KUNAN MAL KALU RAM JAIN AND COMPANY ,TONK vs. ITO,TONK, TONK

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 70/JP/2023 fu/kZkj.k o"kZ@Assessment Years : 2018-19 cuke Kunan Mal Kalu Ram Jain and ITO, Vs. Company Tonk A-14 , Mandi Yard, Newai, Tonk LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFFK 5166 L vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Mahendra Gargieya (Adv.) & Sh. Devang Gargieya (Adv.) jktLo dh vksj ls@ Revenue by : Smt Monisha Choudhary (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 26/07/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 24/08/2023 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM

This appeal is filed by assessee and is arising out of the order of the National Faceless Appeal Centre, Delhi dated 26/08/2022 [here in after (NFAC)/ ld. CIT(A) ] for assessment year 2018-19 which in turn arise from the order dated 23.03.2021 passed under section 143(3) r.w.s 143(3A) & 143(3B) of the Income Tax Act, by National e-Assessment Centre, Delhi.

“1. The impugned additions and disallowances made in the order u/s 143(3) dated 23.03.2021 are bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be deleted.

2. Rs. 2,64,708/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the trading addition on account of low Gross profit and net profit. The additions so made and confirmed being totally contrary to the provisions of law and facts of the case, kindly be deleted in full.

3. The learned CIT erred in law and facts of the case in confirming the impugned addition made by the AO by applying higher NP rate of 4% as against the declared NP rate of 1.75%. The additions so made and confirmed being totally contrary to the provisions of law and facts of the case, kindly be deleted in full.

4. Rs. 10,992/- The ld. AO erred in law as well as on the facts of the case in charging interest u/s 234D of the Act. The appellant totally denies it liability of charging of any such interest. The interest, so charged, being contrary to the provisions of law and facts, kindly be deleted in full.

5. The appellant prays your honour to add, amend or alter any of the grounds of the appeal on or before the date of hearing.”

2.1 At the outset of the hearing the bench noted that the registry pointed out that there is a delay of 113 days. Apropos to this delay in filling this appeal the ld. AR of the assessee submitted as under:

“The humble assessee most respectfully begs to submit as under:

1. 1. That in the aforesaid matter, the ld. CIT(A), Tonk passed the impugned order on dated 26.08.2022, which was received on dated 26.08.2022 by the AR of the assessee. Accordingly, the appeal was to be filed on/before 26.10.2022 however, the same has been filed on dated 16.02.2023. Thus, delay of 113 days has occurred.

2. Reasonable Cause exist in this connection, it is humbly submitted that the appeal papers were duly prepared by the counsel of the assessee and were sent to the local counsel Shri Shyam Lal (FCA). Unfortunately however, Shri Akash proceeded an outstation journey during the relevant period and the papers could not be forwarded to the assessee .As soon as Shri Akash came back , he immediately got the paper signed 2.2. That pertinently, the filing fees of Rs. 500/- was already deposited long back on 19.01.2023 that is a month before the due date .Thus, the assessee was quite serious to file the appeal.

3. That in support of the aforesaid facts, affidavit of the of assessee is enclosed with this application and marked as “Annexure – A”

4. That the applicant is a layman not very conversant with the complex tax laws and because of the circumstances stated above, the delay so caused was beyond her control but was bonafide and unintended. The assessee was not going to gain any benefit because of the delayed finding and her conduct was not contumacious.

Prayer: It is, therefore, humbly prayed that this application may kindly be allowed by condoning the delay, taking a sympathetic view, in the interest of justice.

Any other order, which this Hon’ble ITAT deems fit and proper, be also passed in favour of applicant assessee.” assessee’s application for condonation of delay and prayed that Court may decide the issue as deem fit in the interest of justice.

2.3. We have heard the contention of the parties and perused the materials available on record. The prayer by the assessee for condonation of delay of 113 days has merit as the filling fees of challan has been paid by the assessee in time this shows the party to be serious in filling the appeal. Therefore, based on the reasons we concur with the submission of the assessee and condone the delay of 113 days in filing the appeal by the assessee in view of the decision of Hon’ble Supreme Court in the case of Collector, land Acquisition vs. Mst. Katiji and Others, 167 ITR 471 (SC) as the assessee is prevented by sufficient cause.

The difference between GSTR and ITR, all clarification put forth in the questionnaire have been explained properly. But on going through the profit margin as mentioned in the annexure G to form no. 3CD an abnormal reduction in percentage of GP and net profit is observed. The ld. AO noted that such a huge reduction cannot happen that too between two consecutive years. But the assessee did not give any explanation for the reduction in net profit. So a reasonable percentage of net profit is to be adopted for assessing the income. Hence, the net profit is computed at 4% of the turnover (1,17,96,559/-) i.e., 4,71,862/- as income of the assessee. preferred an appeal before the ld. CIT(A)/NFAC. A propose to the grounds so raised the relevant finding of the ld. CIT(A)/NFAC is reiterated here in below:

“5. Decision I have carefully considered the facts of the case. As per the findings of the AO in the case, it is noticed that as contended by the appellant disallowance of Business expenses and Sales receipts of Rs. 2,65,708/- was disallowed by the Assessing Officer for the assessment year 2018-19. The Assessing Officer, on careful consideration of the submission did not find the same acceptable. After intensive study of the case, the contentions of the appellant have been carefully examined. This order is being passed due to lack of concrete evidence and full facts of the case. All the grounds of appeal are dismissed.”

5. Feeling dissatisfied the assessee preferred the present appeal on the grounds as stated in para 2 above. The ld. AR appearing on behalf of the assessee has placed on record their written submission which is extracted in below;

“Brief Facts: The assessee Firm filed its Return Of Income of the AY 2018-19 on 15.09.2018 declaring Total Income of Rs. 2,06,150/-. The return was selected for scrutiny through CASS on the reason that “turnover shown in ITR is substantially lower in comparison to turnover shown in GSTR-1 return and GSTR 3b Return; Low income compared to large commission receipts”. The assesse is Kaccha Arhatiya and is also engaged in his own trading. During assessment proceedings, the AO found that the NP declared in last year was 6.66% whereas in this year it was 1.75% only. When asked, the assesse submitted detailed explanations and quantitative details with the purchase & selling rate etc.to justify the low NP rate of 1.75%. However, the AO didn’t feel satisfied and alleging that no explanation was 7 Kunan Mal Kalu Ram Jain and Company vs. ITO submitted by the assessee, applied ad hoc NP rate of 4% and thus hereby, made trading addition of Rs. 2,65,708/- by applying higher NP rate, holding as under: “5. But on going through the profit margin as mentioned in the annexure 'G' to 3 CD, an abnormal reduction in percentage of gross profit and net profit during the previous year and preceding previous year is evident.

6. The net profit was 6.66% of turnover during the preceding previous year and during the previous year relevant to A.Y 2018-19 was just 1.75%. Considering the nature of product like food grains and agricultural produce, there can be variation in rate and even loss due to long pending stock, transit etc., the Department can be bit lenient while assessing the income. Anyway, such a huge reduction cannot happen that too between two consecutive years. But the assessee did not give any explanation for the reduction in net profit. So a reasonable percentage of net profit is to be adopted for assessing the income. Hence, the net profit is computed at 4 % of the turnover (1,17,96,559/-) i.e., Rs.4,71,862/-.” In the first appeal, the ld. CIT(A) vide its order dated 26.08.2022 u/s 250, also confirmed the addition vide para 5 very summarily by mainly relying upon AO’s finding only but there is no independent application of mind by him on the submissions, holding as under: “I have carefully considered the facts of the case. As per the findings of the AO in the case, it is noticed that as contended by the appellant disallowance of Business expenses and Sales receipts of Rs. 2,65,708/- was disallowed by the Assessing Officer for the assessment year 2018-19. The Assessing Officer, on careful consideration of the submission did not find the same acceptable. After intensive study of the case, the contentions of the appellant have been carefully examined. This order is being passed due to lack of concrete evidence and full facts of the case. All the grounds of appeal are dismissed”. Hence this Appeal. Submission: At the outset it is submitted that the appellant has admittedly maintained complete books of accounts on day to day basis, the other subsidiary record showing the quantitative and financial details both The Purchase , Sale and expenses were duly supported by proper vouchers. The Accounts were even subjected to Tax Audit under S. 44AB of Act. Notably there was no adverse remark made by the ld. Tax Auditor in the Audit Report nor it is so alleged by the ld. AO. Needless to say that the accounts so maintained in the regular course of business has a binding evidentiary value u/s 145 of the Act r/w S.34 of The Indian Evidence Act,1872. Unless the assessing officer reject the books of accounts under cogent ground provided under section 145(3), he does not get any jurisdiction at all to make any variation in the declared results. In other words, S. 145 mandates the AO to accept the results based on the accounts.

8 Kunan Mal Kalu Ram Jain and Company vs. ITO No addition legally permissible unless accounts rejected: There is a consistent view of various High Courts and Tribunals to this effect. Kindly refer: 1. M/s Bansilal Abirchand Spg. & Wvg. Mills 75 ITR 260 (Bom) (DPB1-2) a. A finding has to be recorded as to the unacceptability of the method and irregularity of the method and irregularity of accounts kept. b. The mere fact that percentage of dead loss of cotton is high in a particular year cannot lead to the loan inference that thereby there has been a suppression of the production in a spinning mill. c. If it is not possible to keep such record (record of loss or wastage at subsequent stages) there was no other reason not to accept the book results of the records kept addition by way of estimate not permissible. d. Merely by comparison of the percentage of loss in a particular year, we do not think it is possible to say with any reasonable certainty that the increase in the percentage of loss must be attributable and must lead to a reasonable inference of suppression of production of yarn. e. Higher wastages alone was no ground for rejecting the claim for wastage

3. DCIT v. Mewar Textile Mills Ltd. 21 Tax World 821 (JP) (DPB 6-10)

"The AO has nowhere invoked the provisions of section 145(1) and if the provisions are not invoked then the estimate of profit is not possible in the eyes of law. No defect of any kind was pointed out by the AO"

4. Mohd. Umer v. CIT 101 ITR 525 (Pat) (Page 528) (DPB11-14) "No finding was recorded by the departmental authorities as to the unacceptability of the method and irregularity of the account kept by the assessee. It is well settled that in the absence of such a finding recorded by the authorities, the book results cannot be ignored or brushed aside." "In the absence of any such finding, there being no reason germane to the unacceptability of the book results....."

5. Ajanta Constructions (P.) Ltd. Vs. ACIT XXII TW 606 (ITAT Jaipur) "The maintenance of books of accounts in the normal course of business activities have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable."

6. DCIT Vs. Associated Stone Industries (Kotah) Ltd. XXII TW 155 (JP) held that 9 Kunan Mal Kalu Ram Jain and Company vs. ITO "......No additions can be sustained on this account. Books of accounts of the assessee was not rejected and no defect of any kind was found by the AO or by the CIT (A)."

7. Ghewarchand Vs. ITO - XXI TW 571 held that "Therefore we hold that books of account maintained by the assessee were the books of account maintained in the regular course of business. Therefore, the income should be deduced on the basis of books of account maintained by the assessee."

5.1 The ld. AR of the assessee in addition to the written submission also argued that the ld. AO merely based on the comparison of previous year profit considered this year profit @ 4 %. The ld. CIT(A) has not considered the submission of the assessee and the order of the ld. CIT(A) is not speaking order. Even the ld. CIT(A) has not appreciated the fact that the ld. AO has disallowed or made addition is also not appearing. The assessee filed the tax audit report. There is no whisper in the assessment order about the mistake in the books of account. The ld. AO has not invoked the provision of section 145(3) the addition without rejecting the books of account cannot be made as held by the Rajasthan High Court in the case of CIT Vs. Maharaja Shree Umaid Mills Ltd. [ 192 ITR 565 ]. In the assessment proceeding the assessee explained the difference in GP vide letter dated 20.04.2022 and 08.08.2022 which the ld. AO has ignored while passing the order and even the order of the ld. CIT(A) is cryptic and non- speaking order.

For estimating the profit without rejecting the books the jurisdictional high court in the case of CIT Vs. Maharaja Shree Umaid Mills Ltd. [ 192 ITR 565 ] has held that “The other question about the fall in gross profit rate cannot be looked into in this case because the Inspecting Assistant Commissioner has not rejected the books of accounts of the assessee and without making this as a base, it could not be said that the expenditure had been inflated, which is a question of fac and in view of the finding of the Commissioner which is confirmed by the tribunal, the same cannot be allowed.”

Respectfully following the judgement of the jurisdictional high court and based on the discussion on facts recorded here in above, the ground no. 2 to 3 are allowed. Ground no. 1 and 5 being general in nature does not require any adjudication and ground no. 4 is consequential.

In the result, appeal of the assessee is allowed.

13 Kunan Mal Kalu Ram Jain and Company vs. ITO Order pronounced in the open court on 24/08/2023. Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 24/08/2023 *Ganesh Kumar, PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Kunan Mal Kalu Ram Jain and Company, Tonk 2. izR;FkhZ@ The Respondent- ITO, Tonk 3. vk;dj vk;qDr@ The ld CIT vk;dj vk;qDr¼vihy½@The ld CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 70/JP/2023) 6. vkns'kkuqlkj@ By order,

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