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Facts
The assessee, a partnership firm, filed its return of income and was selected for scrutiny regarding its real estate business's accounting of income, closing stock, and turnover discrepancies. The Assessing Officer (AO) rejected the assessee's books of account due to unexplained excess raw materials and unsubstantiated donation expenses, making a significant addition to the total income. The assessee failed to appear before the Ld. CIT(A) during the appellate proceedings.
Held
The Tribunal noted that the assessee had failed to appear before the Ld. CIT(A) and also failed to provide necessary details or explanations. However, considering the interest of justice and the quantum of additions, the matter was restored to the Ld. CIT(A) for a fresh consideration, allowing the assessee to present supporting evidence.
Key Issues
Whether the rejection of books of account and subsequent addition by the AO and confirmation by the CIT(A) were justified, and whether the appeal should be restored to the CIT(A) for de-novo consideration.
Sections Cited
145(3), 272A(1)(d), 270A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: DR. BRR KUMAR & SHRI SIDDHARTHA NAUTIYAL
(Assessment Year: 2018-19) Keval Vision Corporation, Vs. Deputy Commissioner of A-206, Navratna Corporate Park, Income Tax, Nr. Ashok Vatika, Bopal Ambli Circle-3(1)(1), Road, Bopal S.O., Daskroi, Ahmedabad Ahmedabad-380058 [PAN No.AAOFK8473F] (Appellant) .. (Respondent) Appellant by : Shri Sunil Talati, A.R. Respondent by: Shri B. P. Srivastava, Sr. DR 24.06.2025 Date of Hearing Date of Pronouncement 25.06.2025 O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeal), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 27.09.2024 passed for A.Y. 2018-19.
2. At the outset, we note that the present appeal is time barred by 136 days. The assessee has filed an application for condonation of delay and submitted that the delay was on account of mistake on the part of it’s earlier consultant, who failed to file response to notices issued by Ld. CIT(A) and also did not inform the assessee about the status of appellate order or passing of ex-parte order by Ld. CIT(A). It was on account of the aforesaid reasons that caused of delay in filing of appeal before Ld. CIT(A).
Keval Vision Corporation vs. DCIT Asst.Year –2018-19 - 2– Looking into the Affidavit filed by the assessee, in the interest of justice, the delay in filing of the present appeal is hereby being condoned.
The Assessee has taken the following grounds of appeal:-
“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) was not justified in confirming the addition made by the Ld. A.O. and passed an impugned order without appreciating the facts and details available on record. Hence the order passed by Ld. CIT(A) being unjustifiable and unlawful and thus same be quashed in the interest of justice. The same be held now.
The Ld. CIT(A) erred in confirming an addition made by Ld. A.O. to the total income amounting to Rs. 2,98,25,053/- by estimating the net profit at a higer rate i.e. 7.84% merely on the basis of lower net profit i.e. 2.66% declared during the year under consideration, without pointing out any specific defect in the books of account, and by arbitrarily applying the average net profit rate of the past three years, which is unjustified and unsustainable in law.
3. Without prejudice to the above, the appellant was prevented by reasonable and sufficient cause because of which no details could be filed before Ld. CIT(A). Your appellant requests that the hefty additions made by the Ld. A.O., on account of estimating of Net Profit @ 7.81% against the actual profit of Rs. 2.66% and confirmation of the same by the Ld. CIT(A), should be deleted, so that justice can be made available to the appellant.”
The brief facts of the case are that the assessee is a partnership firm and filed return of income on 29.01.2019 declaring income of Rs.77,99,520/-. Subsequently, the case of the assessee was selected for scrutiny on the issue of whether assessee has done correct accounting of income in respect of it’s real estate business with high closing stock and discrepancy in turnover reported in service tax return as compared to ITR. In response to notice issued by the Department, the assessee field letter dated 26.02.2021, in which he informed the Assessing Officer that the assessee was following percentage of completion method, but the Assessing Officer noted that in the said letter, the assessee did not divulge Keval Vision Corporation vs. DCIT Asst.Year –2018-19 - 3– the calculation of revenue under such method, for it’s purchases being undertaken over the years. The Assessing Officer issued served notices of hearing, but noted that the assessee either did not respond to these notices or filed an incomplete reply without any supporting evidences. Accordingly, the Assessing Officer initiated penalty proceedings under Section 272A(1)(d) of Act for causing non-appearance in response to notices issued by the Assessing Officer. During the assessment, the Assessing Officer noted that in the balance sheet, there is excess value of raw materials to the tune of Rs. 49,74,876/- which remains unexplained. Further, the Assessing Officer noted that in the Profit and Loss Account, the assessee has claimed deduction of a sum of Rs. 13,49,701/- on account of donation, but could not provide any explanation as to why this expense is allowable in the hands of the assessee. In view of the above discrepancies, the Assessing Officer was of the view that the books of accounts of the assessee did not give a correct picture of the valuation of the work-in-progress as on 31.03.2018 and the same are liable to be rejected in accordance with Section 145(3) of the Act. Accordingly, the Assessing Officer made an addition of Rs. 2,98,25,053/- in the hands of the assessee and also initiated penalty proceedings under Section 270A of the Act.
In appeal, Ld. CIT(A) noted that despite issuance of multiple notices of hearing, there was non-compliance in response to notices issued by the assessee and accordingly, Ld. CIT(A) dismissed the appeal of the assessee with the following observations:
“6.1 During the appellate proceedings, the appellant has not complied to the notices issued nor filed any written submission. In absence of the written submission and evidence, it remained unexplained as to how the AO's order is erroneous. If the appellant claims that the assessment order was objectionable it should have provided supporting arguments of evidences. The appellate proceedings are first line of remedy to those who think that the injustice has been done by the AO. However, the appellant failed to avail the same by non-complying. I am of the view that the government cannot waste its own resources in time and money by providing endless opportunities to pursue taxpayers their own appeals, especially when numbers of pending appeals are high. The more opportunities to a particular taxpayer are always at the cost of denying opportunity to other taxpayer of getting his/her appeal heard early. Therefore, it is assumed that the appellant is not interested in pursuing its own appeal. Moreover, the appellant failed to bring on records any facts or documents which can explain how the order of the AO is erroneous. …. 6.3. With regard to the merits of the case, the detailed findings of the AO are reproduced above in preceding paragraphs. As per the assessment order dated 21/09/2021, total income of the appellant was assessed at Rs.4,51,82,513/- after making addition of Rs.2,98,25,053/- on account of Income under the head business & profession. During the year under consideration, the appellant had shown closing stock of Rs.13,88,70,195/-. From the Table 2 in the order it can be seen that the total value of raw materials as on 31.03.2018 was Rs.53,45,624/- but the figure for raw materials as on 31.03.2018 as per Table 1 was Rs.1,03,20,500/-. Thus the excess value of raw materials to the tune of Rs.49,74,876/- remained unexplained. Further the appellant failed to explain as to why the expenses of Rs.13,49,701/- on account of donation shall be allowed. Based on the above discrepancies the AO rejected the books invoking the provisions of section 145(3) of the Act. Taking into consideration the average of the net profits for the previous two AY's, the net profit of the appellant for A.Y.2018-19 was calculated at Rs.4,51,82,519/-(7.84% of sales of Rs.57,63,07,646/-). The appellant had shown net profit of Rs. 1,53,57,466/-. Thus the balance of Rs. 2,98,25,053/- was added to the total income of the appellant. Therefore, the addition of Rs.2,98,25,053/- was made to the total income of the appellant on account of Income under the head business & profession. 6.4 During the appellate proceedings, the appellant has not complied to the notices issued nor filed any written submission. The appellant has not brought forward any facts to counter the allegations of the AO in rejecting the books of accounts. Further it is seen that the AO has taken the average of NP for the previous two years and the penalty year, and herein as well the appellant has not brought anything on record to show that the said approach of the AO is incorrect. Since the appellant has made no satisfactory submission on this issue, it is clear that it has no explanation to offer, and accordingly, I find no infirmity in the action of the Assessing Officer. Accordingly, 1 agree with the reasons given by the AO and confirm his action of making an addition of Rs.2,98,25,053/- on account of Income under the head business & profession. Grounds 1 to 3 are hereby dismissed.”
Keval Vision Corporation vs. DCIT Asst.Year –2018-19 - 5– 6. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A). Before us, the Counsel for the assessee submitted that the assessee had filed various details before the Assessing Officer during the course of assessment proceedings. However, the Assessing Officer, without pointing any discrepancies in the closing stock of the assessee and without pointing out to any specific defects in the books of accounts maintained by the assessee, rejected the books of the assessee without any reasonable basis. Accordingly, the Counsel for the assessee submitted that it is a fit case that the addition made by the Assessing Officer is liable to be deleted.
In response, Ld. D.R. submitted that even before the Assessing Officer, it was noted that the assessee had only filed part details and before CIT(A), there was total non-appearance by the assessee in response to various notices issued by Ld. CIT(A). Accordingly, Ld. D.R. placed reliance on the observations made by the Assessing Officer and Ld. CIT(A), in their respective orders.
On going through the facts of the instant case, we observe that assessee did not cause appearance before Ld. CIT(A) and therefore, Ld. CITA(A) did not get an opportunity to discuss the case of the assessee on merits. Before us, the Counsel for the assessee has filed a chart giving details of value of closing stock for the prior and future years, with a view to demonstrate that there was no discrepancy in the closing stock, as alleged by the Assessing Officer. We note that these details were not furnished by the assessee before Ld. CIT(A), on account of non- appearance before him, during the course of appellate proceedings. Accordingly, in the interest of justice, and looking into the quantum of additions made in the hands of the assessee, the matter is hereby restored to the file of Ld. CIT(A) for de-novo consideration. The assessee would be at liberty to place supporting evidences before Ld. CIT(A), during the course of appellate proceedings.
In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 25/06/2025