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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: DR. ARJUN LAL SAINI & T.R. SENTHIL KUMAR
Assessment Year:2008-09 Vimal Chandubhai Patel, The ITO, Ward-2, Limdi Pole, LaljiniKhadki, New Vs Ahmedabad. Houses, Karamsad-388325. PAN :AKTPP 9776 F (Appellant) (Responent) Assessee by : Shri Sakar Sharma, AR Revenue by : Shri R. R. Makwana, Sr. DR सुनवाईक�तार�ख/Date of Hearing : 18/04/2022 घोषणाक�तार�ख/Date of Pronouncement: 17/06/2022 आदेश/O R D E R PERDr. ARJUN LAL SAINI, ACCOUNTANT MEMBER Captioned appeal filed by the Assessee, pertaining to the Assessment Year (AY) 2008-09, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-5, Vadodara [in short “ld.CIT(A)”]in Appeal No. CIT(A)- Vadodara-5/10005/2010-11 dated 16.09.2019 which in turn arises out of an assessment order passed by the Assessing Officer under section 144 of the Income Tax Act, 1961 [hereinafter referred to as the “Act”], dated 15.11.2010.
The grounds of appeal
raised by the assessee are as follows: “1. The Ld. CIT(A) erred on facts and law in confirming action of Assessing Officer in making assessment by invoking provisions of section 144 of the Income-tax Act.
2. The Ld. CIT(A) erred on facts and in law in not granting cross examination of Authorized Representative (i.e. Accountant) as well as Chartered Accountant who audited the accounts and enforcing their presence in the course of proceedings.
(A.Y. 08-09) Vimal C. Patel 2 3. The Ld. CIT(A) erred on facts and in law in invoking provisions of section 145(3) of the Income-tax Act by placing reliance on the audit report issued by Chartered Accountant which itself carried misleading figures.
The Ld. CIT(A) erred on facts and in laws in not taking cognizance of affidavits of appellant, accountant and other documentary evidences, furnished in the course of appellate proceedings.
5. The Ld. CIT(A) erred on facts and in law in confirming addition of Rs.5,91,138/- by estimating GP rate on non- existing turnover.
The Ld. CIT(A) erred on facts and in law in confirming addition of Rs.3,43,170/- made u/s 40(a)(ia) of the Act even though provisions of section 40(a)(ia) were not applicable and alternatively without even appreciating that Assessing Officer invoked provisions of section 145(3) and therefore, no separate addition was to be made.”
3.In this appeal, the assessee has raised multiple grounds of appeal. However, at the time of hearing, we observed that there are only two substantive grounds of appeal, viz; (i) Assessing Officer erred in making estimated addition of Rs.5,91,138/- and (ii) addition u/s 40(a)(ia) of the Act to the tune of Rs.3,43,170/-.
4.Now, we shall take first ground of the assessee, which relates to addition of Rs.5,91,138/- by estimating Gross Profit rate on non-existing turnover.
Shri Sakar Sharma, Learned Counsel for the assessee, begins by pointing out that Chartered Accountant of the assessee has shown wrong turnover in the audited profit and loss account. The wrong turnover shown in the profit and loss account was taken into consideration by the assessing officer for making estimated addition. The ld Counsel pointed out that wrong turnover/gross receiptsto the tune of Rs.4,15,29,231/-, shown in the profit and loss account should not be taken into account for making estimated addition. Without prejudice to the above, Learned Counsel also made alternative argument before the Bench stating that assessee has shown gross profit at the rate of 1.07% (@ 1,07%), whereas the assessing officer has taken gross profit rate @2.5% for making estimated addition, which is higher side, therefore a reasonable relief may be provided to the assessee.
(A.Y. 08-09) Vimal C. Patel 3 6. The Learned Counsel also pleads that since assessment order was framed by the assessing officer under section 144 of the Act, (Best judgment assessment), and addition was made by the assessing officer on estimated basis on the turnover shown by the assessee in the audited profit and loss account. Therefore, other ground-wise addition made by the assessing officer under section 40(a)(ia) of the Act may be deleted.
7.On the other hand, Learned Departmental Representative (ld. DR) for the Revenue stated that assessee under consideration has signedthe legal documents in English, therefore assessee cannot be considered illiterate and he should know how to read turnover mentioned in the profit and loss account. Apart from this, ld DR relied on the stand taken by the assessing officer and prays the Bench that addition made by the assessing officer may be sustained.
8.We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that since assessee has failed to furnish/produce the required information/details, therefore, the book resultsare not reliable and thus revenue would be justified in rejecting the books of account under section 145(2) of the Act. During the immediate preceding year, i.e. relevant to the assessment year 2007-08, the assessee has shown gross profit at the rate of 2.33% of total turnover. However, during the year under consideration, the assessee shown gross profit at the rate of 1.07%. The assessing officer made estimated addition @ 2.50% of total turnover, which is very higher side as compared to the rate shown by the assessee during the current year, that is, @ 1,07%. Therefore, we are of the view that addition @ 1.25% of the turnover will be justified, which comes to Rs.5,19,115/- ( 1.25% of Rs.4,15,29,231). Since the assessee had already shown gross profit at Rs.4,47,093/-, therefore the difference in gross profit is at Rs.72,022/- (Rs.5,19,115-Rs.4,47,093), which can be added to the total income of the assessee.
(A.Y. 08-09) Vimal C. Patel 4 Therefore, we direct the assessing officer to make the addition to the tune of Rs.72,022/-.
Now, coming to the addition of Rs.3,43,170/- made by the assessing officer u/s 40(a)(ia) of the Act. We have heard both the parties on this issue and note that since Assessing Officer had invoked the provisions of section 145(3) of the Act and rejected the books of accounts of the assessee and then framed assessment order under section 144 of the Act. Therefore, in this scenario, the line by line addition on other issues should not be made. That is, since the books of accounts were rejected by the Assessing Officer and addition was sustained based on estimate, therefore, other disallowances should be made. In this regard, reliance can be placed on the judgment of the High Court of Karnataka, in the case of Bahubali Neminath Muttin[2016] 73 taxmann.com 100 (Karnataka), wherein it was held that where books of account of assessee had been rejected by assessing authority, same books of account could not be relied upon in an addition on account of trade creditors and also for arriving at closing stock. The findings of the Hon`ble Court is reproduced below:
Alternatively, and without prejudice to the preliminary objections raised above, he would submit that, on merits it should be noted that admittedly the books of accounts of the respondent have been rejected by the assessing authority. The profit of the respondent is estimated as provided under Section 145 (3) of the I.T. Act. When the gross profit rate is applied, it would cover any infirmity and there was no need for the Assessing Officer to make a scrutiny of the amounts incurred on the purchases by the respondent. In any event, the revenue would not be in a position to rely on the rejected books of account for making the additions on account of trade creditors and also for the purpose of arriving at a closing stock. This is the view taken by atleast four High Courts in the following reported judgments: 1. Indwell Constructions v. CIT [1998] 232 ITR 776 (AP) @ 778, 779 2. CIT v. Banwari Lal Banshidhar[1998] 229 ITR 229 (All.) @ 232 3. CIT v. Aggarwal Engg. Co. [2008] 302 ITR 246/2006] 156 Taxman 40 (Punj. & Har.) @ 249 4. CIT v. Amman Steel & Allied Industries [2015] 377 ITR 568 (Mad.)”
(A.Y. 08-09) Vimal C. Patel 5 10. Therefore, respectfully following the judgment of the Hon’ble High Court of Karnataka, in the case of Bahubali Neminath Muttin(supra), we delete the addition ofRs.3,43,170/- made by the assessing officer u/s 40(a)(ia) of the Act.
11.In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 17th June, 2022
Sd/- Sd/- (T. R. SENTHIL KUMAR) (Dr. A. L. SAINI) JUDICIAL MEMBER ACCOUNTNAT MEMBER Ahmedabad, dated 17/06/2022 TRUE COPY SAMANTA आदेशक���त�ल�पअ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent. 3. संबं�धतआयकरआयु�त/ Concerned CIT 4. आयकरआयु�त(अपील) / The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण/ DR, ITAT, 6. गाड�फाईल / Guard file. आदेशानुसार/BY ORDER,