INCOME TAX OFFICER, WARD-1(2)(1), SURAT, SURAT V. SHRI AMRUTBHAI SHANKARBHAI PATEL, SURAT

ITA 639/SRT/2023

AI Insights

The case involves an appeal by the Income Tax Officer (ITO) against the order of the Commissioner of Income Tax (Appeals) which had partly allowed the appeal of the assessee, Amrutbhai Shankarbhai Patel. The ITO challenged the CIT(A)'s decision to estimate the assessee's income at 8% of total sales instead of adding the undisclosed income as determined by the AO. The Tribunal found that the CIT(A) had correctly admitted additional evidence and had followed the proper procedure under Rule 46A of the Income-tax Rules, 1962. However, it modified the CIT(A)'s decision by increasing the estimated income percentage from 8% to 12% of total sales due to the lack of complete details from the assessee.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 473287 (ITAT-SURAT)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2024
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Other Referred Cases: CIT vs. Pradeep Shantilal Patel, CIT vs. Kamlaben Sureshchandra Bhatti, Smt. Prabhavati S. Shah vs. CIT, Smt. Mohindar Kaur vs. Central Government, Goetze (India) Ltd. vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JAIN
• Assessee Lawyers: SAPNESH SHETH; SPEED POST AT AHMEDABAD; SURAT
• Keywords: Set aside; Business income; Capital asset; Additional evidence; Depreciation; TDS
• Section: 144; 142(1); 143(2); 250; 271(1)(c); 274; 194C; 271B

Judgement Text

" IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.639/SRT/2023 Assessment Year: (2014-15) (Physical Hearing) The ITO, Ward -1(2)(1), Surat Vs. Amrutbhai Shankarbhai Patel, 67, City Centre, Near Sosyo Circle, Udhna Magdalla Road, Surat – 395007 èथायीलेखासं./जीआइआरसं./PAN/GIR No: ACVPP3782D (Appellant) (Respondent) Appellant by Shri Mukesh Jain, Sr. DR Respondent by Shri Sapnesh Sheth, CA Date of Hearing 04/12/2024 Date of Pronouncement 26/12/2024 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: This appeal by the revenue emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 21.03.2023 by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short, ‘CIT(A)’] for the assessment year (AY) 2015-16. 2. The grounds of appeal raised by the revenue are as under: “1. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in admitting the additional evidences, which were not produced before the AO during the course of the assessment proceedings, without appreciating the fact that the assessee has not satisfied the basic conditions laid down under Rule 46A(1) of the IT Rules 1962. 2. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in directing the Assessing Officer to estimate the income of the assessee @ 8% of the total sales without considering that the assessee has not disclosed the nature of the activities carried out by him and also not furnish 2 ITA No. 639/SRT/2023/AY.2014-15 Amrutbhai Shankarbhai Patel bills/vouchers/invoices before the AO during the course of the assessment proceedings as well during the remand proceedings. 3. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition made of Rs.2,14,11,359/ on account of undisclosed income. 4. It is therefore prayed that the order of the Ld. CIT(A) may kindly be set aside and that of the Assessing Officer be restored. 5. The appellant craves leave to add, alter, amend and/or withdraw any grounds of appeal either before or during the course of hearing of the appeal.” 3. Facts of the case in brief are that assessee filed his return of income showing his total income of Rs.6,97,300/- on 30.11.2014. The case was selected for scrutiny. Subsequently, statutory notices u/s 143(2) and 142(1) of the Act were issued on 31.08.2015 and 07.06.2016. There was non-compliance to the notices. The Assessing Officer (in short, ‘AO’) found that assessee is the owner of a house property at 33, Panchamrut Bungalows Part - 2, Science City Road, Sola, Ahmedabad. The AO issued a final show cause notice on 04.11.2016, which was served upon assessee by speed post at Ahmedabad and Surat addresses as well as e-mail ID i.e., [e-mail]. The AO observed on verification of the P & L account column of return of income that the assessee had kept all the relevant column as ‘0’. The assessee has received an amount of Rs.2,48,45,279/- as contract income from Shri Chhanabhai Kanjibhai Patel. The AO has specially asked assessee to furnish details of contract receipts and expenses. The assessee has not disclosed / furnished the actual contract receipts in his return of income. As per 26AS data available with the Department, the assessee had received total amount of Rs.2,48,45,279/- 3 ITA No. 639/SRT/2023/AY.2014-15 Amrutbhai Shankarbhai Patel during the year under consideration. The AO asked assessee as to why the amount of Rs.2,40,11,359/- (Rs.2,48,45,279 – Rs.8,33,920) should not be treated as unexplained income and added to his total income. Due to non- compliance by the assessee, the said amount was treated as undisclosed income of the assessee and added back to the total income of the assessee. Penalty proceedings u/s 271(1)(c) of the Act were also initiated for furnishing inaccurate particulars of income. Penalty proceedings u/s 274 r.w.s. 271B of the Act were also initiated separately for failure to get his books of account audited. The AO passed the order u/s 144 of the Act on 29.11.2016. Thus, the AO determined the total income of Rs.2,47,08,660/- against the return of income of Rs.6,97,300/-. 4. Aggrieved by the order of AO, the assessee has filed appeal before the CIT(A). The CIT(A) extracted the submission of appellant, which is at pages 3 to 7 of the appellate order. The CIT(A) forwarded submission and additional evidence to AO. The AO has submitted remand report to the CIT(A). The CIT(A) observed that the appellant had received Rs.2,40,11,359/- for AY.2014-15 as sub-contracting receipts. The payer had deducted TDS u/s 194C which was also getting reflected in 26AS statement. The CIT(A) observed that assessee had not got his books of audited accounts. The onus lies with assessee to substantiate the financial statements prepared by him. The assessee is non-compliant regarding explaining the nature of sub-contract work. The assessee had failed to establish incurrence of expenses claimed by him. The P & L account and balance sheet had no opening and closing stocks. As the assessee had claimed 4 ITA No. 639/SRT/2023/AY.2014-15 Amrutbhai Shankarbhai Patel depreciation of Rs.61,963/-, the onus lies with assessee to submit the details of capital assets. The assessee had also not furnished the details of TDS deducted so as to ascertain whether TDS was required to be deducted. The CIT(A) also observed that assessee had not furnished the details of vouchers, bills and invoices before the AO during the remand proceedings. The CIT(A) concluded that the AO had made enquiries and received confirmations from parties related to purchase amounting to Rs.1,66,37,385/-. However, the related invoices had not been submitted by the appellant. Therefore, the CIT(A) directed the AO to estimate the income of the assessee @ 8% on total sales. The CIT(A), thus, partly allowed the appeal of appellant. 5. Aggrieved by the order of CIT(A), the revenue filed appeal before the Tribunal. The learned Senior Departmental Representative (ld. Sr. DR) of the revenue submitted that the CIT(A) erred in admitting the additional evidence. The CIT(A) was not correct in directing estimation of profit @ 8% of the contract receipt because the assessee could submit confirmation from parties relating to purchases of Rs.1,66,37,385/- only in place of Rs.2,33,25,538/-. Therefore, the CIT(A) should have sustained addition of Rs.82,07,894/- (Rs.2,48,45,279 – Rs.1,66,37,385) and not 8% of the contract income. 6. On the other hand, the learned Authorized Representative (ld. AR) of the assessee filed a paper book containing pages 1 to 35 including submission filed before CIT(A), letter filed with AO during remand proceedings, remand report issued by AO supplied by CIT(A)-II, Surat, dated 19.11.2019, written submission filed before CIT(A), acknowledgement of return of income filed by assessee for 5 ITA No. 639/SRT/2023/AY.2014-15 Amrutbhai Shankarbhai Patel AY.2014-15, ledger accounts of various parties and acknowledgement and computation of income filed by assessee for AY.2016-17. The ld. AR submitted that non-compliance before AO was due to bona fide reasons. The additional evidence submitted before the CIT(A) has been rightly admitted and considered by the CIT(A). The appellant furnished unaudited P & L account of the assessee at page 14 of the paper book wherein the expenses on account of purchase was Rs.2,33,25,538/- and direct expense was Rs.64,630/-. The indirect expenses were Rs.5,30,267/-. The ld. AR submitted that AO has verified 70% of the expenses. However, he has disallowed the entire expenses which is not correct. The ld. AR of the assessee relied on the decision of Hon’ble Gujarat High Court in case of CIT vs. Pradeep Shantilal Patel, (2014) 42 taxmann.com 2 (Gujarat) wherein it was held that where assessee admitted that cash deposits pertained to his retail business but details and nature of business were not forthcoming from record, considering total turnover of assessee, net income had to be determined u/s 44AF of the Act. 7. We have heard both the parties and perused the materials available on record. We have also deliberated on the decision relied upon by ld. AR. The revenue has raised ground No.1 that the CIT(A) erred in admitting the additional evidences which were not produced before AO during assessment proceedings. The issue has been dealt with by the CIT(A) at para 5.2. He has referred to the remand report received from the AO upon verification of the additional evidence forwarded to him by the CIT(A). He has admitted the additional evidence by stating that the CIT(A) is vested with co-terminus powers that the 6 ITA No. 639/SRT/2023/AY.2014-15 Amrutbhai Shankarbhai Patel AO has in making an assessment. Further, he has relied on decisions in case of Smt. Prabhavati S. Shah, 231 ITR 120 (Bombay), Smt. Mohindar Kaur vs. Central Government, 104 ITR 120 (Allahabad) and Goetze (India) Ltd. vs. CIT, TS-21-SC- 2006-O. We do not find any infirmity in the order of CIT(A) in considering the additional evidence submitted before him. He has followed the procedure in Rule 46A of Income-tax Rules, 1962 by forwarding the additional evidence and submission to the AO, who has duly verified the same and submitted a remand report. Therefore, the statutory obligation to put any additional material / evidence on record by the CIT(A) has been duly complied with by the CIT(A). The Hon’ble Gujarat High Court in case of CIT vs. Kamlaben Sureshchandra Bhatti, (2014) 44 taxmann.com 459 (Gujarat) held that admission of additional evidence could not be stated to be in breach the requirement of Rule 46A, particularly when interest of revenue was safeguarded by calling for a remand report and permitting AO to comment on such additional evidence. The Hon’ble Bombay High Court in case of Smt. Prabhabati S. Shah (supra) has held that on a conjoint reading of section 250 and Rule 46A, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of CIT(A) u/s 250(4) of the Act. The purpose of Rule 46A appears to be to ensure that evidence is primarily led before the AO. In view of the above discussion, the ground of revenue is dismissed. 7.1 In the result, ground No.1 raised by revenue is dismissed. 8. Ground Nos. 2 & 3 are inter-related. It pertains to direction of CIT(A) to estimate income of assessee at 8% of the total sales instead of adding 7 ITA No. 639/SRT/2023/AY.2014-15 Amrutbhai Shankarbhai Patel Rs.2,14,11,359/- on account of undisclosed income. We find that the AO passed an ex parte order u/s 144A of the Act because the assessee did not furnish any reply or explanation before the AO. As per 26AS, the assessee had received Rs.2,48,45,279/- from one Shri Chhanabhai Kanjibhai Patel. The AO reduced Rs.8,33,920/- being the income shown in the return and added the remaining amount of Rs.2,40,11,359/-. The CIT(A) had forwarded the additional evidence and other financials so as to justify the computation of income to the AO for verification and remand report. In the remand report, the AO, at para 3.4, has stated that the assessee had submitted ledgers / copies of confirmations of Rs.1,66,37,385/- out of total purchases of Rs.2,33,25,538/-. Therefore, it is clear that assessee was able to furnish evidence to the extent of Rs.1,66,37,385/- only. The ld. AR submitted that almost 70% of the expenses have been verified by the AO and hence the income offered by assessee should have been accepted. We find that apart from the purchases, there were other indirect expenses of Rs.5,30,267/-. The assessee had also claimed to have incurred site expenses of Rs.64,630/-, depreciation of Rs.61,963/- and interest on car loan of Rs.29,325/-. Neither the AO has called for the details of these expenses nor the assessee has not given any evidence regarding these indirect expenses. However, we find that the site expenses and other indirect expenses are very small. Moreover, these expenses are needed to run the business. However, in absence of details, the same cannot be accepted in toto. 8.1 The assessee has also not submitted details of purchases to the extent of Rs.66,87,153/- (Rs.2,33,25,538 – Rs.1,66,37,385). The ld. Sr. DR urged that the 8 ITA No. 639/SRT/2023/AY.2014-15 Amrutbhai Shankarbhai Patel entire difference should be added whereas the ld. AR relied on the decision of Hon’ble Gujarat High Court in case of Pradeep Shantilal Patel (supra) and submitted that only net income could be added. We find that the CIT(A) has estimated income of the assessee @ 8% of total sales. In absence of complete details, it would be fair and reasonable to estimate income of assessee @ 12% of the total sales. The AO is, therefore, directed to make addition @ 12% of the total sales from which the business income offered by assessee may be reduced. These grounds are partly allowed. 8.2 In the result, ground Nos. 2 & 3 are partly allowed. 9. In the combined result, the appeal of the revenue is partly allowed. Order is pronounced in the open court on 26/12/2024. Sd/- Sd/- (PAWAN SINGH) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat Ǒदनांक/ Date: 26/12/2024 SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat s "