result of the assessee u/s.145(3) of the Act, was rejected and net profit estimating @ 3% of the turnover was added to the income of the assessee.
However, during the appellate proceedings before Ld. CIT, assessee filed required documents and submissions which were forwarded to the AO for seeking remand report and consequently, “During the remand proceedings, the assessee has submitted that the accounts are audited and filed audit report in form no 3CB & 3CD and financial P& L Account and balance sheet The assessee has also filed details of month wise sales & purchases, sales register, purchase register, ledger related to expenses and details of cash deposits. The assessee was engaged in the business of retail selling of liquor under the proprietary concern M/s Vintage Wines and M/s Bharat Wines during the year under consideration i e. for A. Y. 2017-18. During remand proceedings, books of accounts are examined. Purchase and expenditure vouchers are examined on test check basis, wherein, it is noticed that the major expenses incurred by the assessee was towards Local Body Taxes, License fee & remaining expenses are towards operational expenses like transport, salary etc. The challans paid towards local body taxes, licence fees were produced before this office for verification. The remaining operational expenses were also examined on test check basis wherein the same is found to be in order. Hence, as the books of accounts are audited u/s 44AB, the estimation of the profit by rejecting the books of accounts is not justifiable as the same could not be examined as there was no response from the assessee The assessee has also submitted the audited report of VAT and VAT returns in support of sales and purchases. Comparative figures of the gross profit and net profit for the A.Y. 2017- 18, 2016-17, 2015-16 and 2014-15 in r/o Vintage Wines & Bharat Wines are as under: - Hence, the CIT(A) is requested to decide the same on merits of the case.
After having gone through the entire remand report, we found that during the appellate proceedings, the assessee had placed on AY: 2017-18 Late Mr. Shankerlal Doulatram Ramani record all the required documents in the shape of books of accounts which were examined. Apart from this purchase and expenditure vouchers filed by the assessee were also examine and it was noticed by the AO that the major expenses incurred by the assessee were towards local body taxes, licence fee and are towards operational expenses like transport, salary etc. In order to, substantiate the said expenses the assessee had placed on record the challan paid towards local body, taxes, license fees and the same were duly verified and examined by the AO and it was found that the documents filed by the assessee and the accounts maintained are in order. It was also observed by the AO that the books of accounts of the assessee are audited u/s. 44AB of the Act and estimation of profit by rejecting the books of account while passing the order of assessment was found to be not justifiable. Apart from this assessee had also submitted audited report of VAT and VAT returns in support of sales and purchases therefore, during the remand proceedings, the AO after examining the comparative figures of the gross profit and the net profit in respect of assessee’s business had rightly concluded that the same are in order.
However, in spite of the entire exercise of examining and verification of the required documents by the AO, Still Ld. CIT(A), sustained addition by estimating net profit in absence of sales bills. In our view when once entire documents placed on record along with books of accounts and VAT records in the shape of audited report of VAT and VAT returns in support of sales and purchases and other documents which were duly examined and AY: 2017-18 Late Mr. Shankerlal Doulatram Ramani verified by the AO and the AO was satisfied with the said Documents then in that eventuality, there was no occasion before the Ld. CIT(A) to make estimation. Thus, in our considered view the addition @ 3% is not based on any material and is only on the basis of assumptions and presumptions. Once the documents have already been placed on record by the assessee, therefore the question of making estimation by assumptions and presumptions has no place in law. Therefore, the additions sustained by Ld. CIT(A) stands quashed and the ground raised by the assessee is allowed.
In the result, appeal of the assessee is allowed.