INCOME TAX OFFICER, PALAKKAD vs. SREE KRISHNA TRADERS, PATTAMBI

Brief facts of the case are that respondent assessee is a partnership firm engaged in the business of dealing in arecanut and other agricultural products. The return of income for AY 2018-19 was filed on 22.03.2019 declaring total income of Rs. 5,76,850/-. Against the said return of income, the assessment was completed by the National e-Assessment Centre (hereinafter called "the AO") vide Sree Krishna Traders order dated 22.05.2021 passed u/s. 143(3) w.r.s. 144Bof the Income Tax Act, 1961 (the Act) at a total income of Rs. 35,65,97,331/-. While doing so, the AO rejected the books of account and estimated the gross profit at 10% of the turnover of Rs. 2,10,08,25,685/-. Accordingly, made addition of Rs. 10,50,41,284/-. The AO also made addition of Rs. 25,09,79,197/- being the amount found credited in bank account for the failure of the assessee to substantiate the nature of credit.

Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order estimated the profit of the business at 0.2% taking into consideration the GP shown in the earlier years is only 1.6%. The CIT(A) also deleted the addition of Rs. 25,09,79,197/- by holding that the deposit in the ICICI Bank is part of the total turnover of Rs. 2,10,08,25,685/-

Being aggrieved, the Revenue is in appeal before this Tribunal in the present appeal.

We have heard the rival contentions and perused the material available on record. We find that the AO passed exparte assessment order as the assessee had failed to prove the source of cash credit entry as well file necessary evidences in support of the book results. In the circumstances, the AO estimated the profit at 10% of the gross turnover and also made separate addition of Rs. 10,00,000/- as the assessee had failed to prove the source of the credit. However, the CIT(A) granted relief without calling for remand report from the Sree Krishna Traders AO, as well as without referring to any material on record to show the nexus of credit in the bank account with the business receipts of the assessee. Rejecting books of account and estimating profit should not be subjective, it must be based on the historical data of preceding years. Thus, the order of the CIT(A) is against the principles of natural justice and in violation of provisions of Rule 46A of I.T. Rules. Accordingly, the order of the CIT(A) is set aside and remanded to the CIT(A) with a direction to dispose of the appeal in accordance with law after affording reasonable opportunity of hearing to the appellant.

In the result, the appeal filed by the Revenue stands partly allowed for statistical purposes.