SRI BADAL CHANDRA SENAPATI,BALASORE vs. ITO, WARD-2, BALASORE

PDF · subscribers
ITA 422/CTK/2016Status: DisposedITAT Cuttack31 January 2017AY 2011-126 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found the 4% profit estimation to be high, considering the nature of the 'other receipts' and the assessee's own declared income percentage. The Tribunal also set aside an enhancement of income by the CIT(A) due to a violation of Section 251(2) of the Income Tax Act.

What were the facts?

The Assessing Officer estimated the assessee's profit at 4% of gross receipts due to the inability to produce supporting documents for expenses. The CIT(A) confirmed this. The assessee argued that a significant portion of receipts were from intermediary services with low profit margins.

What were the issues?

Whether the estimation of profit by the AO at 4% on gross receipts was justified, and whether the CIT(A) could enhance income without providing a show-cause notice to the assessee.

Which sections of the Income-tax Act were involved?

Section 251(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CUTTACK ‘SMC’ BENCH,

Before: SHRI N.S SAINI

For Appellant: Shri P.K.Mishra, AR
For Respondent: Shri D.K.Pradhan, DR
Pronounced: 31/01

This is an appeal filed by the assessee against the order of CIT(A)-

Cuttack, dated 29.1.2016, for the assessment year 2010-2011.

2.

The appeal filed by the assessee is barred by 221 days. The assessee has filed

condonation petition dated 5.12.2016 supported by medical reports for condoning

the delay in filing the appeal. After going through the condonation petition, I find

that the assessee had reasonable cause for not filing the appeal within the stipulated

2 IT A No. 422 /CT K/20 16 Asse ssme nt Ye ar :2010-11

time. Ld D.R. did not have any objection for condoning the delay. I, therefore,

condone the delay of 221 days in filing the appeal before the Tribunal and admit the

appeal for hearing.

3.

Ground Nos.1,7 & 8 of the appeal are general in nature and hence,

requires no separate adjudication by me.

4.

In Ground No.2 of the appeal, the grievance of the assessee is that the

CIT(A) should not have confirmed the action of the Assessing Officer in

estimating the profit @ 4% of the disclosed receipts when they had been duly

disclosed and profit arising out of the same has already been taxed.

5.

I have heard the rival submissions and perused the orders of lower

authorities and materials available on record. The Assessing Officer made the

following observations:

i) The assessee could not produce cash book, ledger accounts and relevant bill/voucher in all respect, for verification of genuineness of accounts although the same were called for long before the phyline and flood. ii) Assessee claimed huge expense of 'Rs. 3,72,86,975/- and could not able to produce any ledger accounts, any material evidence to justify the same expenditure. Mere fabricated list of 85 persons, incomplete address and only amount, is not sufficient to justify the same expenditure.

iii) Out of 85 names of persons against the expenditure Rs. 3,72,86,975/-, only 12 names are produced for verification. On verification it is found that name of 5 persons are not related to the expenditure and balance in case of balance 7 names, the expenditure figures are not clarified in absolute manner.

3 IT A No. 422 /CT K/20 16 Asse ssme nt Ye ar :2010-11

iv) The assessee could not be able to produce the complete address of persons against which Rs.1,85,750/- has been paid towards addition of capital assets.

Therefore, he estimated the income by applying rate of 4% to the gross

turnover of Rs.5,91,51,343/-, which worked out to Rs.23,66,054/-.

6.

On appeal, the CIT(A) confirmed the action of the Assessing Officer.

7.

Before me, the only argument of the assessee is that the gross receipts

of Rs.5,91,51,343/- comprises of Rs.2,18,40,493/- on account of sale of

prawn & poultry feeds and other income of Rs.3,73,10,850/- was on account

of necessary support to the farmers for production as well as sale on which

the assessee acts like a middleman between farmers and various procuring

companies. As the assessee was having dues with farmers against supply of

feeds & supplements, collects the sale proceeds from various companies and

make necessary payments to farmers after deduction of pending dues. It was

the submission of the ld A.R. of the assessee that the assessee has shown

income earned from this other receipts of Rs.3,73,10,850/- at Rs.23,875/-

after deducting expenditure of Rs.3,72,86,975/-. He submitted that the gross

injustice has been done by the Assessing Officer by estimating the income by

applying rate of 4% on the entire gross receipts of Rs.5,91,51,343/-. Hence,

he prayed that as the income earned from other receipts is very minimum,

4 IT A No. 422 /CT K/20 16 Asse ssme nt Ye ar :2010-11

therefore, the rate of gross profit applied @ 4% is higher and it will be

reasonable to apply the rate of 2.5% on the entire receipts.

8.

On the other hand, ld D.R. did not controvert the submission of ld A.R.

of the assessee.

9.

I find that the Assessing Officer has rejected the books of account and

thereafter estimated the income by applying the rate of 4% on the gross

receipts of Rs.5,91,51,343/-. It is also not in dispute that this comprises of

other receipts of Rs.3,73,10,850/- on which the assessee has earned very

meagre income as the assessee was acting as middleman between the farmers

and various securing companies on which it earned very small income. It is

also observed that the assessee has himself shown income @ 2.12% in the

return of income filed on the entire receipts. In the given facts and

circumstances of the case, I am of the considered view that application of rate

of 4% to the gross receipts is very high and that it will meet the ends of justice

if the rate of 2.5% is applied to the gross receipts of Rs.5,91,51,343/-. I

therefore, modify the order of the CIT(A) and accordingly partly allow this

ground of appeal of the assessee

10.

Ground No.3 of the appeal reads as under:

“For that the ld CIT(A) should not have treated the entire receipts as income and should not have enhanced the income of the

5 IT A No. 422 /CT K/20 16 Asse ssme nt Ye ar :2010-11

assessee by Rs.3,73,10,850/- without intimating anything to the assessee. The impugned enhancement being illegal and unsustainable, needs to be deleted in the interest of justice.”

11.

At the time of hearing, ld A.R. of the assessee submitted that the CIT(A)

has enhanced the income of the assessee by Rs.3,71,10,850/- without giving

any enhancement notice to the assessee. He submitted that this was in

violation of provisions of section 251(2) of the Income tax Act, 1961 and,

therefore, the addition made cannot be sustained in law.

12.

The D.R. also did not controvert the submission of the A.R. of the

assessee.

13.

I find that Section 251(2) reads as under:

“The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction.”

14.

I find that it is not in dispute that notice as per provisions of section

251(2) has not been issued and served on the assessee. Therefore, the

addition on account of enhancement of income of the assessee by

Rs.3,73,10,850/- cannot be sustained in law. I, therefore, set aside the order

of the CIT(A) on this issue and vacate the enhancement of disallowance and

allow this ground of appeal of the assessee.

6 IT A No. 422 /CT K/20 16 Asse ssme nt Ye ar :2010-11

15.

Other grounds raised are the arguments of the assessee and does not

refer to any specific grievance of the assessee against the order of the CIT(A)

and hence, are taken up by adjudicating main grounds of the assessee.

16.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 31/01/2017 in the presence of parties. Sd/- (N.S Saini) ACCOUNTANT MEMBER Cuttack; Dated 31/01 /2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Sri Badal Chandra Senapati, C/O. M/s. Tarini Bhandara, At: Ranakutha, PO: Tukurihajira, Fulbani, Dist: Balasore. 2. The respondent: ITO, Ward -2, Balasore. 3. The CIT(A), Cuttack 4. Pr.CIT, Cuttack 5. DR, ITAT, Cuttack 6. Guard file. BY ORDER, //True Copy//

SR.PRIVATE SECRETARY ITAT, Cuttack

More judgments on Section 251(2)

All 577 judgments and leading authorities on Section 251(2) →

Recent GST High Court judgments

Search GST case law →