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Income Tax Appellate Tribunal, DELHI BENCHES, NEW DELHI
Before: SHRI.I.C. SUDHIR & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
These are the appeal filed by the assessee and the revenue against the order dated 28.01.2015 for the Assessment Year 2010-11.
The assessee has raised the following grounds:- “1. That under the facts and circumstances of the case, the learned CIT(Appeals) has erred to confirm an addition of Rs.41,40,701/- by applying the GP@15% as against 13.28% disclosed. The confirmation of addition of Rs.41,40,701/-, is arbitrary, unjust, uncalled for, illegal and in any case highly excessive.
Page 2 of 8 3. The revenue in cross objection has raised the following grounds:- “
1. Whether the ld Commissioner of Income Tax ( Appeals) has erred in law and facts in deleting the addition of Rs.22,93,296/- on account of sundry creditors after accepting the confirmation filed by the assessee before him as additional evidence during the appellant proceedings.
2. Whether in the facts and circumstances of the case, the ld Commissioner of Income Tax (Appeals) has erred n law and facts in deleting addition of Rs.22,93,296/- on account of unproved sundry credits ignoring the fact that in the succeeding year, the liability of these creditors had been discharged through a series of cash payments only and in the absence of complete cash book of the assessee, the genuineness of these cash transactions could not be proved.
3. Whether in the facts and circumstances of the case, the ld Commissioner of Income Tax (appeals) has erred in law and facts in holding that the Assessing Officer has erred in estimating the Gross Profit @25% of gross receipts ignoring the fact that no bills and vouchers, stock register, books of accounts were produced before the AO during the course of assessment proceedings inspite of opportunity granted to the assessee.
4. In the facts and circumstances of the case the order of the ld Commissioner of Income Tax (A) may be set aside and that of the AO be restored.”
The brief facts of the case is that assessee is a partnership firm engaged in the business of trading of pharmaceutical products and in manufacturing of bandages. During the year it has shown gross profit of 13.28% and net profit of 3.03% on turnover. Return of income was filed on 31st of October 2010 wherein total income of Rs. 7268960/-were shown and later on the case was picked up for scrutiny. During the course of assessment proceedings Ld. assessing officer made enquiries under section 133 (6) of the income tax act with respect to 22 parties out of them 18 notices remained uncomplied with and in case of 2 cases notices have returned back. Therefore, Ld. assessing officer was of the view that the creditors amounting to Rs. 1 3497685 /-are bogus. Further during the course of Page 3 of 8 assessment proceedings Ld. assessing officer asked for several details. However, no one appeared and no bills and vouchers nor any books of accounts were produced. There was no stock register maintained / produced by the assessee and therefore coupled with all these facts the assessing officer was of the view that assessee’s books of accounts are not reliable and therefore he estimated the gross profit at the rate of 25% of the turnover of the assessee making an addition of Rs. 2815867/- to the total income of the assessee. Appellant carried the matter before the CIT (A), who in turn rejected gross profit rate estimated by the assessing officer at the rate of 25% and reduced it to 15%, according to the past history of the assessee wherein from assessment year 07 – 08 to 2012 – 13 assessee has shown gross profit in the range of 10.75% to 14.20%. Further, before assessing officer, though confirmation of various parties were not submitted before CIT (A) the confirmation of various sundry creditors were filed same were admitted by CIT (A) after obtaining remand report of the assessing officer, wherein he has accepted that out of 20 parties 7 creditors appears to be genuine and in the remaining 13 cases The Ld. assessing officer did not agree that this creditors are genuine, as in subsequent years the payment to these creditors are made through a series of cash payments only. Therefore, before us the rival parties are in appeal as per grounds of appeal
already stated above.
5. We first take up the appeal of the assessee against the confirmation of addition of Rs. 4140701/- towards the gross profit of the assessee.
Page 4 of 8 6. Before us Ld. authorized representative submitted a paper book containing 76 pages, wherein he submitted that assessee could not produce the books of accounts and vouchers before the assessing officer because of the reason that the books of accounts were destroyed in a fire. He submitted First information report dated 23/02/2012, wherein the fact is mentioned before the authorities by a FIR No. 44, he further submitted that all the confirmation of the creditors were available before CIT (A) and same were perused by him and based on that he has reduced the addition to the gross profit. It was further contended that the moment the creditors are genuine and duly confirmed by those creditors books of accounts cannot be rejected merely because the reason that the assessee could not produce vouchers and bills as same are not available because of the fire. Therefore his contention was that that the books of accounts audited same may be accepted.
Against this Ld. departmental representative submitted that the assessing has failed to produce books of accounts before the assessing officer, therefore, the profit has rightly been estimated at the rate of 25%. If the books of accounts are destroyed in fire the assessee should have supported the profit and loss account by producing third-party evidences which assessee has failed to do. Further during the course of assessment proceedings the enquiry letters issued to the sundry creditors also Page 5 of 8 remained unresponded and in two cases it was not served therefore most of the sundry creditors remained unconfirmed. He further submitted that in subsequent years in 18 sundry creditors they were paid in cash in a series of payments which itself proves that the creditors are bogus and the cash payments have been made by the assessee in subsequent years to just clear their balances.
We have carefully considered the rival contentions. It is an undisputed fact that the books of accounts were not produced before the assessing officer by the assessee for its verification. However, the difficulty on the side of the assessee was also required to be appreciated in view of the books of accounts destroyed by fire. For this unfortunate incident assessee has filed an FIR with the respective authorities and placed it on record. This fact is not controverted by the lower authorities. In view of this and absence of any evidence available before the assessing officer coupled with no confirmation from the sundry creditors , Assessing officer did not have any alternative but to estimate the gross profit of the assessee which he did. However, the rate taken by the assessing officer of 25% of the gross profit of the turnover is not supported by any comparative cases, as well as the past history or the subsequent record of the assessee. In view of this, the adoption of 25% of the gross profit rate cannot be upheld. On appeal before CIT (A) he has taken the past history of the assessee and subsequent records of the assessee and then estimated the gross profit at the rate of Page 6 of 8 15%. In view of the gross profit rate adopted by AO @ 25 % he adopted at the rate of 15% which is based on the on comparables of the assessee different previous and subsequent assessment history, we confirm the finding of CIT (A) in estimating the gross profit at the rate of 15%. In the result ground No. 1 of the appeal of the assessee is dismissed.
Now we come to the appeal of the revenue. Revenue has raised grounds No. 1 and 2 are related to the acceptance of additional evidence during the appellate proceedings and addition on account of sundry creditors. Ground No. 3 is against the adoption of the rate of profit rate at the rate of 15% by CIT (A) appeal against 25% taken by the assessing officer.
1st we take up the ground No. 1 and 2 of the appeal of the revenue which are against the addition of sundry creditors and admission of additional evidences. In this case the additional evidences have been admitted by the assessee after applying the provisions of rule 46A of the Income Tax Rules, 1962, after obtaining remand report of the AO . In remand report itself Ld. assessing officer has accepted the genuineness of 7 creditors and further in case of 13 creditors he has stated that all these creditors have been paid in subsequent years in series of cash payments. We are of the view that this ground cannot be used against the assessee for making an addition by applying the gross profit rate. In fact, if the assessing officer has doubt in subsequent years where payments have been made by cash
Page 7 of 8 for the purpose of purchases of goods, etc made during the year, then he is very well empowered to initiate proceedings under section 40 A (3) of the Income Tax Act. In view of these facts we do not find any infirmity in the order of the CIT (A) , wherein he has admitted the additional evidence after affording proper opportunity to the assessing officer. Further, the assessing officer has not made any addition independently on account of these sundry creditors, therefore, there was no case before the CIT (A) to upheld or delete the addition on account of sundry creditors. On reading of the order of the assessing officer, it was found that the assessing officer has made addition by rejecting the books of accounts of the assessee and then applying gross profit rate. One of the reasons for making an addition of GP was with respect to the non availability of confirmation of sundry creditors. Out of this, the assessee has produced before the CIT (A) the confirmation of all sundry creditors and therefore naturally the gross profit rate is required to be reduced substantially as assessee has substantiated veracity of its books of accounts Hence, in view of this, we do not find any infirmity in the order of CIT (A) hence we confirm it to the extent of accepting the confirmation of sundry creditors.
The next ground of appeal is against the reduction of the gross profit from 25% to 15% by the CIT (A). This issue has already been decided by us while deciding ground No. 1 of the appeal of the assessee where in we have confirmed the action of CIT (A) applying G P rate of 15%, which is Page 8 of 8 based upon the past history and subsequent assessment records of the assessee. Therefore, we dismiss ground No. 3 of the appeal of the revenue.