BHARAT KOTECHA & SONS, RAIPUR,RAIPUR vs. INCOME TAX OFFICER-4(1), RAIPUR, RAIPUR

The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 31.03.2023, which in turn arises from the order passed by the A.O. under Sec. 143(3) r.w.s. 144B of the Income-tax Act, 1961 (in short ‘the Act’) dated 28.09.2021 for the assessment year 2019-20. The assessee has assailed the impugned order on the following grounds of appeal before me:

Succinctly stated, the assessee-HUF which is engaged in the business of wholesale trading of tendu leaves for making beedi, had filed its return of income for A.Y.2019-20 on 25.10.2019, declaring an income of Rs.2,88,321/-

During the course of assessment proceedings, it was, inter alia, observed by the A.O that net profit of the assessee during the year under consideration had witnessed a decline as in comparison to the immediately two preceding years, as under:

Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). After deliberating at length on the contentions advanced by the 4 Bharat Kotecha & Sons Vs. ITO-4(1), Raipur assessee, the CIT(Appeals) scaled down the addition made by the A.O by restricting the same to NP rate @ 0.5%. Accordingly, the CIT(Appeals) partly allowed the appeal of the assessee.

The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.

I have heard the Ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record.

Shri R.B Doshi, Ld. Authorized Representative (for short ‘AR’) for the assessee had come forth with two-fold contentions, viz. (i) that the A.O had grossly erred in law in working out the impugned addition without rejecting the books of account of the assessee u/s.145(3) of the Act; (ii) that though the assessee on being called upon to put forth an explanation as regards the comparative decline in NP rate for the year under consideration had vide his letter dated 28.09.2021 demonstrated the reasons explaining the same but the A.O after brushing aside the same, had worked out the impugned ad-hoc addition in the hands of the assessee. The Ld. AR had taken me through the reply that was filed by the assessee with the A.O vide letter dated 28.09.2021, Page 34-36 of APB. On the basis of his aforesaid contention, it was averred by the Ld. AR that now when the A.O had wrongly assumed jurisdiction in 5 Bharat Kotecha & Sons Vs. ITO-4(1), Raipur dislodging the duly audited books of account without rejecting the same and estimating its profit at an ad-hoc figure, therefore, the same was liable to be struck down on the said count itself. Alternatively, it was submitted by the Ld. AR that addition made by the A.O without considering the explanation of the assessee as regards the comparative decline in its profit for the year under consideration was even otherwise on the said count itself not maintainable.

Per contra, Shri Piyush Tripathi the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities.

Having given a thoughtful consideration to the issue in hand in the backdrop of the aforesaid contentions advanced by the ld. Authorized Representatives of both the parties, I find substance in the contention of the Ld. AR. Admittedly, it is a matter of fact borne from record that the A.O had most whimsically worked out the addition by adopting the average NP rate of the assessee for last year i.e. @ 1%. I, say so, for two-fold reasons, viz. (i) the A.O without pointing out any dissatisfaction about correctness and completeness of the accounts of the assessee; or method accounting therein followed, could not have proceeded without rejecting the duly audited books of account of the assessee under sub-section (3) of Section 145 of the Act ; and (ii) arbitrariness of the A.O can safely be gathered from the manner in which he brushed aside the reply of the assessee dated 28.09.2021 (supra) wherein, the assessee had duly demonstrated the reasons leading to a 6 Bharat Kotecha & Sons Vs. ITO-4(1), Raipur comparative lower profit rate during the year under consideration, viz. (i) fire accident in tendu leaves collection center; (ii) disproportionate increase in purchase price of tendu leaves during the year; (iii) increase in bank charges; and (iv) incurring of fixed indirect expenses during the year under consideration.

Be that as it may, I am of a strong conviction that failure on the part of the A.O in neither pointing out any infirmity in the books of account of the assessee; nor dealing with the explanation which was advanced by him clearly renders the impugned addition made by him on an ad-hoc basis as not maintainable at all. In so far the view taken by the CIT(Appeals) is concerned, I am of the considered view that there appears to be no justification for him to have most arbitrarily partly sustained the addition @ net profit rate of 0.5%. Considering the aforesaid facts, I am unable to persuade myself to subscribe to the view taken by the lower authorities. Accordingly, I set-aside the order of the CIT(Appeals) and vacate the addition of Rs.6,04,007/- sustained by him.

Resultantly, appeal filed by the assessee is allowed in terms of my aforesaid observations.