SHRI CHIMANLAL BHUDARDAS PATEL (PROP:PATEL CHIMANLAL B.&CO.),MEHSANA vs. THE INCOME TAX OFFICER, WARD-1,, MEHSANA

1. This appeal is filed by the assessee against order dated 5.2.2018 passed by the Commissioner of Income-tax (Appeals), Gandhinagar relating to the same Asst.Year 2013-14.

The grounds raised in this appeal read as follow:

Brief facts of the case is that the assessee is an individual and proprietor of Patel Chimanlal B & Co. He is engaged in trading of Agro products. For the assessment year 2013-14, the assessee filed his return of income on 17.7.2013 declaring total income at Rs.3,13,400/-. The same was processed under section 143(1) Income Tax Act, 1961 ("the Act" for short). Thereafter the case was selected for scrutiny assessment through CASS and issued notices under section 143(2) and also 142(1) of the Act. During the assessment proceedings, on perusal of books of accounts, the ld.AO noticed that the assessee has shown amounts of Rs.2,90,000/- from Smt.Mitalben B.Patel and Rs.6,60,000/- from Dineshbhai Ambalal. To prove genuineness of the transactions, the assessee filed bank statements of Smt.Mitalben B. Patel and one Shri Patel Arvind Ambalal (instead of Dineshbhai Ambalal from whom the assessee has taken loan of Rs.6,60,000/-). On verification of bank statement of Smt.Mitalben Patel, the AO noticed that just before the loan transaction, there was cash deposit in her bank account, and that income of the said Mitalben did not justify the loan given nor justify the source of loan. The ld.AO summoned Smt.Mitalben to his office in this regard but she did not appear. The ld.AO noted that the said Smt.Mitalben was daughter-in-law of the assessee and resided at the same residential address. For want of details, explanation and evidence to prove genuineness of the loan, the ld.AO made addition of Rs.2,90,000/- to the income of the assessee. Similarly, there was no detail furnished by the assessee to prove genuineness of the loan taken from Dineshbhai Ambal. Even the assessee has not provided address, bank statement or any other documentary evidence of the 3 impugned loan of Rs.6,60,000/-. Assessee only provided bank statement of some other person, which was not at all related to the impugned loan transaction. Therefore, the ld.AO added a sum of Rs.6,60,000/- being unexplained cash credits. Against these two additions, the assessee filed an appeal before the ld.CIT(A).

Before us, the ld.counsel for the assessee reiterated submissions made before the Revenue authorities. He also drew our attention page no.10 of the written submissions filed in the paper book. In this the explanation given by the assessee are as under:

Ground no.2 and 3 are interconnected. The assessee has aggrieved by the action of the Revenue authorities in rejecting books of accounts under section 145 of the Act and addition of Rs.11,87,465/- made on account of estimation of gross profit.

On verification of the books of accounts of the assessee, it was revealed to the AO that the assessee has shown sales to Patel Natvarlal Natthudas of Rs.4,45,940/- and to Patel Bhagabhai Revabhai for Rs.4,28,110/-. Since the sales were made in cash, in the absence of necessary proof, the genuineness thereof was 6 doubted, thus the ld.AO summoned the above two purchasers of the assessee. Patel Baghabhai Revabhai in his statement dated 16.9.2015 stated that he did not purchase any goods from the assessee, and in fact he sold Kapas to the assessee for approximately Rs.5 lakhs and other transactions were made between them. This was further confirmed by his son and manager of the assessee, Shri Bhavesh Chimanlal Patel in his recorded statement on 22.11.2016 and further stated that the assessee has in fact purchased from them kapas, wheat, guvar, etc. The second party viz. Patel Natvarlal Naththudas however did not appear. The advances given to the parties and shown in the books of accounts, therefore did not reflect true picture and could not be justified. In response to the show cause notice also, assessee did not appear before the AO. Further, the ld.AO also noticed certain discrepancies regarding the correctness of the books of accounts in respect of the following expenses:

From the above, the ld.AO noticed that Kharajat-majury expenses were made in cash and did not match with the day register. Similarly, outwards goods expenses are made through hand-made vouchers, and the assessee could not be explain whether these expenses were incurred for selling of goods. The AO also noticed that the assessee did not maintain transport register or bills

Before the ld.CIT(A) assessee reiterated submissions made before the AO. He further submitted that the AO has not pointed out any specific defects in the books of accounts of the assessee; that the assessee was dealing in agriculture produce, where commission rate was 1%. The assessee has maintained all the ledger accounts in respect of the expenses, which were also audited under section 44AB of the Act; that there was no material with the AO which established that books of accounts maintained by the assessee were not correct and true. The assessee has reasonable increase in GP i.e. in the Asst.Year 2012-13, the GP was 0.53% whereas in the present assessment year GP rate was 0.95%, and therefore, there was no reason to make further addition to the GP. The assessee also relied upon various cases laws to support his case. However, the ld.CIT(A) did not accept the explanation of the assessee. He confirmed the finding of the AO more so relying upon

Before us, the ld.counsel for the assessee advanced the submissions as were made before the Revenue authorities. He further submitted that GP rate of 2% of turnover is absolutely baseless and not commensurate with the level of business undertaken by the assessee. Therefore, estimation of GP at 2% is without any justification and reasonableness, and the same deserves to be deleted. On the other hand, the ld.DR supported the orders of the Revenue authorities.

We have given our thoughtful consideration to the facts of the case; and also gone through the orders of the Revenue. The main contentions of the assessee was that books of accounts are audited under section 44AB of the Act and no specific defect has been found by the AO, and therefore, rejection of books of accounts and estimation of GP at 2% of turnover was not valid and not in accordance with law. We find that the AO found the books of accounts of the assessee are not true and correct reflection of the business of the assessee, and trade results did not reflect true income. The reasons assigned by the AO were that there are examples of discrepancies in accounting of sales and purchases made by the assessee. These discrepancies were not properly explained by the assessee. The AO also pointed out discrepancies in expenses incurred by the assessee; that the expenses were made through hand-made vouchers and they were not recorded on daily basis. The assessee also not maintained transport register or bills in support of his claim. Even during the assessment proceedings, the asessee’s representative has accepted the fact that no proper records

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