SATYA NARAYAN ,BHARATPUR vs. ITO WARD 1, BHARATPUR

4. That Ld. CIT(A) erred in law as well in facts in not holding that AO travelled beyond the scope of limited scrutiny in violation of CBDT guideline.

5. That the appellant reserves his right to add, amend, alter or withdraw any ground of appeal on or before hearing of this appeal.

Assessee has made substantial purchases from such suppliers who are either non filers or have filed non business ITR or reflected a substantially lower Satya Narayan vs. ITO turnover in ITR as compared to turnover shown in GSTR 1 Return. There is possibility that assessee has booked bogus expenses in order to reduce its profit/taxable income. Therefore genuineness/correctness of expenses related with these entities may be verified.

3.1 Based on the above reasons ld. AO noted that the assessee has made substantial purchases from such suppliers who are either non-filers or have filed non business ITR or reflected a substantially lower turnover in ITR as compared to turnover shown in GSTR 1 Return and therefore, he noted that there is possibility that assessee has booked bogus expenses in order to reduce its profit / taxable income. As a result, notices u/s 143(2), u/s 142(1) and other notices/letters were issued from time to time for conducting enquiries and making compliances. The assessee was required to furnish reply to inter-alia regarding purchases, transportation, payments to suppliers, expenses etc. In response to the above, the assessee had furnished the list of all suppliers from whom purchases were made. He also submitted the payments made to them but not supported the same by necessary evidence. The assessee also did not furnish the details of transportation and merely stated that the transportation was mostly done by Tractor trolley, camel cart and buffalo cart.

3.2 Ld. AO considering the information so submitted by the assessee ld. AO noted that total GST purchase [exclusive of GST ] shown by the on the system amounts to Rs. 18,50,48,070/- [Difference amount Rs. 33,17,981/- ]. The ld. AO asked the assessee to furnish the details of payment made to the supplies along with supporting documents. The assessee furnished the details of payments made to various parties without any supporting documents like bank statement etc.

3.3 On perusal of trading and profit and loss account for the year under consideration, he has seen that a negligible amount of Rs. 66,450/- debited on account of freight, cartage, wages, bardana etc. which in terms of percentage comes to 0.03 % of the turnover. On being asked about the transportation charges, no clear and specific details were filed by the assessee and had replied that the transportation was mostly done by Tractor trolley, camel cart and buffalo cart but the assessee did not provide any details like date of transportation, Name, Address, Vehicle No. the amount paid etc. It was also noted by the ld. AO from the Balance Sheet that the assessee does not possess any godown and he does not pay any godown rent as no such expenses was debited in the profit and loss account.

3.4 In the light of that observation ld. AO asked the assessee to show cause as to why the books of account should not be rejected u/s. 145(3) as satisfactory and it was proposed that the gross profit @ 8 % of sales computed at Rs. 1,56,46,709/-. As the assessee has already disclosed, a gross profit of Rs. 26,55,274/- thus the difference of Rs. 1,29,91,435/- was proposed to be added to back to the total income of the assessee. The assessee submitted a reply objecting to the rejection of the books of account and thereby estimating profit.

3.5 The assessee in response submitted that the books of accounts of the assessee are maintained in accordance with the law and are audited by an independent Chartered Accountant. The books results declared by the assessee were accepted in AY 2020-21 wherein the GP declared by the assessee was accepted and thereby assessee objected to the rejection of the books of account.

3.6 Based on the information ld. AO compared the turnover declared by the assessee in the books and turnover as reported in the portal for some of the dealers namely Mukkhi Ram Shree Chand, Bansal Traders, Jagdish Pd Narendra Kumar, Brij Mohan Dinesh Chand and Ranjit Agarwal. He noted that for all the dealers purchase recorded in the books are lower than what is reported in the portal. Ld. AO also noted that since the assessee failed to explain the difference of Rs. 33,17,981/-. The assessee has not shown assessee was given an opportunity of being heard in Video Conferencing (VC) but the assessee did not avail. Accordingly, ld. AO proceeded to estimate the books of account and thereby made addition of Rs. 1,29,91,435/- in the hands of the assessee.

4. Aggrieved from that order of assessment, which was made by the National Faceless Assessment Center, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds raised the ld. CIT(A) confirmed the rejection of the books results and confirmed the estimation of profit done by the ld. AO. The relevant finding of the ld. CIT(A) is reproduced here under :

“7.4 From the perusal of the assessment order, I find that the appellant has failed to explain the differences in the turnover between the GST purchases shown by the appellant and the corresponding purchases available on systems. The assesse had merely filed ledgers of some of the parties as mentioned. The appellant has failed to produce any documentary evidence to explain the discrepancy. Merely stating that the books are audited is not sufficient. If the books ate audited the appellant should be in possession of all the documentary evidence. However, the appellant has failed miserably to file any supporting evidence in respect of expenses such as transportation, godown rent, etc and turnover debited in the books of account. The appellant was also provided with the personal hearing through the videoconference. However, the same was not availed by him. Thus, it is evident that the appellant has not made any effort to prove before the Ld AO regarding the correctness or completeness of the accounts maintained by him. I find that the Ld AO has worked out and deliberated a detailed exercise and pointed out all such reason and defects due to which the assessing officer is unable to rely on the books of accounts maintained and accordingly to deduce actual net profit earned by the assessee.

Satya Narayan vs. ITO Under the circumstances, the Ld AO has correctly rejected the books of account and estimated the gross profit of the appellant @ 8% of the turnover. 7.5 Another plea of the appellant is that the assessment is void ab initio as the A O has invoked provisions of sub section (3) of section 145 of the Act but failed to pass the order u/s 144 of the Act. However, in the submission filed the appellant has not elaborated on this issue. I find that the appellant in the grounds of appeal contends that the impugned order passed under section 143(3) r.w.s. 144B of the Act is bad in law as the said order was required to be passed u/s 143(3) r.w.s. 144B r.w.s 144 of the Act. 7.6 I have considered the assessment order and perused the material on record and also the legal position on the issues at hand. I am of the view that mere omission of section 144 of the Act in the order passed does not invalidate the assessment order. I also note that the notice u/s 143(2) and 142(1) of the Act was issued and duly served on the appellant. The appellant has responded to the notice and participated in the proceedings till the matter resulted in framing of the assessment order. "During the course of assessment proceedings, the respondent-assessee was given due opportunity of being heard before making the case against him and in the result, there was no prejudice caused to the appellant. The only mistake on the part of the Ld AO is in the omission of section 144" in the assessment order. This requires to be adjudicated in the light of the provisions of section 292B of the Act which provides that return of income or notice or summons, etc shall not be invalidated on certain grounds. The provisions of section 292B are extracted below:

"Return of income, etc., not to be invalid on certain grounds. 2928 No return of income, assessment, notice, summons or other proceeding. furnished or made or issued or taken or purported to have been fumished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.”

7.7 A perusal of above section makes it very clear that the assessment, notices or summons or other proceedings shall not be invalided merely due to any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of the Act. Reliance in this regard is placed Satya Narayan vs. ITO on the decision of the Hon'ble Punjab & Haryana High Court in the case of Om Sons International vs. CIT (2011) (15 taxmann.com 184) (Pun. & Har.) and the decision of the Hon'ble Andhra Pradesh High Court in the case of Bharathi Cement Corporation P. Ltd. vs. CIT (2013) 356 ITR 74 and the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Micro Labs Ltd. (348 ITR 75). In the light of the above decisions, assessment onder cannot be invalidated by reason of omission of "section 144" in the assessment order. If this mistake is not allowed to be cured, the very purpose and object of enacting the provisions of section 292B is defeated. Accordingly, I do not agree with the plea of the appellant that the assessment is void ab initio and should be deleted and accordingly these grounds of appeal are dismissed.

8.0 Ground no 10 of the appellant is that the Ld. A.O. has erred in law and on facts in charging interest u/s 2344/2348/234C of the Act. This ground is consequential in nature. The AO is directed to verify and charge the correct amount of interest u/s 234A/234B/234C as per law.

9.0 In result, the appeal is dismissed.”

5. As the assessee did not find any favour, from the appeal so filed before the ld. CIT(A)/NFAC, the assessee has preferred the present appeal before this Tribunal on the ground as reproduced hereinabove. The assessee's AR has submitted written arguments for the various grounds raised, as follows:

“The Appellant is an individual and is engaged in business of general commission agent under the trade name of M/s Shiv Charan Lal Satya Narayan at Navin Mandi, Nadbai, District Bharatpur. The appellant filed his original return of income u/s 139(1) of the Act on 08.03.2022 declaring total income to the tune of Rs. 4,94,540/- on Sales Turnover of Rs. 19,55,83,865.46/-. Subsequently, the case of the appellant was selected for scrutiny through CASS for the following reason: - Assessee has made substantial purchases from such suppliers who are either non- filers or have filed non business ITR or reflected a substantially lower turnover in ITR as compared to turnover shown in GSTR 1 Return. There is possibility that assessee has booked bogus expenses in order to reduce its profit/ taxable income.

Satya Narayan vs. ITO Therefore genuineness/ correctness of expenses related with these entities may be verified. The notice u/s 143(2) of the Income tax Act dated 27.06.2022 was served upon the appellant on 28.06.2022 & thereafter notices u/s 142(1) & questionnaires were issued and in response to same, the appellant submitted called for information on e-filing portal. The ld A.O. in haste & without understanding geography of the case & without examining and appreciating evidences, arbitrarily finalized the assessment by rejecting books of account by invoking provisions of section 145(3) of the Act and estimated the Income by applying unprecedented and unrealistic Net Profit rate of 8 % on sales Turnover of Rs. 19,55,83,865.46 and made addition of Rs. 1,34,85,975.00/- to the returned Income. Aggrieved by the order of ld A.O., the appellant preferred an appeal before ld CIT(A), which was dismissed/rejected vide order dated 03.10.2024 and rejection of books of accounts & entire addition made by the AO was sustained without assigning any cogent reasoning for the same. Now, aggrieved by order of the lower Authorities, the appellant preferred an appeal before your honour to seek justice. With this background, the individual grounds of appeal

& brief submission of appellant is as under: - GOA 1: - That the ld AO has erred in law as well in facts in passing order u/s 143(3) r.w.s. 144B of IT Act. Submission: - Not Pressed GOA 2: That both the lower authorities have erred in law as well in facts in invoking/sustaining rejection of books of Accounts u/s145(3) of the Act. Brief Submission: - The appellant during the relevant year derived sales turnover of Rs.19,55,83,865.46 & declared GP & NP of Rs. 26,55,274.82 & 4,94,508.26 respectively and the books of accounts were audited by the chartered accountant as per provision of section 44AB of the Income Tax Act. With this background, the facts & submission, to this ground of appeal is encapsulated as under: -

1. Brief Facts: -

1.1 The appellant claimed Purchases of Rs. 19,54,55,321.26 in the audited financial statements (Kindly refer Pg 56 of PB). The Trading Account is reproduced as under: -

1.2 That there were various sub heads of purchase account, the details That there were various sub heads of purchase account, the details That there were various sub heads of purchase account, the details /ledgers of which were filed to AO through letter dated 10.10.2022 (Kindly /ledgers of which were filed to AO through letter dated 10.10.2022 (Kindly /ledgers of which were filed to AO through letter dated 10.10.2022 (Kindly refer Pg No. 59-128 of PB) & even the bifurcation of same was also evident from Schedule 128 of PB) & even the bifurcation of same was also evident from Schedule 128 of PB) & even the bifurcation of same was also evident from Schedule of Purchases annexed to Audited financial Statement (Kindly Refer Pg No. 56 of of Purchases annexed to Audited financial Statement (Kindly Refer Pg No. 56 of of Purchases annexed to Audited financial Statement (Kindly Refer Pg No. 56 of PB), detailed as under: PB), detailed as under: - Satya Narayan vs. ITO 1.3 That the appellant was consistently following the practice of booking purchase into various constituents under purchase head, namely Purchase In state, Purchase URD, Purchase GST Exempted on the basis of GST applicability. Even further, charges in invoices, namely KUMS, Freight, Tulai, Mandi tax and etc. were posted to respective head under purchase account. The GST on purchase bill used to be posted to separate ledger of GST in Duties & taxes. The GST was not routed through P&L Account. Further in this line of Business, besides material cost, Purchase invoices include amount of Tulai, Mandi Tax, KUMS & etc. and on which GST is charged by the Supplier. (Emphasis Supplied)

1.4 That the Income tax System reflected GST Purchase of Rs. 18,50,48,070/-. The information on portal is uploaded on the basis of GSTR -1 filed by the suppliers, where in consolidated figure of the Invoice (before GST) is shown i.e. Material Cost, KUMS, Mandi Tax, Tulai & etc. on which GST is charged by the supplier.

1.5 That in fact there was no difference in Purchase reflected on system/ IT portal vis-a- vis declared by the appellant in financial statement, in as much, the purchase depicted on system includes, besides Material cost, charges like Mandi Tax, KUMS, Freight, Tulai & etc., where as in books the assessee has posted material cost to purchase GST @5% and charges have been debited to the respective head. The appellant filed copy of ledgers of all constituents of purchases to buttress the contention that in fact purchases claimed in books of accounts were over & above what is shown on IT portal as there were exempt & nontaxable purchases not depicted on IT portal.

1.6 Thus, the crux of the contention of the assessee appellant was that, the booking of purchase invoice was done under various constituents i.e. Purchase - Instate GST, Purchase (GST Exempted), Purchase (URD), Mandi Tax, KUMS, freight & Muddat & etc. as per description in bill and whereas IT portal contained the consolidated figure of the bill inclusive of material cost and charges on which GST have been charged.

2. Bansal Traders - Purchase in our ledger is Rs. 63, 22,052/- which shown in the Portal Rs. 65,42,413/- by the Seller. Our ledger copy is attached with this letter.

3. Jagdish Pd Narendra Kumar - Purchase in our ledger is Rs. 45, 79,902/- which shown in the Portal Rs. 47, 17,525/- by the Seller. Our ledger copy is attached with this letter.

4. Brij Mohan Dinesh Chand - Purchase in our ledger is Rs. 42, 18,983/- which shown in the Portal Rs. 43, 32,675/- by the Seller. Our ledger copy is attached with this letter.

On receipt of reply of the assessee in response to the SCN, the same was verified from the information available on systems and it is seen that the assessee had failed to explain the difference of Rs.33,17,981/- as pointed out in the SCN dated 08.12.2022. It was specifically asked to explain the difference between the GST Satya Narayan vs. ITO purchases shown by the asessee and the corresponding purchases available on systems. The assessee had merely filed ledgers of some of the parties as mentioned above, but this doesn’t explain the big difference of Rs.33,17,981/-. As far as transportation expenses are concerned the assessee reiterated that goods are transported by tractors trolleys, camel cart and buffalo carts and the purchasers pay for freight expenses. However, the assessee had not shown any expenses on transportation on his own purchases. Even there is no clear reply on the issue of godown and shop rent. The assessee sought personal hearing through VC for making oral submissions.

As the assessee failed to explain the specific issues raised in the SCN through written submission as discussed above, despite having sufficient time to explain, it is therefore held that he has nothing to say in this regard. In view of the discussion made above the books of account are hereby rejected u/s 145(3) as the correctness and completeness of the account of the assessee are not satisfactory. As a result, the gross profit is estimated @ 8% of sales, which comes to Rs. 1,56,46,709/-. Since the assessee has disclosed a gross profit of Rs. 26,55,274/- thus the difference of estimated gross profit and disclosed gross profit which comes to Rs.1,29,91,435/- is added back to the total income of the assessee. [AO Order Pg 10 Para 1]

3. As Per Worthy CIT(A)

7.4 From the perusal of the assessment order, I find that the appellant has failed to explain the differences in the turnover between the GST purchases shown by the appellant and the corresponding purchases available on systems. The assessee had merely filed ledgers of some of the parties as mentioned. The appellant has failed to produce any documentary evidence to explain the discrepancy.

Merely stating that the books are audited is not sufficient. If the books are audited the appellant should be in possession of all the documentary evidence. However, the appellant has failed miserably to file any supporting evidence in respect of expenses such as transportation, godown rent, etc and turnover debited in the books of account. The appellant was also provided with the personal hearing through the video conference. However, the same was not availed by him. Thus, it is evident that the appellant has not made any effort to prove before the Ld AO regarding the correctness or completeness of the accounts maintained by him. I find that the Ld AO has worked out and deliberated a detailed exercise and pointed out all such reason and defects due to which the assessing officer is unable to rely on the books of accounts maintained and accordingly to deduce Satya Narayan vs. ITO actual net profit earned by the assessee. Under the circumstances, the Ld AO has correctly rejected the books of account and estimated the gross profit of the appellant @ 8% of the turnover. [Cit(A) Order Pg No. 8 Para 7.4]

The action of ld A.O. in rejecting the Books of Accounts and subsequent uphold of the baseless AO order by the worthy CIT(A), is bereft of any merit & illegal, in as much, without understanding the geography of the case and solely based upon conjectures & surmises the rejection of audited financials have been done on very casual & light hearted basis. The documents & evidences put forth by the appellant were self-sufficient to echo that the entire purchase reflected on system were duly incorporated in books of accounts and there was no occasion for rejection of books of accounts, for the reasons, encapsulated point wise as under: -

4.1 Your good self will appreciate on bare glance over the AO order as well as the order of worthy Appellate commissioner that the sole or major ground which triggered the rejection of books of accounts, was the alleged failure of the appellant to explain the difference of Rs. 33,17,981/- i.e. purchases recorded in books of accounts at Rs. 18,17,30,0,89/- and purchases depicted on system at Rs. 18,50,48,070/-.

4.2 That both the lower authorities have failed to appreciate that the alleged purchased of Rs. 18,50,48,070/- as depicted on the system was completely accounted for in the books of accounts, but under different subheads of purchases. 4.3 That the total Purchases of Rs. 19,54,55,321.26 was claimed in the Audited Trading account & same was bifurcated among various constituents as under (Kindly Refer Pg 56 of PB): -

4.4 That bare perusal of the Trading account (Kindly refer Pg 56 of PB) will reveal that the total purchase claimed by the appellant stood at Rs. 19,54,55,321.26 and not at Rs. 18,17,30,089.09 as alleged by the AO. The AO took cognizance of one of the head of purchase i.e. Purchase Instate GST @ 5% which dealt with only material cost in relation to Instate GST Purchase , to augment his action of rejection of books of accounts ignoring that the purchase as shown on System reflected the amount on which GST has been charged i.e. Material Cost along with charges like Tulai , KUMS , Mandi tax & etc , separately mentioned in invoice & on which GST have been charged .

4.5 That before explaining in the reason for difference as noted by the AO, it will be imperative to have look over the basis of information as depicted on System. The information relating to GST purchase on system, is total amount of supply on which GST have been charged. The same is inclusive of material cost, freight, KUMS, Mandi Tax & any other amount on which GST is charged in the invoice. It is also worthwhile to mention that there is difference in manner in which entries are recorded in Books of accounts and manner in which they are reported in GST portal for filing GST returns which become input for IT portal or system.

4.6 That the ld AO failed to appreciate that what was reported on system was the total amount of Invoice inclusive of material cost, freight, Mandi Tax & etc. on which GST have been charged and reported as supply by the vendor and in contrast what the ld AO observed in Books of accounts was only material cost ledger as the appellant charged freight, Mandi Tax & etc. to different sub heads of purchasing. The relevant extract from tabulated sheet (Kindly refer Pg No. 59- 85 of PB) will clear the entire air over the matter and prove to your kind satisfaction that entire purchase as evident on system was duly incorporated in books of accounts and there was no rationale of rejection of books of account by invoking section 145(3) of the Act: -

Tulai Mandi Tax KUMS Muddat Tulai Total Purchases Wages Freight 5% 1% 5% 5% Mustaree Purchases 181730089.09 2882911.17 1275882.17 12671.00 2480.98 923727.8 162076.44 1089.68 186990936.20 6

Your honor will appreciate that infect the total of purchase stood at Rs. 186990936.20 as against Rs. 181730089.09 depicted on IT portal and therefore there was no occasion for the AO to make observation of less booking of purchase by the appellant.

4.7 That to leave no stone unturned in clearing the air over the matter, the copy of sample invoice from M/s. Brijmohan Dinesh Chand is reproduced (Kindly Refer Pg No. 152-153 of PB): -

The same is Bill No. 42 dated 23.06.2020 where in purchase of mustard seed 32 Quintal @ RS. 4449/ Quintal have been made resulting in Total amount of Invoice Inclusive of GST at Rs. 156553.56. The GST Charged on invoice is Rs. 7454.92 (3727.46 SGST +3727.46 CGST). The material cost is Rs. 143008/- and Tulai, Mandi Tax, KUMS & wages is Rs. 3217.68, 1430.08, 1430.08 & 12.80 respectively. Thus, total of other charges (except material cost) is Rs. 6090.64. The System (AIS/TIS) depicts GST Purchase at Rs. 149099/- (143008+6091) and in books the purchase is booked at Rs. 1,43,008/- and charges are debited to different heads under purchases and direct expense. Thus, in reality there is no difference in accounting and all the bills have been duly incorporated in books of accounts.

Satya Narayan vs. ITO 4.8 That the ld AO failed to appreciate that the appellant duly filed the copy of ledgers of all sub heads of purchase vide letter filed on IT portal on 10.10.2022. (Kindly refer Pg No. 59-128 of PB). The miscarriage of justice have occurred merely because AO was unaware of the manner of recording transaction in Mandi Traders as ell as manner in which transaction is reported on GST portal. which becomes input for IT system. Even the ld AO failed to appreciate the rationale of not charging the cost associated with purchase i.e. Mandi Tax, Freight & etc. to any other head (other than purchase) as these costs forms part of closing stock for valuation of inventory as per ICDS & acceptable accounting standards.

4.9 That the AO in his impugned order made observation of 5 vendors for justifying his action of rejection of books of accounts, whose purchases on system were higher than what was shown by the appellant. Regarding the alleged observation of the AO, it is submitted that the sole difference in purchase as depicted on Portal & as per books of accounts was solely on account of difference in recording invoice in books of accounts and reporting on GST portal.

The difference was solely due to Mandi Tax, KUMS, Freight & etc. which were included on system in GST purchase but in books were posted to specific ledger and not to material purchase account. Moreover, there were few instances where in purchases erroneously posted to different vendors and also some vendors revised GSTR returns. Further, to canvass clear picture of the case, the specific details of all these vendors are tabulated as under: -

4.9.1 Rajat Agarwal Prop. Sita Ram Gyan Prasad (– Purchase on System stood at Rs. 610000/- vis-à-vis purchase in Books of Rs. 6,10,000/- [Kindly Refer Pg No. 137M (Ledger), 143 (AIS), 195 (2A) of PB]

That regarding the difference, it is submitted that extra Invoice was loaded by the appellant on GST portal which resulted in higher purchase on system of the appellant. However, when this fact came to the knowledge of the appellant, it was requested to the vendor to rectify the same and in turn same was rectified but since amendment was done in succeeding year, the corresponding change not undertaken in AIS/TIS. The extract from GST portal to that effect is reproduced as under, to buttress the contention that the purchase from the dealer stood at Rs. 305000/- and not Rs. 610000/-.

That the ld AO observed difference of Rs. 113692/ the ld AO observed difference of Rs. 113692/- in purchase as per system and in purchase as per system and as per books. The difference was due to posting of mandi tax, freight & etc. as per books. The difference was due to posting of mandi tax, freight & etc. as per books. The difference was due to posting of mandi tax, freight & etc. charged in invoice to different ledger. charged in invoice to different ledger.

Purchases in Books Tulai Mandi Tax Wages Freigh KUMS 5% Muddat Muddat Tulai Total 5% 1% t 5% 5% Mustaree Purchases 4225697.40 60691.19 26883.11 240.80 - 16080.06 1911.25 1911.25 1089.68 4332593.49

Thus, your good self will appreciate that the difference as alleged by the AO of Rs. Thus, your good self will appreciate that the difference as alleged by the AO of Rs. Thus, your good self will appreciate that the difference as alleged by the AO of Rs. 113692/- is unfounded and in fact there wa is unfounded and in fact there was no difference.

4.9.3 Jagdish Pd Narendra Kumar Jagdish Pd Narendra Kumar - (Purchase on System stood at Rs 4717525 / (Purchase on System stood at Rs 4717525 /- vis-à-vis purchase in Books of Rs. 4579902) [Kindly Refer Pg No. 134 vis purchase in Books of Rs. 4579902) [Kindly Refer Pg No. 134 vis purchase in Books of Rs. 4579902) [Kindly Refer Pg No. 134-135 (Excel), 141(AIS), 179/182 (2A) of PB] 141(AIS), 179/182 (2A) of PB]

That the ld AO observed difference of Rs. 1376 That the ld AO observed difference of Rs. 137623 /- in turnover as per system and in turnover as per system and as per books. The difference was due to posting of mandi tax, freight & etc. as per books. The difference was due to posting of mandi tax, freight & etc. as per books. The difference was due to posting of mandi tax, freight & etc. charged in invoice to different ledger. charged in invoice to different ledger.

Purchases in Books Tulai Mandi Wages KUMS Total Total Remarks 5% Tax 1% 5% Purchases Purchases 4492152.35 52620.66 52 23312.21 220.80 11696.55 4580002.57 4580002.57 137622 - - - - 137622.00 137622.00 Bill NO. 314 Wrongly posted in Chitter Mal Banwari Lal 4629774.35 52620.66 52620.66 23312.21 220.80 11696.55 4717624.57 4717624.57

Your Honour will appreciate that there was no difference except the pu Your Honour will appreciate that there was no difference except the pu Your Honour will appreciate that there was no difference except the purchase bill dated 01.08.2020 was posted in ledger of Chitter mal Banwari Lal due to dated 01.08.2020 was posted in ledger of Chitter mal Banwari Lal due to dated 01.08.2020 was posted in ledger of Chitter mal Banwari Lal due to typographical error [Kindly Refer Pg No. 137J (Ledger), 179 (2A) & 142(AIS) of typographical error [Kindly Refer Pg No. 137J (Ledger), 179 (2A) & 142(AIS) of typographical error [Kindly Refer Pg No. 137J (Ledger), 179 (2A) & 142(AIS) of PB].

4.9.4 Bansal Traders -- (Purchase on System stood at Rs 6542413/- vis-à-vis purchase in Books of Rs. 6322052) [Kindly Refer Pg No. 146-149 (133_6), 136- 137(excel), 141(AIS) & 178/176 (2A) of PB] That the ld AO observed difference of Rs. 220361/- which was solely due to posting of bill no. 592 dated 15.02.2021 to the account of M/s Badri prasad Rajendra Prasad [Kindly Refer Pg No. 137I (Ledger), 176-177 (2A) & 140(AIS) of PB].

4.9.5 Mukkhi Ram Shree Chand – Purchase in our ledger is Rs. 1, 06,08,350/- which shown in the Portal Rs. 1,12,04,634/- by the Seller. Our ledger copy is attached with this letter. [Kindly Refer Pg No. 129-131 (Excel), 188 (2A) & 140(AIS) of PB]

Purchase Purchase Tulai Mandi Wages Instate Mandi KUMS @ KUMS Instate GST Tulai 5 % Wages TAX TAX NON- Gross Total GST TAX 1 % 5 % Free @5% Free Free GST Exempted 10696381.66 17412.00 153212.43 68054.43 614.50 54711.17 391.77 128.17 4.80 105.70 10991016.63

Your good self will appreciate that even in this vendor, there were charges in bill & there were some bills posted to account of different vendors. However, all the invoices were accounted for.

Thus, in concluding part of our submission to Ground No. 2, it is reiterated that entire purchase depicted on system (AIS/TIS) was duly incorporated in the books of accounts and there was no occasion for rejection of books of accounts. The ld AO without understanding the manner of accounting reached to conclusion that books does not depict true & fair view of the probability which is nonexistent & unfounded for the reasons submitted in forgoing part of our submission.

GOA 3: -That both the lower authorities have erred in law as well in facts in making/sustaining addition of Rs. 1,29,91,430/- by estimating Income by applying unprecedented GP rate of 8%, divorced from past history, comparable case & nature of business and thereby made/sustain addition of Rs. 1,29,91,430/-

Submission: -

It is submitted that invoking section 145 does not confer blind & unreasonable powers to A.O. to assess the Income at whatever figures he wants. The AO is bound to make an honest estimation of Income taking into consideration material Satya Narayan vs. ITO available on records, past history of the case and N.P. rate held by Higher Authorities in Comparable Cases. The Assessment based upon whims & surmises of A.O. being arbitrary is not permitted in the eyes of law. The legal position under Section 144 or 145 for the purpose is the same. The law u/s 144 or 145 is well established to the effect that while making an estimation, it is best judgment which the A.O. is required to take, by making an honest exercise on all direct /indirect evidence and available material. In present case the exercise which the A.O. was bound to make under law has not been done. Reliance is placed on the following case laws wherein Hon’ble courts have explained the duty & powers of A.O., In case of estimation: - Supreme Court in Kanchwala Gems v JCIT 2007 288 ITR 10 (SC) - - In a best judgment assessment, there is always a certain degree of guess work but at the same time authorities should not act in an arbitrary manner and must take an effort to compute an honest and fair estimate of the income of the assessee.

International Forest Co. v. CIT [1975] 101 ITR 721 (J & K). - Even if the ITO considered the material placed before him by the assessee to be unreliable keeping in view the comparative statement of accounts of the previous years, he cannot proceed to make an arbitrary addition and base his conclusion purely on guesswork. He ought to have related his estimate to some evidence or material on the record as it is now well-settled that if the profits shown by the assessee in his return are not accepted, it is for the taxing authorities to prove that the assessee has made more profits than returned –

In State of Orissa v/s Maharaja Shri B.P. Singh Deo [1970] 76 ITR 690, the Supreme Court has observed (at page 691):

"Apart from coming to the conclusion that the material placed before him by the assessee was not reliable, the Assistant Collector has given no reasons for enhancing the assessment. His order does not disclose the basis on which he has enhanced the assessment. The mere fact that the material placed by the assessee before the assessing authorities is unreliable does not empower those authorities to make an arbitrary order.

The power to levy assessment on the basis of best judgment is not an arbitrary power, it is an assessment on the basis of best judgment. In other words, that assessment must be based on some relevant material. It is not a power that can be exercised under the sweet will and pleasure of the concerned authorities. The scope of that power has been explained over and over again by this court."

3.1 Past History of the appellant The ld A.O. arbitrarily enhanced declared GP Rate to 8 % without appreciating past history of the appellant & putting comparable cases on record. It has been held in various judgments that assessee’s past History is best guide for making estimation. Kindly refer CIT v/s Popular Electric Co.(P) Ltd. 203 ITR 630(Ker.) and M.A. Rauf v/s CIT 33 ITR 843(Pat.). The past history of the appellant is tabulated as under, which will depict that the GP Rate of 1.36 % declared by the appellant was reasonable & robust and backed by the maintenance of proper books of accounts: - Asst. yr Sales Gross Profit G.P.Rate Remarks (%) 2019-20 12,90,96,193.08 21,67,182.28 1.68% 2020-21 19,70,99,577.96 30,15,469.23 1.53% 2021-22 19,55,83,865.46 26,55,274.82 1.36%

3.2 That the appellant-maintained Stock register which was sufficient to explain any fall in GP Rate. The proper book accounts was maintained. 3.3 That your good self will appreciate on bare glance of AO order justifying higher GP Rate, that action is apparently baseless & high pitched, when for mere difference in purchase recorded in books of accounts of Rs. 33,17,981/-, he made addition of Rs. 1,29,91,435/-. The same shows arbitrariness & hasteness in action of AO. 3.4 That the appellant relies upon the judgment of Hon’ble Rajatshan High Court in CIT v Gotan Lime stone khanij Udhyog (256 ITR 243) wherein it has been held that mere rejection of books of accounts need not necessarily lead to addition to returned income. It was held that books of accounts together with past history of the case as also material collected by the AO will form the very basis of making the addition. GOA 4: That ld CIT (A) erred in law as well in facts in not holding that AO travelled beyond the scope of limited scrutiny in violation of CBDT guideline. Submission: - The Action of the ld AO in travelling beyond the scope of limited or issue-based scrutiny, without according permission of higher authority has rendered this processing to be null and void. The action of AO is devoid of any merit, perverse & baseless for the reasons submitted as under: - Satya Narayan vs. ITO 1. That the case of the appellant was selected for scrutiny under CASS for the following reason, reproduced in verbatim as under: - Assessee has made substantial purchases from such suppliers who are either non-filers or have filed non business ITR or reflected a substantially lower turnover in ITR as compared to turnover shown in GSTR 1 Return. There is possibility that assesse has booked bogus expenses in order to reduce its profit/ taxable income. Therefore genuineness/ correctness of expenses related with these entities may be verified.

2. That it is palpable from the reason as mentioned in body of AO Order that the information was relating to booking of purchase in excess of what is reflected on GST portal/system and to verify the genuineness of the purchases.

3. That from bare perusal of the AO order, your honour will appreciate that the AO finally reached to the conclusion that the appellant has booked lesser purchases vis-à-vis reflected on GST portal and moreover no bogus claim of expense /purchase was found.

4. That the action of AO in making whopping addition of Rs. 1,29,91,435/- was unwarranted, even when the quantum of alleged difference observed was merely Rs. 33,17,981/-. It was not permissible for the AO to exceed the jurisdiction conferred by the notice and to invoke rejection of books of accounts and estimate the Income by applying unprecedented and massive GP rate of 8 %. 5. It is settled law that, unless the limited scrutiny assessment is converted into full scrutiny assessment, after taking due approval as mandated under the Act, such assessment order has to be restricted in scope to the issues on which the notice was issued/assessment was initiated.

Thus, the finalization of assessment by the AO on the issues which were not subject matter for scrutiny under CASS has rendered this proceeding to be invalid, baseless and illegal. Prayer: - In light of the above factual matrix of the case along with submission made and binding judicial precedents from higher authorities on the subject, it is requested before your honour to kindly delete the additions made to the returned income in toto and oblige.”

S.NO. PARTICULARS PAGE NO.

1 Written Submission 1-14

2 Written Submission filed before CIT(A) dated 20.09.2024 along with 15-21 acknowledgement.

3 Submission filed before AO dated 10.12.2022 along with acknowledgement. 22-26 4 Submission filed before AO dated 10.10.2022 along with acknowledgement.` 27-30 5 Copy of Audit Report along with Audited financial Statement. 31-58

6 Copy of Tabulated Excel Sheet showing party wise break up of purchases, 59-128 KUMS, Freight & etc.

7 Copy of Ledger of Parties 129-137 8 Copy of Information depicted on IT portal (AIS) 138-145 9 Copy of Invoice from parties, namely which were furnished to AO in 146-174 response to notice u/s 133(6)

10 Copy of GSTR-2A Sheet Downloaded from GST portal 175-196

11 Copy of Audited Balance Shet and Trading and P&L A/c for FY 2020- 197-203 21,2019-20, & 2018-19 12 Copy of Purchase Register 204-228

8. The ld. DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). Ld. DR vehemently argued that the assessee was even given an opportunity by the ld. AO to have the VC on the issue and the assessee failed to reconcile the figure of purchase and thereby the books were rightly rejected by the ld. AO. Even the assessee has not furnished anything new before the ld. CIT(A) and therefore, ld. CIT(A) has rightly confirmed the view of the ld. AO.

9. In the rejoinder the ld. AR of the assessee submitted that as regards the VC the user id and password was not given correct and therefore, the assessee has reasons and order of the ld. AO is against the principles of natural justice. The assessee has reconciled the alleged difference in the five dealer and that aspect of the matter has not been dealt with while CIT(A) has ignored the submission so placed on record and therefore, that order is also against the principles of natural justice and required to be quashed.

In response to the above, the assessee had furnished the list of all suppliers from whom purchases were made. He also submitted the payments made to them but not supported the same by necessary evidence. The assessee also did not furnish the details of transportation and merely stated that the transportation was mostly done by Tractor trolley, camel cart and buffalo cart. Ld. AO considering the information submitted by the assessee noted that total GST purchase [exclusive of GST ] shown by the assessee is Rs. 18,17,30,089/- while the corresponding purchase available on the system amounts to Rs. 18,50,48,070/- [Difference amount Rs. 33,17,981/- ]. The ld. AO asked the assessee to furnish the details of payment made to the supplies along with supporting documents. The assessee furnished the details of payments made to various parties without any supporting documents like bank statement etc.

Ld. AO on perusal of trading and profit and loss account observed that there was a negligible amount of Rs. 66,450/- debited on account of freight, % of the turnover. On being asked about the transportation charges, no clear and specific details were filed by the assessee and had replied that the transportation was mostly done by Tractor trolley, camel cart and buffalo cart but the assessee did not provide any details like date of transportation, Name, Address, Vehicle No. the amount paid etc. It was also noted by the ld. AO from the Balance Sheet that the assessee does not possess any godown, and he does not pay any godown rent as no such expenses was debited in the profit and loss account. With that observation ld. AO asked the assessee to show cause as to why the books of account should not be rejected u/s. 145(3) as the correctness and completeness of the account of the assessee are not satisfactory and it was proposed that the gross profit @ 8 % of sales computed at Rs. 1,56,46,709/-. The assessee submitted a reply objecting to the rejection of the books of account and thereby estimating profit. The assessee in response submitted that the books of accounts of the assessee are maintained in accordance with the law and are audited by an independent Chartered Accountant. The books results declared by the assessee were accepted in AY 2020-21 wherein the GP declared by the assessee was accepted and thereby the assessee objected to the rejection of the books of account. Ld. AO turnover with that of the reported in the portal for some of the dealers namely Mukkhi Ram Shree Chand, Bansal Traders, Jagdish Pd Narendra Kumar, Brij Mohan Dinesh Chand and Ranjit Agarwal. He noted that for all the dealers purchase recorded in the books are lower than what is reported in the portal. Ld. AO also noted that since the assessee failed to explain the difference of Rs. 33,17,981/-and the assessee has not shown transportation of the expenses, godown expenses and shot rent and he even though an opportunity of being heard was given in VC the assessee did not avail.

Accordingly, ld. AO proceeded to estimate the profit rejecting the book result and thereby made addition of Rs. 1,29,91,435/- in the hands of the assessee.

As is evident from the above breakup that the revenue has compared the figure of in state purchase with that of the total purchase reported in the portal at Rs. 18,50,48,070/-, if considered the breakup of whole purchase then the reasons advanced has not ground to stand that there is purchase shown less by the assessee. As regards the above expenses were part of record by the assessee before the lower authority and there is no finding on it by both the authority. So we hold that in fact there is no difference as observed by the ld. AO and in fact the turnover in the books is more than what is reported in the portal so the first reasons is against the facts on record. Now coming to the reasons for selection of the case of having purchase from non-fillers on this aspect of the matter the ld. AO has not made any adverse finding and therefore, even that reason is in fact support the case of the assessee.

Method of accounting. 145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income. (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. or that of the ld. CIT(A) may proceed under Section 145(3) under any of the following circumstances : • Where he is not satisfied about the correctness or completeness of the accounts; or • Where method of accounting cash or mercantile has not been regularly followed by the assessee; or • Accounting Standards as notified by the Central Government have not been regularly followed by the assessee.

As it is not case of the revenue for the second and third reason but is of on the first reason that the ld. AO is not satisfied about the correctness of completeness of the accounts. The assessee has placed on record the bills and detailed purchase account of the parties no defect in the correctness of the records were pointed out as regards the difference the assessee based on the record contended that in fact the purchase recorded in the books were higher then what is shown in the records of the revenue. The bench noted that before the ld. CIT(A) the assessee made a detailed submission to support as to why the provision of section 145(3) cannot be invoked in the case of the assessee. The assessee submitted before the lower authority that AO cannot reject the books of accounts and apply the provisions of section 145(3) of the Act unless no material record has been brought on record to hold that book results are not reliable, when that are maintained and audited by independent Chartered Accountant. In the audit the ld. CIT(A) has simply supported finding of the ld. AO without dealing with the contention of the assessee.

and the fact that as such while examining the books no defects as such was observed in the books of accounts which suggest the rejection of book results based on the provision of the Act as discussed herein above. Thus, the ld. AO or that of the ld. CIT(A) cannot reject books of accounts based on conjectures and surmises as such there is no comments on the books of accounts so maintained and produced forget about the comments on record placed on record. The assessee's books of account are regularly maintained, audited and no discrepancies whatsoever have been indicated by the ld. CIT(A). This is an utter disregard of the fact that all the books of account were maintained and regularly audited were simply not relied and rejected based on one simple reason that there exist a difference in the revenue and there is no other reasons. So far as the rent on godown, transportation of the goods and labour, the lower authority failed to understand that nature of business carried on by the assessee. The records reveals that the assessee performs the duty of commission agent who purchase the perishable goods from the agricultural products producers and then forward the same to the ultimate whole vendor or the retail and therefore, the person comes with their own vehicle and deliver the goods in the Mandi itself as per the direction of the assessee and the Mandi provide the storage facility for the temporary period. Thus, the rejection of books is purely based on surmises and conjectures and against the set of records made available on record. As we note that during the assessment proceedings the appellant has submitted all the ledger of purchase expenses along with the invoice. There is no claim that the purchase was made in cash as the same is made by an account payee cheque. The VC hearing provided has no meaning as the user id and password provided was not correct as contended by the assessee before the ld. CIT(A) and the ld. CIT(A) has not granted any opportunity to the assessee. Thus, the whole picture as is clear from the records that the reasons advanced for the rejection of the books results has no merits and we do not concur with the the arguments raised by the ld. AR of the assessee before us and simply stood by reasons recorded. Thus, when the records produced does not shows any defect which are in accordance with that of the provision of section 145(3) of the Act the rejection of the book results were merely based on the surmises and conjectures. Based on the reasons of the scrutiny there is no case of the revenue that the assessee has shown the bogus purchase to claim the lower profit in fact the ld. AO says that the assessee has not accounted various expenses and thus, the scope of scrutiny cannot be expanded without following the sanctioned route for that even on that aspect of the matter revenue has not demonstrated that there is no force in the arguments of the assessee. and therefore, we see no reason to support the rejection of the book results as the assessee figure is more than the what is reported in the portal for purchases. We get support of our view from the decision of the co-ordinate bench in the case of M/s Bajrang Trading Company, Gangapur City Vs. ITO, Sawai Madhopur (Tax World, Vol XLV Part-1 Jan 2011) wherein it was held by ITAT, Jaipur Branch that the AO cannot reject the books of accounts and apply provisions of Section 145(3) unless any no material record has been brought on record to hold that book results are not reliable. Also, it was held that the AO cannot make an addition on ill-founded assumption and accounts. Therefore, in such circumstances and facts of the case, the Assessing Officer was not justified in rejecting the books of account by invoking the provisions of section 145(3) of the Act and the additions made by the Assessing Officer are liable to deleted. We also get strength from the decision of our jurisdictional High Court rendered in the case of Commissioner of Income Tax v. Ceramic Industries [ 88 taxmann.com 520 (Rajasthan) ] wherein our Hon’ble court has held that ; 7. Taking into consideration the tribunal has observed as under:— We have perused the facts of the case. The ld. AR Mr. H.M. Singhvi argued that assessee has produced all the books of account, vouchers and the assessee's accounts are audited and all the production is subject to Excise Duty and not even a single unit of production can go out of the factory without recording the same in the Excise Registers which are regularly and continuously verified by the excise Department and are under their control. The AO has not pointed out any defect in the purchases, sales, opening stock and closing stock and as explained before the AO and the ld. CIT(A) that M/s. Bharat Potteries Ltd. i.e. a sister concern is manufacturing more of maximum stoneware crockery and the assessee is manufacturing more of bone china crockery and the difference in yield and the wastage and the gross profit had been explained vide our letter dated 26.03.2004 before the AO and similarly the output/input ratio has also been explained before the AO through the same letter and the AO has not commented upon the same and has not found out any difect in our explanation. The assessee has also filed before the AO following documents/publications to support the wastage declared by the assessee is reasonable and according to the standard practice adopted in the country as under:-

1. 1. C.G.C.R.I., Khurja (PB No.13 to 1) 2. Publication of Articles in while wares (P.B. No.18) 3. Photocopy of Hand book of Ceramics-Volume 2 (Editor S. Kumar) showing typical composition of Bone china.

4. Photocopy of the Chapter 5 of stoneware in the books published by the Institute of Materials (P.B. No.21 to 22). In the report of CGCRI, Khurja, (refer P.B. No.17), the waste worked out to 28.31% to 38.7% interest he bone china crockery and in the case of stoneware crockery it worked out to 24% to 34.8% We agree with the arguments of the ld. AR that the main objection raised by the AO was that input/output ratio in various months has the inconsistency which has been duly explained by the assessee vide letter dated 26.03.2004 and the second objection by the AO was that the sister concern M/s. Bharat Potteries Ltd. has declared more yield and more gross profit, has also been explained by the assessee vide the same letter dated 26.03.2004. Therefore, the inconsistency in the input/out ratio in various months the reasons for which has been explained by the assessee, cannot be the basis for rejection of books of account. The yield and gross profit rate declared by the assessee can also not be the basis for rejection of books of account since M/s. Bharat Potteries Ltd. is manufacturing maximum of stoneware crockery and for many other reasons which were explained by the assessee vide its letter dated 26.03.04 which was ignored by the AO and the AO has not pointed out any specific defects in the purchases, sales, opening stock and closing stock of the assessee and the AO has not brought on record any cogent material to prove that the assessee has sold the under-production out of the books of account. Therefore, in such circumstances and facts of the case, the AO is not justified in rejecting the books of account by invoking Provisions of Section 145(3) of the Act and the additions made by the AO are liable to the deleted. The objection of the ld. DR that the ld. CIT(A) has not relied upon the CGCRI Report, Calcutta, the ld. AR has pointed out that the in the same report it has been mentioned that the said organization is not involved production practice and the are not sure to what extent their opinion will be useful for the purpose of the assessee and in such circumstances and facts of the case, the report of CGCRI, Calcutta alone cannot be the basis for rejection of books of account and making an estimation of wastage and the ld. CIT(A) was not justified in ignoring other material which was placed before him as mentioned hereinbefore. Therefore, the ld. CIT(A) was not justified in sustaining the applicability of Section 145(3) of the Act and addition of Rs. 11,15,087/-. Thus Ground No.1 of the assessee is allowed and the solitary ground of the Revenue is dismissed.

10. Both the issues are answered in favour of assessee and against the Department.

Satya Narayan vs. ITO 10.1 It is made clear that we have only decided the matter which is pending before this court but for the next year, it will be open for AO or the Department to look into improvement of industries, machinery and assesss the same every year loss. 11. All the appeals are dismissed.

In terms of this observation ground no. 1 to 4 raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 01/04/2025.

Sd/- Sd/- ¼ujsUnz dqekj½ ¼jkBkSM+ deys'k t;UrHkkbZ½ (NARINDER KUMAR) (RATHOD KAMLESH JAYANTBHAI) U;kf;d lnL;@Judicial Member ys[kk lnL; @Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 01/04/2025 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Satya Narayan, Bharatpur izR;FkhZ@ The Respondent- Income Tax Officer, Ward -1, Bharatpur 2. vk;djvk;qDr@ The ld CIT 3. 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZQkbZy@ Guard File (ITA No. 1434/JP/2024) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत