Sauqul Islam, North Lakhimpur V. Income Tax Officer, Ward-North Lakhimpur, North Lakhimpur

ITA 235/GTY/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9029 (ITAT-GUWAHATI)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 28-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T HUNAR
• Assessee Lawyers: ANIL KUMAR AGARWAL
• Keywords: Business income; TDS
• Section: 44AD; 40A(3); 143(3); 44AB; 145(3); 148; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL GAUHATI ECOURT, ATKOLKATA BEFORE SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM ./ITA NO.235/GAU/2019 ( / ASSESSMENT YEAR:2014-15) SAYQUL ISLAM ISLAM HARDWARE STORES, ISLAMNAGAR, AHMEDPUR NO.2, BANGALMORE, ASSAM-787054 VS. ITO, WARD-NORTH LAKHIMPUR ./ ./PAN/GIR NO.: AAWPI 8015 P (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI ANIL KUMAR AGARWAL, FCA RESPONDENT BY :SHRI T. HUNAR, JCIT / DATE OF HEARING : 19/06/2020 /DATE OF PRONOUNCEMENT : 31/07/2020 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PER TAINING TO ASSESSMENT YEAR 2014-15, IS DIRECTED AGAINST THE ORDER PASSED BY TH E COMMISSIONER OF INCOME TAX (APPEAL)1, GUWAHATI, IN APPEAL NO. 374494271250118 /343, DATED 07.02.2019,WHICH IN TURN ARISES OUT OF AN ASSESSMEN T ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) /147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 27/12/2017. SAYQUL ISLAM ITA NO.235/GAU/2019 ASSESSMENT YEAR:2014-15 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS FOLLOWS: 1. FOR THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN PAR TIALLY UPHOLDING THE ADDITION MADE BY THE ASSESSING OFFICER ON ESTIMATED BASIS MERELY ON THE GROUND THAT THE APPELLANT ASSESSEE HAD FAILED TO CO MPLY WITH REQUIREMENTS OF LAW RELATING TO AUDIT AND FILING OF RETURNS, IGN ORING THE FACT THAT SEPARATE PENALTY WAS PRESCRIBED IN THE ACT FOR THE SAID FAILURES. 2. FOR THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN TRA VELLING BEYOND THE ASSESSMENT YEAR UNDER APPEAL AND IN ISSUING DIRECTI ONS TO THE ASSESSING OFFICER TO DISTURB THE ASSESSMENTS RELATING TO OTHE R YEARS. 3. FOR THAT THE APPELLANT URGES LEAVE TO RAISE ANY FURTHER / ADDITIONAL GROUND BEFORE OR AT THE TIME OF HEARING OF THE APPE AL. 3. BRIEF FACTS QUA THE ISSUE ARE THAT ON EXAMINATI ON OF THE RETURN OF INCOME AND THE OTHER DOCUMENTS SUBMITTED BY ASSESSEE, IT WAS N OTICED BY ASSESSING OFFICER THAT THE ASSESSEE HAS DECLARED NET PROFIT TO THE TU NE OF RS.2,21,539/- ON HIS TURNOVER SHOWN AT RS. 2,23,59,967/-. ON PERCENTAGE TERMS, THE NET PROFIT COMES TO 0.99% OF THE TURNOVER SHOWN AT RS. 2,23,59,967/-. T HE INFORMATION WAS PROVIDED BY THE ASSESSEE IN HIS RETURN OF INCOME REFLECTING MAINTENANCE OF BOOKS OF ACCOUNTS, BUT NOT AUDITED AS REQUIRED UNDER THE PRO VISIONS OF SECTION 44AB OF THE ACT. AS PER PROVISIONS OF SECTION 44AD OF THE ACT, IN A CASE WHERE BOOKS OF ACCOUNTS HAVE NOT BEEN MAINTAINED BY THE ASSESSEE A ND THE TURNOVER IS LESS THAN RUPEES ONE CRORE, THE NET PROFIT CAN BE SHOWN AT A MINIMUM OF 8% AND THE ASSESSEE IS NOT REQUIRED TO MAINTAIN REGULAR BOOKS OF ACCOUNTS. HOWEVER, IN A SITUATION WHERE THE NET PROFIT IS TO BE SHOWN AT LE SS THAN 8% OF TURNOVER / SALES, IN THAT CASE THE ASSESSEE IS REQUIRED TO MAINTAIN BOOK S OF ACCOUNTS UNDER SECTION 44AA(2) OF THE ACT, AND ALSO GET THE SAME AUDITED B Y A CHARTERED ACCOUNTANT AS PER PROVISION OF SECTION 44AB OF THE ACT. SAYQUL ISLAM ITA NO.235/GAU/2019 ASSESSMENT YEAR:2014-15 3 4.AS ASSESSING OFFICER NOTICED THAT THE ASSESSEE SH OWN TURNOVER AT RS. 2,23,59,967/- AND NET PROFIT AT RS. 2,21,539/- AND IN TERMS OF PERCENTAGE THE NET PROFIT RATIO COMES @ 0.99%, WHICH IS LESS THAN 8% A S REQUIRED BY THE PROVISIONS OF SECTION 44AD OF THE ACT. THEREFORE, THE ASSESSIN G OFFICER WAS OF THE VIEW THAT AS PER PROVISIONS OF SECTION 44ADOF THE ACT, AN ASS ESSEE MAY CLAIM LOWER PROFITS AND GAINS THAN THE PROFITS AND GAINS SPECIFIED IN S UB-SECTION (1) OF SECTION 44AD OF THE ACT, PROVIDED THE ASSESSEE KEEPS AND MAINTAI NS SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS REQUIRED UNDER SUB-SECTION (2) O F SECTION 44AA OF THE ACT AND GETS HIS ACCOUNTS AUDITED AND FURNISHES A REPOR T OF SUCH AUDIT AS REQUIRED U/S 44AB OF THE ACT. SINCE, THE TURNOVER OF THE ASSESSE E WAS MORE THAN THE PRESCRIBED LIMIT FOR AUDIT OF ONE CRORE BUT NOT AUDITED AND AS SESSEE ESTIMATED THE NET PROFIT LOWER THAN 8%, THEREFORE, THE ASSESSEES ESTIMATION OF INCOME ON THE TURNOVER WAS NOT ACCEPTED BY ASSESSING OFFICER AND ASSESSEE WAS ASKED TO SHOW CAUSE THAT WHY THE NET PROFIT SHALL NOT BE ESTIMATED @ 8% ON TURNO VER DECLARED BY THE ASSESSEE. 5. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE NET PROFIT PERCENTAGE IS VERY LOW IN HIS BUSINESS AND REQUESTED THE ASSESSING OFFICER TO TAKE THE NET PROFIT PERCENTAGE @ 3% ON THE TURNOVER. 6. HOWEVER, THE ASSESSING OFFICER REJECTED THE CONT ENTION OF THE ASSESSEE AND HELD THAT SINCE THE TURNOVER OF BUSINESS OF THE ASSESSEE WAS MORE THAN ONE CRORE AND THE ASSESSEE HAD FAILED TO GET THE ACCOUNTS AUDITE D BY A CHARTERED ACCOUNTANT AS REQUIRED BY THE PROVISIONS OF SECTION 44AB OF THE A CT, THEREFORE, THE ASSESSEES ESTIMATION OF INCOME LOWER THAN 8% WAS NOT ACCEPTAB LE. HENCE, IN THE ABSENCE OF AUDITED ACCOUNTS, THE NET PROFIT OF THE ASSESSEE WA S THEREFORE ESTIMATED BY ASSESSING OFFICER @ 8%, WHICH CAME TO RS17,88,797/- ( RS. 2,23,59,967 X 8%). SINCE THE ASSESSEE HAD ALREADY DECLARED THE NET PRO FIT AT RS. 2,21,539/- THEREFORE, THE BALANCE SUM OF RS. 15,67,258/- (RS. 17,88,797 M INUS RS. 2,21,539) WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS SUPPRE SSED INCOME FROM BUSINESS. SAYQUL ISLAM ITA NO.235/GAU/2019 ASSESSMENT YEAR:2014-15 4 7. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS REDUCED THE ESTIMATED PROFIT ON TURNOVER FROM 8% TO 5% OBSERVING THE FOLLOWING: RESPECTFULLY RELYING ON THE RATIO OF THE ABOVE JUD GMENTS AND NOTING THAT THE LD AO HAD NOT SPECIFICALLY IDENTIFIED ANY SPECIFIC DEF ECTS IN THEPURPORTED EVIDENCES AND ALSO TAKING NOTE OF THE FACT THAT THE LD AO HAS NOT HELD THAT THE EXPENSES SO CLAIMED BY THE APPELLANT WERE NOT INCURRED BY THE A PPELLANT FOR THE PURPOSE OF ITS BUSINESS, I FIND SOME MERIT IN THECONTENTION OF THE APPELLANT. HOWEVER, IT IS ALSO CORRECT THAT DESPITE SUCH HUGE TURNOVER AND HU GE CASH DEPOSITS IN HIS BANK ACCOUNTS, THE APPELLANT DID NOT CARE TO GET HIS ACC OUNTS AUDITED UNDER SECTION 44AB OF THE ACT. IT IS ALSO NOTEWORTHY THAT THE APP ELLANT DID FILE HIS RETURN OF INCOME ONLY AFTER A NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED TO HIM. THUS, IT IS CLEAR THAT THE APPELLANT IS HAVING A NON-COMP LIANT AND BLATANT ATTITUDE TOWARDS THE REVENUE. THEREFORE, WHILE THE CASE OF T HE APPELLANT MERITS SOME RELIEF, AT THE SAME TIME ENTIRE RELIEF CANNOT BE PE RMITTED TO THE APPELLANT. IN MY OPINION THE ENDS OF JUSTICE WOULD BE MET, IF A NET PROFIT RATE OF 5% IS ADOPTED SINCE THE SAME WOULD TAKE CARE OF THE INCONSISTENCI ES WHICH THE TAX AUDIT REPORT COULD HAVE PROVIDED SUCH AS DETAILS OF UNSECURED LO ANS, COMPLIANCE WITH TDS PROVISIONS, DETAILS OF PAYMENTS OF TAX, CESS, DUTY, FEES, COMPLIANCE WITH PROVISIONS OF SECTION 40A(3) OF THE ACT, MAINTENANC E OF INVENTORY RECORDS ETC. THE APPELLANT WOULD ACCORDINGLY GET A RELIEF OF 3% OF THE NET PROFIT RATE. THUS, OUT OF THE TOTAL ADDITION OF RS.15,67,258/-, AN ADD ITION OF RS.896459/- (I.E. 5% OF RS.2,23,59,967/- LESS RS.2,21,539/-) IS HEREBY SUST AINED AND THE BALANCE ADDITION OF RS.6,70,799/- (IE 3% OF RS.2,23,59,967/-) IS HER EBY DELETED. THE ABOVE GROUNDS OF APPEALS ARE, ACCORDINGLY, PARTLY ALLOWED . 8. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US. 9. THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSION MADE BEFORE THE LD. CIT(A),AND ON THE OTHER HAND, LD. DR FOR THE R EVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER WHICH WE H AVE ALREADY NOTED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 10. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GO NE THROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCU MENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLUDING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSING SAYQUL ISLAM ITA NO.235/GAU/2019 ASSESSMENT YEAR:2014-15 5 OFFICER HAS APPLIED THE PROVISIONS OF SECTION 44AD OF THE ACT AND COMPLETED THE ASSESSMENT BY MAKING ESTIMATION OF INCOME AT THE RA TE OF 8% OF TURNOVER DECLARED BY THE ASSESSEE. THE ASSESSING OFFICER HAS MADE THE PRESUMPTION THAT THE PROVISIONS OF SECTION 44AD OF THE ACT IS APPLIC ABLE TO THE ASSESSEES CASE. WE NOTE THAT THE ASSESSEE IS AN INDIVIDUAL CARRYING ON BUSINESS OF TRADING IN HARDWARE GOODS. HE CARRIES ON BUSINESS FROM A SHOP AT BANGAL MORA IN THE NAME OF ISLAM HARDWARE STORE. HE FILED RETURN OF INCOME FOR A.Y. 2014-15 IN RESPONSE TO NOTICE U/S 148 OF THE ACT, DECLARING INCOME OF RS. 2,54,97 0/-. THE LD. ASSESSING OFFICER ASSESSED THE INCOME AT RS. 17,88,797/- BY APPLYING THE PROVISIONS OF SECTION 44AD OF THE ACT AND ESTIMATED BUSINESS PROFITS @ 8% OF ASSESSEE`S TURNOVER. ON APPEAL, THE LD CIT(A) REDUCED THE ESTIMATED PROFIT FROM @ 8% OF TURNOVER TO @ 5% OF TURNOVER. NOW, THE ASSESSEE IS IN APPEAL BEFO RE US AND PRAYS THE BENCH THAT ESTIMATED PROFIT MAY BE REDUCED TO @2.5% OF THE TUR NOVER. 11. WE HAVE EXAMINED THE FACTS OF THE ASSESSEE`S CA SE. IN FACT, DURING THE COURSE OF HEARING, THE BENCH ASKED THE LD COUNSEL TO PRODU CE COMPARATIVE CHART OF PROFITABILITY STATEMENT OF THE EARLIER YEARS OF ASS ESSEE`S BUSINESS, THAT IS, PRIOR TO ASSESSMENT YEAR 2014-15. THE LD COUNSEL SUBMITS BEF ORE THE BENCH THAT THE ASSESSEE DOES NOT HAVE BOOKS OF ACCOUNTS OF EARLIE R YEARS THEREFORE HE CANNOT SUBMIT THE COMPARATIVE CHART OF PROFITABILITY STATE MENT OF THE EARLIER YEARS BUSINESS, THAT IS,PRIOR TO ASSESSMENT YEAR 2014-15. HOWEVER, LD COUNSEL INFORMS THE BENCH THAT ASSESSEE CAN SUBMIT COMPARATIVE CHAR T OF PROFITABILITY STATEMENT FOR SUBSEQUENT YEARS, THAT IS, AFTER ASSESSMENT YEA R 2014-15. THE BENCH HAS ALSO ASKED, LD DR FOR THE REVENUE TO SUBMIT THE COMPARAT IVE CHART OF PROFITABILITY STATEMENT OF SIMILAR/IDENTICAL BUSINESSES AS THAT O F ASSESSEE OF THE EARLIER YEARS THAT IS, PRIOR TO ASSESSMENT YEAR 2014-15, SO THAT A FAIR ESTIMATE CAN BE MADE IN ASSESSEE`S CASE TO DEDUCE THE PERCENTAGE OF PROFIT. HOWEVER, LD DR HAS EXPRESSED HIS INABILITY TO DO SO. 12. HOWEVER, BEFORE US STATEMENT FOR SUBSEQUENT ASSESSMENT YEARS 2016 NET PROFIT @ 2.64%, 2.65% AND 4% CHART AND NET PROFIT CHART ( FOR SUBSEQUENT ASSESSM ENT YEARS) SUBMITTED BY THE ASSESSEE IS GIVEN BELOW: FROM THE ABOVE COMPARATIVE AVERAGE PROFIT RATE FOR SUBSEQUENT 19 COMES AT 3.09 % ( ASSESSEE, THE PREVIOUS YEARS PROFIT RATIO. HOWEVER ASSESSEE PROVIDE US A BIRD EYE AND ROUGH IDEA THAT WHAT IS THE EARNING TREND IN THE ASSESSEE`S BUSINESS. 13. HOWEVER, WE NOTE THAT ASSESSING SPECIFIC DEFECTS IN THE PURPORTED EVIDENCES AND ALS O TAKING NOTE OF THE FACT THAT THE ASSESSING OFFICER HAS NOT HELD THAT THE EXPENSES SO CLAIMED BY THE ITA NO. ASSESSMENT YEAR: 6 BEFORE US , LD COUNSEL SUBMITS COMPARATIVE CHART OF STATEMENT FOR SUBSEQUENT ASSESSMENT YEARS, THAT IS PROFITABILITY STATEMENT FROM 2016 -17, 2017-18 AND 2018- 19 WHEREIN THE ASSESSEE HAS SHOWN NET PROFIT @ 2.64%, 2.65% AND 4% RESPECTIVELY . THE COMPARATIVE GROSS PROFIT CHART AND NET PROFIT CHART ( FOR SUBSEQUENT ASSESSM ENT YEARS) SUBMITTED BY THE ASSESSEE IS GIVEN BELOW: FROM THE ABOVE COMPARATIVE PROFIT CHART OF SUBSEQUENT YEARS AVERAGE PROFIT RATE FOR SUBSEQUENT ASSESSMENT YEARS 2016- 17, 2017 % ( 2.64 +2.65+4.00/ 3). NORMALLY, TO ESTIMATE THE PROFIT THE PREVIOUS YEARS ` PROFIT RATIOS ARE USED AND NOT THE SUBSEQUENT YEARS HOWEVER , THE SUBSEQUENT YEARS` PROFIT RATIOS AS SUBMITTED BY THE ASSESSEE PROVIDE US A BIRD EYE AND ROUGH IDEA THAT WHAT IS THE EARNING TREND IN THE HOWEVER, WE NOTE THAT ASSESSING OFFICER HAD NOT SPECIFICALLY IDENTIFIED ANY SPECIFIC DEFECTS IN THE PURPORTED EVIDENCES AND ALS O TAKING NOTE OF THE FACT THAT THE HAS NOT HELD THAT THE EXPENSES SO CLAIMED BY THE SAYQUL ISLAM ITA NO. 235/GAU/2019 ASSESSMENT YEAR: 2014-15 LD COUNSEL SUBMITS COMPARATIVE CHART OF PROFITABILITY YEARS, THAT IS PROFITABILITY STATEMENT FROM 19 WHEREIN THE ASSESSEE HAS SHOWN . THE COMPARATIVE GROSS PROFIT CHART AND NET PROFIT CHART ( FOR SUBSEQUENT ASSESSM ENT YEARS) SUBMITTED BY THE PROFIT CHART OF SUBSEQUENT YEARS , WE NOTE THAT THE 17, 2017 -18 AND 2018- TO ESTIMATE THE PROFIT OF ANY AND NOT THE SUBSEQUENT YEARS ` PROFIT RATIOS AS SUBMITTED BY THE ASSESSEE PROVIDE US A BIRD EYE AND ROUGH IDEA THAT WHAT IS THE EARNING TREND IN THE HAD NOT SPECIFICALLY IDENTIFIED ANY SPECIFIC DEFECTS IN THE PURPORTED EVIDENCES AND ALS O TAKING NOTE OF THE FACT THAT THE HAS NOT HELD THAT THE EXPENSES SO CLAIMED BY THE ASSESSEE IN HIS SAYQUL ISLAM ITA NO.235/GAU/2019 ASSESSMENT YEAR:2014-15 7 BOOKS OF ACCOUNTS WERE NOT INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. THE ASSESSEE HAS PRODUCED ALL BOOKS OF AC COUNTS, VOUCHERS, BILLS AND OTHER DOCUMENTS BUT THE ASSESSING OFFICER WITHOUT P OINTING OUT ANY MISTAKE AND ERROR IN THE BILLS/VOUCHERS AND IN THE BOOKS OF ACC OUNTS MADE ADDITION @ 8% WHICH WAS REDUCED BY THE LD CIT(A) TO5%. IT IS ALSO ADMITTED FACT THAT ASSESSEE`S BOOKS OF ACCOUNTS WERE NOT REJECTED BY THE ASSESSIN G OFFICER ALTHOUGH THESE WERE NOT AUDITED UNDER SECTION 44AB OF THE ACT BY A CHAR TERED ACCOUNTANT. WE NOTE THAT THE AO COULD HAVE VENTURED INTO ESTIMATION ONL Y AFTER REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 145(3) AND THEREAFTER BY BEST JUDGMENT ASSESSMENT U/S 144 OF THE ACT. HERE IN THIS CASE, THE AO HAS N OT PASSED ANY ORDER U/S 144 OF THE ACT. THE AO THUS WITHOUT REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE HAS GONE FOR ESTIMATION ON SUSPICION AND CONJECTURES TH AT THE ASSESSEE MAY BE INFLATING ITS EXPENSES AND SHOWING NET PROFIT RATIO AT A VERY LOW RATE. THEREFORE, BASED ON THE FACTUAL POSITION NARRATED ABOVE WE FIN D MERITS IN THE CONTENTION OF THE COUNSEL. THEREFORE, TAKING INTO ACCOUNT MERITS OF THE ASSESSEE`S CASE, AS NARRATED ABOVE, IN OUR OPINION THE ENDS OF JUSTICE WOULD BE MET, IF A NET PROFIT RATE OF 2.50% IS ADOPTED. THUS, WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE INCOME @ 2.5% OF THE TURNOVER WHICH COMES AT RS.5,58,999/- ( 2.5% OF RS. 2,23,59,967). 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 31.07.2020 SD/- ( A.T. VARKEY ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 31/07/2020 ( SB, SR.PS ) SAYQUL ISLAM ITA NO.235/GAU/2019 ASSESSMENT YEAR:2014-15 8 COPY OF THE ORDER FORWARDED TO: 1. SAYQUL ISLAM 2. ITO, WARD-NORTH LAKHIMPUR 3. C.I.T(A)- 4. C.I.T.- GUWAHATI. 5. CIT(DR), GAUHATIBENCH, GUWAHATI. 6. GUARD FILE. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY / DDO / H.O.O ITAT, GAUHA TI BENCH