S.M.ENTERPRISES,KEONJHAR vs. ACIT, CIRCLE-1(2), BHUBANESWAR, BHUBANESWAR

It was submitted by ld CIT DR that the assessee is an iron ore raising contractor. It was the submission that the mine owner is M/s. Serajuddin & Co. M/s. Serajuddin & Co. had contracted six mining contractors for raising of iron ore. The assessee is one among the six contractors. The assessee does the raising contract work only for M/s. Serajuddin & Co. There was a search on the premises of M/s. Serajuddin & Co. on 28.5.2008. Consequent to the search on M/s. Serajuddin & Co., there was a survey on the assessee on 9.7.2008. In the course of survey, it was noticed that the assessee was not maintaining its books of account nor were any vouchers found. Consequently, there was a search on the assessee on 27.9.2008 and notice under section 153A came to be issued to the assessee on 11.3.2010. The assessee was non-compliant and did not file its return of income. It was the submission that as no books of account or vouchers were found either in the survey or in the course of search, the Assessing Officer had relied upon the statement recorded from the Director of the assessee company as P a g e 2 | 9

In reply, ld AR submitted that in the course of search on M/s. Serajuddin & Co., no cash had been found nor was any investment or any undisclosed assets found. It was the submission that though admittedly, shows cause notice had been issued by the AO, the statement relied upon by the AO for the purpose of assessment had not been provided to the assessee and consequently, such statement could not be relied upon. It was the submission that the assessee has not paid back any portion of the total receipts to M/s. Serajuddin & Co. It was the further submission that if it is presumed that 50% of the total receipts of the assessee has been returned to M/s. Serajuddin & Co., then the estimation of 10% by the ld CIT(A) should be only on 50% turnover of the assessee from M/s. Serajuddin & Co. It was the further submission that even assuming that the income of the assessee is to be estimated at 10% of the turnover of the assessee then on the allegation of the AO, 50% has been returned to M/s. Serajuddin & Co., and the assessee should be granted expenditure of the said 50% returned amount insofar as it would have been treated as an expenditure incurred by the assessee in the course of its business for the purpose of obtaining contract to do extraction of iron ore. It was the further submission that the assessee has not returned any amount to M/s. Serajuddin & Co., and the estimation as done by the ld CIT(A) is on the higher side as the maximum income assessed by the AO himself is only about 6%. It was the prayer that the appeals of the revenue are liable to P a g e 4 | 9

We have considered the rival submissions. A perusal of the impugned assessment clearly shows that there has been non-cooperation by the assessee in the course of assessment proceedings. It is also accepted fact that the AO has relied upon the statement without providing the same to the assessee for cross examination. Admittedly, no evidence can be used against the assessee without granting the assessee an opportunity to cross examine or rebut. It is also recognized that a show cause notice had been issued to the assessee and in the show cause notice the statements relied upon by the AO have not been discussed. The issue of 50% of total receipts being returned to M/s. Serajuddin & Co., comes out from the statement recorded from the partner of the assessee firm. Mohd Atiqur Rahman. Though Md Atiqur Rahman mentions that the issues are looked after by Firoj Akhtar, there is no statement recorded from the said Firoj Akhtar. It is also an admitted fact that no books of accounts and vouchers have been maintained by the assessee, which is evident from the fact that the search did not bring out any books of account. However, in the assessment order, the AO refers to profit and loss account at para 2.9 of his order. How this profit and loss account has been prepared is not ascertainable. Thus, clearly, the AO had no details with him except the turnover of the assessee, which has also been extracted from the books of P a g e 5 | 9

Coming to the issue of percentage of the net profit as determined by the ld CIT(A) at 10%. A perusal of the order of the ld CIT(A) clearly shows that the highest percentage assessed by the AO is 6% for the assessment year 2004-05. For the assessment year 2006-07, the AO has determined the income at 4.9% in the assessment u/s.143(3) of the Act. This being so, we are of the view that the interest of justice would be served if the estimation of the percentage of net profit is taken at 8% as against 10% directed by the ld CIT(A) and we do so. The findings of ld CIT(A) in regard to adoption of estimation of income of the assessee stands upheld and the estimation of income by the ld CIT(A) at 10% stands reduced to 8%.

In regard to revenue’s appeals in respect of deletion of the protective addition, we are of the view that no interference is called for insofar as the addition made in the hands of the assessee was only protective and same cannot be proceeded upon. We have been given to understand that the ld P a g e 6 | 9

In the result, appeals filed by the revenue stand dismissed and the appeals filed by the assessee stand partly allowed. & 11/CTK2014: Asst.Years. 2008-09 & 2009-10

These are appeals filed by the assessee against the separate orders of the ld CIT(A)-1, Bhubaneswar, both dated 1.11.2013 against the confirmation of levy of penalty of Rs.5,000/- u/s.271F of the Act each in Appeal No.0258/11-12 and No. 0259/11-12 for the assessment years 2008- 09 & 2009-10, respectively.

It was submitted by ld AR that the issue in these appeals is squarely covered by the decision of the Co-ordinate Bench of this ITAT in the case of Gobardhan Matia vs ACIT in & 574/CTK/2013 order dated 22.9.2022, wherein, the Co-ordinate Bench has held in para 4 as follows:

In reply, ld CIT DR vehemently supported the order of the AO and ld CIT(A).

We have considered the rival submissions. As it is noticed that the facts in assessee’s case are similar to the facts in the case of Gobardhan Matia (supra) in respect of levy of penalty under section 271F of the Act. Respectfully following the decision of the Co-ordinate Bench in the case of Gobardhan Matia (supra), the penalty as levied u/s.271F of the Act by the AO and confirmed by the ld CIT(A) stands deleted.

In the result, both the appeals of the assessee stand allowed.