INCOME TAX OFFICER, WARD-11(1), DELHI, DELHI V. HARI GOVIND TEXFAB (INDIA) PRIVATE LIMITED, DELHI

ITA 3348/DEL/2023

AI Insights

The case involves Hari Govind Texfab (India) Pvt. Ltd, a company engaged in garment manufacturing, which faced scrutiny during the assessment year 2018-19. The Assessing Officer (AO) rejected the company's books of accounts under section 145(3) of the Income Tax Act, 1961, due to alleged discrepancies and non-responsiveness of certain suppliers to notices under section 133(6). The NFAC, however, found that the company had provided sufficient evidence to substantiate the genuineness of its transactions and that the AO's rejection of the books was not justified. The Tribunal upheld the NFAC's decision, dismissing the appeal by the revenue.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314366 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2018-2019
• Other Referred Cases: McDowell and Co. Vs. CTO, CIT vs. Sumati Dayal, Durga Parshad More vs CIT, CIT vs. Precision Finance Pvt. Ltd, ACIT vs. ITD Cementation India Ltd, Drillcon (Raj)(P.) Ltd. vs. Addl. CIT, Commissioner of Income Tax vs. Das's Friends Pvt. Ltd, Karnataka State Forest Industries Corporation Ltd. V/s. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA
• Assessee Lawyers: SAMYAK JAIN
• Keywords: Business income; Additional evidence; Reasonable cause; Rejection of books of accounts; TDS; Assessment record
• Section: 144; 133(6)

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 3348/Del/2023 (Assessment Year: 2018-19) ITO, Ward-11(1), Delhi Vs. Hari Govind Texfab (India) Pvt. Ltd, Shop No. 10, IX/1241, Plot No. 26, Ram Bazar, Subhash Road, Gandhinagar, Delhi (Appellant) (Respondent) PAN: AACCH1259B Assessee by : Shri Samyak Jain, Adv Revenue by: Shri Rajesh Kumar Dhanesta, Sr. DR Date of Hearing 07/04/2025 Date of pronouncement 07/05/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.3348/Del/2023 for AY 2018-19, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „ld. NFAC)‟, in short] in Appeal No. ITBA/NFAC/S/250/2023-24/1057234504(1) dated 19.10.2023 against the order of assessment passed u/s 144 of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 20.05.2021 by the Assessing Officer, NFAC, New Delhi (hereinafter referred to as „ld. AO‟). 2. The revenue has raised the following grounds of appeal before us :- “1. Whether on the facts and circumstance of the case, the Ld. CIT(A) has erred in rejecting the observation of the AD to invoke the provisions of section 145(3) of the Income Tax Act, 1961 for rejecting the books of accounts? ITA No. 3348/Del/2023 Hari Govind Texfab (India) Pvt. Ltd Page | 2 3. We have heard the rival submissions and perused the materials available on record. The return of income for the Assessment Year 2018- 19 was filed by the assessee on 31-10-2018 declaring total income of Rs 16,81,260/-. The assessee company is engaged in the business of manufacturing of garments, which includes jeans, t-shirts, shorts, ladies garments, etc., and majorly exports them to UAE, Thailand, and Malaysia. The assessee purchases the raw materials such as fabric, thread, buttons, zippers, etc., and send them to job workers for the purpose of stitching, washing, packaging, etc. During the course of assessment proceedings, the assessee was directed to give the complete details of purchases and sales. The same were duly provided. The learned AO observed that from the insight portal of the income tax department, four parties from whom assessee had made purchases were found to be suspicious. Accordingly, the learned AO issued notice under section 133(6) of the Act to those parties calling for certain details to examine the veracity of the purchases made by the assessee. The four parties are as under:- Munish Jain (PAN – BBHPJ7174B) Mukesh Sharma (PAN – BHVPS7633G) Naveen Kumar (PAN – EHPPK3894E) Manoj Kumar (PAN – ETSPK6254D) 4. The learned AO observed that assessee has made substantial purchases from the above parties who had either not filed their income tax returns or not shown any business income in their ITRs or had shown lesser turnover in their ITRs as compared to the turnover shown in their GST returns. The parties did not respond to the notice under section 133(6) of the Act. Accordingly, the learned AO concluded that the genuineness of the purchases could not be verified qua the aforesaid ITA No. 3348/Del/2023 Hari Govind Texfab (India) Pvt. Ltd Page | 3 parties and assessee also could not furnish the requisite details to prove the genuineness of the purchases. The assessee furnished the complete purchase invoices of the aforesaid 4 parties, ledger accounts of 4 parties as appearing in its books and bank statements evidencing the payments made to them. The assessee also furnished the details in tabular form stating that except Munish Jain, the other three parties were duly settled fully in Assessment Year 2019-20. In respect of Munish Jain, it was submitted that only a sum of Rs 37,88,130/- was paid by the assessee in Jan and Feb 2019 and remaining was payable to the party. The assessee duly acknowledged the debt due to the said party by showing it as outstanding in its books. The learned AO thereafter proceeded to expand the scope of verification by increasing the number of parties from whom purchases were made by the assessee and concluded that notice u/s 133(6) of the Act could not be served on certain suppliers and wherever it was served, no response was filed by the suppliers to him. The learned AO further observed that the tax audit report submitted by the assessee carries some discrepancies and proceeded to reject the books of accounts under section 145(3) of the Act and proceeded to estimate the profit of the company at the rate of 10% of turnover. 5. It was pleaded by the assessee before the learned NFAC that the assessee had furnished the entire bills of purchases of fabrics and other raw materials before the learned AO. It was pleaded that merely because the suppliers had not responded to the notice under section 133(6) of the Act or had shown lesser turnover in their returns when compared to the GST returns etc., no adverse inference could be drawn on the assessee by treating them as accommodation entry providers and consequentially rejecting the books of accounts of the assessee and proceeding to estimate the profits thereon. The assessee submitted that all the details ITA No. 3348/Del/2023 Hari Govind Texfab (India) Pvt. Ltd Page | 4 called for by the learned AO were duly furnished by the assessee despite the fact that assessment was carried out during the peak covid 19 pandemic. It was pleaded that there was absolutely no reason for the Learned AO to reject the book results and proceed to estimate the net profit of the assessee at the rate of 10% of total turnover. The assessee also gave the net profit chart for the three years as under:- AY Sales Net Profit Profit% 2018-19 51,18,47,900 12,14,726 0.24% 2017-18 31,45,11,881 3,27,304 0.10% 2016-17 8,11,59,122 19,839 0.02% 6. The Learned NFAC duly appreciated the contentions of the assessee and deleted the additions made by the Learned AO by observing as under:- “Grounds No. 1, 3, 4, 5, 6, 7 & 8:- These grounds pertain to addition of Rs.5,23,69,850/- made u/s 144 after rejecting the books of accounts u/s 145(3) of the Act by the Ld. AO. From the assessment records and the order of the Ld. AO, it is clear that the case for selected under CASS on specific grounds. During the course of assessment, the appellant was directed to submit and substantiate the genuineness of purchases with documentary evidence including transportation bills, movement of goods and delivery challans etc., confirmations from various parties which included those who had not filed any ITR or failed to respond to notices under section 133(6) and details of closing stock thereof. The Ld. AO was not satisfied with the reply of the assessee. The Ld. AO highlighted various discrepancies in tax audit report including disallowance u/s 40(A)(3), non-substantiation of loans taken during the year, non- deduction of TDS, non production of copies of ledgers of expenses etc. The Ld. AO treated the tax audit report as non-est while relying on the judgement of Hon'ble Supreme Court in the cases of McDowell and Co. Vs. CTO, CIT vs. Sumati Dayal and Durga Parshad More vs CIT to reach at the conclusion at the transaction were artificially structured and entered into for sole intent to evade taxes. In view of the same the Ld. AO rejected the books of accounts of the assessee, estimated net profit at the rate of 10% of the turnover and made an addition of Rs.5,40,51,111/-. ITA No. 3348/Del/2023 Hari Govind Texfab (India) Pvt. Ltd Page | 5 During the course of appellate proceedings, the appellant has submitted additional evidence under rule 46A containing invoices of purchases, transportation receipts etc. vide submission dated 19.05.2023 seeking admission of the same. The remand report was called from the Ld. AO vide communication dated 28.08.2023. The requisite report was received from the Ld. AO on 12.10.2023. The remand report was sent to appellant for his comments which were received on 17.10.2023 From the perusal of submissions of the appellant, it can be seen that most of the assessment proceedings took place during the course of Covid Pandemic. The appellant had submitted most of the submissions during the course of assessment proceedings. I am of the opinion that the appellant had a reasonable cause for not submitting the requisite documents. In the interest of justice, the additional documents submitted by the appellant are hereby admitted and the matter is being adjudicated accordingly as per the submissions and the additional evidence thereof after considering the reply of the Ld. AO. From the submissions made by the appellant during the course of assessment proceedings, it is seen that the appellant had submitted bank statements, ledger accounts of purchases with PAN Nos and addresses, ledger details of expenses, details and ledgers of unsecured loans taken and repaid from NBFC's and private persons, details commission paid to various non-residents outside India which according to AO had led to huge losses in trading activity, details of export incentives availed, copies of export invoices, details of closing stock, details of sundry creditors and debtors, summary of cash utilization, copies of GST returns, ledger accounts of all the expenses etc. It is pertinent to mention that the appellant had submitted the relevant details and to a large extent discharged the orus cast upon him to prove the genuineness/veracity of the business transactions. In CIT vs. Precision Finance Pvt. Ltd. 208 ITR 465 (Cal), the Hon'ble Calcutta High Court has observed that it is for the assessee to prove the identity of the creditor/ his creditworthiness and the genuineness of the transactions. In view of the documents submitted by the appellant, this onus has been duly discharged. The Ld. AO has not controverted the genuineness of the documents submitted by the assessee. In the additional evidence the appellant has submitted copies of transportation bills and invoices and remaining details of purchases from parties which could not be submitted to the AO. The Ld. AO in his remand report has raised doubts about the genuineness of documents submitted thereof. It is seen that the document of the appellant are not self-serving but rather contain sufficient requisite details. Hence, the same cannot be set to be non-genuine. ITA No. 3348/Del/2023 Hari Govind Texfab (India) Pvt. Ltd Page | 6 Now coming to the point of rejection of the audit report and the books of accounts by the Ld. AO, the same seems to be totally unjustified since the Ld. AO has rejected the books of account of the appellant on rather flimsy grounds. The books of accounts of the assessee were audited and the auditor had not given any adverse comments in the maintenance of the books of accounts. It is seen that no specific defect in the books of accounts or method of accounting consistently followed by the assessee and no inflated purchases or suppressed sales or expenses not incurred for business purposes were found during the course of assessment proceedings by the Ld. AO. The Ld. AO has not commented on the trend of gross profit earned by the appellant during the earlier assessment years or if there was any such deviation which may warrant the rejection of books of accounts. The Ld. AO has also not provided the basis or cogent reasons for taking the net profit ratio of 10% while recalculating the income of the appellate. Hence there was no reason for the Ld. AO to disturb the trading results of the appellant. The Karnataka High Court in the case of Karnataka State Forest Industries Corporation Ltd., V/s. CIT (1993) 201 ITR 674 has held that the Assessing Officer's powers under the Section are not arbitrary and he must exercise his discretion and judgment judicially. A clear finding is necessary before invoking the Section 145(3) of the Act. Hon'ble Supreme Court and the various High Courts in number of cases have held that before invoking the provisions of Section 145(3) of the Act, the Assessing Officer has to bring on record material on the basis of which he has arrived at the conclusion with regard to correctness or completeness of the accounts of the assessee or the method of accounting employed by it. Reliance is placed on following judicial precedents against the correctness of the rejection of books of accounts by the Ld. A.O. 1. Commissioner of Income Tax vs. Das's Friends Pvt. Ltd. (2013) 38 taxmann.com 358(Allahabad) 2. ACIT vs. ITD Cementation India Ltd. (2014) 160 TTJ 628 (Mumbai- Trib) 3. Drillcon (Raj)(P.) Ltd. vs. Addl. CIT 154 TTJ 620 (Jodhpur-Trib) In view of discussion above the Grounds of Appeal Nos. 1, 3, 4, 5, 6, 7 & 8 are Allowed.” 7. We find that none of the aforesaid factual and legal findings of the Learned NFAC could be controverted by the revenue before us. Hence we ITA No. 3348/Del/2023 Hari Govind Texfab (India) Pvt. Ltd Page | 7 do not find any infirmity in the order of the learned NFAC. Accordingly, the grounds raised by the revenue are dismissed. 8. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 07/05/2025. -Sd/- -Sd/- (SATBEER SINGH GODARA) (M BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 07/05/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "