SHRI DEVENDRA THAKERSHIBHAI THAKKAR,AHMEDABAD vs. THE ITO, WARD-3(2)(1), AHMEDABAD

3. The assessee filed an appeal before the CIT(A) along with an application for admission of additional evidence under Rule 46A of the Income Tax Rules, 1962, submitting Sales and purchase registers, original bills and invoices, Bank statements, Stock details and supporting documents for expenses. The CIT(A) admitted the additional evidence and called for a remand report from the AO. The AO, in the remand report dated 20/02/2018, categorically stated that the books of accounts were duly verified, and no discrepancies were found. Despite the AO’s findings in the remand report, the CIT(A) rejected the books of accounts and estimated the profit at 0.1% of the gross turnover. The CIT(A) relied on the judgment of Hon’ble Jurisdictional High Court in the case of CIT v. Bholanath Poly Fab Pvt. Ltd. Shri Devendra Thakershibhai Thakkar vs. ITO Asst. Year : 2013-14 (355 ITR 290), holding that only the profit portion of any bogus transactions should be taxed. The CIT(A) thus reduced the addition to Rs. 11,68,431/- but did not provide specific reasons for rejecting the books of accounts despite the verification by the AO.

1. Both the Id. A.O. and Ld CIT(A) has erred in law in rejecting book results under section 145(2) of the IT Act, 1961 despite the fact that no adverse findings were brought out by the A.O. during remand proceedings.

2. Both, the Ld. AO has erred in estimating the income of the assessee @ 0.5% on the gross turnover and the Ld. CIT(A) further erred in estimating the income of the assessee @ 0.1% overlooking the facts mentioned in the remand report of the A.O. wherein trading activities of the appellant was thoroughly verified during remand proceedings and therefore there is no scope of attracting provisions of section 145(2) of the I.T. Act, 1961.

3. The appellant craves leave to add, alter or delete any ground either before or in the course of hearing of the appeal.

Condonation of Delay 4. It was observed that there is delay of 880 days in filing an appeal before us. The assessee has filed an application for condonation of delay, supported by an affidavit explaining the reasons for the delay. The primary reason cited for the delay is that the assessee, who has limited educational qualifications, relied entirely on the assurances of Shri Jayeshbhai Ganatra, his former employer, who had opened the proprietorship firm Prism Agri Tradelink in the name of the assessee without his involvement in the firm’s operations. It has been submitted that all transactions of the firm were conducted by Shri Ganatra, and the assessee was merely a signatory to the documents under instructions. The affidavit further explains that the assessee was repeatedly Shri Devendra Thakershibhai Thakkar vs. ITO Asst. Year : 2013-14 assured by Shri Ganatra that all tax matters were being handled properly and that substantial relief had been granted by the higher authorities. It was only in November 2020, after conducting his own inquiries, that the assessee discovered that no appeal had been filed for the relevant assessment year before the tribunal. Upon this realization, the assessee promptly sought the guidance of CA Shri S.P. Thakker and filed the present appeal on 15 December 2020. 4.1. It is pertinent to note that a significant portion of the delay coincides with the COVID-19 pandemic period. The Hon’ble Supreme Court, through its judgment in Miscellaneous Application No. 21 of 2022 in Suo Motu Writ Petition (C) No. 3 of 2020, extended the period of limitation for filing appeals due to the unprecedented disruptions caused by the pandemic. The period from 15 March 2020 to 28 February 2022 has been specifically excluded while calculating the limitation period. Therefore, in the present case, nearly one- third of the delay falls within the COVID-19 period, which warrants a liberal approach in condoning the delay.

4.2. The Hon’ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji (167 ITR 471) held that the expression “sufficient cause” must be interpreted liberally to ensure that justice is not denied due to procedural delays. Additionally, in N. Balakrishnan v. M. Krishnamurthy (1998) 7 SCC 123, it was held that if the delay is explained in a bona fide manner and does not indicate malafide intent, it should be condoned in the interest of justice. In the present case, the delay in filing the appeal has been sufficiently explained. The reasons for the delay are genuine and supported by an affidavit. Further, a significant portion of the delay coincides with the Shri Devendra Thakershibhai Thakkar vs. ITO Asst. Year : 2013-14 5 COVID-19 period, during which the limitation period was suspended as per the directions of the Hon’ble Supreme Court. There is no indication of any malafide intent or undue advantage sought by the assessee.

On Merits 7. During the course of hearing before us the Authorised Representative (AR) of the assessee argued on the basis of key points relating to – - Verification of Books of Accounts in the Remand Report by the AO. - Summons to Sundry Creditors/Debtors by the AO. - Contradiction in the CIT(A)’s Findings.

7.1. The AR stated that the AO, after thorough verification during the remand proceedings, found the following records to be complete and accurate:

• Sales register and purchase register Shri Devendra Thakershibhai Thakkar vs. ITO Asst. Year : 2013-14 • Original invoices and bills • Bank statements • Stock details and evidence of expenses 7.2. The AR further stated that four parties were summoned by the AO for verification of transactions, and all appeared before the AO with original photo ID and confirmations, proving the genuineness of the transactions.

7.3. The AR also argued that the CIT(A) acknowledged that the missing details had been provided during remand proceedings and verified by the AO but still upheld the rejection of the books without valid reasons. The CIT(A)’s reliance on Bholanath Poly Fab Pvt. Ltd. (supra) was misplaced as no bogus transactions were identified in the assessee’s case.

7.4. The AR emphasized that estimating income at 0.1% of the turnover without any cogent basis amounted to "pure guesswork," which is impermissible under settled law.

7.5. The AR placed relied on some judicial precedents including the following case laws: • Suresh Chand Talera v. CIT (MP HC) reported in 73 CCH 1034 where it was held that rejection of books is permissible only if they are incomplete or unreliable. • Pandit Brothers v. CIT ( P and H HC) reported at (1954) 26 ITR 159) where it was held that Low profits alone cannot justify the rejection of books. • Dhakeshwari Cotton Mills v. CIT (SC) noted in 26 FIR 775: Where Apex Court held that additions based on guesswork without evidence cannot be sustained. Shri Devendra Thakershibhai Thakkar vs. ITO Asst. Year : 2013-14 7 • Minal Intermediates (ITA No.594/Ahd/2023) Where the Co-ordinate Bench decided that when the remand report accepts the genuineness of records, additions based on estimation are not justified.

9.1. The Hon’ble Supreme Court and various High Courts have consistently held that the rejection of books of accounts must be based on concrete findings and not mere conjecture or low profit ratios. In the present case, the AO’s remand report verified all entries in the books of accounts, confirming their correctness. The CIT(A), however, relied on CIT v. Bholanath Poly Fab Pvt. Ltd. (355 ITR 290), which held that only the profit element in a bogus transaction can be taxed. However, the CIT(A) failed to demonstrate how the transactions recorded in the assessee’s books were bogus, especially in light of the AO’s verification report that found no discrepancies.

9.2. The DR argued that the transactions were fictitious based on the findings of the lower authorities. However, we find that there is no substantive evidence to support this claim. The AO’s own verification contradicts the initial assumption of fictitious transactions. The AR demonstrated that all purchases and sales were accounted for and supported Shri Devendra Thakershibhai Thakkar vs. ITO Asst. Year : 2013-14 9 by valid documents, which the AO found to be correct. Further, the recent decision of the Co-ordinate Bench in DCIT v. Minal Intermediates (ITA No. 594/Ahd/2023) held that when the AO accepts the genuineness of sundry creditors in the remand report, no addition can be made on mere suspicion or unsubstantiated assumptions.

9.3. It is a settled legal principle that estimation of income must be based on facts and cannot be arbitrary or excessive. The Hon’ble Supreme Court in State of Orissa v. Maharaja B.P. Singh Deo (76 ITR 690) held that assessments must be based on relevant material and not conjecture. Similarly, in CIT v. J.J. Enterprises (122 Taxman 124), the Court disapproved of arbitrary estimations without cogent reasons.

9.4. In this case, the estimation of income at 0.5% and subsequently 0.1% by the AO and CIT(A), respectively, was not justified when the books of accounts were accepted as complete and accurate during the remand proceedings.

9.5. In view of the above findings the rejection of books of accounts under Section 145(3) is held to be unsustainable, as the AO’s remand report established that the books were complete, supported by evidence, and free from defects. The FIR and forensic audit further corroborate the assessee’s claim that he had no control over the transactions and was merely a signatory under his employer’s instructions. The arbitrary estimation of income by the lower authorities is set aside. Accordingly, the additions made to the assessee’s income are deleted and in the result the appeal of the assessee is allowed. Shri Devendra Thakershibhai Thakkar vs. ITO Asst. Year : 2013-14