The DCIT, Circle-4, Ahmedabad V. Gopal Iron & Steel Co.(Guj.) Ltd., Ahmedabad

ITA 1901/AHD/2014

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2862 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 19-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Unexplained cash credit; Unexplained investment; Depreciation; Additional evidence; Corroborative evidences; Validity of assessment; Right to appeal; Set aside
• Section: 68; 69; 144; 142(1); 133(6); 143(1); 274; 143(2); 139(1); 44AB; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH (Conducted Through Virtual Court) Before: Shri Annapurna Gupta, Accountant Member And Ms. Madhumita Roy, Judicial Member The DCIT, Circle-4, Ahmedabad Gopal Iron & Steel Co. (Guj.) Ltd. Plot No. 1401 GIDC Kerala Industrial Estate, Taluka-Dholka, Ahmedabad-382220 PAN: AAACG7013L (Appellant) Vs Vs Gopal Iron & Steel Co. (Guj.) Ltd. Plot No. 1401 GIDC Kerala Industrial Estate, Taluka-Dholka, Ahmedabad-382220 PAN: AAACG7013L The DCIT, Circle-4, Ahmedabad (Respondent) Appellant by : Shri Rameshkumar L. Sadhu, Sr. D.R. Respondent by : Shri Vijay Ranjan, A.R. Date of hearing : 07-02-2022 Date of pronouncement : 06-05-2022 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:- The present appeal by the Revenue and Cross Objection by the Assessee have been filed against the order passed by the Commissioner of Income Tax (Appeals)- VIII, Ahmedabad, (in short referred to as CIT(A)), dated 07-03-2014, u/s. 250(6) of ITA No. 1901/Ahd/2014 & C.O. No. 247/Ahd/2014 Assessment Year 2009-10 I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 2 the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2009-10. 2. As transpires from the order of the authorities below, assessment in the impugned case was framed ex-parte u/s. 144 of the Act, on account of non-compliance of the assessee to various notices issued to it, making addition on various counts, totaling in all to Rs. 5,01,84,927/-, as under: (i) Addition u/s. 68 – Unsecured loan 65,25,474/- (ii) Disallowance of depreciation 6,62,355/- (iii) Addition u/s. 69- Unexplained investment 58,64,847/- (iv)Addition u/s. 68- Unexplained credit 42,05,417/- (v) Out of expense 70,38,632/- (vi) Estimation of gross profit 2,58,88,202 Total 5,01,84,927/-. 3. The assessee carried the matter in appeal before the Ld. CIT(A), Challenging the validity of order passed on account of failure to issue the jurisdictional notice u/s. 143(2) of the Act within the prescribed time, as also the various additions made on merit. Evidences were filed before the Ld. CIT(A) in support of the grounds raised on merits ,which were sent to the Assessing Officer (A.O.) for his comments, after considering which the Ld. CIT(A) deleted all the additions made on merits while he dismissed the ground raised by the assessee regarding the validity of assessment framed. Against the aforesaid order both the Revenue and the Assessee have come up in appeal before us, with the Revenue challenging the deletion of addition made on merits by raising the following grounds: 1. The Ld.CIT(A) has erred in law and on facts in-admitting additional evidence and in deleting the addition of Rs. 65,25,474/- made on account of unexplained credit u/s.68 of the Act, without properly appreciating the fact that ample opportunities given to the assessee to produce necessary evidence have not been availed/complied by the assessee forcing the AO to resort to passing ex-parte order u/s.144 of the Act. I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 3 2. The Ld.CIT(A) has erred in law and on facts in admitting additional evidence and in deleting the addition of Rs. 6,62,355/- made on account of disallowance of claim of depreciation, without properly appreciating the fact that ample opportunities given to the assessee to produce necessary evidence have not been availed/complied by the assessee forcing the AO to resort to passing ex-parte order u/s.144 of the Act. 3. The Ld.CIT(A) has erred in law and on facts in admitting additional evidence and in deleting the addition of Rs. 58,64,847/- made u/s.69 of the Act, without properly appreciating the fact that ample opportunities given to the assessee to produce necessary evidence have not been availed/complied by the assessee forcing the AO to resort to passing ex-parte order u/s.144 of the Act. 4. The Ld.CIT(A) has erred in law and on facts in admitting additional evidence and in deleting the addition of Rs. 42,05,417/- made on account of unexplained credit u/s.68 of the Act, without properly appreciating the fact that ample opportunities given to the assessee to produce necessary evidence have not been availed/complied by the assessee forcing the AO to resort to passing ex-parte order u/s.144 of the Act. 5. The Ld.CIT(A) has erred in law and on facts in admitting additional evidence and in deleting the addition of Rs. 70,38,632/- made on account of disallowance of expense, without properly appreciating the fact that ample opportunities given to the assessee to produce necessary evidence have not been availed/complied by the assessee forcing the AO to resort to passing ex-parte order u/s.144 of the Act. 6. The Ld.CIT(A) has erred in law and on facts in admitting additional evidence and in deleting the addition of Rs. 2,58,88,202/- made on account of estimation of gross profit, without properly appreciating the fact that ample opportunities given to the assessee to produce necessary evidence have not been availed/complied by the assessee forcing the AO to resort to passing ex-parte order u/s.144 of the Act. 7. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 8. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent. 4. And the assessee agitating the dismissal of its legal ground raised before the Ld. CIT(A) is as under: 1. The Ld. CIT appeal has erred both in law and facts the rejecting the assessee claim that no notice u/s 143(2) was served upon the assessee as required under the relevant provision of the act. Since no notice u/s 143(2) for A.Y. 2009-10 was served the assessment framed as well as the appellate order passed not accepting the above facts are both bad in law and as such the assessment as well as the order of the CIT pertaining to this point be annulled. I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 4 2. The finding of the Ld. CIT (A) is absolutely wrong and illegal particularly when all the details were submitted before him pertaining to the invalidity of the notice served u/s 143(2) and hence the dismissal of the ground of the assessee on this point by the Ld. CIT(A) is void ab initio and on this point it is requested the assessee's appeal should have been also allowed and the entire assessment should have been declared void and accordingly cancelled. 3. The Ld. CIT(A) ought to have cancelled the entire assessment upon the ground that no valid notice u/s 143(2) was ever issued to the assessee. 5. During the course of hearing before us, Ld. Counsel for the assessee did not press the grounds raised by it in its Cross Objection. The grounds raised by the assessee in its Cross Objection in CO. No. 247/Ahd/2014 are therefore dismissed and the Cross Objection of the assessee accordingly is dismissed. 6. As per the revenue’s appeal, we find that the primary challenge of the revenue is against the adjudication of the merits of the case by the Ld.CIT(A) by entertaining the additional evidences filed by the assessee. 7. We have gone through the order of the Ld. CIT(A) and we find that before the Ld. CIT(A), the assessee had filed submissions in writing vide his application dated 10.04.2012 which was forwarded to the A.O. for his comments. The remand report of the A.O. dated 31.12.2013 was in turn forwarded to the assessee for his comments thereon which was duly submitted ,as reproduced at page 4 to 10 of the CIT(A)’s order. After considering all of the above, Ld. CIT(A) admitted the additional evidences filed by the assessee stating that they were contemporary in nature and noting that the assessee was unable to produce them as he was facing difficulty due to the circumstances. The relevant findings of the Ld. CIT(A) at page 10 of the order is as under: “ I have carefully considered the details filed by the appellant, the report of the A. O. and the counter comments filed by the appellant. Certain evidences were not produced by the appellant before the A.O. Further, the evidence now being submitted are I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 5 contemporary in nature and relates to the entries in books of accounts. The evidence must have been available with the appellant but he could not produce as he was facing difficulty due to the circumstances. The A.O. has also been given due opportunity. He has examined the evidence and given his comments on the same after verification. Considering these facts and circumstances and the fact that the evidence now being submitted by the appellant is contemporary in nature, the additional evidence is admitted.” 8. The copy of the submissions filed before the Ld. CIT(A) was placed before us at paper book page no. 4 to 24 to bring out the reason for non-compliance during assessment proceedings, as the assessee harboring the bonafide belief that no proceedings for the impugned year, i.e A.Y 2009-10 ,had been initiated since no notice for assuming jurisdiction to frame assessment, u/s 143(2) of the Act, was received by it within the stipulated time and the only other such notice received mentioned A.Y 2008-09.The submissions of the assessee in this regard are as under: 2. The Appellant Company had filed it's return of income for the A.Yr. 2009-10 on 24-09- 2009, declaring total income at Rs. 20,94,480/- on the basis of Audited Accounts for the year ended 31-3-2009. Since the Appellant Company did not receive any notice under section 143(2) within the period of six months from the end of the financial year in which return of income was filed for this year, the appellant was under a bona fide belief that the return of income filed u/s 139(1) was accepted under section 143(1) of the Act. Therefore, the notices issued by the A.O. u/s 142(1) on 7-2-2011 & on subsequent dates were not complied with because-the notices were taken to have been issued without jurisdiction, in the absence of any notice issued u/s. 143(2) for the A.Yr. 2009-10. The notice u/s 143(2) issued on 27-8-2010 was in fact for the assessment year 2008-09. It is, therefore, a fact that no notice u/s 143(2) was received for the A. Yr. 2009-10. This fact was brought to the notice of the A.O. by the A.R. of the Appellant Company. Thereupon the A.O. had supplied the copy of the notice u/s 143(2) of the Act, dated 27-8-2010 which was apparently issued by the Office of the D.C.I.T., Circle-4, Ahmedabad. This fact, among other facts, was specifically brought to the notice of the A.O. by the Authorized Representative of the Appellant Company vide letter dated 12-11-2011 and thereafter vide reply to the Penalty Show Cause notice u/s 274 of the I. T. Act, all these facts were again submitted before the A.O. for his consideration. It was specifically brought to the notice of the A.O. that there was no notice u/s. 143(2) for the A. Yr. 2009-10 and therefore the A.O. could not have assumed valid jurisdiction to issue any notices u/s. 142(1) for the A. Yr. 2009-10 in this case. The appellant company, being under a bona I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 6 fide belief that no notice u/s 143(2) was issued by the Assessing Officer for A. Yr. 2009- 10, within the prescribed time limit and therefore, no legal jurisdiction to scrutinize the case for the assessment year 2009-10 could be assumed by the Assessing Officer. 3. After discussing the correspondence between the appellant company and the Assessing Officer, from paragraph No. 12 onwards of the assessment order, the A.O. has discussed the contents of the show cause notices/letters issued by him before passing the Ex-parte Assessment Order u/s 144 of the Act in this case for the Assessment Year 2009-10 and computed the total income of the Appellant Company at Rs. 5,22,79,410/- in place of returned income of Rs. 20,94,480A- on the basis of the Audited Accounts of the Company. The A. O. has made following additions to the returned income: 9. Further on scrutiny of the submissions made before the Ld. CIT(A), we find that while contesting the additions made, the assessee had referred to its audited accounts and to the past history of the case. We shall be referring to all the additional evidences filed, while adjudicating the various grounds raised by the revenue, but suffice to say, we have perused the contents of the submissions made by the assessee before the ld. CIT(A) and we are in agreement with the Ld. CIT(A) that all the evidences filed were contemporary in nature and could not be treated as additional evidences. Moreover as stated above, the assessee bonafidely believed that no proceedings for the impugned year were initiated and therefore did not comply with the notices filed, though, at the same time, it was cooperating with the department in the assessment for assessment year 2008-09. 10. The Ld. D.R. has been unable to point out any infirmity in the observations and findings of the ld. CIT(A) while admitting the additional evidences as above. We therefore are not in agreement with the contention of the revenue that the additional evidences were wrongly admitted by the Ld. CIT(A) while adjudicating the issues on merit in favour of the assessee. I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 7 10.1 Having held so we shall now proceed to adjudicate on merits each addition/disallowance deleted by the Ld.CIT(A) as challenged by the Revenue before us. 11. In ground no. 1, the challenge is to the deletion of addition made on account of unsecured loans taken by the assessee amounting to Rs. 65,25,474/-. The A.O. made addition of the same since the assessee failed to furnish any details with regard to the same. The findings of the A.O. are at Para 15 of his order treating the unsecured loans as unexplained credits and making addition of the same u/s. 68 of the Act. The ld. CIT(A) deleted the addition on finding that the addition related to three loans all taken from directors of the assessee company, out of which two loans were old not taken during the impugned year , while the third loan, taken in the name of one Mr. Bhavesh G. Patel, part of it was taken in earlier year which was assessed and no addition made on account of the same while for the balance assessee had filed confirmation regarding the deposits and the A.O. had also received confirmations from the parties against notices u/s. 133(6) issued to them in remand proceedings. The relevant findings of the Ld. CIT(A) at para 5.3 of his order is as under: 5.3 Decision: I have carefully considered the facts of the case, the assessment order-and the written submission of the appellant. The AO has made the addition of unsecured loans appearing in the balance sheet. The appellant has explained, during the course of appellate proceedings that the loans have been taken from the directors of the company who are assessed to tax and are regularly filing the return of income. The loans have been taken from three directors. The loans in respect of two directors are old and only interest has been credited in that account. There is some addition in the other account namely from Mr Bhavesh G Patel. Shri Bhavesh is regularly assessed to tax and is filing return of income. It is also noted that no addition was in respect of loan taken from him in earlier years. The appellant has also filed his confirmation regarding the deposit. It is noted from the remand report that he has verified the information on test check basis. Notices under section 133 (6) was issued and the confirmations were received. In view of I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 8 these facts and circumstances the appellant has duly discharged its onus of proving the unsecured loans appearing in the balance sheet. The addition made by the A.O. is therefore directed to be deleted. The ground of appeal is accordingly, allowed. 12. The submissions of the assessee before the ld. CIT(A) is as under: 1. Unsecured Loans addition u/s 68 Rs. 62,25,474/- : This amount pertains to loan taken from the directors as evident from the Balance Sheet available with the A.O. from where he has taken this figure. Last year also loan is appearing in the name of Directors. All the directors are Income tax assesseees. A comparative chart is enclosed for ready reference. 13. It is evident that with respect to the issue of unsecured loans, the assessee had established from its financial results that they were majorly old loans. Further the enquiry conducted by the A.O. during remand proceedings also confirmed the genuineness of the unsecured loans. The A.O. having himself found the loan to be genuine after making due enquiry, we see no reason to interfere in the order of the Ld. CIT(A) deleting the addition made on account of unsecured loans u/s. 68 of the Act amounting to Rs. 65,25,474/-. 13.1 Ground of appeal No.1 is dismissed. 14. In ground no. 2, the revenue has challenged the deletion of disallowance of depreciation amounting to Rs. 6,62,355/-. With respect to the same, the assessee had submitted before the Ld. CIT(A) is as under: 2. Disallowance of Depreciation on newly acquired assets - The Company's accounts are audited by Chartered Accountants for Company Law purpose as well as for 44AB and had the supporting evidence been with the auditor they would have qualified the report which is not done hence the disallowance is un called for and deserves to be deleted. I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 9 15. The Ld. CIT(A) deleted the disallowance holding at para 6.3 of the order as under: 6.3 Decision I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. It is noted from the reply given by the appellant as well as the paper book filed during the course of appellate proceedings that the addition to the assets are duly accounted for in the ^Nit- books of accounts. The same is reflected in the balance sheet. The appellant has also furnished copies of the purchase bills in respect of the new assets that have been added during the year. The paper book has also been forwarded to the AO for verification and it is noted that there is no adverse comment on this evidence. In view of these facts and circumstances, the addition made by the AO in respect of depreciation of newly created assets is directed to be deleted. The ground of appeal is accordingly, allowed. 16. We have noted from the above that the disallowance of depreciation was made since no details were available with the A.O. vis-à-vis the purchase of new assets. The Ld. CIT(A)noted from the records of the assessee as well as the Tax Audit Report filed, that the assets were duly accounted for in the books of the assessee. Further the bills of the assets purchased were forwarded to the A.O. for verification, and no adverse comments were made by him on the same. We note that it was only contemporary data/evidence which was furnished by the assessee, verified by the A.O. and no infirmity found in the same. 17. In view of the above therefore, we hold, the Ld. CIT(A) was justified in admitting the evidences and deleting the disallowance of depreciation amounting to Rs. 6,62,355/-. 17.1Ground of appeal No.2 is dismissed. I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 10 18. In ground no. 3, the revenue is aggrieved by the deletion of addition of Rs. 58,64,847/- made u/s. 69 of the Act. The impugned addition related to the bank balance reflected in the return of income filed by the assessee on account of the same remaining unreconciled with the bank. The A.O. therefore added the entire balance of Rs. 58,64,847/- as unexplained investment u/s. 69 of the Act. 19. Before the Ld. CIT(A), the assessee submissions are as under: 7.2 Appellant's submission :- The relevant extracts from the submission of the appellant are reproduced here under:-- Addition u/s 69 unexplained investments of Rs. 5864847/-.: The above amount comprised of the following. A.Y. 2009-10 A.Y. 2008-09 Bank Balance Current A/c Rs. 1200/- Rs. 14050950/- F.D. [PNB] Rs. 572700/- Rs. 5727000/- Accrued Interest on F.D. Rs. 136647/- Rs. 61025/- Rs. 5864847/- Rs. 19838975/- Firstly there is no increase in the above investments in comparison to last year. Secondly all are old investments and carried forward from last year. Hence addition is illegal and application of section 69 is purely based on presumptions and under such circumstances no addition can be made and hence above addition deserves to be deleted." 20. Ld. CIT(A) deleted the addition holding as under: 7.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The addition was made by the AO as the appellant did not furnish the reconciliation of the bank statement reflected in the balance sheet. During the course of appellate proceedings the appellant gave the explanation. It is noted that the investment which have been added by the AO are In respect of the bank account and are duly reflected in the books of accounts of the appellant. The figure of addition includes balance with Punjab National bank current-account, fixed deposit with Punjab National bank and interest in accrued on the bank fixed deposit. It is clear from the I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 11 details that the AO was totally unjustified in making the addition in an arbitrary manner. The assets are duly reflected in the books of account and are carried forward in from earlier years. The addition made by the AO is therefore directed to be deleted. The ground of appeal is accordingly allowed. 21. We have noted that the Ld. CIT(A) deleted the addition on finding that these balances were duly reflected in the books of account of the assessee and were majorly carried forward from the earlier years. We find that it was only contemporary evidence which was appreciated by the ld. CIT(A) for the purposes of holding that the entire bank balance was explained as appearing in the books of accounts of the assessee. Even the A.O. did not make any adverse comment with regard to the same in his remand report. The Ld. CIT(A) we hold was therefore wholly justified in deleting the addition made u/s 69 amounting to Rs. 58,64,847/- . Ground of appeal No.3 is dismissed. 22. In ground no. 4, the revenue has challenged the deletion of addition made on account of unexplained credit amounting to Rs. 42,05,417/-. The Assessing Officer, we find, made the addition in relation to the sundry creditors reflected in the return of income ,for failure of the assessee to furnish necessary details. While the sundry creditors reflected amount to Rs. 2,42,05,417/- the A.O. accepted sundry creditors to the extent of Rs. 2 crores to be genuine while the remaining amounting to Rs. 42,05,417/- was treated as unexplained credit, on estimate basis. The assessee submitted before the Ld. CIT(A) is as under: 8.2 Appellant's submission:- The relevant extracts from the submission of the appellant are reproduced here under:- 1. "u/s. 68 Unexplained credits Rs.4205417/- : This amount represents goods creditors from whom the Company had purchased goods / services etc and such creditors are not covered u/s 68. Further the total creditors are to the tune of Rs.24205417/- and out of that on estimate basis he has added Rs.4205417/- How the addition can be made u/s 68 I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 12 and out of Sundry Creditors for goods etc on estimate basis unless it is proved that such creditors are bogus. Such creditors must first be proved as bogus and then the amount of such creditors can be added legally u/s 68. As such this addition is absolutely illegal and deserves to be deleted." 23. The Ld. CIT(A) deleted the addition holding as under: 8.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. It is noted that the AO has made the addition as he asked the appellant to furnish the details of sundry creditors of Rs. 2.42 crores appearing in the balance sheet. The appellant did not furnish the details and therefore, he estimated that the sundry creditors which were genuine should be at Rs. 2 crores and accordingly he made an addition of the balance sundry creditors shown in the balance sheet, i.e., Rs. 42.05 Lacs. The appellant has submitted and v.ehementally objected to the addition. It has been pointed out that the addition is without any basis and on the basis of estimate. The appellant has submitted that no addition in such manner can be done. I have carefully perused the information available on record. The scheduled 10 of the balance sheet submitted by the appellant show that there are current liabilities of Rs. 2.42 crores appearing in the balance sheet out of which the outstanding L/C were at Rs. 2.21 crores. The balances are sundry creditors for others and advance received from customers. The entries are duly reflected in books of accounts and there was no basis and reason of disallowance or addition should be made by the AO by estimating the sundry creditors. It appears that the AO was acting with a biased mind. Subsequently, the present AO, his remand proceedings, has made sample verification of the details given by the appellant and no adverse comment has been given in the remand report. Further, the books of accounts of the appellant company were audited and the auditors have not given any remark about the sundry creditors in the, balance sheet. In view of these facts and the submission of the appellant the disallowance made by the AO are directed to be deleted. The ground of appeal is accordingly, allowed. I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 13 24. As is evident from the above, the ld. CIT(A) found the entire balance as pertaining to sundry creditors against which there were corresponding L/C’s also all duly reflected in the audited books of accounts of the assessee and further found there was no basis with the A.O. for making the impugned addition which was merely done on estimate basis. He also noted that in remand proceedings, the A.O. had made sample verification of the details given by the assessee and found them to be correct. Considering the aforesaid fact therefore he deleted the addition made. 25. We have noted once again that based on the financial statement of the assessee and on the verification made by the A.O. himself during remand proceedings, the Ld.CIT(A) found the addition made to be unjustified. 26. The AO having himself found the outstanding balances to be genuine, there remains no grievance of the Revenue. Ground of appeal No.4 is dismissed. 27. The next ground, Ground No.5, raised is with regard to disallowance of expenses amounting to Rs. 70,38,632/- which constituted 15% of the total expenditure incurred on Power and Fuel, Salary and Wages, Advertisement, Donation, Other expenses and Interest as summarized at page 28 of the CIT(A)’s order for want of evidence. 28. Before the Ld. CIT(A), the assessee submitted as under: 9.2 Appellant's submission :- The relevant extracts from the submission of the appellant are reproduced here under:- 2. Out of expenses : 15% on estimate basis of the following expenses. a) Power and Fuel Expenses: Firstly these expenses have gone down to Rs.2.42 crores in comparison to last year 3.49 crores. Secondly such expenses are covered in calculation of I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 14 gross profit hence when addition in G.P. is made how disallowance can be made again out of such expenses. Further, no disallowance was ever made out of such expenses and also these expenses are paid to the State Government and also connected with WIND MILL installed by the Company which is connected with the power charges and controlled by the State Government which gives credit if the Company generates power to supply the same to state Government and such supply if made, attracts reduction in power charges payable by the assessee relating to its factory situated at Ahmedabad. Hence when such charges are controlled by State Government how the disallowance can be made and as such the same deserves to be deleted." 29. The Ld. CIT(A) deleted the addition are as under: 9.3 Decision: I have carefully considered the facts of the case, the assessment order and written submission of the appellant. The AO has disallowed 15% of certain expenses as, in his opinion, the appellant was not able to give proper justification in support of the expenditure. During the course of appellate proceedings, the appellant has submitted that the expenses are genuine and not excessive. It has also given a comparison chart showing the expenses in various heads of last four years. It has been submitted that there is no abnormal increase in the expenditure and the same should therefore, be allowed fully. The information given by the appellant were also sent to the AO for verification and it is noted that the AO has commented that he has verified the information on sample basis. Further it is also noted that the appellant's case has been completed in the scrutiny in several others years and there has been no disallowance on this basis except that in assessment year 2007 - 08 where a disallowance of Rs. 20,000/- on lump-sum basis was made. I have carefully considered the information available on record, the submission of the appellant as well as the report of the AO in remand proceedings. It is noted that the books of accounts of the appellant company are audited and there is no abnormal increase in the expenditure shown by the appellant as compared to earlier years. The expenses in this year are at Rs. 4.69 crores as against the turnover of 50.58 crores. The expenditure in earlier year that is 2008 - 09 was at 5.58 crores as against the turnover of 92.02 crores. Similarly for the year 2007 - 08 the expenditure was 4.72 crores as against I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 15 the turnover of 61.49 crores. This shows that the expenditure shown by the appellant is comparable. Further, no disallowance in this matter can be done without pointing out specific defect or abnormality. In view of these facts and circumstances, I am of the considered opinion that the* disallowance made by the AO was not justified and the same is therefore, directed to be deleted. The ground of appeal is accordingly allowed. 30. We have perused the order of the Ld. CIT(A) who we find has deleted the addition noting that there was no abnormal increase in these expenses as compared to the preceding years and further noting the fact that the A.O. had verified the expenses on sample basis and made no adverse comments. He also noted that in scrutiny assessment for earlier years no disallowance of such expenses was made except of a meagre amount of Rs. 20,000/- on lump sum basis in assessment year 2007-08. The Ld. CIT(A) noted that the expenditure in the impugned year was comparable with the turnover of the assessee and in the absence of any specific defect/ abnormality pointed out by the A.O. , he deleted the disallowance. 31. We see no reason to interfere in the well reasoned order of the Ld. CIT(A),particularly when the AO himself found the assesses claim to be correct in remand proceedings. 31. Ground of appeal No.5 is dismissed. 32. The revenue has lastly agitated against the deletion of addition made by the A.O. by estimating gross profit by Rs. 2,58,88,202/-. 33. . Before the Ld. CIT(A), the assessee submitted as under: 10.2 Appellant's submission :- The relevant extracts from the submission of the appellant are reproduced here under:- 3. Estimate of Gross Profit Rs.25888202/- I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 16 a) Firstly no G.P. addition was ever made in the history of the Company inspite of the fact that for the last several years Company's case was under scrutiny and hence the addition is based on mere presumption. Particularly when the G.P. was always accepted by the Department during last year’s assessment. b) That no valid ground and /or basis is given in para no. 20 of the order except that the show casue notice was given that why 12 % G.P. be not estimated. Wherefrom such rate of 12 % was arrived at is not known and informed because it is not supported by any evidence, or comparative case and particularly when the assesses has never shown 12 % G.P. since its inception. As such the estimation of G.P. has no force of all and thus this addition deserves to be deleted. c) It is also not proved that the G.P. is low. d) The items manufactured by the assessee in subject to excise duty and day to day production as well as sales records are maintained as per excise rules. It would be seen from the assessment order that the Ld. A.O. has made various additions to the returned income and computed the total income of the appellant company at an exorbitant figure of more than 5 crores, by making various additions to the returned income by way of disallowances and estimated G.P. addition, without discussing the results shown by the appellant company in past years. He has neither quoted any comparable case for this purpose nor considered the extent of expenditure claimed in the preceding years. The estimate of G.P. @ 12% appears to be imaginary, so also the reasons given by him for making various disallowances and additions this year without any basis. The assessment has been framed at such a huge figure, which appears to be only with a view to punish the appellant company for the non-compliance with the notices issued by the A.O. u/s 142(1) of the Act. However, it may be submitted that It has been held as early as 2 ITR by the Allahabad High Court that an exparte assessment cannot be guided by the wish to punish the assessee for the default in complying the notices. The ratio of a few decisions is quoted below for your kind perusal. (1) Jot Ram Sher Singh v CIT-2 ITR 129 (Allahabad] Held: It should be borne in mind that an assessment u/s 23(4} of the 1922 Act ( equivalent to section 144 of the 1961 Act) should not be influenced by a desire to punish the assessee for non-compliance with a notice u/s. 22 or section 23, however, culpable such non-compliance may be, Any deliberate concealment or misstatement of I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 17 the particulars of his income by the assessee is made punishable by section 28;( new Section 271) and if his act amounts to an offence under that section, he should be tried and convicted if the offence is proved, in which case the law gives him a right to appeal, but to punish him indirectly by making a so-called best judgment assessment is wholly unwarranted. (2) State of Kerala vs. C.Velukuttv (1966) 60 ITR 239 (Supreme Court) Held: Though there is an element of guesswork in best judgment assessment, it should not be a wild one, but should have a reasonable nexus to the available material and the circumstances of the each case. Though the section provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard to the available material. (3) CITvs. Laminarain Badridas (1937) 5 ITR 770 (Privy Council) Held: The Officer making best judgment assessment must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for the purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances and his own knowledge of previous returns/assessments of the assessee and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guesswork. In the context of the above decisions of the Courts, it may be submitted that the assessment be annulled/cancelled as well as the appeal may kindly be decided on merits also and the additions made be deleted.” 34. The Ld. CIT(A) deleted the GP addition holding as under: 10.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The assessing officer has made an addition by estimating the GP of the appellant company as the gross profit shown by the appellant company was 6.7% of the total turnover. The AO gave a show cause to estimate the gross profit at 12% by estimating the turnover at Rs. 60 crores. The appellant did not give reply during the course of assessment proceedings and accordingly the AO estimated the GP by increasing the turnover to 60 crores and applying the rate of 10%. I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 18 During the course of appellate proceedings the appellant explained that the GP was normal and there is no reason of estimation of GP. It has been submitted by the appellant that no comparable case has been mentioned by the AO and the estimation of turnover was also arbitrary. The comments given by the appellant was forwarded to the AO for its comment and he has submitted that the records are verified on test check basis. After considering all the information it is noted that the assessing officer has not given proper reasons before estimating the turnover to a higher figure nor any basis of estimation of gross profit rate by applying 12% profit margin on the turnover has been given. It is also noted that no proper reasons for rejecting the books of accounts have been given by the AO. During the course of appellate proceedings the appellant has furnished books of accounts before the AO who has verified it on test check basis. It has also given comparison of gross profit rate shown with earlier years. The appellant has shown gross profit rate of 5.02% this year whereas the same was 5.64%, 8.02% and 7.47% in preceding three years. Since the books of accounts are audited and the same have not been rejected on the proper ground the GP and the enhancement of turnover cannot be made in this manner. Even if the appellant did not produce the books of accounts during the course of assessment proceedings the estimation of GP has to be made in a judicious manner and on the basis of some evidence. Similarly rejection of books of accounts also cannot be made without citing specific defects in the books of accounts at the book results which are available with the AO in the form of profit and loss account in balance sheet. The action of the AO is therefore, set aside. The addition made by the AO is therefore, directed to be deleted. 35. The Ld.CIT(A),we have noted deleted the addition finding that there was no basis with the AO for either rejecting the Books of the assessee or for applying the GP rate for estimating the profits. He also noted that the Books of the assessee were duly audited. Accordingly he held the act of the AO of rejecting the Books of the assessee and estimating the Gross Profit to be entirely baseless and thus unjustified. 36. Before us Ld.DR was unable to point out any infirmity in the above findings of the Ld.CIT(A) . 37. We therefore see no reason to interfere in the order of the Ld.CIT(A). 38. Ground of appeal No.6 is dismissed. I.T.A No. 1901 and C.O. 247/Ahd/2014 A.Y. 2009-10 Page No DCIT vs. Gopal Iron & Steel Co. Ltd. 19 39. The appeal of the Revenue therefore stands dismissed. 40. In effect both the Revenues appeal and the assesse’s CO is dismissed. Order pronounced in the open court on 06-05-2022 Sd/- Sd/- (MADHUMITA ROY) (ANNAPURNA GUPTA) JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER Ahmedabad : Dated 06/05/2022 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद