SAURABH LAL,GHAZIABAD vs. ITO WARD 2(2)(3), GHAZIABAD

6. Aggrieved by the said order the assessee filed an appeal before the CIT(A).

7. The Ld. CIT(A) dismissed the appeal of the assessee on both the grounds. The Ld. CIT(A) observed that on proper evaluation and appreciation of the findings of the AO on the issue of net profit estimation on undisclosed business turnover @ 3.5% and the reply of the assessee noted that AO had applied the rate of 3.5% as shown by assessee for the assessment year 2015-16. The Ld. CIT(A) further noted that the assessee had not denied the fact that the balance turnover was not shown in his return of income and appellant had shown partial turnover of the business (at Rs 2,00,35,688/-). Therefore, the Ld. CIT(A) confirmed the addition of Rs.48,07,513/-. The relevant observations of the Ld. CIT(A) in para no. 5.5 of his order is reproduced :-

5.5 On the proper evaluation and appreciation of the findings of the AO on the issue of net profit estimation on undisclosed business turnover @3.5% and reply of the appellant it is seen that AO has applied the rate of 3,5% shown by appellant for the assessment year 2015-16. The appellant himself has shown the net profit @3.5% an the turnover of Rs. 20035688/- for the assessment year under consideration. The AO has simply applied the same net profit ratio on the balance turnover (which has not been shown by the appellant) i.e. Rs.137357508/- and worked out the profit of Rs.4807513/-. The appellant has not denied the fact that the balance turnover has not been shown in his return of income and appellant has shown partial turnover of the business (at Rs. 20035688/-). Considering the above facts and circumstances, in my considered opinion, the action of AO by estimating net profit @3.5% on balance business turnover is quite reasonable and justified on the part of AO. The appellant himself has shown net profit @3.5% for the year under consideration. Accordingly, the action of the AO in estimating the net profit at Rs.4807513/- is hereby confirmed. Therefore, this ground of appeal is dismissed.

7.1. Further, the relevant observation of the Ld. CIT(A) in para 5.7 of his order in upholding the action of the AO in adding the amount of Rs.1,45,55,697/- on account of duty drawback is reproduced as under :-

5.7 I have duly considered this ground of appeal

, finding of the AO on these issues and reply the appellant filed during appellate proceeding. From the perusal of assessment order it is seen that AO has noted that appellant has received duty drawback of Rs. 14555697/-, further AO has noted that Appellant has not furnishes any document evidence with regard to duty draw back. The AO has held that duty draw back is income as per sec. 28(II) (b) and accordingly made addition in the total income of the appellant, the appellant has submitted that addition of duty drawback in the total income tantamount to double taxation of the same income because duty drawback on exports turnover is already embedded in the net profit of the appellant and cannot be taxed twice. I have perused the Balance sheet furnished by the appellant during appellate proceeding. It seen that appellant has only shown Rs. 1681903/- in schedule 10 of the balance sheet under the head "Other Income". Where has AO has noted from ITB database that the appellant has received Rs. 14555697/- as duty drawback during the year on his export turnover, which has not been disclosed by the appellant. Hence the action of AO in treating the duty drawback of Rs. 14555697/- as additional income of the appellant is hereby confirmed. Therefore, this ground appeal is dismissed.

8. Aggrieved with the said order the assessee is appeal before us on the following grounds of appeal :-

1. That on the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to the Ld. CIT(A), NFAC) has grossly erred in sustaining the addition of Rs. 48,07,513/-, which is unreasonable and excessive. The addition deserves to be reduced.

3. That on the facts and in the circumstances of the case, the Ld CIT(A), (NFAC) has grossly erred in sustaining the addition of Rs. 1,45,55,697/-, on account of duty draw back, which is in fact double addition. The addition deserves to be deleted.

4. That, without prejudice, on the facts and in the circumstances of the case, the Ld. CIT(A), (NFAC) has grossly erred in sustaining the addition of Rs. 1,45,55,697/- u/s 28(II)(b) of the Act on account of duty drawback, without appreciating that there is no such provision and mandate u/s 28(11)(b) of the Act. Therefore, the addition deserves to be deleted.

5. That, without prejudice, on the facts and in the circumstances of the case, the d. CIT(A), (NFAC) has grossly erred in sustaining the addition of Rs. 1,45,55,697/- by not appreciating that when the income has been estimated by applying net profit rate, no separate addition can be made in respect of any component of turnover or operating income. Therefore, the addition deserves to be deleted.

6. That, without prejudice, on the facts and in the circumstances of the case, the d. CIT(A), (NFAC) has grossly erred in sustaining the addition of Rs. 1,45,55,697/- by not appreciating the submissions made before the Ld. AO and the written submissions dated 3.1.2024 made before him. Therefore, the addition deserves to be deleted.

9. During the hearing before us, the Ld. AR made a common submission and relevant extract of the same are reproduced as under :-

6. Regarding Ground No. 1 & 2 (Rs.48,07,513) 1. Export turnover declared in accounts and ITR Rs.2,00,36,688/- 2. Export turnover as per ITD data base Rs.15,73,93,196/- 3.Mismatch of turnover (short) Rs.13,73,57,508/- 4. Net Profit estimated @ 3.5%of (Rs.13,73,57,50/-)Rs.48,07,413/- 5. Basis of adopting net profit rate at 3.5% AY Turnover Net Profit Rate of Net Profit 2015-16 2.00.35.688/- 7,02,226/- 3.5%

1. The assessee had declared income from business u/s. 28 of the Act at Rs.7,02,226/- 2. Addition of Rs.48,07,513/- has been made as business income u/s. 28 of the Act. 3. Addition of Rs.1,45,55,697/- has been made as business income u/s. 28 (ii) (b) of the Act. 4. Therefore, after assessment the total business income u/s. 28 of the Act is as follows : (i) Net Profit declared 7,02,226/- (ii) Addition made on account of 3.5% of differential sale 48,07,513/- (iii) Addition made for DDB u/s. 28 (ii)(b) 1,45,55,697/- (iv) Total business income u/s. 28 2,00,65,436/-

6. The net profit of Rs. 7,02,226/- has been obtained after taking into account the amount of duty draw back (DDB) Rs. 16,81,903/-, which is clear from the audited financial statements.

10. If the 'accepted rate of net profit 3.5% is applied to the 'assessed turnover of Rs. 15,73,93,196/-, the income from business assessable u/s 28 shall be Rs. 55,08,762/- which would nearly compare favourable to the aggregate sum of Rs. 55,09,739/- (7,02,226 +48,07,513) assessed on the basis of rate of net profit 3.5% on total turnover of Rs. 15,73,93,196/-.

(i) once on the basis of application of net profit of 3.5%, and (ii) second separately u/s 28(ii)(b) increasing the rate of net profit from 3.5% to 12.75%, which is highly unreasonable, irrational and contrary to the net profit rate adopted by the Ld. AO at 3.5%.

10. The Sr. DR supported the orders of the authorities below.

11. We have heard both the parties and considered the material available on record. In this case the assessee did not appear before the AO during the assessment proceedings. The AO noted that the assessee had suppressed export turnover of Rs. 13,73,57,508/-(Rs.15,73,93,196/--2,0035,688/-). The AO adopted net profit as declared by the assessee in respect of the turnover filed by the assessee in his return of income at the suppressed turnover of Rs.13,73,57,508/- and made an addition of Rs.48,07,513/-. The claim of the assessee is that the application @ 3.5% of this suppressed turnover by the AO was very unreasonable. It was submitted before the Ld. CIT(A) that as per the details of turnover, net profit and net profit rates in the table on page 5 of the CIT(A)’s appeal order the average net profit of three years i.e. A.Y.2013-14 and 2015-16 was 2.24% and the same may be restricted @ 1%. However, the Ld. CIT(A) did not accept the above plea of the assessee and confirmed the action of the in determining the net profit @ 3.5% of the suppressed turnover. However, in the appeal before us the assessee at its submission at Sr. No.10 as above has accepted the rate of 3.5% on the suppressed turnover. The said submission at Sr. No. 10 is reproduced once again:-

11.1. In the given facts of the case we are of the considered view that the estimation @ 3.5% of the supressed turnover of Rs.13,73,57,508/-by the AO and thereby making on addition of Rs.48,07,513/- is justified. Therefore, the action of the AO, confirmed by the Ld. CIT(A) is upheld. Ground Nos. 1 and 2 of the appeal are dismissed.

12. Regarding the addition of Rs.1,45,55,697/-, it is stated by the assessee that the net profit @ 3.5% on its declared turnover was arrived after including the amount of duty drawback which was clear from the financial statements filed by the assessee alongwith his return of income. It was submitted that, therefore, by making a separate addition of the said amount again the AO was making double addition which was not justified. In this regard the P & L account of the assessee for A.Y. 2015-16 has been carefully perused (Page 17-21 of the paper book) and it is seen that ‘other income’ of Rs.20,03,387/- in P & L account includes the amount of duty drawback receipt of Rs.16,51,903/- and the said amount of Rs.16,51,903/- has been considered by the assessee for arriving at the net profit of Rs.7,02,226/-.

12.1 The Revenue shown in the P & L account on page 18 of the paper book showing ‘other income’ at Rs.20,03,387/- and the schedule 10 of ‘other income’ of Rs.20,03,387/- inclusive of the amount of the duty drawback of Rs.16,81,903/- which was also considered by the assessee as part of his total receipts on the basis of which the return of income showing total taxable income of Rs.7,02,226/- was filed by the assessee for A.Y. 2015-16 as under :-

12.3 On perusal of the same, the claim of the assessee in this regard after considering the above factual position is acceptable to us and we hold that separate addition of Rs.1,45,55,697/- is not justified and the same is deleted. Ground No. 4 to 6 are allowed.