BHARAT SHYAMSUNDER GUPTA,MUMBAI vs. ITO WARD- 31(1)(3), MUMBAI

The above titled two appeals have been preferred by the assessee against the common order dated 22.02.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2014-15.

The only issue challenged by the assessee in the various grounds of appeal is against the confirmation of addition of Rs.9,00,000/- by Ld. CIT(A) as made by the AO by estimating

The facts in brief are that the assessee filed his return of income on 28.07.2014 declaring an income of Rs.4,67,620/-. Thereafter, the return was revised on 28.02.2016 declaring income of Rs.10,52,940/-. During the course of assessment proceedings, the AO noticed that in the revised return the assessee has disclosed income on presumptive basis under section 44AE of the Act at Rs.9,00,000/- and accordingly asked the assessee to submit the details of vehicle loan and hire charges, the income whereof was offered to tax on presumptive basis under section 44AE. The assessee submitted before the AO that income was offered to tax under section 44AE as the assessee has not maintained any books of accounts during the year. However, the assessee filed copy of bank statements, TDS form etc., list of motor vehicles run during the year. The AO also issued notice under section 133(6) of the Act to various parties who have availed services of the assessee during the year. The AO found during the course of assessment proceedings that income and expenditure filed by the assessee show a gross receipt of Rs.1,69,30,936/- against which expenses of Rs.1,60,30,935/- were claimed. According to the AO the receipt and expenses of the assessee were not correlating and corroborating with the bank statement. The AO noted that the turnover of the assessee has exceeded the limit of Rs.1,00,00,000/- and therefore the case of the assessee is covered by the provision of section 44AE of the Act and accordingly initiated penalty proceedings under section 271B of the Act. The AO noted that the return of income was filed under 3 & 2239/M/2019 Bharat Shyamsundar Gupta section 44AD despite the fact that turnover was exceeding Rs.1,00,00,000/-. Thereafter the assessee filed the revised return only when the case was selected for scrutiny and trying to take shelter under section 44AE which was also not applicable to the assessee. Vide show cause notice dated 16.12.2016 the turnover of the assessee was determined at Rs.1,80,00,000/- whereas the turnover was shown by the assessee was only Rs.1,69,30,936/- and assessee was called upon to explain the same. Thereafter, the AO after analyzing the comparative net profit shown over the years from 2011-12 to 2016-17 estimated income of the assessee by applying GP of 10% by taking the turnover at Rs.1,80,00,000/- and thus made addition of Rs.9,00,000/- to the income of the assessee while framing assessment order dated 26.12.2016.

The Ld. CIT(A) affirmed the order of the AO by holding that addition made by the AO by applying rate of 10% of the gross receipt is reasonable keeping in view the past history of the assessee by rejecting the contentions of the assessee that assessee has only 10 vehicles and 11th vehicle was taken on hire which did not belong to the assessee and thus rejected the theory coined by the assessee that income should be assessed under section 44AE of the Act.

After hearing both the parties and perusing the material on record, we observe that in this case the assessee has first filed the return of income under section 44AD which was subsequently revised and filed under section 44AE. The assessee has 11 trucks whereas in the previous year assessee had only 10 trucks. It was contended before us that the 4 & 2239/M/2019 Bharat Shyamsundar Gupta turnover of the assessee was only Rs.1,69,30,936/- and not Rs.1,80,00,000/- as estimated by the AO. The Ld. A.R. submitted that the AO has included the amount of cheque dishonoured Rs.4,99,778/- maturity proceeds of FDRs, refund of loans etc. We find that the similar submissions were made by the assessee before the authorities below and in such type of cases if the percentage is to be applied on the turnover, the turnover has to be taken excluding the transfer entries, maturity proceeds of FDR ,amount of cheques dishonoured and refund of loan etc. Therefore, we are of the view that the turnover of the assessee should be taken at Rs.1,69,30,936/- and it would be reasonable and fair to bring to tax the income of the assessee @ 8% instead of 10% estimated by the authorities below. Accordingly, we direct the AO to apply a rate of 8% on Rs.1,69,30,936/- by setting aside the order of Ld. CIT(A).

Appeal is partly allowed.

The only issue raised by the assessee is against the confirmation of penalty for not getting the accounts audited and filing the audit report under section 44AB of the Act when the gross turnover of the assessee has exceeded Rs.1,00,00,000/-.

The facts have already been narrated in ITA No.2238/M/2019. The turnover of the assessee exceeded Rs.1,00,00,000/- and accordingly the AO issued show cause notice as to why the penalty should not be imposed under section 271B of the Act for not complying with the provisions of section 44AB and finally levied for passing the order under 5 & 2239/M/2019 Bharat Shyamsundar Gupta section 271B of the Act. The assessee submitted before the AO that the provisions of section 44AB were not applicable to the assessee as the return has been filed under section 44AE of the Act on presumptive basis. The assessee has filed revised return of income disclosing the income at Rs.10,52,940/- as against the income of Rs.4,67,620/- filed under section 139(1) on 28.07.2014. The assessee contended that the return was filed under section 139(5) of the Act and therefore provisions of section 271(B) were not applicable which were brushed aside by the AO and imposed a penalty of Rs.90,000/- for not getting accounts audited under section 44AB of the Act as there was no reasonable cause for non complaining with the said provision.

The Ld. CIT(A) affirmed the order of AO by holding that assessee has violated the provisions of section 44AB of the Act as the turnover has exceeded Rs.1,00,00,000/- and it was mandatory to get the accounts audited and there being no reasonable cause for not complaining with the provisions of the section, the penalty was rightly imposed.

After hearing both the parties and perusing the material on record, we observe that the assessee is a small assessee operating 11 trucks and the turnover of the assessee is Rs.1,69,30,936/- and apparently the provisions of section 44AB were applicable. However, the assessee failed to comply with the said provisions under the wrong belief that if the income on the vehicles are estimated on presumptive basis under section 44AE of the Act then no audit is required to be conducted under section 44AB. The assessee has not maintained any books of accounts and whatever information was filed before the AO were 6 & 2239/M/2019 Bharat Shyamsundar Gupta filed on the basis of bank statement. In our opinion, this is a case of small truck operator who are not organized and operates in a very different set of circumstances. We are, therefore of the view, that in such type of cases when there are no books of accounts and income is estimated on adhoc basis by applying GP on the basis of past pattern of earning of the assessee, the issue of imposition of penalty should not be taken leniently . We therefore deem it fit and reasonable to delete the penalty on the ground that assessee was under bonafide belief that the truck income was either to be assessed under section 44AD or 44AE of the Act. Accordingly, the penalty is ordered to be deleted and the appeal is allowed.

In the result, is partly allowed and ITA No.2239/M/2019 is allowed.