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Income Tax Appellate Tribunal, DELHI BENCH “SMC” NEW DELHI
Before: SHRI AMIT SHUKLA
O R D E R The aforesaid appeal has been filed by the Assessee against the impugned order dated 31.01.2018, passed by Ld. Commissioner of Income Tax (Appeals)-XXV, New Delhi for the quantum of assessment passed u/s.144 of the IT Act, for the Assessment Year 2008-09. In the grounds of appeal the assessee has raised following grounds: - “ That the Ld. Commissioner of Income Tax Appeals has erred both in law and facts of the case in not appreciating the facts and circumstances of the case and ignored the basics, i.e.,
1. That the order u/s 144 is null and void.
2. That his predecessor had thoroughly examined the books of accounts, including purchase and sales, and expenses and after satisfaction the remand report was called within limited point for reason of ex-parte assessment.
3. That the findings of the Ld. Commissioner of Income Tax Appeal is against the facts.”
The facts in brief are that, assessee is engaged in the business of wholesale trading of metal and alloys. The return of income was filed on 30.09.2008, declaring income of Rs.1,10,000/-. The assessing officer from the balance-sheet and Profit and Loss Account as on 31.3. 2018, noted that accounts are not audited even when the assessee’s turnover was Rs.78,62,773/- i.e., above the prescribed limit under section 44AB of the IT Act. According to him, since no explanation was offered by the assessee in response to the show cause notice, therefore, he initiated penalty proceedings under section 271B. He further noted that, during the course of assessment proceedings, assessee has failed to produce books of account and relevant vouchers in support of its claim for expenses and accordingly, he disallowed sum of rupees 1,00,000/- out of total expenses claimed of Rs.4,34,301/- on estimate basis. He further noted that assessee had shown sales of Rs. 78,62,773/- on which Gross Profit of Rs.5,48,110/- was shown giving GP of 6.9%. Further, he held that in absence of any record and supporting purchase and sales bills, the gross profit rate was enhanced to 10% and thereby made an addition of Rs.2,43,167/-. Lastly, he also noted that the assessee has reflected sum of Rs.28,394/- towards VAT payable in the balance-sheet as on 31.03.2008 for which the assessee has failed to produce copy of challan and accordingly, he disallowed the same under section 43B of the IT Act.
Before the learned CIT(A), assessee submitted that, before the AO assessee has made various compliances and also filed all the details along with letters. In support, assessee referred to the order sheet entries of the assessment proceedings which has been noted at page 3 of the impugned order. Further, before ld. CIT(A) also in response to various queries raised by him, the assessee has given point-wise reply and submitted that, assessee is purchasing scrap of metals and converting them into bar/ingot for which assessee was though not maintaining any manufacturing account but entire quantitative details was filed before him. It was further submitted that business started during the previous year and same was stopped as on 23.03.2008 and entire stock was sold and there is no business in the subsequent year as assessee has left Delhi with his son to settle at Ranchi. As specifically required by ld. CIT(A), assessee had filed confirmation from M/s. Jai Ambey Alloys (P) Ltd. along with bank statement. Regarding cash creditors also assessee pointed out that assessee was dealers in ferrous and non- ferrous metal and some of the material and loan was taken for temporary period and was returned back in 2 months. Further, the entire stock was sold during the year as assessee had to wind up his business. In order to explain the trading account and profit, assessee has also filed the details from the trading account, like opening stock, purchases, sale, shortages, etc., alongwith the quantitative details which were as under:
Opening Stock 2885 kgs Add: Purchase upto 08/02/2008 26175 kgs Less: Sale of Scrap 11720 kgs 14455 kgs. Less : Sale of Bar 14020 kgs Balance i.e. Shortage 435 kgs Percentage 3.1% Purchase of scrap on 19.03.2008 2040 kgs Less: sold 1950 kgs Shortage 90 kgs Percentage 4.4 3.1 Further, assessee also explained reasons for shortage which was due to wastage and also gave the details of opening stock and its valuation which was Rs.305 per kg and further submitted that there was no closing stock at all. The assessee also justified the turnover, expenses, gross profit and pointed out the rate of GP rate comes to 7.52% and entire trading results are supported with day to day stock register, purchase and sales vouchers. Another important thing which was brought on record that the assessee’s trading results as shown in the books of account was subjected to audit and the auditors have duly certified the correctness of the trading and P&L account in form 3CB. Lastly, regarding VAT also, assessee submitted the proof of payment of VAT.
4. Ld. CIT(A) without even looking into the facts and material placed before him and also the copy of remand report submitted by the AO has dismissed the assessee's appeal in a very flimsy manner after observing and holding as under: “The assessee filed Balance Sheet and P & L a/c as on 31.3.08 which were not audited. Though the appellant was required by law to get its accounts audited u/s 44AB as the turnover of the appellant was Rs. 78,62,773/- i.e. above the limit Prescribed 44AB of the IT Act. The appellant has not offered any explanation for the same. The appellant has only contended that the action of the AO was ad hoc. The appellant has furnished some explanations, but the same are not satisfactorily explaining the business expenses nor the reason for not getting the audit done. Accordingly, I don't find the contentions of the appellant convincing in view of the conduct of the appellant whereby the due process was not followed in getting the books of accounts audited. The appellant has shown a deviant conduct in not following the requirements of law. The appeal is not tenable due to fundamental flaws in the appellant conduct.”
Before us, ld. counsel for the assessee submitted that the entire premise of the authorities below that the assessee has not filed audit report or audited balance sheet is absolutely incorrect, because assessee had filed the audited balance sheet and audit report before the Assessing Officer by way of a letter which has been placed in the paper book at page 1, which clearly mentions the details of opening stock and closing stock as well as furnishing of audited balance sheet and audit report for the relevant assessment year. The Assessing Officer had also issued a notice to the auditor/CA M/s Birender Pratap & Co. and also sought information for copies of audited financial statements for the financial years 2006-07 and 2007-08. In response, the said information was duly provided by the auditors. Not only that, in the penalty proceedings u/s. 2711B, this Tribunal has deleted the penalty after noting down that the assessee has filed reply from time to time in response to various notices. Thus, no such adhoc addition could have been made.
On the other hand, learned DR strongly relied upon the order of the assessing officer and ld. CIT(A).
I have considered the rival submissions and also perused the relevant finding given in the impugned order as well as material referred to at the time of hearing. The entire case of the Assessing Officer and the ld. CIT(A) is that no audited account or audit report has been furnished. From the perusal of the letter filed before the Assessing Officer, I find that assessee has filed the audit report in response to a notice issued by the Assessing Officer and said audit report is also appearing at pages 11 to 16 of the paper book, wherein auditors have duly certified the books of account and the trading result in Form 3CB. Not only that, a notice was also sent by the Assessing Officer to CA and despite all these material facts placed on record, the entire additions have been made on the ground that entries in the profit and loss account and balance sheet have not been audited. The entire basis and premise for making an adhoc addition gets vitiated in the light of the fact that audited accounts and the entire audit report was filed before the Assessing Officer as well as before the ld. CIT(A), which fact stands established by the Tribunal in the penalty proceedings u/s 271B. Apart from that, I find that assessee has given the entire details relating to trading account and profit and loss account and balance sheet including details of opening stock, purchases and the sales made by the assessee before the ld. CIT(A) which was also sent to the AO to submit his remand report. However, the Assessing Officer in the remand report has not even commented upon these details. Once assessee has filed all the details and the audit report and has given explanation with regard to each and every entry of the trading account including expenses incurred with evidences, then no adhoc estimation of income or disallowance of expenses can be made. Accordingly, entire addition made by the Assessing Officer and sustained by the ld. CIT(A) stands deleted.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 28th January, 2019.