What did the Tribunal hold?

The Tribunal found that while the AO's estimation of GP was necessary due to destroyed records, the addition made was excessive. Therefore, an estimated addition of Rs. 25 lakhs was deemed appropriate.

The assessee's business records were destroyed in a fire, leading to incomplete accounting entries. The Assessing Officer (AO) rejected the books of accounts and estimated the Gross Profit (GP) based on other businesses.

What were the issues?

Whether the CIT(A) erred in estimating the GP at a higher rate and confirming the AO's rejection of books of accounts without proper justification.

Mohammed N Chaudhary vs DCIT | ITAT Pune 2022

Income Tax Appellate Tribunal, “A”

Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE

For Respondent: Shri S P Walimbe – DR

Hearing: 10/08/2022Pronounced: 03/11/2022

ORDER

PER DR. DIPAK P. RIPOTE, AM:

This appeal filed by the Assessee is directed against the order of ld.Commissioner of Income Tax(Appeals)-6, Pune, dated 18.05.2018 for the A.Y. 2013-14 under section 250 of the Income Tax Act, 1961(in short “the Act”). The Assessee has raised the following grounds of appeal:

1. On the facts and in the circumstances of the case the CIT(A) has erred in estimating the GP at 3.3% as against the GP disclosed at 2.41% and making the addition of Rs.29,70,717 to the returned income.

2. On the facts and in the circumstances of the case the CIT (A) has erred in confirming the order of Assessing Officer who rejected the books of accounts without there being any reason to do so particularly in A.Y. 2013-14 Mohammed N. Chaudhary (A) the light of fact that appellant clarified all the queries raised by the Assessing Officer and have been found to be satisfactorily clarified.

3. On the facts and in the circumstances of the case and without prejudice to the above the CIT (A) has erred in adopting the GP ratio declared by three other assessee’s carrying on the similar business without confronting and providing the relevant final accounts of those parties in order to verify how far these are comparable instances. Thus the addition is made arbitrarily.

The above grounds of appeal may kindly be allowed to be amended, altered or modified etc. in the interest of natural justice.”

None appeared on behalf of the assessee. We have heard ld.Departmental Representative(ld.DR) for the Revenue and perused the records. As per assessment order, the assessee was engaged in the business of iron and scrap.

There was a survey on 16.02.2015 in the case of M/s.Steel World Company in which assessee is a partner. Assessee is proprietor of Steel India Company. In the proprietary concern, there was negative cash balance of Rs.14,36,58,870/- for F.Y. 2012-13 in the Tally System of Accounting. During the assessment proceedings, the assessee submitted before the Assessing Officer(AO) that there was a fire in the office of the assessee on 17.10.2015, as a result of which, the books, bills, vouchers etc., were destroyed. Therefore, the assessee tried to re-construct the accounts as a result of that the entries in the Tally Software were incomplete. The AO in the assessment order has held as under:

A.Y. 2013-14 Mohammed N. Chaudhary (A)

“I have carefully gone through the submissions made by the assesses.

Assesses admitted that physical record of the assesses books of accounts as well as the computer consisting our final data were completely destroyed at the time of fire outbreak on 17/10/2015. As result of which the record in Tally Software at the time of your survey was incomplete. Further, assessee had a large number of cash sales transactions for the F. Y. 2012-13. During scrutiny proceedings, assessee could not produce any bills of purchase/sale citing the reason that all the bills were destroyed by fire. Under these circumstances, it is not clear as to how the assessee has generated the entire record and has audited its books of accounts.

Assessee’s submission is therefore rejected.

Assessee’s gross profit is therefore estimated by considering the average GP of the other assessee’s engaged in similar business and carrying out business in same area. GP ratio of various other businesses for FY 2013-14 are as under:

Parshwa Steel Assessed in the 2013-14 1.13% jurisdiction of Range-9, Pune J N Traders 2013-14 4.43% Assessee in the jurisdiction of Akthar 2013-14 2.58% Range-8, Pune Chaudhary Average 3.03% Average GP of various assessees as mentioned above is at 3.03%.

On the basis, GP of the assessee firm is estimated @of 3.03% of the turnover of Rs.47,67,11,246/-.”

A.Y. 2013-14 Mohammed N. Chaudhary (A)

4. The ld.CIT(A) has confirmed the addition.

We have gone through the assessment order. The AO has estimated the Gross Profit at 3.03% whereas Gross Profit shown by assessee was 2.41%. The AO estimated the Gross Profit on the basis of Gross Profit of two other traders which were said to be in the identical business. In the grounds of appeal, the assessee has claimed that AO has not confronted the books of accounts of the traders of whose results AO has relied. It is a fact that the assessee could not produce books of accounts before the AO, therefore, the AO has estimated the Gross Profit at 3.03%. Even before the ld.CIT(A) the assessee could not produce any documents. As mentioned above even before us the assessee has not produced any document. In the facts and circumstances of the case, we are of the opinion that an estimated addition of Rs.25lakhs is appropriate in this case instead of Rs.29,70,717/- made by the AO. Accordingly, the appeal of the assessee is partly allowed.

In the result, appeal of the Assessee is Partly Allowed.

MOHAMMED N CHAUDHARY,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 8, PUNE

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