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Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
Before: SHRIA. T. VARKEY, J.M &DR. A.L.SAINI, A.M
Assessee by : Shri A. Bhattacharjee, Addl. CIT(DR) Respondent by : Shri S. Agarwal, Advocate सुनवाईक�तार�ख/ Date of Hearing : 05/07/2018 घोषणाक�तार�ख/Date of Pronouncement : 03/10/2018 आदेश / O R D E R Per Dr. A. L. Saini: The captioned appeal filed by the Revenue, pertaining to Assessment Year 2011-12, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-7, Kolkata, which in turn arises out of an assessment order passed by the Assessing Officer u/s 144/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 25.03.2014.
The grievances raised by the Revenue are as follows:
“1. That in the facts and circumstances of the case and in law Ld. CIT(A) erred by allowing the appeal filed by the assessee though agreed that the Assessing Officer had rightly rejected the books of accounts by finding that the manner of estimation was made completely arbitrary and purely on guess work. The Ld. CIT(A) erred by not considering the view of the Hon’ble Supreme Court in the case of Kachwala Gems v. Joint Commissioner of Income-tax, Jaipur [2007] 158 TAXMAN 71(SC) that some amount of guess work involved in a best judgment assessment.
2. That in the facts and circumstances of the case and in law Ld. CIT(A) also failed to consider the facts of applicability of provision of section 40A(3) of the Act as the case is not fall under Rule 6DD which is discussed in page 3 of the assessment order in details. As the books of accounts has been rightly rejected and there was no purchase vouchers (as
Shri Safiul Mallick Assessment Year: 2011-12 admitted by the assessee vide page 2 of the assessment order), no question of bringing instances of payment which falls under the provision of section 40A(3) arose. Moreover, the assessee had time and again reiterated that on insisting cash by hawkers, the assessee made payments by cash. 3. That the Department craves leave to add, modify or alter any of the ground(s) of appeal and/or adduce additional evidence at the time of hearing of the case.”
The brief facts qua the issue are that the assessee is a seller of human hair to various exporters at Delhi, Chennai and Andhra Pradesh. The assessee declared total income to the tune of Rs.16,32,799/-. The income tax return of the assessee was processed u/s 143(1) of the Act and thereafter, the case was selected for scrutiny assessment u/s 143(3) of the Act. During the assessment proceedings, the ld AO noted that the assessee had shown total sales to the tune of Rs.16.92 crores and had declared a very poor gross profit of Rs.39,43,340/-, that is, @ 2.34%.The assessee had no purchase and sales bills for the said business as well as no quantitative records of hair purchased and sold were available with the assessee. In view of this, the Assessing Officer issued show-cause notice to the assessee on dated 10.03.2014 asking the assessee, as to why disallowance under Rule 6DD of the I.T. Rules, 1962, be made in respect of cash purchases. In reply to the show cause notice, the assessee submitted a copy of his current account with Mugberia Central Co-operative Bank, Bhawanpur Branch (A/c No.0524) where he has transferred all his sales receipts to Contai Branch (account No.89338). In the said account, the assessee had deposited a sum of Rs.15.59 Crores and withdrawn a sum of Rs.15.58 Crores, in cash on different dates. The assessee stated before the A.O that he has withdrawn Rs.15.58 crores from that SBI account to make cash purchases below Rs.20,000/- per day from various Hawkers in the village, so the provisions of section 40A(3) was not applicable to him and he was covered by the exception of Rules 6DD of the I.T. Rules.
In the assessment proceedings, the assessee also submitted that he had made purchases from 30 suppliers. The purchases from each party was ranging from Rs.36,00,000/- to 52,00,000/-. The addresses of the said parties were all P.O+P.S – Chandipur/P.O+P.S- Bhagwanpur, Dist-Purba Medinipur. The A.O noted that Shri Safiul Mallick Assessment Year: 2011-12 the assessee’s account also being in Bhagwanpur Branch, so it is clear that it cannot be said that the said area was not served by any bank, as prescribed by Rule 6DD(g) to be an exception to section 40A(3) of the Act. The A.O noted that the assessee has no quantitative records and no purchase bills from any of these parties and accordingly it was not possible to separate the grain from the chaff. Because of the said deficiency and ambiguity of documents submitted by the assessee and failing to come in a definite conclusion, the A.O rejected the books of accounts and estimated the income. After rejecting the books of accounts, the A.O estimated the income by calculating 20% of the gross sales as gross profit amounting to Rs.3,36,55,530/-( 16,82,77,648 *20%) and allowed 56% of the gross profit amounting to Rs.1,88,47,096/- (Rs.3,36,55,530 *56%) as expenditure and the difference amounting to Rs.1,31,75,635/- [ Rs.1,48,08,434= (Rs.3,36,55,530- Rs.1,88,47,096) - Rs.16,32,799] was brought to tax. Thus, A.O made addition of Rs.1,31,75,635/- as concealed net profit.
Aggrieved by the stand so taken by the A.O, the assessee carried the matter in appeal before the ld. CIT(A) with success. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us.
The ld. DR for the Revenue has vehemently submitted that the ld. CIT(A) was erred by allowing the appeal filed by the assessee. The Ld. CIT(A) erred by not considering the view of the Hon’ble Supreme Court in the case of Kachwala Gems v. Joint Commissioner of Income-tax, Jaipur [2007] 158 TAXMAN 71(SC) that some amount of guess work involved in a best judgment assessment. The ld. DR for the Revenue also pointed out that the ld. CIT(A) has failed to consider the facts of applicability of provisions of section 40A(3) of the Act as the assessee`s case does not fall under Rule 6DD(g) of the Rules, which is discussed in detail, in page No. 3 of the assessment order. As the books of accounts has been rightly rejected and there were no purchase vouchers as admitted by the assessee vide page 2 of the assessment order.
Shri Safiul Mallick Assessment Year: 2011-12 6. On the other hand, the ld counsel for the assessee had defended the order passed by the ld. CIT(A).
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that though the AO has rightly rejected the books of accounts and estimated the income, however, the manner in which the estimation was made is completely arbitrary and purely on guess work. The Ld AO has not brought any comparable cases on record to estimate the income. The Ld AO also completely ignored the fact that the books of accounts were maintained by the assessee and audited U/s 44AB of income Tax Act. Further, though the assessee had not maintained the sale bills, the sale proceeds were received by the assessee through the Bank account and there were no sales outside the books of accounts. The assessee is engaged in human hair trading, and the hair has to be collected from the small vendors who collects it domestically from house to house or from beauty parlors, or from temples. The assessee time and again reiterated that the hawkers insist cash payment and do not accept the cheque/ draft (DD). The assessee also stated that the each payment was less than Rs.20000/- per day and the provisions of section 40A(3) are not applicable in the assessee's case. The Assessing Officer did not bring any instance of payment which falls under section 40A(3) of I.T Act except making general observations.
We note that in previous years, in the assessee`s case under consideration, the assessments for A.Ys 2008-09 to 2010-11 were completed and the books of accounts were not rejected and no addition was made on account of gross profit. In subsequent assessment years also, the books of accounts are accepted and completed the assessments u/s 143(1)/143(3) of the Act. We note that accounts of the assessee are audited by a qualified Chartered Accountants u/s 44AB of the Act and Auditors’ Report does not contain any qualificatory remarks. The turnover, gross profit, expenses and Net Profit data of four years of the assessee are given below for ready reference:
Shri Safiul Mallick Assessment Year: 2011-12 Year ended Sales Purchases GP % ExpensesN.P. % 31.03.08 172930600/- 169341648/- 3411720/- 1.97 2409774/- 1001946/- 0.58% 31.03.09 236429580/- 231894165/- 4402403/- 1.86 9054139/- 1348264/- 0.57% 31.03.10 329810210/- 324623850/- 5374042/- 1.63 3603513/- 1770529/- 0.54% 31.03.11 168277648/- 164328150/- 3943340/- 2.34 2210541/- 1732799/- 1.03% We note that the Assessing Officer has not brought on record any comparable cases for estimating the gross profit and also the net profit. However, the assessee has furnished comparable cases in his submissions before the ld CIT(A) which are given below for ready reference :
Sk. Majibar Rahaman Year ended Sales Purchases GP(in lacs) % Expenses% 31-3-2011 11.62 cr 11.41 cr 22.6 1.94 581187 0.50 Sk. AtauRahaman Khan Year ended Sales Purchases GP % Expenses% 31-03-2011 5.56 cr. 5.48 cr 9.43 1.69 408427 0.73 Sk. MajibarRahaman Year ended Sales Purchases GP(in lacs) % Expenses% 374841 0.70 31-03-2011 5.38 cr 5.05 cr 10.52 1.95 We note that the gross profit and net profit declared by the assessee in the earlier years and the subsequent year and comparable cases furnished by the assessee. The gross profit and net profit declared by the assessee is more than the trading results of earlier years in the assessee’s own case and in comparable cases.
We note that the ld AO found that there were no purchases and sale vouchers, and the assessee has not maintained the quantitative records. Though the assessee had withdrawn huge sums of money in cash and distributed the money ranging fromRs.25.00 lacs to Rs.50.00 lacs, he claimed that no payment was made more than Rs.20,000/- per day and the same is not verifiable. The assessee’s Bank account is at Bhagwanpur Branch. The assessee is not covered by the Rule 6DD(g) of IT Rules for covering an exception u/s 40A(3) of I.T Act. We note that because of the above deficiencies the ld AO rejected the books of accounts and estimated
Shri Safiul Mallick Assessment Year: 2011-12 the income. After rejecting the books of accounts, the A.O estimated the income by estimating 20% of the gross sales as gross profit amounting to Rs.3,36,55,530/- and allowed 56% of the gross profit amounting to Rs.1,88,47,096/- as expenditure and the difference amount of Rs.1,31,75,635/- (Rs.1,48,08,434 - Rs.16,32,799) was brought to tax. We note that it was justified to reject the books of accounts and estimate the income, but the manner and method in which the estimation was made by ld AO is unscientific, and arbitrary. We note that Hon'ble Calcutta High Court in the case of Dabros Industrial Co. (P) Ltd. v. CIT (1977) 108 ITR 424 (Cal) held that once the books of accounts of an assessee are rejected then the profit has to be estimated on the basis of proper material available. The Assessing Officer is not entitled to make a pure guess or make an assessment without reference to any evidence or any material at all. There must be something more than mere suspicion to support an assessment order under section 143(3) of the Act. We note that it is a settled position of law that, any addition on pure guess and presumption cannot be sustained. We note that the Hon’ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. Vs CIT reported in 26 ITR 775 wherein it was observed as follows:
“In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and, lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the Income-tax Officer and the Tribunal seems to be based on surmises, suspicions and conjectures. It is somewhat surprising that the Tribunal took from the representative of the department a statement of gross profit rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that statement had no relevancy whatsoever to the case of the mill in question. In view of the above judgment, it is apparent that important parameters havebeen laid down by the Apex court wherein revenue has been advised by Supreme Court that caution must be taken that revenue is not exercising power in arbitrary manner and AO cannot give routine or frivolous reasons behind making an addition, as in the present case, the A. O. has summarily madeaddition without going in to details to verify the genuineness of the transactionsand the various documents & evidences filed by assessee.”
Shri Safiul Mallick Assessment Year: 2011-12 We note that in assessee`s case under consideration, the AO has not brought any comparablecases on record to estimate the income and he completely ignored the factthat the books of accounts were maintained by the assessee and audited U/s 44AB of Income Tax Act, and the sale proceeds were received by the assessee through the Bank account and there were no sales outside the books of accounts, therefore we do not find any justifiable reason to sustain the addition made by the A.O without placing any tangible material on record to support the addition.
We also rely on the judgment of the Coordinate Bench of ITAT, Kolkata in the case of M/s Glorious Agro Exim (P) Ltd in for Assessment Year 2011-12 wherein it was held as under:
“8. We have heard the rival contentions of both the parties and perused the material available on record. The facts of the case are that assessee failed to furnish the necessary information at the time of assessment proceedings including the books of account. Therefore, the A.O rejected the books of account and determined the profit @8% of the turnover of assessee. However, Ld. CIT(A) in his appellate order enhanced the income determined taxable income @37.97% of the total turnover and accordingly the income of the assessee was enhanced. Now, the issue before us arises so as to whether the action of the ld. CIT(A) is correct by estimating income of assessee @37.97% in the given facts and circumstances. In this regard it was observed that Ld. CIT(A) enhanced the income of assessee without giving any opportunity of being heard which is against the provision of law. The provision of law u/s 251(2) of the Act requires to provide an opportunity of being heard to the assessee before enhancing the income. Therefore, in our considered view, the ld. CIT(A) has violated the principle of natural justice. Now coming to the rate of income estimated by Authorities Below, we find that under the similar facts and circumstances, the Revenue in assessee’s own case has accepted the taxable income to the gross turnover in the assessment framed u/s 143(3) of the Act for the Assessment Year 2013-14 wherein the return income declared by assessee was accepted after making minor disallowance on account of interest on capital work in progress. The copy of assessment order for Assessment Year 2013-14 is placed on page 59 to 61 of the paper book. In view of the above, we direct the Authorities Below should take into consideration the amount of income declared by assessee over a period of time and accordingly determine the taxable income. Hence, this ground of appeal is allowed for statistical purpose in term of above direction.”
Shri Safiul Mallick Assessment Year: 2011-12 Therefore, we do not find any reason to disturb the trading results of the assessee and also do not find any justifiable reason to sustain the addition made by the A.O without placing any tangible material on record to support the addition. That being so, we decline to interfere in the order passed by the ld. CIT(A) and his order on this issue is hereby upheld and the grounds of appeal raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order is pronounced in the open court on 03.10.2018.