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Income Tax Appellate Tribunal, KOLKATA ‘D’ BENCH, KOLKATA
Before: Shri P.M. Jagtap, Vice-(KZ) & Shri S.S. Viswanethra Ravi
Per Shri P.M. Jagtap, Vice-President (KZ):- This appeal preferred by the Revenue is directed against the order of ld. Commissioner of Income Tax (Appeals)-12, Kolkata dated 27.12.2016 and the grounds raised therein by the Revenue read as under:- “ (1) Whether in the facts and circumstances and law points of the case, the Ld. CIT(A) is justified in deleting the addition of disallowance of expenditure @ 20% of major expenses amounting to Rs.53,56,168/-. (2) Whether in the facts and circumstances and law points of the case, the Ld. CIT(A) is justified in deleting addition of suppression of profit for Rs.73,00,000/-“.
The assessee in the present case is a Company, which is engaged in the business of trading of Iron & Steel Items. The return of income for the M/s. Darpan Vinimay Pvt. Limited year under consideration was filed by it on 28.09.2012 declaring total income of Rs.55,04,320/-. During the course of assessment proceedings, the assessee could not produce the books of account, bills and vouchers for the examination of the Assessing Officer. In the absence of the said relevant material, the Assessing Officer treated the expenses claimed by the assessee under the major heads as unverifiable and made a disallowance of Rs.53,56,168/- being 20% of the total major expenses claimed by the assessee. On appeal, the ld. CIT(Appeals) deleted the said disallowance for the following reasons given in paragraph no. 3.2 of his impugned order:- “3.2. I have perused the assessment order and also the submissions of the appellant. The AO has disallowed on estimate basis an amount equal to 20% of total expenses claimed under the heads of Advertisement, Loading/Unloading Expenses, Miscellaneous Expenses, Transportation Inward/Transportation Outward, Travelling Expenses, Sales Promotion Expenses. The AO stated that since assessee did not produce books of account, bills & voucher etc., 20% of major expenses were being disallowed. The assessee is a Trader in a Iron and Steel items having a turnover of over Rs.137 crs. The appellant is thus a very big business house and maintaining records and books of account and suitable evidences for all expenses incurred. Suitable evidence depends on various factors like nature of payment, nature of claimant, nature of businesses and organizations, there is suitable internal check and control. Business is usually carried on in a professional manner. There is delegation of powers for incurring of expenditure, approval of the same and then payment is made by authorized cashiers.
I find that the addition on account of various above heads was totally based on surmises and conjectures. The AO has not brought on record any cogent basis as to why these expenditures were to be disallowed. It is not the case the expenditures were considered to be bogus or any shortcomings were pointed out to the assessee. The AO has simply stated that nothing was produced. 'These are audited books of accounts and as per the statements of the appellant, the assessee was always ready to submit and produce whatever was needed. But it looks like the AO was in a hurry and completed the assessment without proper opportunity being given to the assessee. Hence I delete the disallowance made by the AO as it has no basis”.
M/s. Darpan Vinimay Pvt. Limited
As noted by the Assessing Officer during the course of assessment proceedings, a Net Profit of Rs.54.12 lakhs was shown by the assessee on a total turnover of Rs.137.39 crores giving a Net Profit of only 0.39%. Since the profit so shown was substantially less than the Net Profit of 0.93% declared by the assessee in the immediately preceding year and no books of account and other supporting documents were produced by the assessee to justify the Net Profit declared during the year under consideration, the Assessing Officer held that there was a suppression of profit to the extent of Rs.0.73 crore by applying the Net Profit rate of 0.93% declared by the assessee in the immediately preceding year and made an addition to that extent to the total income of the assessee. On appeal, the ld. CIT(Appeals) deleted the said addition for the following reasons given in paragraph no. 4.2 of his impugned order:- “4.2. I have perused the assessment order and also the submissions of the appellant. The AO has simply stated that in the assessment year 2011-12 the net profit ratio of the assessee was 0.93%. If the same percentage of profit is maintained this year, the AO states that the profit would have been 1.27 Crs. The assessee has shown a net profit of Rs.54.12 Lacs so the AO has calculated that Rs.0.73 Crore( 1.27 - 54.12) has escaped taxation as no business can survive in such profit. It is also a fact that the AO has disallowed 20% of some expenses which were claimed by the assessee and yet has increased the net profit ratio simply on the ground that no business can survive with such low profit. It is also a fact that the department or rather the same Assessing Officer has accepted the net profit 0.2781% returned for Asst Year 2013- 14. The mere fact that there was a less rate of gross profit declared by an assessee as compared to the previous year would not by itself be sufficient to justify the addition. It is equally important to base the estimation on solid facts. The Assessing Officer has not pointed out any defect in the Accounts Books. A low profit margin per se can neither constitute a valid ground for rejection of books nor for estimation of profit. The assessee has submitted that net profit varies year to year and can never be constant. A comparative chart was submitted. In the case of CIT v. Eastern Commercial Enterprises [1994] 210 ITR 103 (Cal.) it was held that where the assessee has given a comparative instance of gross profit rate, it is necessary for the department to come to a finding as to the norm of the gross profit on the basis of comparative cases. Therefore, it is the duty of the Assessing Officer to counter the comparative statement cited by the assessee before he can have the option to estimate the gross
M/s. Darpan Vinimay Pvt. Limited profit. It was observed by Hon'ble Court in case of Aluminium Industries (P.) Ltd. v. CIT [1995] 80 Taxman 184 (Gauhati) that additions to the profits of the assessee made solely on the ground that it was low without giving a specific finding that the accounts of the assessee were not correct and complete, or that the income could not be properly determined and deduced from the accounting method employed by the assessee, is not justified. Therefore, I see no basis for concurring with the findings of the AO and delete the addition made by the AO”.
Aggrieved by the order of the ld. CIT(Appeals) giving relief to the assessee on both the issues, the Revenue has preferred this appeal before the Tribunal.
At the time of hearing before us fixed today, i.e. 04.03.2019, none has appeared on behalf of the assessee inspite of the fact that the notice of the said hearing was served on the assessee through the Department by affixture. It is observed that there was a similar non-compliance on the part of the assessee when its appeal was fixed for hearing before the Tribunal on earlier seven occasions. This appeal of the assessee is, therefore, being disposed of ex-parte qua the respondent assessee after hearing the arguments of the ld. D.R. and perusing the relevant material available on record. It is observed that the additions on account of disallowance of 20% of the major expenses and the alleged suppression of profit were made by the Assessing Officer for the failure of the assessee to produce the books of account and other relevant documentary evidence in the form of bills, vouchers, etc. in order to enable the Assessing Officer to verify the claim of the assessee for the major expenses and substantial fall in the Net Profit as declared for the year under consideration as compared to the immediately preceding year. As rightly contended by the ld. D.R., it appears that this vital aspect, however, was overlooked by the ld. CIT(Appeals) while deleting the additions made by the Assessing Officer by way of disallowance out of major expenses. The ld. CIT(Appeals) held that the assessee was a very
M/s. Darpan Vinimay Pvt. Limited big business house and was maintaining the books of account regularly which were duly audited. He also noted that there was a suitable internal check and control. He, however, ignored the vital fact that the onus was on the assessee to support and substantiate its claim for the major expenses by producing the books of account claimed to be maintained regularly along with supporting bills and vouchers and since the assessee had failed to discharge the said onus, the claim made for the said expenses remained unverifiable by the Assessing Officer. Similarly the addition on account of suppression of profit was made by the Assessing Officer for the failure of the assessee to produce the books of account and other supporting documents to justify the substantial fall in the Net Profit declared by the assessee for the year under consideration as compared to the immediately preceding year. Keeping in view this specific reason given by the Assessing Officer for making the impugned two additions to the total income of the assessee, the ld. CIT(Appeals), in our opinion, ought to have directed the assessee to produce the books of account and other supporting documents claimed to be maintained by the assessee and remanded the matter to the Assessing Officer for giving the Assessing Officer an opportunity to examine/verify the same. He was also not justified in deleting the addition made by the Assessing Officer on account of suppression of profit on the ground that no defects were pointed out by the Assessing Officer in the books of account of the assessee and without giving the specific finding that the accounts of the assessee were not correct and complete or the income could not be properly determined and deduced from the accounting method employed by the assessee. In our opinion, when there was a failure on the part of the assessee to produce the books of account and other relevant records, the Assessing Officer was not expected much less required to point out any defect in the books of account of the assessee and it was not possible for him to give a finding that the accounts of the assessee were not correct and complete. Keeping in view all these facts and circumstances of the case, we consider it fair and proper and in the interest of justice to M/s. Darpan Vinimay Pvt. Limited set aside the impugned order passed by the ld. CIT(Appeals) and restore the matter to the file of the Assessing Officer with a direction to the assessee to produce the books of account and other relevant record for examination/verification of the Assessing Officer. The Assessing Officer shall give proper and sufficient opportunity to the assessee to produce the said books of account and other record and reframe the assessment after examining/verifying the same.
In the result, the appeal of the Revenue is treated as allowed for statistical purposes. Order pronounced in the open Court on March 4th, 2019.