RANGOLI INTERNATIONAL PVT. LTD.,DELHI vs. DCIT, CIRCLE 19(1), DEHLI

In response, the assessee filed its reply explaining that the bank securities and fraud cell division of the CBI has conducted search operations in September 2014 and seized most of the documents relating to company’s financial transactions such as export invoices, bills and vouchers, computer hard disks, etc. The assessing officer further issued notice seeking explanations which were rejected by the Assessing Officer with the observation that the reply filed cannot be accepted as the same is without any documentary evidence.

Thereafter, a show cause notices were issued to the assessee seeking explanation as why income should not be estimated at a percentage of gross profit as in comparable cases. The assessee objected to the estimation of net profit based on comparable, relying on the financials of two listed companies which had declared loss from a similar business operations. The Assessing Officer rejected the objection of the assessee observing that it is not possible to verify the correctness of income/profit so computed without valid audited accounts, bills and vouchers and bank statements and rejected the net profit offered by the assessee. Accordingly, the Assessing Officer estimated a gross profit @ 6.5% of the gross turnover and made addition of Rs. 48,22,12,120/-on 29.03.2022. Penalty proceedings were separately initiated u/s 271(1)(c), 271(1)(b) and 271A of the Act.

Facts and circumstances are identical in A.Ys 2015-16 and are mutatis mutandis, with only variation in the figures.

For the AY 2017-18, the facts are slightly different to the extent that the assessing officer, in absence of any return of income and any compliance from the assessee, made an addition of Rs 1,64,83,144/- as unexplained cash deposit found in the bank account of the assessee.

Aggrieved, the assessee went in appeal before the ld. CIT(A) who also dismissed the appeal exparte for AY 2014-15 and AY 2015-16.The CIT(A), for AY 2017-18, dismissed the appeal on account of delay in filing appeal.

Now the further aggrieved assessee is in appeal before us.

Before us, the ld. counsel for the assessee reiterated what has been stated before the lower authorities and strongly contended that provisions of the Act ought to have been properly construed and calculating the profit of the assessee by applying gross profit ratio on gross turnover of the assessee is not justified.

The ld. counsel for the assessee further contended that the Assessing Officer estimated the net profit based on the comparable cases in same line of business without considering other companies which have negative net profit ratio even though they are large companies. The Assessing Officer has accepted some part of the information/working which is totally incorrect and unfair. Further, it was submitted that the assessing officer for AY 2017-18, without pointing out any discrepancies, considered a substantial part of deposit as unexplained cash deposit while he allowed part of cash deposit as regular sales. Thus, the ld. counsel for the assessee prayed for setting aside the issue to the file of the Assessing officer for all the impugned AYs.

Per contra, the ld. DR relied upon the orders of the authorities below.

We have heard the rival submissions and have perused the relevant material on record. It is an accepted fact that the assessee did not provide the necessary documents and information sought by the Assessing Officer. It is also a fact that the explanation of the assessee that the failure is on account of seizure of documents and computer hard disks by the CBI, remains uncontroverted. Further, the contention of the ld. counsel for the assessee that the ld. CIT(A) passed the order without providing proper opportunity of being heard and not adjudicating the grounds of appeal on merit, has considerable force. The assessee had pleaded with the CIT(A) for permission to file all necessary documents which could not be filed before the AO, did not find favour with the CIT(A).Further, we find that the assessing officer for AY 2017-18, did not allude to any rationale while allowing part of cash deposit as regular sales and balance as unexplained.

Having considered the rival submissions, we are of the considered opinion that in the interest of natural justice and fair play, the issue calculation of income correctly should be restored to the file of the Assessing Officer. The assessee is directed to make effort to procure necessary documents/evidence from the concerned authorities and to furnish them before the assessing officer for verification and the Assessing Officer is directed to examine the same and decide the issue as per the provisions of law after affording reasonable and sufficient opportunity of being heard to the assessee.

In the result, all the three appeals in 1278 and 1279/DEL/2014 are allowed for statistical purpose.