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Income Tax Appellate Tribunal, LUCKNOW BENCH ‘SMC’, LUCKNOW
Before: SHRI T. S. KAPOOR
This is an appeal filed by the assessee against the order of learned CIT(A), Bareilly dated 21/03/2022 pertaining to assessment year 2017-18. In this appeal the assessee has taken number of grounds however, the crux of grounds of appeal is twofold; one of which is the wrong rejection of books of account by the authorities below and the second is the wrong application of net profit margin which the Assessing Officer had applied @8% of the gross receipts and which the learned CIT(A) had restricted to 1%.
2. Learned counsel for the assessee, at the outset, submitted that the reason for rejection of books of account was that the assessee had not maintained cash book properly and further on the basis that the notices issued u/s 133(6) to debtors remained unserved to the debtor. Learned counsel for the assessee submitted that the assessee was dealing in distribution of SIM cards of Uninor company and had retailers spread over various areas and the salesmen of the assessee used to collect cash from various persons and on the basis of statement submitted by them detailing cash collections, the assessee used to record the entries in the cash book and therefore, the allegation of the authorities below, that cash book was not properly maintained is, not correct and in this respect my attention was invited to page 243 of the paper book where the statement of salesman dated 08/11/2016 was placed and wherein the collection made by various salesmen were recorded. My attention was also invited to cash book of 08/11/2016, placed at page 103 of the paper book where such amount of Rs.1,09,912/- collected from various persons as noted in the statement, was recorded. Similarly, my attention was invited to page 248 of the paper book where the collection sheet for 09/11/2016 was placed and where the amount received was mentioned to be Rs.2,40,870/-. My attention was also invited to cash book page 103 of 09/11/2016 where the same amount of Rs.2,40,870/- was mentioned. It was submitted that the nature of business of the assessee was such that cash book was being maintained on this basis only whereas there is no mistake in the cash book and all the receipts have been recorded in the cash book. As regards the other objection of the Assessing Officer that the notices issued u/s 133(6) to debtors remained unserved, Learned counsel for the assessee submitted that the company Uninor had closed its business as per the order of Hon'ble Supreme Court and the persons to whom notices were issued may have changed their business/profession therefore, this cannot be the reason for rejection of books of account as the Assessing Officer did not point out any defect in the books of account. Regarding merits of the addition, Learned counsel for the assessee submitted that the Assessing Officer had made the addition by applying net profit rate of 8% which the learned CIT(A) has restricted to 1% which is again arbitrary and unjustified keeping in view the fact that the profit margin in such type of business is very low and in fact for the last so many years the average net profit declared by the assessee was 0.26% and which was accepted during scrutiny proceedings and during the year under consideration the net profit margin has been declared at 0.61%. Therefore, it was prayed that the results declared by the assessee were true and based on the books of account and therefore, the appeal filed by the assessee may be allowed.
Learned D. R., on the other hand, relied on the orders of the authorities below.
I have heard the rival parties and have gone through the material placed on record. I find that the assessee is dealing in the distribution of SIM card of Uninor company which has closed its business in view of the order of Hon'ble Supreme Court. The nature of business carried on by the assessee involves collection of cash from various places through salesman and a consolidated memo, narrating therein the amount of cash collected from various persons and from various sources, is prepared and a consolidated amount is entered in the cash book which practice is in accordance with the nature of business carried on by the assessee. The copies of relevant paper book pages, supporting the arguments of the assessee that the cash book was being maintained in this way, are placed in the paper book. The arguments of the assessee that the non service of notices u/s 133(6) to distributors of the assessee cannot be the reason for rejection of books of account, has force in the particular set of circumstances as the Uninor company had closed its business two years ago and during assessment proceedings when the Assessing Officer sent notices u/s 133(6), there is fair chance that they may have changed their business. Moreover, the above reason cannot be the sole reason for rejection of books of account when otherwise the Assessing Officer did not point out any mistake. In view of the above, the first grievance of the assessee is accepted.
As regards the merits of the addition, I find that the assessee has been declaring profit @0.26% and during the year it has declared a profit of 0.61% which is quite significant as compared to the average of earlier years. The Assessing Officer and learned CIT(A) if had to estimate the income of the assessee by rejecting the books of account they should have estimated the income of the assessee on the basis of percentage income to gross receipts of earlier years which they have not done. Therefore, I accept the arguments of the assessee and direct the Assessing Officer to accept the percentage of profit declared by the assessee which is equivalent to 0.26% of the turnover. In view of the above the appeal of the assessee is allowed.
In the result, the appeal of the assessee stands allowed.
(Order pronounced in the open court on 16/08/2022)
Sd/. ( T. S. KAPOOR ) Accountant Member Dated:16/08/2022 *Singh