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Facts
The assessee's appeal was initially barred by limitation, but the delay was condoned. The Assessing Officer (AO) made an addition to the assessee's income based on an estimated profit rate of 4% on the declared turnover, after the assessee admitted to understating the turnover. The assessee argued that the AO should have rejected the books of accounts before making an estimated addition.
Held
The Tribunal found that while the assessee's contention regarding the need to reject books of accounts had some merit, the assessee was not entitled to complete relief. Considering the inconsistencies in the submitted documents and evidence, the Tribunal directed the AO to make an addition at a net profit rate of 3.50% on the gross turnover, instead of the previously determined 4%.
Key Issues
Whether the addition made by the Assessing Officer at an estimated profit rate of 4% without rejecting the books of accounts is justified, and if any relief can be granted to the assessee.
Sections Cited
Section 250 of the Income Tax Act, 1961, Section 143(3) of the Income Tax Act, 1961, Section 144B of the Income Tax Act, 1961, Section 44AD of the Income Tax Act, 1961, Section 44AB of the Income Tax Act, 1961
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Income Tax Appellate Tribunal, “SMC”
Before: DR. ARJUN LAL SAINI
आदेश/ORDER Per, Dr. Arjun Lal Saini, A.M
1. Captioned appeal filed by the assessee, pertaining to Assessment Year 2018- 19, is directed against the order passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income-tax (Appeals) (‘CIT(A)’), dated 19.11.2024, which in turn arises out of an assessment order passed by Assessing Officer u/s. 143(3) r.w.s. 144B of the Act, on 20.04.2021.
The appeal filed by the assessee is barred by limitation by 70 days. The assessee moved a petition for condonation of delay, requesting the Bench to condone the delay. Learned Counsel for the assessee, referring to the contents of the petition for condonation of delay has submitted that the reasons for delay was because of the mistake of the Tax Consultant of the assessee, which may kindly be condoned in the interest of the justice.
3. On the other hand, Ld. DR for the Revenue opposed the prayer of the assessee for condonation of delay.
I have heard both the parties and perused the materials available on record. I note that the assessee has explained the sufficient cause in the petition for condonation of delay and the reasons explained by the assessee are convincing in nature. Therefore, I find that the reasons given in the affidavit for condonation of delay were convincing and these reasons would constitute reasonable and sufficient cause for the delay in filing this appeal. Having heard both the parties and after having gone through the affidavit as well the delay condonation, application, I am of the considered opinion that in the interest of justice, the delay deserves to be condoned. I, accordingly, condone the delay.
5. The grounds of appeal raised by the assessee are as follows:
“1. The ld.CIT(A) erred in law as well as on fact in upholding in addition of Rs.39,82,206/- made by Id.AO by estimating profit @4% on gross sales turnover and in adopting profit rate of 4% without considering nature of business, past history and comparative cases.”
6. Succinct facts are that assessee`s case was taken up for complete scrutiny assessment and for that assessing officer issued of notice u/s143(2) of the Act dated 22/09/2019. Further notice u/s 142(1) dated 02/12/2020, 23/12/2021, 08/03/2021, 18/03/2021 and letters dated, 08/03/2021 and 18/03/2021 were issued to the assessee calling for specific information. The assessment proceedings, in this case, have been taken up through Faceless E-Assessment Scheme-2019. Therefore, all the notices and letters mentioned above were issued to the assessee through system generated e-mails on his registered e-mail ID enclosing copies of the notices. Further, SMS alerts regarding the issue of notices and hearing dates have also been sent to the assessee on his registered mobile number. Subsequently a Show -cause letter/proposal letter for completion of assessment was issued on 08/03/2021. In response to these notices/letters issued from time to time, the assessee had furnished the information and details, before the assessing officer, online. After carefully considering the information and the written submissions filed by the assessee, the assessing officer noted that the assessee is engaged in the business of trading of "brass scrap. On verification of the details of return of income filed by the assessee, it was observed by the assessing officer that the assessee has declared the turnover of Rs. 1,03,43,628/- and offered Net profit at Rs.7,91,012/- as his income. The income declared in the return on the admitted turnover works out at 7.65%. During the scrutiny, the assessee admitted that the turnover shown at Rs.1,03,43,628/- was factually wrong and the actual turnover is Rs. 11,93,30,453/-. Since the assessee has declared the income under "no account case" u/s 44AD of the Act, in the return of income filed. Further, the assessee has not complied with the provisions of sec. 44AB of the Act, to get his accounts Audited as required u/s 44AB of the Act. The assessee's turnover falls under "compulsory Audit" the income to be admitted on a turnover of Rs. 11,93,30,453/- should have been 8% on the gross turnover, which Page 3 of 11 works out to Rs.95,46,436/-, whereas the assessee has declared only Rs.7,91,012/-, as his income in the return filed. This was brought to the notice of the assessee vide AO letter dated 08/03/2021 wherein the difference of Rs.87,55,424/- (Rs.95,46,436- Rs.7,91,012) was proposed to be taxed as per provisions of section 44AD of the Act.
In response, the assessee filed reply on 22/03/2021, the essence of the assessee's submissions are as under:
"Your honour has proposed to adopt profit rate of 8% on turnover of Rs. 11,93,30,453/-. In this regard, your honour may kindly appreciate that we have submitted following documents.
1. Details of sales with sales register with name, address, quantity, rate amount.
2. Details of purchases with purchase register with name, address, quantity, rate, amount and all purchase bills 3. Stock Details. 4 All GST returns.
5. Profit and loss account indicating profit of Rs.6,43,314/- from entire turnover of Rs. 11,93,30,453/- it comes to 0.54%.
Hence, your honour may kindly appreciate that we have not earned profit of 8% on said turnover of Rs. 11,93,30,453/- 7. We submit herewith audited profit and loss account for next financial year Le. A.Y. 2019- 20, in which turnover of Rs.6,06,64,578/- we have earned profit of Rs.7,65,441/- which in % terms come to 1.26%. In view of this, we kindly request your honour not to adopt profit rate of 8% and make some reasonable estimate based on actual profit of current year i.e. 0.54% and profit rate of next year which is 1.26%.”
However, assessing officer rejected the contention of the assessee, on account of the following reasons:
1. The assessee has declared for profit of Rs.7,91,012/- at 7.65% under "No account Scheme" by applying deemed income u/s 44AD of the Act.
2. The assessee has not audited his books of accounts though the turnover of the assessee falls under "compulsory audit" u/s 44AB of the Act.
The profit declared on the actual turnover of Rs. 11,93,30,453/- now is Rs.6,06,64,578/-, is less than the income declared in the return for the lesser turnover reported in the return found to be unreasonable.
4. Further in respect of some of the purchases from suppliers who are non- filers have filed non-business ITR by reflecting lower turnover in ITR as compared to turnover shown in GSTR 1 return.
The assessee has not furnished the balance sheet and capital account for verification.
9. The above reasons of rejection of assessee`s submission, were communicated to the assessee, by sending draft assessment order through show- cause notice. In response to the above, the assessee filed, further, the following submissions, as under:
1. 1. With reference to your honours draft assessment order cum show cause notice dated 06.04.2021 proposing an addition of Rs.63,68,815 being an addition on account of estimation of net profit @6% on turnover of Rs.11,93,30,453, we would like to submit as under.
2. In this regard, your honour may kindly appreciate that we have submitted following documents which were duly checked, appraised and acknowledged by your honour Page 5 of 11
Details of sales with sales register with name, address, quantity, rate & amount 2. Details of purchases with Purchase register with name, address, quantity, rate, amount and all purchase bills 3. Stock details 4. All GST returns. 5. Profit and loss account indicating profit of Rs.6,43,314/- from entire turnover of Rs. 11,93,30,453 in % it come to 0.54%. 6. Hence, your honour may kindly appreciate that we have not earned profit of 6% on said turnover of Rs. 11,93,30,453. 7. We have also submitted audited profit and loss account of next financial year ie FY 2018-19 AY 2019-20, in which on turnover of Rs.6,06,64,578/- we have earned profit of Rs. 7,65,441 which in % terms come to 1.26%. 8. From above, your honour may kindly appreciate that we have not earned profit of Rs. 63,68,815/- as proposed by your honour as addition. The income tax act mandates to assess real income of the assessee and not hypothetical income. 9. We have submitted that the profit for current year as well as subsequent year must be taken as guiding principle for estimation of income. Since, appellant had not earned income at the rate of 6% as proposed by your honour. 10. We have submitted all purchase and sales bills, quantitative details of purchase, sales and closing stock. In the said details as submitted, your honour has not pointed out any defects in maintenance of the same. The real income earned by assessee should be taxed rather than hypothetical income. In this regard, we invite your honour kind attention to following judicial decisions……….”
However, based on the above submissions of the assessee, the assessing officer considered the assessee's reply, and partly relief was given by the assessing officer, for the following reasons.
(a) It is a fact that the assessee has understated the gross turnover in the ITR filed to the Department at Rs. 1,03,43,628/- as against correct turnover of Rs. 11,93,30,453/- and the same is accepted by the assessee.
Page 6 of 11 (b) It is a fact that the assessee has declared gross profit of Rs.7,91,012/- at 7.65% under "No account Scheme" by applying deemed income u/s 44AD of the Act.
(c) It is a fact that the profit declared on the revised turnover of Rs. 11,93,30,453/- at Rs.7,65,441/- is less than the income declared in the return for the lesser turnover reported in the return found unreasonable.
(d) Further in respect of some of the purchases from suppliers who are non -filers have filed non-business ITR by reflecting lower turnover in ITR as compared to turnover shown in GSTR 1 return.
(e) Further, on a test check of the bank ledger accounts, a heavy payments were made to (i) Meera Enterprises (ii) Classic Enterprises (iii) Chetan M Vododariya (iv) Kadalba Yogendra Sinha Zalu etc., such entries were not found purchases submitted by the assessee, further the assessee has not furnished (1) books of accounts (2) All ledger accounts (3) Capital A/c (4) Balance sheet for verification, the details submitted by the assessee is part details not full details.
(f) Further, the assessee needs to collect tax at source @ 1% on sale of scrap; however the assessee has not collected such tax on sale of scrap.
(h) The assessee has not audited his books of accounts though the turnover of the assessee falls under "compulsory audit" u/s 44AB of the Act knowingly and the assessee deliberately not furnished the balance sheet/Ledger a/c extracts and Books for verification.
The assessing officer also noticed that assessee had admitted the fact of error in its ITR and the assessee has suggested to estimate the income as per audited profit and loss account of next financial year i.e FY 2018-19 and AY 2019-20, in which on turnover of Rs.6,06,64,578/- profit earned is at Rs.7,65,441/-, which in % terms come to 1.26%. However, as per the ITR filed for the A.Y. 2018-19, the assessee declared gross profit of Rs.7,91,012/- for a turnover of Rs. 1,03,43,628/-, which in % terms comes to 7.65%. For the reasons stated above under para 6.2 and considering the % of GP suggested by the assessee considered very low when compared to GP declared in the ITR for the current assessment year, the assessing officer estimated the G.P at 4% on the total actual turnover of Rs. 11,93,30,453/- which worked out to Rs.47,73,218/- considered fair and reasonable. As the assessee has already declared income of Rs.7,91,012/-, the balance of Rs.39,82,206/- ( Rs.47,73,218- Rs.7,91,012) was added to the total income of the assessee.
Aggrieved by the order of the AO, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the addition made by the AO by observing as under: “5.5 Considering the above observation/findings, the ld AO came to the conclusion on the admittance by the assessee to estimate his income. The guiding principle the assessee suggested to consider the audited profit and loss account of next financial year ie. FY 2018- 19 AY 2019-20, in which on turnover of Rs.6,06,64,578/- profit earned is at Rs.7,65,441 which in % terms come to 1.26%. However, the Id AO observed that for the year under consideration the assessee has declared gross profit of Rs.7,91,012/- for a turnover of Rs. 1,03,43,628/- which in % terms comes to 7.65%, therefore, he considered the % of GP suggested by the assessee was very low by the ld AO when compared to GP declared in the ITR for the year under consideration. Thus, the ld AO proceed to estimate the G.P at 4% on the total/actual turnover of Rs. 11,93,30,453/-which worked out to be Rs.44,73,218/-, as fair and reasonable. As the assessee has already declared income of Rs.7,91,012/- the balance of Rs.39,82,206/- was added to the total income declared and brought to tax. The case laws relied upon by the appellant in the process do not come in the rescue of the appellant. Thus, I find no infirmity in the order of the ld AO and uphold the action of the ld AO. In view of this, all the grounds raised by the appellant are dismissed.
Aggrieved by the order of the Ld. CIT(A), the assessee is further in appeal before this Tribunal.
The Learned Counsel for the assessee submitted that the AO made addition @ 4% without rejecting the books of accounts. In order to make estimated addition, the AO ought to have rejected books of accounts. Therefore, the order passed by the AO making the estimated addition @4% should be quashed. For that, Ld. Counsel for the assessee relied on the judgment of the Hon’ble Delhi High Court in the case of PCIT vs. Forum Sales (P.) Ltd., reported in [2024] 160 taxmann.com 93 (Delhi).
On the other hand, Ld. DR for the Revenue relied on the findings of the assessing officer and also argued that assessing officer ought to have made addition on estimated basis at the rate of 7.65%, therefore, assessing officer had estimated the income of the assessee very lower side, therefore, assessee under consideration does not deserve further relief.
I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. I find merit in the submissions of learned DR for the revenue, and I also find merit in the findings of the assessing officer.On verification of the details of return of income filed by the assessee, it was observed by the assessing officer that the assessee has declared the turnover of Rs. 1,03,43,628/- and offered Net profit at Rs.7,91,012/- as his income. The income declared in the return on the admitted turnover works out at 7.65%. During the scrutiny, the assessee admitted that the turnover shown at Rs.1,03,43,628/- was Page 9 of 11 factually wrong and the actual turnover is Rs. 11,93,30,453/-. Since the assessee has declared the income under "no account case" u/s 44AD of the Act, in the return of income filed. Further, the assessee has not complied with the provisions of sec. 44AB of the Act, to get his accounts Audited as required u/s 44AB of the Act. The assessee's turnover falls under "compulsory Audit" the income to be admitted on a turnover of Rs. 11,93,30,453/- should have been 8% on the gross turnover, which works out to Rs.95,46,436/-, whereas the assessee has declared only Rs.7,91,012/-, as his income in the return filed. This was brought to the notice of the assessee vide AO letter dated 08/03/2021 wherein the difference of Rs.87,55,424/- (Rs.95,46,436- Rs.7,91,012) was proposed to be taxed as per provisions of section 44AD of the Act. However, the assessing officer, finally, after considering the reply of the assessee, made the addition at the rate of 4% on the gross turnover, as noted above. The Ld. Counsel for the assessee relied on the judgment of the Hon’ble Delhi High Court in the case of PCIT vs. Forum Sales (P.) Ltd., reported in [2024] 160 taxmann.com 93 (Delhi), which is on account of inflated expenses and bogus expenses, therefore does not assist to the assessee under consideration.
I also find that the assessing officer, had not specifically identified any specific defects in the purported evidences and also taking note of the fact that the assessing officer, has not held that these evidence filed by the assessee are bogus. Therefore, I find some merit in the contention of the ld. Counsel for the assessee. Therefore, I find that while the case of the assessee merits some relief, at the same time entire relief cannot be permitted to the assessee. In my view the ends of justice would be met, if a net profit rate of 3.50% ( instead of 4% made by AO) is adopted on the gross turnover, since the same would take care of the inconsistencies, if any, in the various documents and evidences submitted by the assessee, before the lower Page 10 of 11 authorities. Therefore, in order to plug the leakage of revenue, I direct the assessing officer to make addition at the rate of 3.50% of the gross turnover.
In the result, appeal filed by the assessee is partially allowed in above terms.
Order pronounced in the open court on 24/11/2025.