BHERU SINGH DEVRA,RAJSAMAND V. ITO WARD-2, RAJSAMAND

ITA 199/JODH/2023

AI Insights

The case involves Shri Bheru Singh Devra, who appealed against the order of the CIT(A), National Faceless Appeal Centre, Delhi, which sustained an addition of Rs. 2,05,008 to his income for the assessment year 2017-18. The addition was initially made by the AO under the head 'Income from Business & Profession', despite the case being selected for limited scrutiny specifically concerning cash deposits. The Tribunal noted that the AO had expanded the scope of scrutiny without proper authorization and had estimated the assessee's profit at 8% of gross sales, which was contested by the assessee. The Tribunal referenced several precedents where a lower profit margin was deemed reasonable for liquor businesses, and it was highlighted that the assessee had already declared a profit of 4.74%, which was accepted by the AO under a different head.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 31824 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 15-10-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 26-05-2023
• Other Referred Cases: Shri G.Sudarshan, Hyderabad V/s Income Tax Officer, Ward-6(4), Hyderabad, M/S Mallikarjuna Bar & Restaurant, Chaitanyapuri, Hyderabad vs Department Of Income Tax Officer, Ward-9(3) Hyderabad
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KARNI DAN
• Assessee Lawyers: ASHOK GUPTA
• Keywords: Set aside; Business income; Unexplained cash credit
• Section: 142(1); 143(2); 44AD; 69A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE Dr. S. SEETHALAKSHMI, JUDICIAL MEMBER AND SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER ITA No. 199/Jodh/2023 (ASSESSMENT YEAR- 2017-18 ) Shri Bheru Singh Devra Village: Devro Ka Guda Ushan, Tehsil: Nathdwara, Rajsamand – 313 301 (Raj) Vs The ITO Ward -2 Rajsamand (Appellant) (Respondent) PAN NO. ATCPD 7803 P Assessee By Shri Ashok Gupta, Advocate Revenue By Shri Karni Dan, Addl. CIT-DR Date of hearing 15/10/2024 Date of Pronouncement 29/11/2024 O R D E R Dr. S. SEETHALAKSHMI, JM The assessee has filed this appeal challenging the order passed by Ld CIT(A), National Faceless Appeal Centre (NFAC), Delhi dated 23-03-2023 for the assessment year 2017-18 raising therein following ground of appeal. 2 ITA 199/JODH/2023 SHRI BHERU SINGH DEVRA VS ITO,WARD -2, RAJSAMAND ‘’1. That under the facts and circumstances of the case, the ld. CIT(A) grossly erred in sustaining the addition of Rs.2,05,008/- which is without jurisdiction as the case was opened for limited scrutiny of cash deposit, whereas the addition made is for business income and not related to cash deposit and thus wrong and bad in law and the ld.CIT(A) has erred in sustaining the said addition without considering the submission of the appellant. 2. That under the facts and circumstances of the case, the ld. CIT(A) has grossly erred in sustaining the addition of Rs.2,05,008/- is merely on the basis of presumption, surmised and conjectures basis.’’ 2.1 During the course of hearing, the Bench noted that there is delay of 7 days in filing the appeal by the assessee for which the assessee submitted that the appeal had been filed online within 60 days from the date of appeal order appeal i.e. 23rd May, 2023 and the supporting documents were also sent on 23rd May, 2023 within specified time through speed post and thus the delay took place in reaching the documents through speed post which is beyond the control of the assessee. 2.2 On the other hand, the ld. DR objected to such delay but submitted that the Court may decide the issue as deem fit and proper in the case, 2.3 The Bench has heard both the parties and also perused the materials available on record. The Bench noted from the submission of the assessee that there is a merit in late filing the appeal by the assessee which is condoned. 3 ITA 199/JODH/2023 SHRI BHERU SINGH DEVRA VS ITO,WARD -2, RAJSAMAND 3.1 Apropos Ground No. 1 & 2, the facts as emerges from the order of the ld. CIT(A) who has confirmed the addition of Rs.2,05,008/- by dismissing the above grounds of the assessee. ‘’5. Decision 5. Ground No. 1 5.1.1. This ground relates to challenging the addition of Rs.2,05,008/- being 8% of the profit of liquor business estimated by the AO. 5.1.2 I have considered the written submission of the appellant carefully and evidences brought on record. Admittedly, in impugned case, the assessee has been engaged in liquor sale, on which net profit was declared at Rs.3,02,560/-. However, during the appeal proceeding, it is claimed by the assessee that the AO only estimated the sale turnover which cannot be accepted on simple reason that if sales turnover has only estimated then as to how the appellant worked out the net profit at Rs.3,02,560/-. During the assessment proceedings as well as in appeal proceedings no evidence as brought on record by the appellant suggesting the maintenance of any regular books of account of liquor business, therefore, the AO had no option but to take into account the quantum of purchase which was subsequently sold in retail market, on which, the assessee suo motto worked out profit at Rs.3,02,560/-. The solitary reason behind estimating the profit @ 8% by the AO in terms of Section 44AD of I.T. Act, was that no regular books of account were maintained neither produced before the AO for examination. In these circumstances, I find the action of the AO correct where 8% profit has been determined while applying presumptive taxation. Accordingly, I find no infirmity in the order of AO, hence addition so made of Rs.2,05,008/- is confirmed. As a result, ground no. 1 is dismissed. 4 ITA 199/JODH/2023 SHRI BHERU SINGH DEVRA VS ITO,WARD -2, RAJSAMAND 3.2 During the course of hearing, the ld. AR of the repeated the same arguments as made before the ld. CIT(A) and submitted that both the authorities are not justified in confirming the addition to the extent of Rs.2,05,008/- in the hands of the assessee. 3.3 On the other hand, the ld. DR supported the order of the ld. CIT(A) 3.4 We have heard both the parties and perused the materials available on record. Brief facts of the case are that during the year under consideration the assessee was a salaried employee and also during the year under consideration, started business of trading of liquor. The assessee filed the ITR declaring Income from Salary amounting to Rs. 1,73,688/- and Income from liquor business shown as Income from Other Sources amounting to Rs. 3,01,120/-. It is noted from the assessment order that the case of the assessee was selected for limited scrutiny for the issue of (i). Cash Deposit during the year and (ii). Cash deposit during demonetization period. The assessment in the case was completed making addition of Rs. 2,05,008/- on account of business income and Rs. 1,28,352/- u/s 69A as unexplained cash credit/cash deposits and thereby creating a demand of Rs. 1,72,609/- . It is noted from the records that during the year the assessee was allotted a liquor shop bearing license no UDR/2016-17/CL/132604041 dated 01.04.2016 by the District Excise Officer, Udaipur. The nature of business of 5 ITA 199/JODH/2023 SHRI BHERU SINGH DEVRA VS ITO,WARD -2, RAJSAMAND trading of liquor is such that the average net margin is only 3-4% of the gross purchases. The assessee declared net profit of 4.74%. The same has also been held in many cases decided by various Tribunals and Hon’ble High Courts. We draw strength from the order of ITAT Hyderabad Bench in the case of Shri G.Sudarshan, Hyderabad V/s Income Tax Officer, Ward-6(4), Hyderabad, ITA No.126/Hyd/2012 whein the Bench held that: “We heard both the parties. We find that on the issue of estimation of reasonable profit in the case of assessees engaged in retail trade in liquor, the coordinate benches of this Tribunal in the recent past, following the decision of this Tribunal in ITA No.591/Hyd/2011 and C.O. therein, in the case of ITO Ward 9(3), Hyderabad V/s. Kanakadurga Wines, Hyderabad dated 28.7.2011, have been consistently holding, as in ITA No.1997/Hyd/2011 & CO No.28/Hyd/2012 in the case of M/s. Lakshmi Srinivasa Wines, Nalgonda and others, vide order dated 30.3.2012, to which one of us, viz. the Accountant Member, is a party that estimation of net profit of the assessees in this line of business at 3% of the purchases or stock put for sale during the year, would be reasonable. In this view of the matter, following the consistent view taken by this Tribunal in similar caes, we set aside the impugned orders Sri G.Sudershan Hyderabad of the lower authorities, and direct the assessing officer to estimate the net profit of the assessee at 3% of the purchases or stock put for sale during the year, subject to the condition that the income so estimated shall not go below the returned income.“ We further draw strength in the case of M/S Mallikarjuna Bar & Restaurant, Chaitanyapuri, Hyderabad. vs Department Of Income Tax Officer, Ward-9(3) Hyderabad on 17 May, 2012 wherein it was observed as under:- “We have considered the submissions of the rival parties and perused the material available on record. It is an admitted fact that the 6 ITA 199/JODH/2023 SHRI BHERU SINGH DEVRA VS ITO,WARD -2, RAJSAMAND maximum retail price of the liquor products is fixed at 30% over the cost price of the assessee as per the understanding with an admitted fact about its inability to maintain the cash sales bills and accordingly the books of accounts maintained by the assessee cannot be relied upon. Under these circumstances, we are of the considered view that the lower authorities are correct and justified in rejecting the books of accounts under section 145 of the Act. We find that the assessing officer has rightly adopted the sale price at 30% over the cost of purchase to arrive at the understatement of sales of Rs.93,65,993/- by the assessee. But at the same time, the entire understatement of sales cannot be treated as undisclosed income of the assessee for the year under consideration. It is well settled law that the best guide for estimation of income after rejecting the books of accounts is either past history of the assessee or any other comparable cases. The learned counsel for the assessee clearly demonstrated before us that the assessee's net profit in the past is between 0.12% to 0.28% of sales. The co-ordinate Bench of the Tribunal in the case of Manjit Singh Bagga vs. ITO in ITA No.371 and others dated 30th Sept. 2010 held that the estimation of net profit at 3% is reasonable. In view of this matter, ends of justice would be met if we estimate the net profit of the assessee at 3% of the purchases or stock put for sale during the year under consideration as against the estimation of 5% made by the CIT (A). Accordingly, the ground raised by the Revenue on this issue is rejected and Cross Objection filed by the assessee on this issue is allowed.” It is an undisputed fact that the assessee in his original return of income disclosed the income from business of liquor on actual basis amounting to Rs. 3,01,120/- which happens to be 4.74% of the gross purchases of Rs. 63,44,596/- (57,81,519 + 5,63,077/-), which is also an undisputed fact. However, the AO merely on estimated basis invoked section 44AD and calculated the profit as 8% of the gross sales merely on estimates, presumption and conjecture basis. It is also noted that AO did not even try to gather the actual amount of sales and went on to just calculate the sales on estimated basis by estimating the sales as 108% of 7 ITA 199/JODH/2023 SHRI BHERU SINGH DEVRA VS ITO,WARD -2, RAJSAMAND the purchases. Such assessment appears purely on estimates basis. It is noted that since the assessee himself while filing return of income has disclosed the income from sale of liquor amounting to Rs. 3,01,120/- and the AO accepted the claim of the assessee and accepted the income of Rs. 3,01,120/- as shown in the return of income under the head ‘Income from other sources’, then the act of the AO to make addition of Rs. 2,05,008/- under the head ‘Income from Business & Profession’ is not justifiable and without application of mind. It is also noted that the case of the assessee was opened for Limited Scrutiny (Computer Aided Scrutiny Selection) by issuing notice under section 143(2) for the verification of issues limited to (1) Cash deposit during the year (2) Cash deposit during demonetization period However, it is observed that in the complete assessment order, there were no whisper on the issues of cash deposit during the demonetization period. It is noted that AO, expanded the scope of the limited scrutiny proceedings and went out of the scope of cash deposits to determine the business income, estimation of sales and other matters. The entire proceedings were dealt without dealing the issues of the limited scrutiny as evidently clear from the assessment order and also the proceedings of the assessment. The action of the AO is in gross violations of the circular issued by the CBDT vide CBDT Circular No. 20/2015 8 ITA 199/JODH/2023 SHRI BHERU SINGH DEVRA VS ITO,WARD -2, RAJSAMAND [F. No. 225/269/2015-ITA-II], dated 29/12/2015 wherein at page no. 2 and Para No. 3 to 5 it has been mention therein: “3. As far as the returns selected for scrutiny through CASS- 2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year- one is 'Limited Scrutiny1 and other is 'Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in 'Limited Scrutiny1 or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny1 cases shall be as under: a. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in 'Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the 'Limited Scrutiny' issues. c. These cases shall be completed expeditiously in a limited number of hearings. d. During the course of assessment proceedings in 'limited Scrutiny' cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr. CIT/CIT concerned. However, such an approval shall be accorded by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating 'Complete Scrutiny' in that particular case. Such cases shall be monitored by the Range Head concerned. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, 'Metro charges' would 9 ITA 199/JODH/2023 SHRI BHERU SINGH DEVRA VS ITO,WARD -2, RAJSAMAND mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad). 4. The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show-cause notice. 5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance.” It is also noted that CBDT vide Circular No. DGIT(VIG.)/HQ/SI/2017-18], dated 30.11.2017 has instructed the scope of limited scrutiny: “CBDT has issued detailed guidelines/directions for completion of cases of limited scrutiny selected through CASS module. These guidelines postulate that an Assessing Officer, in limited scrutiny cases, cannot travel beyond the issues for which the case was selected. The idea behind such stipulations was to enforce checks and balances upon powers of an AO to do fishing and roving inquiries in cases selected for limited scrutiny. 2. Further, the guidelines for proper maintenance of order sheets have been given in the Manual of Office Procedure issued by the Directorate of Organisation and Management Services. The Manual clearly lays down:- 10 ITA 199/JODH/2023 SHRI BHERU SINGH DEVRA VS ITO,WARD -2, RAJSAMAND A. The minutes of the hearing must be entered with date, in the order-sheet. B. Make proper order-sheet entries for each posting, hearing and seeking and granting of adjournments. C. If nobody attends a hearing or the request for adjournment comes after the hearing date, enter the facts in the order-sheet. Maintenance of a cursory and cryptic order sheet shows irresponsible, ad hoc and undisciplined working of any officer. 3. Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26-9-2014, 29-12-2015 and 14-7-2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with examination of assessment records on receipt of allegations of several irregularities. Amongst other irregularities, it was found that no reasons had been recorded for expanding the scope of limited scrutiny, no approval was taken from the PCIT for conversion of the limited scrutiny case to a complete scrutiny case and the order sheet was maintained very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions. The Officer concerned has been placed under suspension.” Hence, in view of the entirety of the facts and circumstances, it is observed that AO has expanded his scope of scrutiny and also did not take the prior approval of the PCIT/CIT as stated in the CBDT Circular No. 20/2015 [F. No. 225/269/2015- ITA-II], dated 29/12/2015 (supra) and thus violated the circulars, instructions and directives as issued by CBDT which are binding on the AO. Hence in this view of 11 ITA 199/JODH/2023 SHRI BHERU SINGH DEVRA VS ITO,WARD -2, RAJSAMAND the matter, we do not concur with the findings of the ld. CIT (A). Thus the appeal of the assessee is allowed.. 4.0 In the result, the appeal of the assessee is allowed as indicated hereinabove. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board. Sd/- Sd/- (RATHOD KAMLESH JAYANTBHAI) (Dr. S. SEETHALAKSHMI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 29/11/2024 *Mishra Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) Asstt. Registrar 5. The DR 6. Guard File Jodhpur Bench "