TULSIDAS VIRJI CHOTHANI,MUMBAI vs. INCOME-TAX OFFICER WARD 27(3)(1), MUMBAI, MUMBAI

The brief facts of the case are that the assessee is an individual and has a business of exporting various items. For the year under consideration, the assessee filed its return of income on 08/03/2017, declaring a total income of 5,18,564. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was noticed that the assessee had exported goods of Rs. 64,84,157. However, from the perusal of the return of income, it was observed that the assessee had shown a turnover of Rs. 10,16,637. Since, the assessee has shown less turnover by Rs. 54,67,520 (Rs. 64,84,157 minus Rs. 10,16,627 equal to Rs. 54,67,520), the assessee was asked to show cause as to why an amount of Rs. 27,88,425, being 51% (the profit percentage declared by the assessee) of Rs. 54,57,520 be not added to total income of the assessee. In response, the assessee submitted that it duly disclosed the turnover of Rs. 64,57,550 in its profit and loss account and computed the income of Rs. 5,18,564, which was duly offered to tax under section 44AD of the Act, being 8.03% of the turnover. The assessee further submitted that at the time of filing the return of income, inadvertently, the amount of gross profit was also entered in the column of gross receipts, which is a completely inadvertent and bona fide error.

The Assessing Officer (“AO”), vide order dated 28/11/2018 passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that the assessee was not maintaining the books of accounts as turnover was reflected in column 53, which pertains to the cases where regular books of account of business or profession are not maintained. The AO held that the assessee’s reliance upon the profit and loss account and balance sheet showing full turnover is not maintainable and is merely an afterthought. The AO placed reliance upon the decision of the Hon’ble Supreme Court in Goetze India Limited v/s CIT, reported in (2006) 157 Taxman 1 (SC), and held that even if the assessee had wrongly shown its turnover in the original return of income, it was required to file the revised return of income within the provisions of the Act. Thus, it was held that a mere claim for correct turnover is not maintainable without filing a valid revised return of income, which the assessee has failed to do. Accordingly, the AO made an addition of Rs. 27,88,435.

The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee on this issue, by observing as follows: –

We have considered the submissions of both sides and perused the material available on record. The assessee in the profit and loss account of its proprietary concern, in the name and style of Chothani International, for the year ending 31/03/2016, forming part of the paper book on page 9, declared turnover from export sales of Rs. 64,57,550. After reducing the direct expenditure, the assessee computed a gross profit of Rs. 10,16,638. However, we find that while filing its return of income, for the year under consideration, in column 53, the assessee declared a gross receipt of Rs. 10,16,637. It is further evident that the assessee declared a similar amount, i.e. Rs. 10,16,637, as its gross profit. Thus, the assessee arrived at a net profit of Rs. 5,18,564 by reducing expenses of Rs. 4,98,073. As per the assessee, while filing its income tax return, it erroneously entered the same amount of gross profit and gross receipts. The tabular representation of the error committed by the assessee, as furnished before the lower authorities, is reproduced as follows: – Table No. of Particulars Reported in ITR Correct Disclosure Income Tax return 53a Gross Receipts 10,16,637 64,57,550 53b Gross Profits 10,16,637 10,16,637 53c Expenses 4,98,073 4,98,073 53d Net Profit 5,18,564 5,18,564

It is further the plea of the assessee that it has computed its income under the deeming provisions of section 44AD of the Act and thus declared a net profit at 8.03%. However, the Revenue disagreed with the assessee's submissions and treated the difference between the total export, as per the ITD system, amounting to Rs. 64,84,157, and the total turnover declared in the return of income, amounting to Rs. 10,16,637, as the suppressed turnover of the assessee. The AO, as well as the learned CIT(A), placing reliance upon the decision of the Hon’ble Supreme Court in Goetze India Limited (supra), held that a mere claim of incorrect turnover is not maintainable without filing a valid revised return of income.

As regards the difference in turnover, i.e. Rs. 64,84,157, and turnover of Rs. 64,57,550 declared in the profit and loss account, the learned AR submitted that the same is due to the exchange fluctuation as the entire receipts of the assessee are on account of export. From the perusal of the return of income, forming part of the paper book from pages 45-74, we find that the assessee specifically declared in the return that the accounts were not maintained as per section 44AA and the same have not been audited under section 44AB of the Act.

In the present case, it is pertinent to note that on one hand, the AO treated the reliance placed by the assessee on the profit and loss account and balance-sheet showing full turnover as an afterthought, while on the other hand, the learned CIT(A) held that once the regular books are maintained, income is to be computed on the basis of such books and not by presumptive estimation. However, none of the authorities disputed the turnover declared by the assessee, which, in any case, is only slightly less than the turnover as per the ITD system. Further, it is also not disputed that even though the assessee has prepared its profit and loss account and balance-sheet, however, the same were not audited as per the provisions of the Act. Accordingly, we find merit in the submission of the assessee that since regular books of accounts or business or profession are not maintained as per the provisions of the Act, the income was declared under the deeming provisions of section 44AD of the Act. Further, we are of the considered view that the gross turnover declared in the return of income appears to be merely an inadvertent error, as no concern can make 100% gross profit on the export sales, as some amount of direct expenditure in the form of purchase cost, freight charges, etc., will always be incurred, and the same cannot be ignored in running an export business. Therefore, in view of our aforesaid findings, we do not find any merit in the impugned addition made by the AO and upheld by the learned CIT(A). Thus, the same is directed to be deleted. As a result, the grounds raised by the assessee are allowed.

In the result, the appeal by the assessee is allowed.