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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)
O R D E R Per Shamim Yahya (AM) : This appeal by the assessee is directed against the order of learned CIT(A) dated 31.10.2016 and pertains to A.Y. 2012-13.
Grounds of appeal read as under :- Additions made in the Total Income:
1. On the facts and circumstances of the case and in law the learned Comm. of Income Tax (Appeal) erred in confirming the additions of Rs.38,13,483/- made by the Assessing Officer, disregarding the facts that during the course of hearing appellant has furnished various details and produced books of accounts as called for by the Assessing Officer during the course of hearing.
2. Rejection of Books of Accounts under u/s 145 of the I.T. Act. On the facts and circumstances of the case and in law the learned Comm. of Income Tax (Appeal) erred in confirming the rejection of books of accounts of the appellant's proprietary firm M/s SIF Enterprises under u/s 145 of the Act.
3. Addition of estimated Profit of Rs.36,19,405/- On the facts and circumstances of the case and in law the learned Comm. of Income Tax (Appeal) erred in confirming the addition of 2 Mr. Mohammed Fareed Abdul Gani Memon Rs.36,19,405/- in the total income of the appellant being profit of the proprietary concern M/s SIF Enterprises estimated by the Assessing Officer @0.50% of the sales as against 0.12% of sales declared by the appellant.
4. Addition of Rs.1,94,078/- on account of difference in closing balance of Debtor
On the facts and circumstances of the case and in law the learned Comm. of Income Tax (Appeal) erred in confirming the addition of Rs.1,94,078/- in the total income of the appellant being difference in the closing balance of one of the Debtor M/s R.S. Enterprises as appearing in the books of accounts of the appellant and as per financial records of the Debtor.
Brief facts of the case are as under :- The return of income was filed on 29-09-2012 by declaring total incdme at Rs.18,96,050/-, The assessee is the proprietor of M/s. SIF Enterprises and is engaged in the business of dealing in meat. The Assessing Officer noted that the statement of purchases, sales, ledger accounts of expenses, TDS details and other relevant details and information called from time to time are filed. The Assessing Officer rejected the books and estimated the profit @ 0.50%. he made further addition of Rs.36,19,405/- and Rs.62,02,016/- u/s.40A(3) of the Act and Rs.1,94,078/- as excess due and receivable. For rejecting the books the Assessing Officer observed that the assessee’s margin were quite high in first six months of the year and comparatively lower in the second half of the year. He noted that overall profit declared was very low. In this regard the assessee’s submissions were as under :- It has been stated by the appellant, vide letter dated 20-01-2015, that his accounting system is Mercantile. All the entries are made in the computer at mercantile basis. The sales tax returns are also filed according to the accounts entered in Tally. The books of accounts were produced before the Assessing Officer. Regarding less margin in the 2nd six months, appellant can't help it. In this business sometimes we get more business, sometimes we get less and sometimes we do not get any business. Every now and then the purchasing rates differ which affects the margin it was stated by the appellant vide letter dated 20.01-2015 that in the line of such business lot of exporters of meat line are there and there is very heavy competitions. In view of this, appellant has to 3 Mr. Mohammed Fareed Abdul Gani Memon keep very low rate of margin to their customers. Much of their goods are spoiled because of its nature of quality i.e. its perishable items.
However, the Assessing Officer was not satisfied he rejected the same by observing that the assessee has not given comparative weekly or monthly chart of purchases, sales, gross profit, net profit. No specific defect in books were pointed out. The Assessing Officer proceeded to adopt 0.50% as rate of profit.
Against the above order assessee appealed before learned CIT(A). learned CIT(A) confirmed the order of the Assessing Officer qua the assessee of rejection of books and substitution of GP and addition on account of difference in party balance. Against the above order assessee is in appeal before us.
Learned Counsel of the assessee submitted that assessee has submitted all necessary books of account and vouchers. He submitted that no deficiency in the record maintenance has been noted by the Assessing Officer in rejecting books of account. Hence, learned counsel pleaded that there is no cogent reason why books have been rejected. Learned counsel submitted that as the case of the assessee disclosed a profit rate of 20%, the Assessing Officer has substituted the same with his own estimate of 0.50%. That learned Counsel of the assessee submitted that no reason has been given by the Assessing Officer as to what is the basis on which he is estimating the profit at the rate of 0.50%. Hence learned counsel submitted that this is only the wild guesswork of the Assessing Officer not sustainable in law.
Per contra, learned Departmental Representative relied upon the order of authorities below. However, he could not point out the basis on which rate of profit has been estimated by the Assessing Officer.
We have carefully considered the submissions and perused the record. Upon careful consideration we note that assessee has duly submitted all necessary books of account and voucher. No deficiency in the maintenance of books has been noted. The assessee has given proper explanation as referred
4 Mr. Mohammed Fareed Abdul Gani Memon above. The Assessing Officer has rejected the same without cogent reasoning or pointing specific defect in books. Hence, we are in agreement with learned Counsel of the assessee that there is no justification of rejection of books of account. Furthermore, we note that the Assessing Officer in this case has substituted the rate of profit disclosed by the assessee with his own estimate of 0.50%. It is not the case of the Assessing Officer that his estimate is prevailing rate the industry. Nor it is the case that earlier assessee was showing that much rate of profit. Hence, we find that this is an arbitrary and guesswork adopted by the Assessing Officer. It is settled law that in even best judgement, assessments have to be based on fair estimate. Hence, in absence of any cogent reasoning for the rate of profit adopted by the Assessing Officer we are of the considered opinion the same is not sustainable. Accordingly, we set aside the order of authorities below and decide the issue in favour of the assessee.
Another issue raised is that addition on account of difference of Rs. 1,94,078/- between balance shown by the assessee and the one shown by one of the party.
We find that no reason has been given by the Assessing Officer to why he considered the assessee’s balance as incorrect. No enquiry whatsoever has been done with respect to the party. Without any enquiry the party balance cannot be treated as sacrosanct. It cannot be the sole basis of addition. In these circumstances, in our considered opinion this addition is not at all sustainable in law. Accordingly we set aside the orders of authorities below on this issue.
In the result, appeal by the assessee is allowed. Order has been pronounced in the Court on 13.5.2019.