MAHEDRA SINGH CHOUHAN,SEHORE vs. ITO, SEHORE

This appeal by the Assessee is directed against the order dated 20.03.2023 of Commissioner of Income Tax(Appeal), National Faceless Appeal Centre, Delhi for Assessment Year 2013-14. The assessee has raised following grounds of appeal:

“1. That in the facts and circumstances of the case the Learned CIT Appeals Faceless has partially accepted the order of Assessing Officer and confirmed addition of Rs. 9,11,516/- on account of low gross profit which is unjustified and bad in law.

3. That in the facts and circumstances of the case the sales shown in the books of assessee amounting to Rs. 70489785/- were rejected by SMC-Mahendra Singh Chouhan Page 2 of 5 the Assessing Officer which is also rejected by the Learned CIT Appeals Faceless which is erroneous in nature.

4. The Appellant craves leave to add, amend, alter vary and or delete all or any of above grounds.”

2. The solitary issue raised by the assesse in the present appeal is regarding the addition made by the AO by estimating GP as well as turnover of the assesse. Ld. AR of the assesse has submitted that the AO has made addition on account of low GP declared by the assessee and then estimated the GP of the assesse @ 4.17% as against GP declared @ 2.97%. Further the AO has also estimated the turnover of the assessee at Rs.7,20,00,000/- as against the turnover declared by the assessee of Rs.7,04,89,785/-. On appeal the CIT(A) has called for a remand report however, the AO has submitted the remand report without even giving a notice to assessee or considering the relevant evidence and books of account filed by the assesse. He has referred to the remand report reproduced by the CIT(A) at page no.17 of the impugned order and submitted that the AO in the remand report has reiterated the stand as it was taken in the assessment order. Thus, Ld. AR has submitted that it was clear violations of principle of natural justice when the assessee was even not given a notice by the AO before submitting remand report. He has thus submitted that the impugned order passed by the CIT(A) based on the remand report and without considering the books of account and other supporting documents produced by the assesse be set aside and the matter may be remanded to the record of the AO for verification and examination of the relevant supporting documents as well as books of account which are duly audited and then decided the issue.

SMC-Mahendra Singh Chouhan Page 3 of 5 the gross profit rate at 4.17% as against the declared GP of 2.97%. The AO has given reasons that the assesse has failed to produce the books of account, purchase and sale bills for verification. Further the AO observed that the assessee has not shown any reason for low GP in comparison to the assessment year 2011-12. Accordingly the AO proceeded to estimate the GP of the assessee as well as turnover of the assessee at Rs.7,20,00,000/- as against the sales declared by the assessee of Rs.7,04,89,785/-. The assesse challenged the action of the AO before the CIT(A) and also filed additional evidence which is mentioned by the CIT(A) in para 2.1 as under:

“2.1 Further, the appellant has submitted additional evidence:-

"1. Additional Evidence with respect to Gross Profit and Net Profit Ratio: That during the relevant assessment proceedings the assessee was not given further opportunity to justify the sales of Rs. 70489785.00/-, Gross Profit Ratio of 2.97% and Net Profit of 0.92% in the relevant assessment year. The profit margin of the assessee was only the difference between sales, direct expenses and purchases made in the relevant assessment year. The assessee had maintained proper books of accounts which were duly audited and also filed quantitative details in the Audit Report of stock held and sold in the relevant financial year. The assessee had no opening and closing balance of stock during the year under review and thus the positions of Gross Profit and Net Profit were scrupulous and reasonable in the relevant assessment year. The assessee was also not bound to maintain stock valuation details as he had no closing stock at the end of relevant assessment year. The Quantitative Stock details and analysis of Gross Profit and Net Profit Ratio are being attached for your reference to support assessee's claim. (Refer Excel sheet enclosed) 2.Additional Evidence with respect to Sales Of Rs. 70489785.00: That the Learned Assessing Officer did not accept the sales made during the relevant assessment year amounting to Rs. 70489785.00 which were duly audited by a Chartered Accountant under the provisions of section 44AB of the "Act" The said sales were also submitted in the Vat returns filed by assessee and was duly accepted by the Sales tax Department. The said returns evidencing sales made during the relevant assessment year are being furnished for your reference. (Page No. 36 to 45). Specimen ledgers received

SMC-Mahendra Singh Chouhan Page 4 of 5 from parties are also being enclosed for your reference. (Page No. 46 to 55).” 5. Based on the additional evidence filed by the assesse the CIT(A) called for a remand report which is reproduced in para 5.2 at page 17 & 18 as under:

“5.2 Remand Report "In the case, the assessee filed his Return of income for A.Y. 2013-14 on 22.03.2014 declaring total income at Rs. 5,46,983/-. The case was selected under scrutiny through CASS and the assessment order was passed on 04.03.2016 at total income of Rs. 31,92,750 after making additions of Rs. 15,54,250 on account of unexplained investment, Rs. 9,11,516 on account of low GP shown by the assessee and 1,80,000/- treating the agricultural income as business income of the assessee. Aggrieved with the aforesaid assessment order, the assessee has filed an appeal before the Honb'le CIT(A)-2, Bhopal raising the following grounds of appeal. The comments of the AO are also given along side of the grounds of appeal:

1. The assessee has plead that the AO erred in making addition of Rs. 9,11,516/-on account of low gross profit. On verification of the record and assessment order it is found that the assessee has shown low gross profit at Rs. 20,90,884/- and net profit at Rs. 6,46,983/- against total turnover at Rs. 7,04,89,785/- which works out to be 2.97% and 0.92% respectively. The assessee was asked for to produce the book of account maintained by him but he failed to produce the same and relevant purchase and sales bill/vouchers for verification. Therefore, the AO rightly applied the provisions of section 145 of the Income Tax Act and rejected the trading results as shown by the assessee. The AO subsequently and reasonable estimated the total turnover at Rs. 7,20,00,000/- and applied thereto the GP ratio @ 4.17%. Accordingly, an addition of Rs. 9, 11,516/ on this ground has been correctly made as the assessee failed to show any reason for low GP in the impugned AY in comparison to last two AYS. Therefore, the assessee's appeal on this ground is not maintainable and is liable to be rejected.”

6. It is manifest from the remand report that the AO has not conducted any inquiry or examined in the books of account as well as supporting evidence filed by the assessee in the remand proceedings but he has reiterated the stand as taken in the assessment order. Ld. AR of the assesse has submitted that before submitting the remand report the AO even not issued any notice to the assesse. Thus, it is clear that the SMC-Mahendra Singh Chouhan Page 5 of 5 remand report submitted by the AO is not based upon the verification and examination of the additional evidence filed by the assesse. The CIT(A) after considering the said remand report has confirmed the additions made by the AO on account of GP and turnover estimation. Thus, it is clear from the impugned order of the CIT(A) that the additional evidence filed by the assessee has not been considered either by the AO or by the CIT(A) while passing impugned order. Accordingly in the facts and circumstances of the case and interest of justice the impugned order of the CIT(A) qua this issue is set aside and matter is remanded to the record of the AO for deciding this issue of GP estimation and turnover estimation after verification/examination and consideration of the books of account as well as other supporting evidence to be filed by the assesse. Needless to say the assessee be given an appropriate opportunity of hearing before passing fresh order.

Order pronounced in the open court on conclusion of hearing on 16.11.2023 which is reduced in writing and signed on the date indicated below.