MOHANA KRISHNA AGENCIES,SRIKAKULAM vs. THE INCOME TAX OFFICER, WARD-1, SRIKAKULAM

The Ld. CIT(A) is not justified in upholding the action of the AO in treating the entire deposits of Rs. 6,87,17,587/- in the bank account as turnover of the appellant as against actual turnover of Rs. 6,23,90,543/-.

The Ld. CIT(A) is not justified in directing the Ld. AO to estimate the gross profit @ 6% of the turnover which is on higher side. Any other ground may be urged at the time of hearing.” 4.

At the outset, it is the submission of the Ld. Authorized Representative [AR] that while estimating the income of the assessee, the Ld. Revenue Authorities ignored the fact that all the credits in the bank account of the assessee are not the turnover of the assesse-firm. He further submitted that as per the VAT returns of the assessee, the total sale without VAT during the F.Y:2016-17 was at Rs.6,23,90,543/. Whereas the Ld. Revenue Authorities took the entire credits in the bank as sales. Thus, there is a variation of Rs.63,27,044/- (Rs.6,87,17,587- Rs.6,23,90,543/-). He further submitted that before the Ld. CIT(A)-NFAC the assessee submitted the copy of VAT return for the FY 2016-17 in support of the claim of total sales of Rs. 6,23,90,543/- during the FY 2016-17. However, the Ld. CIT(A)-NFAC also erred in appreciating the submissions made by the assessee and granted a meagre relief to the assessee by directing the 5 Ld.AO to restrict the gross profit @ 6% of the turnover against @8% made by the Ld. AO. The Ld. AR also further submitted that the companies would give GP margin @ 3.5% to 4.25% only and that will not exceed 4.25% of gross profit. Whereas the Ld. AO estimated @8% of the gross sales and the Ld. CIT(A)-NFAC estimated it @ 6%. The Ld. AR further submitted that even the Ld. Revenue Authorities have not given any comparable cases while adopting 8% and 6% gross profit by the Ld. AO and Ld. CIT(A)-NFAC respectively, which is arbitrary decision in its nature. Therefore, the Ld. AR pleaded that since the estimation of gross profit @ 6% as directed by the Ld. CIT(A)-NFAC is on higher side, the assessee may be granted substantial relief.

On the other hand, the Ld. Departmental Representative [DR] fully supported the orders of the Ld. Revenue Authorities and argued in support of the same.

We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. For the AY under consideration, the assessee has not filed its return of income. During the assessment proceedings for the AY 2017-18, the Ld. AO observed that the assessee has made substantial cash deposits in its Corporation Bank, Narasannapeta Branch. From the assessment order, it is apparent that the assessee has not responded to any of the notices 6 issued / turned out until the summon U/s. 131 was issued by the Ld. AO. While giving reply to the summon, the assessee made a sworn statement before the Ld. AO and stated that it would produce all verifiable evidence for cash deposits by 13/9/2013 but did not happen. Furthermore, the assessee has not even produced any books of accounts and bills & vouchers etc., before the Ld. AO. Under these circumstances, in the absence of any verifiable evidence / documents to substantiate the cash deposits, the Ld. AO has no other option except to pass the order based on the material available on record and passed the assessment order U/s. 144 by estimating the income of the assessee @ 8% of total cash credits during the AY under consideration. On appeal, before the Ld. CIT(A)-NFAC, the assessee has not properly utilized the opportunities provided to them. The assessee contended before the Ld. CIT(A)-NFAC vide its submissions that the entire credits appearing in the bank are not the turnover of the assessee-firm whereas the Ld. AO considered the entire credits as sales and therefore there is a variation of Rs. 63,27,044/-. However, the assessee has not produced any substantial documentary evidence to explain the variation of Rs. 63,27,044/- before the Ld. CIT(A)-NFAC. Further, the assessee has not even given an explanation or documentary evidence to justify its claim that the Gross Profit margin should be between 3.5% to 4.25% either before the Ld. CIT(A)-NFAC or before the Tribunal. We find that the Ld. CIT(A)-NFAC, vide para 6.2.2 of his order, has 7 judiciously examined the income of the assessee vis-à-vis the sales made during the AY 2013-14 to 2016-17 and noted that the assessee has shown very lower GP rate during these years. However, the assessee has not furnished any documentary evidence to establish its lower GP rate in the earlier AYs as well as in the AY under consideration. Considering all the facts and circumstances as well as the material available before him, the Ld. CIT(A)-NFAC has directed the Ld. AO to estimate the gross profit @ 6% against @ 8% made by the Ld. AO by observing (at Page 9 of the CIT(A)- NFAC’s order) as under: “The appellant has itself disclosed gross profit @ 4.6% and 4.7% in AY 2015-16 and AY 2016-17. However, it may be noted that these income tax returns were not subject to scrutiny and therefore, its authenticity has not been established. Since the appellant has not been able to justify with documentary evidence its actual profits, it would be deemed fit to estimate the gross profit at the rate of 6%. The gross profit works out to Rs. 41,23,055/- (6% of Rs. 6,87,08,443/-). The appellant gets relief of Rs. 13,74,352/-.”

Considering the above facts and circumstances of the case as well as the material available before us, we are of the considered view that when the assessee claims that all the credits are not the turnover of the assessee-firm, the onus is on the assessee to prove its claim with cogent documentary evidence, which the assessee failed to do so even before us. Further, in the absence of any documentary evidence to prove the variation of Rs. 63,27,044/-, as contended by the assessee, and also in the absence of any books of account and bills & vouchers etc., for verification to 8 substantiate the cash deposits, taking into account the earlier years disclosure of gross profit by the assessee, the Ld. AO estimated the income of the assessee @8% and on appeal the Ld. CIT(A)-NFAC has granted considerable relief to the assessee by directing the Ld. AO to estimate the GP @ 6%. Therefore, we have no hesitation to come to a conclusion that there is no infirmity in the order of the Ld. CIT(A)-NFAC and it does not call for any interference. Accordingly, the grounds raised by the assessee are dismissed.

In the result, appeal of the assessee is dismissed.