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Income Tax Appellate Tribunal, HYDERABAD BENCH “B”, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI A. MOHAN ALANKAMONY
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “B”, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA No. 210/Hyd/2019 Assessment Year: 2013-14 Narayanlal Baheti, Vs. Income Tax Officer, Hyderabad. Ward-7(3), PAN: ABYPB 1739 N Hyderabad. (Appellant) (Respondent) Assessee by: Sri Siddharth Toshnival Revenue by: Sri Nilanjan Dey, DR Date of hearing: 20/06/2019 Date of pronouncement: 03/07/2019 ORDER PER A. MOHAN ALANKAMONY, AM.:
This appeal is filed by the assessee against the order of the Ld. CIT(A)-3, Hyderabad dated 10/12/2018 in Appeal No.0355/ITO- 7(3)/Hyd/CIT(A)-3/2016-17 passed U/s. 143(3) & 250(6) of the Act for the Assessment Year 2013-14.
The assessee has raised several grounds in his appeal, however, the cruxes of the issues are as follows: -
(i) The Ld. CIT (A) has erred by holding that the Assessment Order passed U/s. 143 (3) of the Act is not barred by limitation and therefore valid.
(ii) The Ld. CIT (A) has erred in upholding the order of the Ld. AO who had rejected the books of account maintained by the assessee and estimated the income of the assessee @ 5% of the turnover in spite of the fact that the books of accounts were audited U/s. 44AB of the Act.
(iii) The Ld.CIT (A) has erred in upholding the order of the Ld. AO who had denied the benefit of depreciation on the estimated income of the assessee.
Brief facts of the case are that the assessee is an individual engaged in the business of selling crushed stones to M/s. Ramky Infrastructure Pvt Ltd under the name and style of M/s. Aryan Infrastructure. The assessee filed his return of income for the relevant assessment year on 01/10/2013 declaring total taxable income as Rs. 19,66,530/-. Initially the return was process u/s 143(1) of the Act and subsequently the assessment was completed u/s 143(3) of the Act on 31/3/2016 wherein the Ld.AO rejected the books of account of the assessee citing several reasons and estimated the income of the
assessee ad-hoc @ 5% of the turnover denying the benefit of depreciation.
During the course of scrutiny assessment, the Ld. AO observed as follows: -
(i) The assessee has disclosed sales in the P & L Account at Rs. 11,44,29,502/- whereas in the ledger copies the total sale was shown as Rs. 12,87,40,678/- less sales return Rs. 85,69,094/- (Net sales Rs. 12,01,71,584/-). Hence there was a difference of Rs. 57,42,082/-. On query the assessee explained that the difference in sales was due to non-inclusion of VAT and the sales account was reconciled. (ii) The assessee had not included the transportation charges received amounting to Rs. 11,32,000/- in his P & L Account as income. On query the assessee had explained that the amount related to reimbursement of transportation charges by M/s. Ramky Infrastructure Pvt Ltd. However, the Ld. AO rejected this explanation offered by the assessee because the agreement entered into between the assessee and M/s. Ramky Infrastructure Pvt Ltd., revealed that transportation charges would be paid to the assessee for the supply of the crushed stones.
(iii) As per the agreement entered between the assessee and M/s. Ramky Infrastructure Pvt Ltd the total value of the materials that would be purchased from the assessee works out to Rs. 23,75,00,000/- whereas the assessee has only disclosed the total turnover of Rs. 11,44,29,502/-, therefore it was opined that the turnover amounting to Rs. 10,62,28,915/- has escaped from the assessment. On query it was explained by the assessee that in the agreement overall quantum of material to be supplied was set however, however M/s. Ramky Infrastructure Pvt Ltd had restricted the purchases to the amount disclosed by the assessee in his statement of accounts. But the Ld. AO refused to accept the explanation of the assessee. (iv) The assessee had not maintained the stock register. (v) There was no trace of any financial entry in the books of accounts of the assessee with respect to the clause in the agreement towards re-handling charges at mutually agreed price. (vi) Certain receipt by the assessee was not treated as his income as it was stated to be reimbursement of expenses which was not in parity with the agreement.
Because of the above discrepancies the Ld. AO rejected the books maintained by the assessee and estimated his income @ 5% of the turnover which works out to Rs. 57,21,475/-.
Before us Ld. AR conceded regarding the issue with respect to limitation for passing the order by the Ld.AO u/s 143(3) of the Act as he could not controvert to the letter addressed by the ITO, Ward-7(3), Hyderabad dated 13/6/2019 which was produced by the Ld. DR before us during the course of hearing which states as follows:
“Vide reference cited above, the undersigned directed to submit a report in the case of Shri Narayanlal Baheti A.Y. 2013-14 PAN: ABUPB1739N. The report as called for is submitted here as under: In the case of the assessee, an assessment order was passed by the then AO for the AY 2013-14 on 31/03/2016 and the same was dispatched on 07.04.2016 vide speed Post Number: EN116708404IN vide the said assessment order a demand of Rs. 30,05,520/- was raised. Whereas the assessee is contending before the Hon’ble ITAT that “as per the AST screen shot the demand in order U/s. 143(3) dated 31/03/2016 is Rs. 60,10,210/-, whereas as per the assessment order U/s. 143(3) dated 31/06/2016 the demand is Rs. 30,05,520/-. It is contended by the assessee that the order U/s. 143(3) has been passed after the expiry of limitation provided U/s. 153(1).” In this regard, it is submitted that in the case of the assessee, an order U/s. 143(3) of the IT Act, 1961 was passed on AST on 31/03/2016 vide which a demand of Rs. 60,10,210/- was raised, screenshot of the same is attached herewith. Also, in the same case for the same assessment year, a rectification order was passed on the AST on 06/04/2016 vide which a demand of Rs. 30,05,520/- was raised, screenshot of the same is attached herewith. Thus, the difference, in the demand is due to the rectification order passed U/s. 154 of the I.T. Act, 1961 dated 06.04.2016.”
For the afore stated reason the concise Ground No.1 mentioned hereinabove is devoid of merits and therefore held against the assessee.
On the issue with respect to rejecting of the books and estimation of the income @5% of the turnover, we do not find much strength in the order of the Ld. AO which is further upheld by the Ld. CIT (A). From the facts of the case it is apparent that the Ld. AO has estimated the income just because the financial transactions disclosed in the books of accounts of the assessee was not in parity with the agreement entered between the assessee and M/s. Ramky Infrastructure Pvt Ltd. In such situation, the Ld. AO ought to have sought further information from M/s. Ramky Infrastructure Pvt Ltd to ascertain whether any receipts / receivables from M/s. Ramky Infrastructure Pvt Ltd was omitted to be recorded by the assessee in his books. Such exercise was not carried out by the Ld. AO. The Ld. AO has simply presumed that the activities of the assessee ought to have been carried out ipso ditto as stated in the agreement entered by the assessee and M/s. Ramky Infrastructure Pvt Ltd. However, in dynamic business scenario such presumptions will be erroneous. Though several clauses are made in the agreement only the actual financial transactions that have taken place during the relevant AY has to be mandatorily recorded. When no actual financial transaction has taken place though such transactions finds a place in
the agreement, those transactions cannot be recorded in the books of accounts. Therefore, it is crystal clear that the Ld. AO has rejected the books of accounts maintained by the assessee which is duly audited and certified by the Chartered Accountant in compliance of section 44AB of the Act on the basis of presumptions without making any further investigation is erroneous and not appreciable. The Ld. CIT (A) though has obtained remand report has simply followed the order of the Ld. AO by agreeing with his view. Further from the order of the Ld. CIT (A) we do not find any strength in the remand report submitted by the Ld. AO in order to estimate the income of the assessee by rejecting the duly audited accounts of the assessee. Therefore, we are of the considered view that the Ld. CIT (A) has erred in upholding order of the Ld. AO who has estimated the income of the assessee by rejecting the books of accounts of the assessee basing on presumptions.
Considering these facts and circumstances of the case, we hereby hold that rejection of books of accounts of the assessee by the Ld. Revenue Authorities is erroneous and hence addition made by estimating the income of the assessee @ 5% of the turnover at Rs. 57,21,475/- is not warranted and hence stands deleted. It is ordered accordingly.
Since we have held the issue with respect to estimation of income in favour of the assessee the ground raised by the assessee with respect to denying the benefit of depreciation does not survive.
In the result, the appeal of the assessee is partly allowed.
Pronounced in the open Court on 03rd July, 2019.
Sd/- Sd/- (P. MADHAVI DEVI) (A. MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 03rd July, 2019 OKK Copy to:- 1) Narayanlal Baheti, C/o. Siddharth Toshnival, Advocate, 3-5-144/5, Eden Garden, Hyderabad. 2) Income Tax Officer, Ward-7(3), R.No.807, 8th Floor, Signature Towers, Kondapur, Opp. Botanical Garden, Hyderabad. 3) The CIT(A)-3, Hyderabad 4) The Pr. CIT-3, Hyderabad 5) The DR, ITAT, Hyderabad 6) Guard File