EVROY INFRAVENTURES PVT. LTD. ,KANPUR vs. ACIT-CC-2, KANPUR

2.2 The AO also initiated penalty proceedings under section 271AAB(1A)(b) of the Act.

3.0 Aggrieved, the assessee preferred an appeal before the Ld. First Appellate Authority, who partly allowed the appeal of the assessee.

4.0 Now, the assessee has approached this Tribunal challenging the order of the Ld. First Appellate Authority by raising the following grounds of appeal:

1. That on the facts and circumstances of the case and in law, the order dated 26-02-2024 passed by the Learned Commissioner of Income-tax Appeals ("Ld. CIT(A)"] is erroneous and bad in law.

2. That the Ld. CIT(A) has erred in confirming the addition of Rs.4,52,403/- out of total addition of Rs.5,02,872/- made by the Assessing Officer ("Ld. AO") on account of lower net profit declared by the Appellant, by rejecting the audited books of accounts.

3. That the Ld. CIT(A) has erred in law and facts by failing to annul the addition of Rs.18,04,407/ made by the Assessing officer("Ld. AO") treating the amount as suppressed sales and not appreciating the facts and explanation submitted during the first appeal proceedings and referring the case to Ld. AO

4. With regard to the addition of Rs.18,04,407/-, the Ld. CIT(A) has erred in law and facts by not appreciating the facts that the allegation of the Ld. AO was purely based on his conjecture and surmises and not on any corroborative evidence. As during the year, the appellant had received Rs.34,40,000/- from Shri Dharmendra Kumar Gupta for the construction works, out of Rs.34,40,000/-, Rs.15,10,000/- were received towards opening balance and rest amount towards current year's billing (Inclusive of GST). Shri Dharmendra Kumar Gupta deducted TDS on the current year's bill amount as well as on the payment made during the year against opening balance which was already subjected to TDS in the earlier previous year. The appellant had claimed credit for the total amount of TDS deducted by the party in the ITR.

5. That the Ld. CIT has erred in law and facts by confirming the additions made by the Ld. AO on account of suppressed sale as well as on account of lower net profits at the same time.

6. That the appellant reserve the right to add to, alter or modify the above grounds before or during the hearing before the Hon'ble Tribunal so as to enable the Hon'ble Tribunal to decide on the grounds raised by the appellant as per Law.

7. Any other relief which Hon'ble Tribunal may deem fit in the case.

5.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the assessee was challenging the addition of Rs.4,52,403/- out of the total addition of Rs.5,02,872/- made by the AO on account of lower net profit declared by the assessee by rejecting the audited books of account. It was submitted that the books of account were duly audited and the net profit rate of 2.30% was declared. It was submitted that the AO had rejected the books of account for the reason that they were not produced along with supporting bills and vouchers during the course of assessment proceedings. It was further submitted that thereafter the AO proceeded to assess the net profit rate @ 30% of the turnover and made an addition of Rs.5,02,872/- without appreciating the fact that in this year, the turnover was very low as compared to earlier years whereas the fixed expenses had remained almost the same. It was also submitted that the AO had taken profit rate of 30% without assigning any reason for taking the percentage at 30%. It was further submitted that the ld. CIT(A) had thereafter given a relief of Rs.50,469/- by taking the net profit rate for the assessment year 2015-16 and had accordingly directed that the net profit rate should be taken at 27.22% for the captioned year also. It was submitted that this estimation was also not correct because no defect had been pointed out in the audited books of account and further, although, the AO had mentioned in the assessment order that the books of account were not produced but, in the later part of the assessment order, he himself has acknowledged that soft copy of the books were produced before him. It was submitted that in view of the fact that the books were duly audited, the book results should be accepted.

5.1 With respect to the second addition of Rs.18,04,407/- on account of alleged suppressed sales, it was submitted that this difference was worked out by the AO because there was difference in the amount received by one Shri Dharmendra Kumar Gupta as per Form 26AS and the amount which the assessee had treated as receipts for the year during the year. It was submitted that out of Rs.34,40,000/-, Rs.15,09,999/- were received towards opening balance and the rest of the amount had been received towards current years’ bill. It was submitted that to substantiate this, the assessee had also submitted a copy of the Ledger account of Shri Dharmendra Kumar Gupta before the lower authorities and it was also submitted that since Rs.15,09,999/- pertained to the opening balance, the same could not have been treated as income of the year under consideration. It was submitted that although the Ld. First Appellate Authority had categorically held that the conclusion of the AO vis-à-vis suppressed sales was not correct and the addition had been made without appreciating the facts, but all the same, he had directed the AO to further verify the issue involved and allow the claim of TDS credits only in those years in which respective sales had been booked by the assessee. It was further submitted that the Ld. First Appellate Authority has given further direction that if, in the process of verification, the AO finds that some sales are not booked correctly by following the mercantile system of accounting, the same may be rectified by passing a speaking order. The Ld. A.R. submitted that it was well within the powers of the ld. CIT(A) to have given complete relief to the assessee in the impugned year itself and restoring such small issue to the file of the AO was not correct. He prayed that the accounting done by the assessee during the year under consideration may be taken as correct.

6.0 In response, the Ld. Sr. D.R. placed reliance on the order of the Ld. First Appellate Authority.

7.0 I have heard the rival submissions and have also gone through the record.

7.1 As far as addition of Rs.4,52,403/-, as sustained by the ld. CIT(A) on account of difference in net profit as declared by the assessee and the average arrived at as per earlier years’ net profit rate declared by the assessee, is concerned, it is seen that the assessee has neither produced the books of account nor vouchers before the AO. Accordingly, the AO had no option but to reject the books of account and apply net profit rate at an estimation. The ld. CIT(A) did not find the approach of the AO correct to the extent that he took a view that the net profit should be estimated keeping in mind the net profit rates declared by the assessee in earlier years also. He, therefore, proceeded to scale down the net profit percentage from 30% to 27.22% which was the net profit rate declared by the assessee in assessment year 2015-16. However, I am of the considered view that the ld. CIT(A) should have taken an average of net profit declared during earlier 3 to 5 assessment years to arrive at a correct estimate. However, since this was not done, I direct that a net profit rate of 8% may be adopted for the purpose of estimating the net profit in the captioned year. Accordingly, ground No.2 stands partly allowed.

7.2 Coming to the issue of alleged suppressed sales of Rs.18,04,407/-, it is seen that the ld. CIT(A) has himself observed that the AO had made the addition without appreciating the facts on record. He has duly taken note of the fact that the Ledger account entries produced by the assessee were not appreciated in the correct perspective and, therefore, he has restored the issue to the file of the AO with a specific direction to further verify the facts of the case and allow the claim of TDS credits for only those years in which respective sales were made by the assessee. It is also to be noted that although the assessee had declared only a part of the amount received from the party, Shri Dharmendra Kumar Gupta, all the same, it has taken full credit of Tax Deducted at Source to the tune of Rs.68,800/- which again is not the correct accounting practice. The ld. CIT(A) has also given a specific direction to the AO to rectify any issues found out during the course of verification vis-à-vis sales not being booked rightly by the assessee by following the mercantile system of accounting. In my considered view, the ld. CIT(A) has taken a very reasonable view of the issue before him and has restored the matter to the file of the AO for the purpose of verification. It is my considered view that this action of the ld. CIT(A) also does not call for any interference from this Tribunal. Accordingly, I confirm the directions so issued by the Ld. First Appellate Authority and dismiss the grounds raised by the assessee in this regard.

8.0 In the final result, the appeal of the assessee stands partly allowed.

Order pronounced in the open Court on 30/06/2025.