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Income Tax Appellate Tribunal, DELHI BENCH G, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI PRASHANT MAHARISHI
to comply with the notice would entitle him in passing the order ex-parte.
However, the assessee again did not make any compliance. In view of the repeated non-compliance, the AO issued summons in the name of partners Shri Narinder Gandhi and Shri Vijay Gandhi. However, the Inspector served the summons on Shri Vijay Gandhi only as the other partner Shri Narinder Gandhi was reported to have expired on 28.05.2003. On 30.01.2006, Shri Vijay Gandhi attended the hearing and submitted that all the important documents were in the custody /knowledge of Shri Narinder Gandhi who has since expired. The AO recorded the statement of Shri Vijay Gandhi in which he deposed that the books of account of the assessee firm were in his possession and he promised to produce for verification on 31.01.2006 but Shri Vijay Gandhi did neither produce books of account nor attended the proceedings. In response to further notice dated 03.02.2006, Shri Vijay Gandhi attended but did not produce books of account. Keeping in view the sequence of events and repeated non-compliance, the AO concluded that no books of accounts of the firm have not been produced and proceeded to make 5 assessment u/ s 144 of the Act. The AO before resorting to the provision of section 144, also allowed opportunity vide show cause letter dated 20.01.2006 making his intention clear that in case of non compliance, the assessment shall be finalized on merits. During the pendency of proceedings the AO collected copy of account of assessee directly from Cholamandalam Finance Ltd., Ashoka Leyland Finance Ltd. and some other parties; and the copy of bank account of the assessee from the bank. On 27.02.2006 i.e. the date fixed as per show cause notice, the A.R. of the assessee and Shri Vijay Gandhi attended but did not produce any books of account. However, copies of certain accounts like sales, purchases, freight charges received, partner's capital account and copies of account with Cholamandalam Finance Ltd., Ashoka Leyland Finance Ltd. etc. were filed. The AO again requested for production of books of account on 01.3.2006 but the assessee did not produce the same. Before passing the order, the AO issued another notice dated 03.03.2006 requiring compliance on 10.03.2006 in response to which Shri Bhushan Chaudhary, Advocate, attended but no books of account or any further details were produced stating that the same are not traceable. Keeping in view the repeated non compliance to various statutory notices, the AO finalized the assessment ex-parte. The AO concluded that since the return of income was filed on 01.12.2003 much after the time when Shri Narinder Gandhi expired in May 2003, the assessee was. in possession of books of account but did not produce deliberately. Since the assessment order has been passed ujs 144 of the Act, the AO disregarded the status 6 of assessee as firm and assessed in the status of AOP in view of the provision of section 184(5) of the Act. Consequently, the claim of salary of Rs.1,68,000/- paid to two partners has been disallowed. On verification of depreciation schedule attached with the return of income, the AO observed that the assessee has shown value of trucks at Rs.2,50,15,600/- whereas no such value was shown as the opening WDV thereby leading to inference that all the trucks were purchased during the. year. The assessee in its reply dated 27.02.2006 claimed that copies of bill of trucks purchased during the year were lying in the custody to Shri Narinder Gandhi and all the trucks were financed by Cholamandalam Finance Ltd. and Ashoka Leyland Finance Ltd. Alongwith reply dated 26.03.2006, the assessee only submitted a chart showing the details of bill No., registration no. of trucks with the dates, name of the supplier, bill amount, body charges, RC charges, amounts financed and margin money as well as' the name of the financer etc. As per the details given in the said chart the AO concluded that the total investment of Rs.2,50,15,600/- was made in the purchase of trucks during the financial year from 2000-01 onwards, besides the investment of Rs.1,09,38,587/- made during the year under assessment. Out of total investment so made during the year, the amount of Rs.99,03,193/- was financed by Cholamandalam Finance Ltd. and Ashoka Leyland Finance Ltd.; and the balance amount of Rs.10,35,394/- was invested by the assessee as margin money. Since the assessee did not produce books of account and other supporting documents, the same has been treated by the AO as 7 unexplained investment in trucks during the year. The assessee claimed depreciation of Rs.1,00,06,240/- as per the depreciation schedule of trucks. On the basis of details of trucks provided by the assessee, the AO worked out the allowable depreciation during the F.Y.2000-01 at Rs.3,66,083/- with the resultant closing WDV at Rs.14,64,335/-. After considering the additions made during the F.Y.2001-02, the total allowable depreciation of Rs.40,50,591/- was worked out with the closing WDV of Rs.95,49,333/-. On the identical pattern, the depreciation for the year under assessment has been worked out at Rs.81,46,619/-. After considering the allowable depreciation as above, the AO has disallowed excess depreciation of Rs.18,59,621/-. The claim of depreciation on furniture and fixture at Rs.2,322/ - has also been disallowed for want of details. In the business of transport, the assessee claimed expenditure of Rs. 1,47,79,096/ -. Against the salary expenditure of Rs.19,45,600/-, an amount of Rs.4,96,200/- was shown outstanding as liability in the balance sheet. The assessee submitted that the drivers could not collect their salary due to being out of station. The AO, however, did not consider the explanation as plausible and made adhoc disallowance of Rs.5,00,000/- out of various expenses claimed in the P&L account for want of details and evidences. The sundry creditors of Rs.10,85,564/- were outstanding as on 31.03.2003 and in absence of any details on this issue, the entire amount has been added to the income since the genuineness of the same was not proved. The assessee was also engaged in the business of trading of tyres from which gross sales were shown at 8 Rs.32,32,590/- against purchases of Rs.28,05,817/- with the resultant GP of 7.72%. There was observation in the audit report that no details of closing stock were maintained. The AO obtained copy of account of purchases from Good Year India Ltd. which revealed purchases at Rs.17,36,425/ - only, against which the assessee had shown total purchases of Rs.28,05,817/-. Though, the assessee submitted the details of purchase of tyres from Good Year India Ltd and Modi Rubber Ltd., showing purchases of Rs.27,93,635/-. The AO obtained a confirmation in which no sale of tyres was shown by Modi Rubber Ltd. to the assessee.
Hence, the difference of Rs.10,69,392/-, being the amount of purchases not supported by any evidence, has been added by the AO to the income of the assessee. Besides, the excess liability of Rs.23,013/- shown by the assessee as payable to Cholamandalam Finance Ltd. and the difference of Rs.17,000/- due to variation in the opening stock of tyres when compared with the closing stock of preceding year, have also been added and completed the assessment at Rs. 59,03,010/- u/s. 144 of the I.T. Act, 1961 vide order dated 20.3.2006.
Against the assessment order dated 20.3.2006, the assessee appealed before the Ld. CIT(A), Faridabad, who vide his impugned order dated 25.3.2011 has partly allowed the appeal of the assessee. Aggrieved with the impugned order, the Assessee as well as Revenue are in cross appeals before the Tribunal on some of the issues mentioned in their respective appeals.
In this case, Notice of hearing to the assessee was sent by the 5.
Registered AD post, in spite of the same, assessee, nor its authorized representative appeared to prosecute the matter in dispute, nor filed any application for adjournment. Keeping in view the facts and circumstances of the present case and the issue involved in the present Appeal, we are of the view that no useful purpose would be served to issue notice again and again to the assessee, therefore, we are deciding the present appeal exparte qua assessee, after hearing the Ld. DR and perusing the records.
Ld. DR relied upon the order of the AO.
We have heard Ld. DR and perused the records. The Assessee and Revenue has contested their respective additions before us. The admitted fact of the case are that the assessee failed to produce the books of account during the course of assessment proceedings. The AO has worked out. The allowable claim of depreciation of Rs.81,46,619/- against the claim of Rs.1,00,06,240/ - made by the appellant. During the course of appellate proceedings, the learned counsel has not been able to reconcile the difference. It is observed that in the F.Y.2001-02, the assessee has shown closing WDV of trucks at Rs.99,22,209/- as on 31.03.2002 and the additions made during the year under appeal were to the extent of Rs.1,08,17,215/-. Thus, considering the opening WDV at Rs.99,22,209/- and additions made during the year, the total eligible amount for depreciation works out to Rs.2,07,39424/-, which is certainly 10 far less than the amount of Rs.2,50,15,600/- shown in the depreciation schedule as on 31.03.2003. The books of accounts of the assessee are audited u/s. 44AB of the Act. These facts lead to the inference that either the amount of Rs.2,50,15,600/- is hypothetically adopted or the assessee has not furnished the correct position of the trucks purchased during the year. This appears to be the only reason for production of books of accounts. Irrespective of the situation where the books of accounts are not produced or produced but found to be defective, the AO is well empowered to make the provisions of section 145(3) of the Act and make best judgement assessment. While making the best judgment assessment, the AO is required to compare the result declared by the appellant in earlier years or the result shown by the other assessees in the similar line of business. Though there is no bar in law to make additions on specific issues but such addition is required to be made only upon the conclusive findings on that particular issue. It is seen that the AO has made addition of Rs.10,35,394/ - on account of unexplained investment in trucks during the year only on the ground that the investment was made in cash and the books of accounts were not produced. However, the AO has not appreciated the fact that the appellant had the availability of cash atleast to the extent of depreciation of Rs.81,46,619/- allowed by the AO. Besides, the AO has made addition on account of unexplained purchases of tyres to the extent of Rs.10,69,392/- and has also made adhoc disallowance of Rs.5,00,OOO/- out of expenses. If such expenditure is treated as bogus or unverifiable, 11 than no addition can be made on account of sundry creditors as the liability in the form of sundry creditors is created by virtue of the expenses and purchases claimed. Hence, the addition of Rs.10,84,564/-- on account of unverifiable creditors amounts to double addition. In the business of trading of tyres, if the addition of Rs.10,69,392/- alone is considered against the sales of Rs.32,32,590j-, the same results in the net profit rate of 33.08% which is impossible in the business of trading of tyres. Further, the AO has assessed the total income at Rs.59,03,010/- on the turnover of freight receipts of RS.2.46 crores and sale of tyres of Rs.32.32 lacs resulting into net profit rate of 21.15%, which is highly unreasonable in any business of transport of trucks.
7.1 We further find that Hon'ble Supreme Court in the case of CIT v.
Simon carves (105 ITR 205) has held that tax authorities would not be acting properly and judicially if they exercise their power in the manner most beneficial to the revenue and consequently most adverse to the assessee. It is settled law that the powers given to the AO under the Act are coupled with a duty to exercise them when the statutory provisions warrant their exercise. It has also been held by Hon'ble Supreme Court in the case of Brij Bhushan Lal Praduman Kumar Vs. CIT (115 ITR 524) that the best judgment assessment should be made in accordance with fair play and natural justice. The assessing officer must not act vindictively or capriciously or with a view to punish the assessee for non compliance. In the case of CIT Vs. Ranicherra Tea Company Ltd. (207 ITR 979), the Hon'ble Calcutta High Court has held that in disposing of an appeal from 12 an assessment u/s 144, the first appellate authority need not confine itself only to the material on record at the assessment. The appellate authority is vested with all the plenary powers, which the subordinate authority has in the matter. The CBDT, in the Circular No. 14(XI-35) of 1955 dated April 01, 1955 has conveyed as under:
"Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way particularly in the matter of claiming and securing reliefs and in this regard the officer should take the initiative in guiding a taxpayers where proceeding or other particulars before them indicate that some refund or relief is due to him. This attitude in the long run would benefit the Department; for it would inspire confidence in him that he be sure of getting square deal from the Department."
7.2 We further find that in the business of trading in tyres, the AO has applied net profit rate of 3% on sales. In the A.Y. 2001-02, the AO has estimated the income from the trucks u/s 44AE of the Act for plying of two trucks for three months. In A.Y.2002-03, the income from the transport business of trucks has been determined at NIL against the freight receipts of Rs.28,20,378/- and claim of depreciation of Rs.38,92,658/-. The excess claim of depreciation has also not been allowed to be carried forward. Therefore, the income in the A.Y.2001-02 and 2002-03 has been assessed at 1.72% and 1.22%, respectively. It is however, seen that the net profit rate of 1.22% in A.Y.2002-03 works out only in respect of addition made on account of trading in tyres. The learned counsel has relied upon the case of M/s. Siddharth Road Carriers, Faridabad for A.Y.2005-06 in which the net profit from freight and forwarding receipts of Rs.5.00 crores has been shown at Rs.8.93 lacs i.e. 1.78%. In the light of the above factual position and the judicial rulings cited supra, we are of the considered view that Ld. CIT(A) has rightly held that the case of assessee required rejection of book result by invoking the provisions of section 145(3) of the Act. Consequently, the income was required to be determined by applying the net profit rate. Therefore, in the interest of justice, it was fair and reasonable to estimate the net profit by applying the rate of 3.0% on sale of tyres as adopted by the AO in earlier years as a matter of consistency and rate of 2.0% on the freight receipts. The adopted rate of 2% as the case of M/ s. Siddharth Road Carriers, Faridabad pertain to A.Y. 2005-06 and not exactly to the year under appeal as well as on the reason that the turnover of the case of assessee is almost half of M/s. Siddharth Road Carriers, Faridabad, for which the net profit margin is likely to be higher due to lesser turnover.
Consequently, the income of Rs. 96,977/- in the tyres business is estimated by applying the rate of 3% on total sales of Rs.32.32 lacs and income of 4,93,434/- is estimated by applying the net profit rate of 2% on the, total freight receipts of Rs.246.71 lacs. In the case of CIT vs. 14 Banwari Lal Banshidhar, the Hon'ble High Court of Allahabad (229 ITR 229) has held that where income of assessee was computed by applying gross profit rate and when no deduction was claimed or allowed to assessee in respect of purchases, no disallowance under section 40A(3), read with rule 6DD(j), could be made. The Hon 'ble Punjab and Haryana High Court in the case of CIT vs. Aggarwal Engineering Co. (156 Taxman 40) has held that once net profit rate was applied on contract receipts of assessee for estimating income from contract work, no further addition was called for in respect of purchases and introduction of cash etc.
Therefore, when the books of account are rejected and income is computed by applying the net profit rate, the same books of accounts cannot be made the basis for making disallowance of specific expenses and the claim of various expenses including depreciation stand allowed.
Hence, the addition to the extent ofRs.5,90,411/- was rightly confirmed and the balance additions made by the AO under specific heads was rightly deleted. We further find that Ld. CIT(A) has rightly reiterated that the ITAT, Delhi Bench "D" New Delhi in appeal 3378 to 3381/Del/2007 in the case of Smt. Kaushalya Gandhi for A.Y.1999-2000 to 2003-04 as per order dated 31.07.2009 and ITAT, Delhi Bench "F", New Delhi in appeal ITA Nos.3211 to 3214/Del/2007 in the case of Smt.
Renu Mukherjee for A.Y.2000-01 to 2003-04 as per order dated 29.08.2008 have upheld the appellate orders of learned CIT (Appeals)
Faridabad, in which the net profit rate of 7.5% and 6.5%, respectively, was applied by the Ld. CIT (Appeals) and huge additions made on specific 15 issues were deleted. Keeping in view the above decision, all the grounds of appeal on the issue of various additions and disallowances were partly allowed, which does not need any interference on our part, therefore, we uphold the order of the Ld. CIT(A) on the issues in dispute raised by the assessee as well as revenue and reject the grounds raised by them.
In the result, all the appeals filed by the Assessee and Revenue stand dismissed.
Order pronounced on 28/09/2017.