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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: DR. ARJUN LAL SAINI & SHRI T.R. SENTHIL KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD ]] BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER Assessment Years : 2016-17 Tarpawankumar Ramprasad Income-Tax Officer, Sandhir, Vs Ward 1(3)(5), 249, Bhavanpura Pith, Ahmedabad Opp. Raipur Gate, Ahmedabad-380001 PAN : ACVPS 7030 F अपीलाथ"/ (Appellant) "" यथ"/ (Respondent) Assessee by : None Written submission on record Revenue by : Shri R.R. Makwana, Sr. DR सुनवाई क" तार"ख/Date of Hearing : 18/04/2022 घोषणा क" तार"ख /Date of Pronouncement : 22/04/2022 आदेश/O R D E R PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER : This is an appeal filed by the assessee against the order dated 04.09.2019 passed by the learned Commissioner of Income Tax (Appeals)-10, Ahmedabad [hereinafter referred to as the “CIT(A)”] relating to the Assessment Year 2016-17. 2. The assessee has raised following grounds in his appeal:- 1 The order passed u/s 143(3) of the I.T. Act, 1961 by the income tax officer is bad in law and requires to be cancelled. 2. In law and in the facts as well as the circumstances of the appellant's case, the A.O. has erred in making additions for the assessment year 2016-17 when no such additions were warranted. Those may be deleted. 3. Without Prejudice to the ground at Sr. No (2) above, the learned Assessing officer has followed an erroneous method in arriving at the time of making additions of Rs.83,79,060/- to the income. 4. The disallowances made in the assessment order are without appreciating in the facts and evidences in proper perspective and highly debatable. Tarpawankumar Ramprasad Sandhir Vs. ITO AY : 2016-17 2 A. Disallowance of other expenses relating to transport, salary, interest, rent and other expenses, as all are assessee's business expenses considered at @3%. Disallowance of such expenses that as per nature of business is transport so, work is continue to meet the challenges 24*7 either by me or my staff to compete with competition. Even CIT(A) has also restricting such disallowance @ 0.60% Rs. 17,95,810 and other all allowed in my favour. This confirmed additions also requested to be allow through praying/filing this appeal. 3. The brief facts of the case are that the assessee is an individual who is engaged in the transportation business. The assessee has filed his return of income for the Assessment Year 2016-17 on 28.09.2016 declaring total income at Rs.3,04,080/-. The case of the assessee was selected for scrutiny assessment through CASS and statutory notices under Section 143(2) of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] were issued from time to time. The Assessing Officer issued a show-cause notice dated 16.11.2018 asking for specific expenses ledgers along with supporting invoices/bills/vouchers for the month of June, 2015 and March, 2016. However, the assessee has not replied to the show-cause notice with proper evidences. On perusal of the ledgers of expenses as submitted by the assessee and information available on record, the Assessing Officer noticed that most of the payments of expenses had been made in cash, but the assessee has not even submitted its complete cash book for the year under consideration. Thus, in the absence of any invoices/bills/vouchers, complete cash book etc., the genuineness and correctness of expenses could not be verified by the Assessing Officer. Keeping in mind that the assessee is engaged in the transportation business but he could not submit any documentary evidences to substantiate his claim, 3% of the total other expenses of Rs.27,93,02,001/- as claimed by the assessee in his return of income for the Assessment Year 2016-17, i.e. Rs.83,79,060/- is disallowed by the Assessing Officer and added Tarpawankumar Ramprasad Sandhir Vs. ITO AY : 2016-17 3 back to the total income of the assessee. The Assessing Officer thus completed the assessment by determining the total income at Rs.86,83,140/- vide order dated 21.12.2018 passed under Section 143(3) of the Act. The Assessing Officer also initiated penalty proceedings under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income.
Aggrieved by the assessment order, an appeal was preferred by the assessee before the learned CIT(A). However, the learned CIT(A) vide his detailed order dated 04.09.2019 estimated the net profit of the assessee at 0.60% of his total turnover which comes to Rs.17,95,810/- and thus reduced the disallowance to that extent and partly allowed the appeal of the assessee. The reasons given by the learned CIT(A) to arrive at this conclusion, as contained in his impugned order, are as under:
“4.1 There is always difficulty in cross verification of information if the payment is made in cash. The AO has faced this difficulty and estimated the profits. Responsibility is cast upon appellant to explain to the satisfaction of AO the expenses claimed as deduction in Return of Income. If AO after examining the explanation and evidences on record, is of the opinion that the expenses are not wholly and exclusively incurred for furtherance of business or earning of business income, then the AO is duty bound to proportionately disallow such expenses. The addition gets support from the ratio laid down in following cases: (a) CIT v. Motor General Finance Ltd. 254 ITR 449(Delhi): wherein it has been held that since the assessee in spite of several opportunities did not produce the relevant documents, an inference in terms of section 114 of the Evidence Act. (b) CIT v Krishnaveni Ammal (1986) 158 ITR 826,829,830 (Mad.) wherein it has been stated that the law of evidence mandates that if the best evidence is not placed before the court an adverse inference can be drawn as against the person who ought to have produced it. Tarpawankumar Ramprasad Sandhir Vs. ITO AY : 2016-17 4
(c) Jayshree Roy Chowdhary Vs. DCIT - 92 ITD 400 (Kol.) In view of the ratio laid down in the case laws (supra), I am of the opinion that the AO has correctly rejected book results and estimated the profits in this case. However, it is to be seen as to whether such disallowance is reasonable or not? The undersigned is aware about the business model but the book results are appearing doubtful as can be seen below: Tarpawankumar Ramprasad Sandhir Statement Showing Comparison of Income details And other Expenses A.Y Returned Assessed Gross Net Profit Other Exp. Remark Diff Income Income Profit Details 2012-13 1043850 1148840 39005473 1099330 138341155 Addition For tax Paid 15.21% 0.73% IT Refund Interest Mediclaim Exp & Donation Tax Paid - No Appeal- 2013-14 1053292 1068388 22212406 1 1 50925 50321048 Addition For Car Exp 13.32% 0.69% & IT Refund. Appeal Preferred But Tax Paid
2014-15 1286054 1399060 25470453 1214901 72801768 Addition For Car Exp 12.11% 0.58% & TDS Interest - Tax Paid. 2015-16 -4103819 N.A. 31923712 -4055169 244566323 Due To Depreciation 12.67% On Truck - Loss. 2016-17 304082 8683140 38209457 -56074 279302001 Due to Depreciation 13.23% on Truck Law Income. Addition For Other Exp Not Warranted Prayed In Appeal
The net profit which was 0.73% in A.Y. 2012-13 has come to negative in A.Y. 2016-17 as can be seen chart above. The business model has not changed. The expenditure have to be in consonance to turnover. It is unfair to the department not to get even single paisa in taxes in turnover of crores of Rupees (Rs. 27.93 crores). Hon'ble Supreme Court in the case of CIT vs. British Paints India Ltd. 188 ITR 44 (SC) has held that, "it is duty of AO to correctly deduce the income, no principle of estoppels as AO is not bound by the method followed in earlier years." Therefore, the decision of the AO gets support from the ratio laid down by the Hon'ble Supreme Court. The decision also gets support from CIT v/s. Saatal Kattha and Chemicals Pvt. Ltd. 296 ITR 197 (MP). In view of above facts, the decision for rejection of books of account by the AO is upheld. Having, rejected decision of book results as the same is not showing the reasonable and logical results, the question arises at what level the net book results can be considered so as to convey the Tarpawankumar Ramprasad Sandhir Vs. ITO AY : 2016-17 5 decision which can pass the test at judicial process. Hon'ble Karnataka High Court in the case of Shankar Khandsari Sugar Mills Vs. CIT 193 ITR 669 (Kar.) has observed that "In the absence of any prejudice to the revenue, and the basis of the tax under the Act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the Income-tax Officer could have done, the appellate authority also could do." I am sure that the estimation or net profit has to be done as books of accounts are not showing genuine taxable income. In the circumstances, I have kept in mind the net profit in similar other comparable cases and the net profit shown by the appellant itself in earlier years. Therefore, as the expenditure cannot be cross verified, it would be fair to estimate the net profit at 0.60 percent of the turnover which comes to Rs.17,95,810/-. In other words, the taxable income is computed to be at Rs.17,95,810/- on the total turnover Rs. 27,93,02,001/-. The ground of appeal is partly allowed.”
During the course of hearing before us, none appeared on behalf of the assessee; however, a paper book was filed by the assessee vide letter dated 10th January, 2022 along with following submissions:- a) P&L accounts for the years b) Statement of showing comparison of GP & NP and depreciation effects c) Due to govt. formats such expenses are not depicted hence entries made under the head of other exp. d) The AO had estimated gross profit without considering the same e) Audited P&L account also shows direct as well as indirect exp. f) Even CIT(A) after considering the said addition of 3% reduced at 0.60% g) Praying for giving favour for allowing appeal
Per contra, the learned Departmental Representative submitted that the addition of 3% of the total of other expenses made by the Assessing Officer to the total income of the assessee has been reduced to 0.60% of the Net Profit by the learned CIT(A) Tarpawankumar Ramprasad Sandhir Vs. ITO AY : 2016-17 6 which is also not correct, in the absence of necessary evidences and requested to restore the disallowance made by the Assessing Officer.
We have given our thoughtful consideration to the orders of the authorities below and also perused the material placed on record including paper-book filed by the assessee. Undoubtedly, the Assessing Officer made disallowance @ 3% of the total of other expenses and the learned CIT(A) determined the net profit at 0.60% on the total turnover of Rs.27,93,02,001/-. As it can be seen from the statement showing comparison of income details and other expenses which is at page no.5 of the CIT(A)’s order relating to the AY 2012-13 to 2016-17, the net profit of 0.73%, 0.69% and 0.58% were being made by the assessee relating to the AY 2012-13 to 2014-15. For AY 2015-16 and 2016-17, though the gross profit of 12.67% and 13.23% were offered by the assessee, but claimed loss of (-)Rs.40,55,169/- and (-) Rs.56,074/-. The assessee could not able to establish as to why such a drastic loss in the net profit comparing to the earlier assessment years. Further, the gross profit for the Assessment Year 2015-16 shown by the assessee is 13.23% and claimed a loss of (-) Rs.56,074/- which is also not seems to be a correct proposition since no evidence is produced before us to establish the loss claimed by the assessee. The reason given by the assessee that the loss is due to depreciation on trucks, the same could have been explained before the lower authorities which has not been done by the assessee but the expenses incurred is not proved with proper evidences and mostly done by cash mode. After going through the order of the learned CIT(A), we are not in agreement with the order of the learned CIT(A) in estimating the profit at 0.60% on the net profit when the assessee has not produced any evidences on the claim of expenses. In the above circumstances, we are of the considered opinion that it would serve the interest of Tarpawankumar Ramprasad Sandhir Vs. ITO AY : 2016-17 7
justice, if we restrict the disallowance to 1% of the total turnover of Rs.27,93,02,001/-, i.e. Rs.27,93,020/-. Thus, the Assessing Officer is directed to restrict the disallowance to 1% of the total turnover of Rs.27,93,02,001/-, i.e. Rs.27,93,020/- and pass appropriate order.
In the result, the appeal filed by the assessee is allowed to the extent indicated above.
Order pronounced in the open Court on 22nd April, 2022 at Ahmedabad. (DR. ARJUN LAL SAINI) (T.R. SENTHIL KUMAR) ACCOUNTNAT MEMBER JUDICIAL MEMBER Ahmedabad, Dated 22/04/2022 *Bt आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant 2. ""यथ" / The Respondent. 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त ( अपील ) / The CIT(A)- 5. "वभागीय ""त"न"ध आयकर अपील"य अ"धकरण/DR,ITAT, Ahmedabad, , 6. गाड" फाईल /Guard file.
आदेशानुसार/ BY ORDER,सहायक पंजीकार (Asstt.