STEP LOGISTICS PRIVATE LIMITED,RAIPUR vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), RAIPUR, RAIPUR

आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM:

1. The appellant craves to add, alter or delete any of the grounds of appeal during the course of appellate proceedings.

2. That on the facts and circumstances of the case and in law, the Assessing Officer erred in making an ad-hoc disallowance of Rs.34,53,126/- under the head Handling and Transportation expenses claimed by the appellant.

4. That on the facts and in the circumstances of the case and in law, the case of the appellant company has been transferred from income Tax Officer, Ward 3(4), Raipur to DCIT, Circle 3(1), 'Raipur without an order u/s.127 of the Act, hence, the entire assessment proceeding is illegal and bad in law.

5. That on the facts and in the circumstances of the case and in law, the assessment order passed u/s.143(3) of the Act dated 31/12/2019 is illegal and bad in law.

6. That on the facts and circumstances of the case and in law, the assessing officer erred in making an addition of Rs.74,50,000/- u/s.68 on account of unsecured loan from Raghupati Vinimay Private Limited.

7. That on the facts and circumstances of the case and in law, the assessing officer erred in making an ad-hoc disallowance of Rs.4,28,540/- under the head other expenses claimed by the appellant.”

That so far as Ground of appeal No.6 is concerned, the assessee 3. had filed an application under Rule 29 of the ITAT Rules, 1963 praying for admission of additional evidence. The said application under Rule 29 of the ITAT Rules, 1963 is extracted as follows:

5 Step Logistics Private Limited Vs. DCIT, Circle-1(1), Raipur (C.G.)

The Ld. Counsel for the assessee submitted that these additional evidence is crucial which goes to the root of the matter for proper adjudication of this issue.

“6.5 Regarding the disallowance out of H & T Expenses amounting to Rs.34,53,126/- and other expenses (diesel, vehicle, office and godown expenses) a 6. ting to Rs.4,28,540/- it is evident that the above disallowance has been made 4)( by the AO as that majority of payments were made in cash and against self made vouchers and thus the AO disallowed 10% of the above expenses to prevent leakage of revenue. The submission of the appellant that the AO has 6 Step Logistics Private Limited Vs. DCIT, Circle-1(1), Raipur (C.G.)

10% without rejecting the books of account applying sec145(3), in absence of defects found in the books of account, and thus, in the absence of valid rejection of books of account, any kind of estimation of disallowance on any expenditure claimed (i.e., Handling and Transportation expenses) cannot be done and impermissible as per law is devoid of merit as for estimated disallowances rejection of books of account is not required. It is a fact that the appellant failed to 'produce complete set of bills and is also a fact that most of these payments were made in cash and the appellant was able to produce only the self-made vouchers and thus failed to fully establish the genuineness of the above expenses claimed to be incurred. The above disallowance made by the A.O on estimate basis is confirmed and the grounds of the appellant are dismissed. The case laws submitted by the appellant are not applicable in the present case as the facts in those cases are different.”

7 Step Logistics Private Limited Vs. DCIT, Circle-1(1), Raipur (C.G.)

(2017) 396 ITR 580 (Madras), wherein the Hon’ble High Court has held and observed as follows: “4. We now proceed to merits of the matter under the caption “Discussion’ infra. DISCUSSION 4(a) As stated supra, the Assessee is a Public Limited Company engaged in the business of Civil Construction and related services. 4(b) A.O had made addition to the income returned by the Assessee by estimating gross profit. The power to make such addition on estimate basis is available to the A.O under section 144 of the IT Act. Section 145 enables the A.O to invoke the power under section 144 when certain conditions adumbrated in sub-section (3) of Section 145 are satisfied. Therefore, it becomes necessary and useful to extract Section 145(3) of the I.T Act, which reads as follows: "145(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub- section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub- section (2), the Assessing Officer may make an assessment in the manner provided in Section 144." 4(c) Therefore, it is sine qua non that the AO to come to a conclusion that the Books of Accounts maintained by the Assessee are incorrect, incomplete or unreliable and reject the Books of Accounts before the proceeding to make his own assessment. In the instant case, there is no reference in the Assessment Order of the AO regarding rejection of Books of Account. 4(d) Therefore, there is nothing on record to show that the AO came to the conclusion that the Books of Accounts maintained by the Assessee are incorrect, incomplete, unreliable and as a consequence rejected the Books of Account. 4(e) Therefore, after setting out the plethora of case laws on this point, CIT (A) held that the accounts of the Assessee cannot be rejected merely based on the perception of the AO that the Assessee has declared low profit margin for certain projects when Books of Accounts have not been rejected. Considering the factual position that there is no reference in the Assessment Order made by the AO

8 Step Logistics Private Limited Vs. DCIT, Circle-1(1), Raipur (C.G.)

Books of Accounts (this has been fairly admitted by the Revenue before ITAT), we are not, therefore, labouring through the labyrinth of case laws relied on by CIT (A). The relevant portion pertaining to admission in this regard by the Revenue is at Paragraph 4 of the order of ITAT and the same reads as follows: "4. On a query from the bench, whether the assessing officer rejected the books of account during the course of assessment proceedings, the learned department representative very fairly submitted that there is no reference in the assessment order in the rejection of books of account” 4(f) As this factual position has been admitted, ITAT, dismissed the appeal 9f the Revenue by holding that profits of an Assessee cannot be estimated without rejecting the books of account. 4(g) ITAT has expressed its considered opinion that only when an assessee is not maintaining Books of Accounts properly and the correct income cannot be estimated on the basis of the Books of Accounts, the Books of Accounts can be rejected. ITAT has gone on to hold that the AO can estimate profit only thereafter.”

Section 145(3) of the Act. Once the AO is satisfied about the existence of irregularities in the books of account as per Section 145(3) of the Act, it shall proceed in the manner provided under Section 144 of the Act. At this juncture, what needs consideration is the question whether such an addition must be made only after the rejection of the books of account by the AO.

Income-tax Act the said authorities were in error in resorting to an estimation of income and such exercise undertaken by them was not sustainable. Section 145(3) of the Act lays down that the Assessing Officer can proceed to make assessment to the best of his judgment under section 144 of the Act only in the event of not being satisfied with the correctness of the accounts produced by the assessee. In the instant case the Assessing Officer has not rejected the books of account of the assessee. To put it differently the Assessing Officer has not made out a case that conditions laid down in section 145(3) of the Act are satisfied for rejection of the books of account. Thus, when the books of account are maintained by the assessee in accordance with the system of accounting, in the regular course of his business, the same would form the basis for computation of income. In the instant case it is noticed that neither the Assessing Officer nor the Commissioner of Income-tax (Appeals) have rejected the books of account maintained by the assessee in the course of the business. As such the Tribunal has rightly rejected or set aside the partial addition made by the Assessing Officer for arriving at gross profit and sustained by the Commissioner of Income-tax (Appeals) and rightly held that the entire addition made by the Assessing Officer was liable to be deleted. The said finding is based on sound appreciation of facts and it does not give rise for framing substantial question of law.” [Emphasis supplied] 22. In another case of Principal Commissioner of Income-tax v. Marg Ltd. [2017 SCC OnLine Mad 37852], the Division Bench of the High Court of Madras has held that the rejection of books of account is sine qua non before the AO proceeds to make his own assessment. Paragraph 4(c) of the said decision is reproduced as under:- “4(c). Therefore, it is sine qua non that the Assessing Officer to come to a conclusion that the books of account maintained by the assessee are incorrect, incomplete or unreliable and reject the books of account before the proceeding to make his own assessment. In the instant case, there is no reference in the assessment order of the Assessing Officer regarding rejection of books of account.” [Emphasis supplied]

Mr. Moin Akhtar Qureshi, which has been mentioned by the AO himself and therefore, there is no infirmity in deletion of the said addition by the CIT(A).

11. Since the legal issue has been answered in favour of the assessee, then other grounds pertaining to the merits becomes academic only.

Ld. CIT(Appeals)/NFAC for upholding such disallowance which are only based on guess work and surmises. Taxation in the hands of the assessee cannot be done on the basis of mere suspicion.

10. Considering the legal scenario as well as on examination of the facts, Grounds of appeal No.2 & 7 raised by the assessee is allowed. The A.O is directed to delete the addition from the hands of the assessee.

Order pronounced in the open court on 19th March, 2026.