ADTIYA PAREEK,JAIPUR vs. DCIT, SIKAR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh HkkxpUn] ys[kk lnL; ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA No. 108/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2008-09 cuke Shri Aditya Pareek The DCIT Vs. Housing Board Colony Circle- Sikar Shivsinghpura, Sikar (Raj.) Sikar LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ANZPP 2652 B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by: Ms.Sadaf Raies, CA jktLo dh vksj ls@ Revenue by :Shri R.A. Verma, Addl.CIT-. DR lquokbZ dh rkjh[k@ Date of Hearing : 26/04/2017 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 28 /04/2017 vkns'k@ ORDER PER BHAGCHAND, AM The assessee has filed an appeal against the order of the ld. CIT(A)-III, Jaipur dated 12-11-2012 for the assessment year 2008-09 raising therein following ground:- ‘’On the facts and circumstances of the case, the ld. CIT(A) has erred in directing the AO to calculate net profit @ 57.5% instead of 32.32% as declared by the assessee.’’

2 ITA No.108/JP/2017 Shri Aditya Pareek vs. DCIT, Circle- Sikar .

2.1 During the course of hearing, the ld. AR of the assessee submitted

that the assessee has filed the appeal late by 1448 days for which an

application for condonation of delay has been filed by the ld. AR of the

assessee with following prayer.

‘’It is to bring to your kind notice that an assessment order was passed by the ld. CIT(A)-III, Jaipur on 12th Nov. 2012 in the case of Shri Aditya Pareek for the assessment year 2008-09 vide ITA No. 351/Jaipur/10-11. the order was served on the address of the assessee which was available with the Department. The assessee was working as a business development consultant but due to suffering losses and other reasons with the Department he switched to a job out of his home town. As the assessee was not residing at the address available with the Department, he received the assessment order from his relatives when he came to his town for attending some marriage function. Immediately on receipt of the same and aggrieved by the said assessment order, the assessee met his legal counsel and decided to prefer an appeal before your kindself. He duly deposited the fees on 9th March 2013 vide challan no. 68346 dated 9-03-2013 BSR code 0220123 amounting to Rs. 10,000/-. The ld. counsel also made all the preparations for filing the appeal but due to oversight and negligence on the part of the clerical staff of the counsel of the assessee the same cannot be submitted to your kindself. To this effect the assessee has filed an affidavit praying to condone the delay.’’

To this effect, the ld. AR of the assessee relied on the decision of

ITAT,Kolkata Bench in the case of Krishnendy Chowdhary vs. ITO,

Ward- (Kolkata Tribunal) 2017, , ITAT Bengalore Bench in the case of

NMS Communication (P) Ltd. vs. CIT Circle-, 12(), Bangalore and ITAT

3 ITA No.108/JP/2017 Shri Aditya Pareek vs. DCIT, Circle- Sikar . Cochin Bench in the case of Minar Alloys & Forgins (P) Ltd. vs. ACIT in

ITA No. 130 & 131/Coch/2015.

2.2 On the other hand, the ld. DR opposed the condonation application

of the assessee.

2.3 I have heard the rival contentions and perused the materials

available on record. I am of the considered view that in the given facts

and circumstances of the case and also in view of the decision of Hon'ble

Hon'ble Apex Court in the case of Collector, land Acquisition vs. MSt.

Katiji and Brothers, 167 ITR 471 (SC), the delay in filing the appeal is

condoned

3.1 As regards the solitary issue of the assessee, the facts as emerges

from the order of the ld. CIT(A) is as under:-

‘’0.2 The only ground of appeal is against the estimation of net profit @ 70% of the total gross receipts. 02.1 The appellant is a business development consultant and received commission of Rs. s20,24,250/- from M/s. Priya Home Study (P) Ltd. in A.Y. 2008-09. In the return of income filed, he declared income of Rs. 6,54,260/- after claiming various expenses against the commission receipt. During the assessment proceedings, assessee could not produce any books of accounts and bills/ vouchers, claiming that the same have been lost. A.O. noticed that the commission receipts of the assessee were linked to the number of persons who became members of M/s. Priya Home Study (P) Ltd. by way of depositing fix amount. The profession of assessee was quite similar to that of the LIC commission agent, requiring only personal canvassing by assessee. AO therefore, applied he Board Circular number 684 dated 30-03-1993 and allowed adhoc deduction of expenses @ 30% of the gross commission receipts. It was also noticed by AO that assessee had claimed expenses under various heads e.g. advertisement, entertainment, conference,

4 ITA No.108/JP/2017 Shri Aditya Pareek vs. DCIT, Circle- Sikar . printing and stationery, commission, hotel and guest house, promotion, office expenses etc. Prima facie, no such expenses were supposed to be incurred by the assessee. In the preceding year, assessee has shown net profit @ 57.50% of the gross commission receipts. Considering all these facts, AO estimated the net profit @ 70% of the gross commission receipts.

02.2 Ld AR in his written submission filed during the appeal proceedings stated that the expenses claimed by the appellant were very reasonable and were essential to procure the business. AO ha wrongly applied the aforesaid Board Circular which is applicable to only LIC Agents whose receipts were not more than Rs. 60,000/-. AO has failed to consider the comparable case of Shri Narendra Singh, who has also received commission from M/s. Priya Home Study (P) Ltd. for the same work. He was assessed at the net profit @ 26% of gross receipts. Since the appellant has declared net profit @32.32%, the same should be accepted. 02.3 I have considered the arguments of the appellant and the material available on record. I agree with the ld. AR that the Board Circular followed by the AO is not applicable in the case of the appellant. However, the appellant has failed to substantiate the expenses claimed by him, onus of which entirely lie as per the provisions of Section 37(1) of the Act. The comparable case of Shri Narendra Singh cited by the ld. AR , is also not applicable in the absence of full facts of that case where AO made lumpsum disallowance of Rs. 2,00,000/-. The correct basis for estimating the net profit of an assessee is his past history only as held in various Court decisions. Accordingly, AO is directed to estimate the net profit of the appellant @ 57.5% of the gross commission receipts, as declared by the assessee himself in the preceding year. 0.3 In the result, the appeal is partly allowed.’’

3.2 During the course of hearing, the ld. AR the assessee prayed that

the ld. CIT(A) has erred in directing the AO to calculate the net profit @

57.5% instead of 32.32% as declared by the assessee. The ld. AR of the

assessee also relied on the decision dated 25-05-2016 of the ITAT

Coordinate Bench in the case of Satya Prakash Choudhary vs. DCIT,

5 ITA No.108/JP/2017 Shri Aditya Pareek vs. DCIT, Circle- Sikar . Circle- Jhunjhunu in ITA No. 410/JP/2013 for the A.Y. 2008-09 praying

that the issue of the assessee is covered by the decision of ITAT in the

case of Satya Prakash Choudhary (supra) and thus the appeal of the

assessee may be allowed.

3.3 On the other hand, the ld. DR relied on the orders of the lower

authorities.

3.4 I have heard the rival contentions and perused the materials

available on record. Brief facts of the case are that the assessee was

deriving commission income from M/s. Priya Home Study Private Ltd.

where the assessee was acting as Business Development Consultant. The

assessee procured the business from general public and got some

commission towards his contribution. During the year, the assessee had

earned gross commission of Rs. 20,24,250/- from M/s. Priya Home Study

Private Ltd. and declared net profit of Rs. 6,54,260/- i.e. 32.32% of gross

receipts of Rs. 20,24,250/- in his return of income filed for the assessment

year 2008-09. The case of the assessee was selected for scrutiny u/s

143(3) of the Act for the year under consideration and the AO made

adhoc deduction of 30% from gross receipts of Rs. 20,24,250/-and

remaining 70% of Rs. 20,24,250/-was considered as income of the

assessee treating the assessee as LIC agent. In first appeal the ld.

6 ITA No.108/JP/2017 Shri Aditya Pareek vs. DCIT, Circle- Sikar . CIT(A) restricted the addition to 57.50% instead of 70% thereby

confirming the addition to the extent of Rs. 5,09,706/-. It is noted that the

similar issue has been decided by the Coordinate Bench vide its order

dated 25-05-2016 in the case of Satya Prakash Choudhary vs. DCIT

(supra) by observing as under:-

‘’3. Brief facts of the case are that the assessee is an individual deriving income from commission received from M/s. Priya Home Study Pvt. Ltd., a company engaged in multi level marketing business. The assessee has filed return on 13.01.2009 declaring an income of Rs. 8,75,491/- for the year under consideration. The case of the assessee was scrutinized under section 143(3) and the assessment was completed on 24.01.2011 determining the total income at Rs. 18,70,250/-. 3.1. During the course of assessment proceedings, on being asked by the AO to produce the books of account, the assessee vide order sheet entry dated 08.03.2010 admitted that no books of accounts are available, though in the Audit Report filed in Form No. 3CD on 19.02.2010 it is mentioned that cash book, ledger and vouchers etc are maintained. The AO, therefore, for non-maintenance/non-production of books of accounts, invoked provisions of section 145(3) of the IT Act and accordingly proceeded to decide the case of the assessee as under. 3.2. The AO while scrutinizing the case of the assessee, noticed that the assessee has claimed various expenses as mentioned under various heads, in Profit & Loss account, as under :-

Sr. Expenses Total Expenses Percentage Amount Amount disallowed Disallowed 1. Salary 3,60,000.00 1% 3,600.00 2. Conference Expenses 5,25,715.00 3% 15,771.00 3. Travelling Expenses 4,25,875.00 2% 8,517.00 4. Other Expenses 75,250.00 30% 22,575.00

7 ITA No.108/JP/2017 Shri Aditya Pareek vs. DCIT, Circle- Sikar . 5. Hotel Boarding & Lodging 4,75,825.00 10% 47,580.00 6. Festival 45,285.00 Lump-Sum 20,000.00 7. Donation 4,00,000.00 100% 4,00,000.00 8. Commission 4,37,250.00 100% 4,37,250.00 9. Conveyance 45,285.00 20% 9,057.00 10. Telephone 54,250.00 20% 10,850.00 11. Depreciation 97,804.00 20% 19,560.00 TOTAL 9,94,760.00

Since the assessee has failed to produce necessary bills/vouchers/details of expenses incurred by the assessee, the AO comparing with the similar other cases, made the disallowances percentage-wise as mentioned herein above against the respective heads totaling to Rs. 9,94,760/-. The AO observed that the assessee has not been able to prove that entire expenses have been incurred wholly and exclusively for the purpose of business within the meaning of section 37(1) of the IT Act. The AO held that the most important element for an expenditure to be allowed as deduction is commercial expediency of that expenditure. Mere existence of an agreement between the assessee and its selling agent or payment of certain amount as commission to the selling agent will not bind the ITO to hold that the payment was made wholly and exclusively for the purposes of assessee’s business. In the instant case, the assessee has failed to prove that the expenses incurred are wholly and exclusively for the purpose of business, therefore, he disallowed an amount totaling to Rs. 9,94,760/- and added to the total income of the assessee. ….

5.11. We have heard the rival contentions and perused the material available on record. In the instant case books of accounts have been rejected u/s 145(3) of the Act and the estimation of income has been made by the AO by making comparison with certain other assessees in apparently similar line of business. In this regard the Courts have held that the estimate of income under the best judgement assessment should have fair link or nexus with the available material and information related to the taxpayer. It is also been held by the Courts that where books of accounts of the assessee are rejected, the estimation of GP/NP rate should be on the basis of comparable cases

8 ITA No.108/JP/2017 Shri Aditya Pareek vs. DCIT, Circle- Sikar . and where there is no substantial change in the factual position of the assessee, profit declared and accepted in the previous year constitute good basis for estimating the GP/NP Rate. In this regard, useful reference can be drawn to the decision of Hon’ble Supreme Court in the case of Brij Bhushan Lal Purdan Kumar 115 ITR 540, The State of Kerala vs. C. Velukutty 60 ITR 239, and Inani Marbles Pvt. Ltd.(2009) 316 ITR 125 (Raj.)(HC). In the instant case, the ld. AO has stated that he has carried out the comparison of the expenses claimed by the appellant with other similar assessees in the similar line of business. It is noted from perusal of the records that besides listing down the name of the comparable cases, the AO has not spelt out how such cases are comparable with that of the appellant and the basis of disallowance of the various expenses which vary from 1% to 30% of the respective expenses. In absence of third party comparables, merely by saying that appellant has claimed excessive expenses are not sustainable in the eyes of law. In our view, the approach of the AO is clearly arbitrary and is devoid of any rational and fair basis for estimating the income of the assessee. Further, it is noted that during the year under consideration, the appellant has declared N.P rate of 20.91% on total receipt of Rs. 41.87 lacs as against N.P rate of 20.15% on total receipt of Rs. 7.54 Lacs in the preceding year. Where the approach followed by the AO is approved, it could result in the N.P rate of 44.66% which is clearly on an extremely higher side and cannot be said to be a clear indication of the N.P rate in this line of business and will be arbitrary in nature. In absence of comparable cases, we are therefore of the view the past history of the appellant is the best guide to estimate the N.P. rate and given that the N.P rate of 20.91% is better than 20.15% of the preceding year, the appellant does not deserves N.P based addition/disallowances in its hands inspite of the fact that the books of accounts have been rejected. In this regard useful reference can be drawn to the decision of Hon’ble Rajasthan High Court in the case of Gotton Lime Khanij Udhyog 256 ITR 243 where the Court has held that mere rejection in the books of account would not mean that it must necessarily lead to additions to the return income.’’

Taking into consideration of the arguments of the both the parties and

decision of the Coordinate Bench in the case of Satya Prakash Choudhary

(supra), it is observed that the facts and circumstances of the present case

are similar to the facts and case of Shri Satya Praksh Choudhary (supra),

therefore, the ld. CIT(A) is not justified in directing the AO to calculate

9 ITA No.108/JP/2017 Shri Aditya Pareek vs. DCIT, Circle- Sikar . the net profit @ 57.50% instead of 32.32% as declared by the assessee. Thus the appeal of the assessee is allowed. 4.0 In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 28/04/2017. Sd/- ¼HkkxpUn½ (Bhagchand) ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28 /04/ 2017 *Mishra आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Aditya Pareek. Jaipur izR;FkhZ@ The Respondent- The DCIT,Circle- Sikar 2. 3. vk;dj vk;qDr¼vihy½@ CIT(A). vk;dj vk;qDr@ CIT, 4. 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZ QkbZy@ Guard File (ITA No. 108/JP/2017 ) 6. vkns'kkuqlkj@ By order,

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