HARBHAGWAN HARBHAJAN LAL,CHANDIGARH V. DCIT, CL. 1(1), CHANDIGARH

ITA 796/CHANDI/2024

AI Insights

The case involves Harbhagwan Harbhajan Lal, a partnership firm engaged in civil contracting, which appealed against the order of the CIT(A)/NFAC, Delhi for the Assessment Year 2018-19. The firm had filed its Income Tax Return declaring a significant income and turnover but failed to submit the mandatory audit report under Section 44AB. The Assessing Officer (AO) rejected the firm's books under Section 145 due to non-compliance and estimated the income based on an 8% net profit ratio applied to total receipts. The CIT(A) upheld the AO's decision, leading to the firm's appeal to the Tribunal. The Tribunal found procedural lapses in the assessment process and remanded the case for a fresh assessment while imposing a nominal cost on the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 107634 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Laws Referred To: Section 44AB, Section 145, Section 144, Section 144B, Section 271B, Section 270A, Section 234A, Section 234B, Section 234C, Section 234D
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK VARDHAN
• Assessee Lawyers: JASPAL SHARMA
• Keywords: Set aside; Opportunity of being heard; Depreciation; Principle of natural justice; Procedural lapse
• Section: 145; 44AB; 271B

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “ए” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी क ृणवȶ सहाय, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM & SHRI. KRINWANT SAHAY, AM आयकर अपील सं./ ITA No. 796 /Chd/ 2024 िनधाŊरण वषŊ / Assessment Year : 2018-19 Harbhagwan Harbhajan Lal 93-D, Eastern Avenue, Near Ram Mandir, Sainik Farm, Khanpur, South Delhi-1100062 बनाम The Dy CIT Circle 1(1), Chandigarh ˕ायी लेखा सं./PAN NO: AADFH1057K अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Jaspal Sharma, Advocate राजˢ की ओर से/ Revenue by : Shri Vivek Vardhan, Addl. CIT, Sr. DR सुनवाई की तारीख/Date of Hearing : 09/04/2025 उदघोषणा की तारीख/Date of Pronouncement : 16/04/2025 आदेश/Order PER LALIET KUMAR, J.M: This is an appeal filed by the Assessee against the order of the Ld. CIT(A)/NFAC, Delhi pertaining to Assessment Year 2018-19. 2. In the present appeal, Assessee has raised the following grounds: 1. The impugned order is both against facts and erroneous in law. 2. On the facts and circumstances of the case, the Ld. CIT(Appeals) NFAC, has erred in having confirmed the assessment order which is illegal, without jurisdiction, void abinitio and is liable to be quashed. 3. On the facts and circumstances of the case the Ld.CIT(Appeals)NFAC, has erred in having confirmed the assessment order which was passed by the Ld.AO even without having served upon any draft assessment order on the assessee as required under the law. 2 4. On the facts and circumstances of the case the Ld. CIT(Appeals) has erred in having dismissed the assessee's appeal as ex-parte without having afforded reasonable opportunity of being heard and thus the impugned order is against principle of natural justice. 5. On the facts and circumstances of the case the Ld. CIT(Appeals) has erred in having not decided the assessee's appeal on merits after taking into consideration the relevant facts and material available on record. 6. On the facts and circumstances of the case the Ld.CIT (Appeals)NFAC has erred in having confirmed the action of the Ld.AO in rejecting the books of accounts maintained in regular course of business. 7. On the facts and circumstances of the case the Ld.CIT(Appeals) has erred in having sustained the order of the Ld.AO in making addition of Rs.2,08,17,570/- by applying the Net Profit rate at 8% merely on estimate basis without bringing any material on record to justify the same. 8. On the facts and circumstances of the case the Ld.CIT(Appeals) NFAC has erred in having sustained the action of the Ld.AO in adding the scrap sale amounting to Rs.34,84,009/- to gross receipts and then applying the net profit rate at 8%. 3. Briefly, the facts of the case are that the assessee is a partnership firm engaged in the business of Civil Contractors. The firm filed its ITR declaring an income of Rs. 2,26,80,840/- and a turnover of Rs. 47,02,05,321/-but failed to submit the mandatory audit report under Section 44AB. Thereafter, the case of the assessee firm was selected for scrutiny and the Ld. AO issued multiple notices. However, the firm delayed its responses and provided incomplete submissions. The AO noted the firm's history of non-compliance, including a best judgment assessment in A.Y. 2017-18. 3.1. The Ld. AO identified discrepancies in the firm’s claimed expenses, noting that some expense heads were either new or abnormally high. However, the firm failed to provide supporting documents. Since the firm had not audited its accounts despite crossing the turnover threshold, the AO rejected the books under Section 145 and proceeded to estimate its income. Using an 8% net profit ratio based on past trends, the AO applied this rate to the total receipts Rs 54,37,30,100/- and determined an estimated income of Rs. 4,34,98,408/-. The 3 assessment was finalized under Section 144r.w.s144B, with penalties initiated Section 271B for audit non-compliance and Section 270Afor misrepresentation and unverified expenses.Interest under Sections 234A/B/C/D was also levied for delays. 4. Against the order of the Ld. AO the Assessee went in appeal before the Ld. CIT(A). 5. Before us, it was submitted by the Ld. AR that the Assessing Officer had rejected the assesses books of account for non-compliance with Section 44AB, and estimated the income by applying a net profit rate of 8% on gross receipts, including scrap sales. The Ld. CIT(A) dismissed the appeal ex parte, citing repeated non-compliance by the assessee and upheld the additions made by the Assessing Officer. It was further submitted by the Ld. AR that the assessment order is vitiated by procedural lapses, including denial of opportunity of hearing. It was contended that the rejection of books solely due to non-audit under Section 44AB was arbitrary, and no specific defect or discrepancy was pointed out in the books of account. It was further argued that the Assessing Officer applied an excessive net profit rate without considering the assessee’s past profit history, depreciation, and industry trends. The inclusion of scrap sales amounting to Rs. 34,84,009/- in gross turnover was also challenged on the ground that such receipts do not contribute to actual profits. 6. Per contra, the Ld. Departmental Representative (DR) supported the orders of the lower authorities and submitted that reasonable opportunities were provided, and in view of the assessee’s failure to produce audited accounts or cooperate, the estimation was justified. 7. We have considered the rival submissions and perused the material on record. It is not in dispute that the assessment was completed ex parte under Section 144. While the AO applied a net profit rate of 8% on gross turnover, including scrap sales, relevant factors such as past assessed gross profit rates, 4 depreciation, and nature of scrap sales were not adequately considered. In the interest of justice and fair play, we are of the view that the matter deserves to be reconsidered. 8. Accordingly, we set aside the impugned order of the CIT(A) and remand the matter to the file of the Assessing Officer with a direction to frame a fresh assessment after considering:  Past years’ gross profit and net profit ratios,  Claim of depreciation,  Treatment of scrap sales, and  Any other relevant material or explanation submitted by the assessee. 8.1 The Assessing Officer shall grant the assessee a reasonable opportunity of being heard and shall pass a speaking order after due consideration of all submissions, material, and documents placed on record. However, having regard to the substantial turnover of Rs. 47.02 crores, the non-filing of the audit report, and the assessee’s continuous non-compliance and repeated adjournments before the lower authorities, we deem it appropriate to impose a notional cost of Rs. 5,000/- (Rupees Five Thousand only) on the assessee. The said amount shall be deposited with the PM CARES Relief Fund within a period of two months from the date of receipt of this order. 8.2 The assessee is a government contractor, and it is expected that such an assessee who is well aware of the legal provisions, statutory obligations, and procedural rules will demonstrate vigilance and timely compliance. In the present circumstances, we find it necessary and justified to impose the cost as a deterrent and a token measure to uphold procedural discipline. 8.3 The assessee shall furnish proof of such deposit before the Assessing Officer at the commencement of the fresh proceedings. The Assessing Officer shall proceed with the reassessment only upon receipt of the proof of deposit. 5 9. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 16/04/2025. Sd/- Sd/- क ृणवȶ सहाय लिलत क ुमार (KRINWANT SAHAY) (LALIET KUMAR) लेखा सद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟ /JUDICIAL MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "