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Facts
The assessee's appeal was delayed by 265 days due to an accountant's departure and reliance on an incorrect email ID for communication with CIT(A), leading to ex-parte orders. The case involved two main additions made by the AO for AY 2015-16: Rs. 36,45,523/- for disallowance of Wages & Bardana Expenditure (due to discrepancies between original and revised returns) and Rs. 29,46,000/- for unexplained capital (related to property purchase). The CIT(A) had dismissed the first appeal, upholding the AO's order.
Held
The Tribunal condoned the delay in filing the appeal, accepting 'sufficient cause'. For the disallowance of Wages & Bardana Expenditure, the Tribunal upheld the AO's rejection of books under Section 145(3) but directed the AO to compute income based on the preceding year's Net Profit rate of 1.24% on sales, restricting the addition to Rs. 1,00,887/-. For the addition of unexplained capital, the issue was remanded back to the AO for fresh adjudication, with directions to consider additional evidence.
Key Issues
1. Condonation of delay in filing appeal to ITAT. 2. Validity of disallowance of Wages & Bardana Expenditure and method of income estimation after rejecting books. 3. Validity of addition for unexplained capital related to property purchase.
Sections Cited
144, 143(2), 142(1), 145(3), 253(5)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI DINESH MOHAN SINHA
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 26.08.2023 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 29.12.2017 passed by learned ITO-3(1), Bhopal [“AO”] u/s 144 of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2015-16, the assessee has filed this appeal.
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The registry has informed that the present appeal is delayed by 265 days and therefore time-barred. Ld. AR for assessee submitted that the assessee has filed a condonation-application supported by an affidavit (the assessee filed a revised affidavit to rectify some inadvertent mistake having crept in original affidavit). Referring to same, Ld. AR explained that in the Income-tax Portal as well as Form No. 35 filed to CIT(A), the e-mail id ravindrajain49@gmail.com was provided which belonged to assessee’s accountant. The assessee’s own email id is sj304336@gmail.com as mentioned in Form No. 36 filed to ITAT. The assessee’s accountant left job and neither the notices of hearing nor the impugned order sent by CIT(A)
reached to assessee. The CIT(A) has delivered notices on Income-tax Portal (Para 6.2 of impugned order) and so is the case of delivery of impugned order and there was no physical service. This has led to passing of impugned order ex-parte to assessee as well as non-filing of present appeal in time. It is only when the assessee logged in Income-tax Portal that the impugned order having been passed by CIT(A) came to the knowledge of assessee. Immediately, the assessee filed present appeal on 16.07.2024 without further delay. Ld. AR very humbly submitted that there is no lethargy, negligence, mala fide intention or ulterior motive of assessee in making delay and the assessee does not stand to derive any benefit because of delay. He further submitted that the sole reason of delay is as explained in the condonation-application. He submitted that there is “sufficient cause” for delay and hence the delay should be condoned. Ld. DR for Revenue left
Page 2 of 9 the matter to the wisdom of Bench without raising any objection. We have considered the explanation advanced by assessee and in absence of any contrary fact or material on record, the assessee is found to have a “sufficient cause” for delay in filing present appeal. We find that section 253(5) of the Act empowers the ITAT to admit an appeal after expiry of prescribed time, if there is a “sufficient cause” for not presenting appeal within prescribed time. It is also a settled position by Hon’ble Supreme Court in Collector, Land Acquisition Vs Mst. Katiji and others 1987 AIR 1353, 1987 2 SCC 387 that whenever substantial justice and technical considerations are opposed to each other, the cause of substantial justice must be preferred by adopting a justice-oriented approach. Thus, taking into account the provision of section 253(5) and the decision of Hon’ble Supreme Court, we take a judicious view, condone delay, admit appeal and proceed with hearing.
The background facts leading to present appeal are such that the assessee-individual filed her return of income of AY 2015-16 declaring a total income of Rs. 4,27,600/-. The case was selected for scrutiny and the notices u/s 143(2)/142(1) were issued. Initially, the assessee did not respond to the notices sent by AO but at last responded. Finally, after considering assessee’s submissions and documents, the AO passed assessment-order determining a total income of Rs. 70,19,123/- after making two additions, namely (i) addition of Rs. 36,45,523/- on account of disallowance out of Wages & Bardana Expenditure and (ii) addition of Rs.
Page 3 of 9 29,46,000/- on account of unexplained increase in Capital. Aggrieved, the assessee carried matter in first-appeal but could not make representation before CIT(A), therefore the CIT(A) dismissed first-appeal while upholding AO’s order. Now, the assessee has come in next appeal before us.
Although the assessee has raised as many as 9 grounds in Form No.
36 (Appeal Memo), Ld. AR for assessee submitted that the Ground No. 6, mentioned below, is the only effective ground being pursued by assessee:
“6. The Ld. CIT, NFAC, has erred in maintaining the addition of Rs. 36,45,523/- being disallowance of expenses and Rs. 29,46,000/- being increase in the capital. The addition may please be deleted.”
Thus, the assessee has challenged the twin additions made by AO. We have heard the learned Representatives of both sides and perused the case records including orders of lower-authorities and present our adjudication in following paras.
Disallowance of Rs. 36,45,523/- out of Wages & Bardana Expenditure:
Precisely stated, the facts apropos to this issue are like this. The assessee was mainly engaged in trading of wheat. During assessment- proceeding, the AO observed that the assessee filed original return alongwith audit report but later filed revised return with a final audit report. There were variations in certain figures in two sets of documents although there was no change in final income. When the AO show-caused assessee to Page 4 of 9 explain this state of affairs, the assessee filed a reply stating that due to clerical mistake, the figures of Provisional Audit Report were filled in the original return of income. The assessee also requested the AO to accept the figures of revised audited accounts as correct. However, the AO rejected asessee’s submission and concluded that the assessee’s books appear to be incorrect, unbelievable or incomplete. Accordingly, the AO rejected asessee’s books u/s 145(3) and also made best judgement. The AO found that in the original set of documents, the expenditure on account of Wages & Bardana was Rs. 42,03,767/- which the assessee has increased to Rs. 78,49,290/- in revised set of documents. The AO computed difference of two figures at Rs.
36,45,523/- and made disallowance.
Ld. AR for assessee firstly attacked the disallowance made by AO. He submitted that it was a human mistake that the provisional data got provided in the return of income. However, the assessee has subsequently filed revised return supported by final audit report. Ld. AR submitted that the AO should have ignored the original data and must have accepted the assessee’s revised data which was actual and correct instead of making adverse observation against assessee. He submitted that the AO is grossly wrong in rejecting assessee’s books on a mere suspicion that the books would be incorrect, unbelievable or incomplete without pointing out any defect or flaw in books. Therefore, the action of AO in invoking section 145(3)
and thereby rejecting books of assessee is absolutely illegal. He submitted that it is also a serious flaw in the action of AO that he has just computed
Page 5 of 9 the mathematical difference in two figures of Wages & Bardana Expenditure on the basis of original data and revised data and made disallowance of such differential. Therefore, Ld. AR prays to delete the disallowance made by AO which is baseless and wrong. Without prejudice, Ld. AR made an alternative proposal. He submitted that the assessee is not in the mood to continue any litigation with tax authorities qua this issue. Therefore, the assessee make a limited submission that when the AO has rejected books of assessee, the only recourse available to AO would be to apply net profit rate.
Ld. AR submitted that the AO has himself given comparative data of assessee’s financials in preceding AY 2014-15 and current AY 2015-16 on Page No. 3 of assessment-year as under:
S.No. Particulars Assessment Year 2014-15 Assessment Year 2015-16 1 Total Sales Rs.4,40,67,000/- Rs.6,72,58,506/- 2 Gross Profit Rs.18,82,599/- (4.27%) Rs.35,30,894/- (5.24%) 3 Net profit Rs.5,48,916/- (1.24%) Rs.7,33,723/- (1.09%)
Ld. AR submitted that according to above data which is noted by AO in assessment-order, the NP rate was 1.24% in preceding year but 1.09% in current year. Therefore, the Bench may direct the AO to apply NP rate of 1.24% to sales of Rs. 6,72,58,506/- of current year and modify addition accordingly. Ld. DR for revenue left this issue to the wisdom of bench and at the same time expressed that the Bench may, if thought fit, remand this issue back to AO.
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We have considered rival submissions of both sides and perused the orders of lower-authorities. While we agree that the AO cannot make a blanket addition on the basis of difference in the amount of expenditure reported in original return and revised return when the assessee is claiming that the data given in original return was incorrect due to clerical mistake; we find that the AO has rejected assessee’s books u/s 145(3) and once books are rejected, the only course available to AO is to estimate income of assessee. Ld. AR for assessee has also given a proposal to accept suitable addition on the basis of NP rate of preceding year. The proposal given by Ld.
AR could not be disputed by revenue because Ld. AR’s claim is in conformity with numerous judicial decisions holding that once books are rejected, the net profit has to be accepted as per past history of assessee. In view of this, we direct the AO to compute income of assessee @ 1.24% on sales of Rs.
6,72,58,506/-. Since the assessee has already disclosed NP of 1.09%, it would result in restricting addition to Rs. 1,00,887/- [1.24% (-) 1.09% = 0.15% of Rs. 6,72,58,506/-]. The AO would maintain addition of Rs.
1,00,887/- and delete extra addition. The assessee succeeds partly in this ground.
Addition of Rs. 29,46,000/- on account of unexplained Capital:
The AO has made this addition vide Para No. 2 / Page 4 of assessment-order. During assessment-proceeding, when the AO asked assessee to explain the increase in Capital, the assessee replied that she purchased a Plot No. 8 located at New Krishi Mandi, Karond, Tehsil Huzur,
Page 7 of 9 District Bhopal, for Rs. 22,29,000/- and incurred further cost on stamps, registration, renovation etc., which made up total cost at Rs. 29,46,000/-.
The assessee further submitted that this property was purchased for business of assessee in preceding AY 2014-15 by utilizing bank C/C limit but brought in books of business in current AY 2015-16 by way of transfer entry (i.e. credit to Capital A/c and debit to Fixed Assets A/c). However, the AO did not accept assessee’s submission for want of supporting documents and made addition in current year as unexplained investment.
Ld. AR submitted that the assessee has filed supporting documents in the form of registered-deed dated 12.03.2014 and allotment letter issued by New Krishi Mandi, Karond at Pages 56-65 of Paper-Book and these documents clearly show that the impugned property was purchased in preceding AY 2014-15. Therefore, no investment was made in current AY 2015-16 and the AO has wrongly made addition which must be deleted. Ld.
DR for revenue proposed that the issue should go back to the file of AO for a fresh adjudication in the light of evidences submitted by assessee. After a careful consideration, we find weightage in the submission of Ld. DR for revenue. Accordingly, we restore this issue at the level of AO for a fresh adjudication. Needless to mention that the AO shall give necessary opportunities to assessee and consider the evidences filed by assessee before us in Paper-Book as well as any other evidence as the assessee may choose to file before AO. This issue is accordingly allowed for statistical purpose.
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Resultantly, this appeal is partly allowed for statistical purpose.
Order pronounced by putting on notice board as per Rule 34 of ITAT Rules, 1963 on 24/02/2025
Sd/- sd/- (DINESH MOHAN SINHA) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक/Dated : 24/02/2025 Dev/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore
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