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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ : NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, Mrs. Sonali Chandok (hereinafter referred to as the ‘assessee’) by filing the present appeal sought to set aside the impugned order dated 04.06.2015 passed by the Commissioner of Income-tax (Appeals), Meerut qua the assessment year 2010-11 on the grounds inter alia that :-
“1.1 The learned CIT [A] has erred in dismissing the ground on jurisdiction /validity of assessment order u/s 143(3) despite the order being dispatched (on 11-4-2013 as per postal markings) after limitation date of 31-3-2013.
2.1 The learned CIT [A] has erred in confirming the action of the learned AO in assuming that books of accounts are not there and assuming the Net Profit /NP rate at 20% of receipts without bringing on record any comparable case and making an addition of Rs 9,87,202. 2.2 Without prejudice to the above ground, the learned CIT [A] has erred in confirming the rejection of book results by the learned AO and assessing the taxable income at Rs.79,19,960 - which is about 85% of the receipts. 3.1 The learned CIT [A] has erred in confirming the addition of the whole of the Sundry Creditors of Rs.20,16,275 to income u/s 41 of the Income Tax Act, despite the books /book results being rejected by him. 3.2 The learned CIT [A] has erred in not admitting the confirmed of ledger accounts of Sundry Creditors filed before him as additional evidence. 3.3 The learned CIT [A] has erred in upholding the assumption by the learned of cessation of liability to sundry creditors in terms of Section 41 of the Income Tax Act - a power not vested in him.”
Briefly stated the facts necessary for adjudication of the issue at hand are : Assessing Officer (AO) noticed that the assessee has shown unsecured loan of Rs.39,40,993/- detailed as under :-
Sh. Kapil Chandok Rs. 8,48,993/- 2. Sh. R.C. Jain Rs. 3,50,000/- 3. Sh. Dana Choga Rs. 3,00,000/- 4. Vidhi Agarwal Rs. 4,17,000/- 5. Mrs. Kanta Chandok Rs.20,25,000/- Totaling to Rs.39,40,993/-
AO noticed from the balance sheet that the assessee company has shown sundry creditors of Rs.20,16,275/-. Assessee furnished postal address of sundry creditors. AO to verify the identity, creditworthiness and genuineness of the sundry creditors issued confirmation letters but they have not filed any reply nor the assessee furnished any information on their behalf. So, on failure of the assessee to discharge her onus to prove this liability, the same is treated as cessation of liability u/s 41 of the Income-tax Act, 1961 (for short ‘the Act’) and thereby disallowed unconfirmed liability of sundry credit amounting toRs.20,16,275/-.
AO further made addition of Rs.9,87,202/- on account of difference in the net profit rate as the assessee has declared net profit @ 9.28% whereas AO estimated the net profit rate at 20%.
Assessee carried the matter by way of an appeal before the ld. CIT (A) who has partly allowed the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUND NO.1.1 Ground No.1.1 is dismissed having not been pressed during 7. the course of arguments.
GROUND NO.2.1 & 2.2 8. AO proceeded to estimate the net profit @ 20% as against net profit rate of 9.28% declared by the assessee by rejecting the books of account on failure of the assessee to produce books of accounts, bills and vouchers. Ld. AR for the assessee contended that assessee has duly filed the books of account, necessary bills statement of bank accounts, details of bank accounts, details of credit cards owned by the assessee, etc. vide letter dated 08.01.2013, available at page 123 of the paper book, and all the aforesaid documents are also available in the paper book, addressed to the AO. Ld. AR for the assessee further contended that the assessee has audited books of account and his net profit rate has never been assessed beyond 9%. However, on the other hand, ld. DR for the Revenue in order to repel the arguments addressed by the ld. AR for the assessee relied upon the order passed by the AO as well as ld. CIT (A).
Perusal of the impugned order passed by the ld. CIT (A) shows that during the remand proceedings, remand report was called from the AO but he stated to have not made any comment on this issue. We are of the considered view that when all the documents viz., books of account, bills an vouchers, statement of accounts, etc., were brought on record during assessment proceedings before the AO and accounts of assessee are audited one, there is no justification to reject the books of account.
So far as question of estimating the net profit @ 20% by the AO is concerned, no doubt it is a factual issue and AO has the power to estimate the net profit but not without any basis. No reason whatsoever has been attributed by the AO as to how the net profit rate of 9.28% declared by the assessee is required to be enhanced to astronomical rate of 20%. When we examine the historical background of net profit given by the assessee in its written submissions in a tabulated form assessee’s net profit rate has never been assessed more than 9.12% which is extracted for ready perusal as under :-
Financial Turnover Net profit NP rate Year 2004-05 3893750 197012 5.05% 2005-06 3867280 238781 6.17% 2006-07 7814230 474303 6.06% 2007-08 7160388 613801 8.57% 2008-09 10867369 991186 9.12%
In view of what has been discussed above, we are of the considered view that the net profit should be estimated if at all by taking into account the comparable cases as well as history, but AO/CIT (A) have neither referred to past history nor made comparison with any comparable business set up rather estimated net profit by writing one sentence that “the net profit rate of 9.28% declared by the assessee is not acceptable and the same is estimated at 20%.” So, keeping in view the net profit rate assessed in the preceding years, we estimate the net profit rate @ 9.50%. AO is directed to estimate the net profit accordingly @ 9.50%.
Consequently, grounds no.2.1 & 2.2 are determined partly in favour of the assessee.
GROUNDS NO.3.1, 3.2 & 3.3 12. From the balance sheet, AO has noticed that the assessee has shown sundry creditors of Rs.20,16,275/- on account of non-receipt of confirmation from the sundry creditors and on failure of the assessee to furnish confirmation from the sundry creditors, AO treated the liability in the form of sundry creditors as cessation of liability u/s 41 of the Act and made addition thereof to the total income of the assessee. The ld. CIT (A) confirmed the order passed by the AO by also rejecting the application moved by the assessee for additional evidence under Rule 46A of the Income-tax Rules, 1962.
Ld. AR for the assessee challenging the impugned order contended inter alia that firstly, AO has erred in rejecting the books of account and adopting the extra ordinary net profit rate and thereafter added the amount of Rs.20,16,275/- to the income of the assessee disallowing the amount of sundry creditors considering cessation of liability u/s 41 of the Act; that disallowance of liability against expenses are having same effects. We are of the considered view that since the AO has already adopted the net profit as discussed in the preceding paras under grounds no.2.1 & 2.2, further disallowance of any kind is not permissible.
Coordinate Bench of the Tribunal in case cited as ITO vs. Nardev Kumar Gupta in dealt with the identical issue by holding that, “when income is assessed by estimating the profit after rejection of books of account u/s 145 (3) then no disallowance is admissible u/s 40A(3).” Moreover, when assessee has come up with categoric plea before ld. CIT (A) by moving an application under Rule 46A to produce the evidence qua creditworthiness, genuineness and identity of the sundry creditors and this piece of evidence had been sent to the AO who has simply opposed the application without any reason and ld. CIT (A) without applying his mind has thereby rejected the evidence for additional evidence.
All these facts show that the evidence sought to be brought on record by the assessee before the ld. CIT (A) was necessary for complete adjudication of the controversy at hand. So, in these circumstances, we find it necessary to allow the additional evidence moved by the assessee before the ld. CIT (A), which is accordingly allowed and case is remanded back to the AO to decide afresh after entertaining the evidence in the light of the discussion made herein before, after providing adequate opportunity of being heard to the assessee. Consequently, grounds no.3.1, 3.2 & 3.3 are determined in favour of the assessee for statistical purposes. 15. Resultantly, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in open court on this 29th day of July, 2019.