Geeta Gupta, Varanasi V. ITO, Range - 2(3), Varanasi

ITA 39/VNS/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 4377 (ITAT-VARANASI)
• Duration Of Justice: 2 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 06-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SHUKLA
• Keywords: Rejection of books of accounts
• Section: 44AD; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CIRCUIT ‘SMC’ BENCH, VARANASI BEFORE SHRI.VIJAY PAL RAO, JUDICIAL MEMBER ITA No.39/VNS/2020 Assessment Year: 2016-17 Geeta Gupta, A-35/150, Jalalipura, Golgadda, Varanasi, U.P. PAN-AGHPG2271N v. Income Tax Officer, Range-2(3), Varanasi (Appellant) (Respondent) Appellant by: Sh. Arvind Shukla & Sh. Ashish Zafar, Advs Respondent by: Sh. A.K. Singh, Sr. D.R. Date of hearing: 19.04.2022 Date of pronouncement: 19.04.2022 O R D E R SHRI VIJAY PAL RAO, JUDICIAL MEMBER: This appeal by the assessee is directed against the order dated 13.11.2019 of CIT(A), Varanasi for the assessment year 2016-17. The assessee has raised the solitary ground which reads as under:- “i. The assessee’s books of accounts was very first time under audit showing a net profit of 4.36% and in immediate next AY 2017-18 books of account was under audit showing a net profit of 4.37%. The Assessing Officer has enhanced the Sales by Rs. 3,15,627/- and applied adhoc rate of net profit @ 8% on enhanced sales which is applicable for section 44AD. Me Lord is requested to allow the net Profit in between 4.36% to 8.00% i.e. at 5% on sales as disclosed in the audited financial statements.” 2. The assessee is an individual and engaged in the business of trading of Sarees in the name and style of SPY Sarees. The assessee filed a return of income for the year under consideration on 17.10.2016 declaring total income of Rs. 3,81,100/-. The case was selected for scrutiny through CASS. During the scrutiny assessment, the Assessing Officer asked the assessee to produce complete books of accounts and vouchers claimed in profit & loss account. The Assessing Officer ITA No.39/VNS/2020 Geeta Gupta 2 observed that there was no compliance on the part of the assessee however, the audited financials were uploaded on the systems but in the absence of any compliance, nothing could be verified. The Assessing Officer accordingly rejected the books of accounts of the assessee by invoking the provisions of section 145(3) of the Income Tax Act. The Assessing Officer proceeded to estimate the income of the assessee by adopting the net profit rate of 8% on the sales. Consequently the Assessing Officer made an addition of Rs. 05,04,414/- estimated turnover of Rs. 1,35,00,000/- as against the sales shown by the assessee of Rs. 1,31,84,373/-. Though the Assessing Officer also made the other additions however, the same were deleted by the CIT(A) therefore, the same are not subject matter of this appeal. The CIT(A) confirmed the addition made by the Assessing Officer on account of estimation of income by adopting 8% net profit after calling for a remand report from the Assessing Officer. 3. Before the Tribunal, the learned AR of the assessee has submitted that the assessee’s books of accounts were duly audited and the Assessing Officer has also accepted that the assessee has uploaded the audited financials on the systems therefore, merely because some of the record being vouchers of expenses could not be produced before the Assessing Officer during the assessment proceedings would not amount to defects in books of accounts of the assessee inviting the rejection of the book results under section 145(3) of the Act. He has further submitted that the Assessing Officer has applied the net profit of 8% which is arbitrary and excessive. This is the first year of the assessee’s business and assessee has declared a net profit of 4.37% which is very much in the line of net profit reported in this trade. He has further contended that the provisions of section 44AD are not applicable in the case of the assessee when the books of accounts of the assessee were duly audited and the turnover of the assessee is much more higher than the limit the prescribed under section 44AD. The learned AR has thus submitted that the net profit declared by the assessee is ITA No.39/VNS/2020 Geeta Gupta 3 very reasonable having regard to the fact that this is a first year of the business of the assessee and the books of accounts were duly audited. The Assessing Officer has not brought anything on record to justify the net profit at 8% except taking the support of the provisions of section 44AD. He has also referred to the paper book containing the audited financials of the assessee including trading, profit & loss account and balance-sheet. He has further contended that in the remand report, the Assessing Officer has accepted the other claims being the addition in the capital account as correct and the only qualifying remarks of the Assessing Officer in the remand report is that assessee could not produce complete books of accounts and vouchers of expenses. The learned AR has submitted that once the assessee has produced all the books of accounts and ledger accounts showing the expenses, then it cannot be said that the assessee has not produced the complete books of accounts. Further the learned AR has pleaded that a reasonable and proper rate of net profit may be applied for estimation of the income of the assessee as the Assessing Officer rejected the books of accounts under section 145(3) of the Act. 4. On the other hand, the learned DR has submitted that despite repeated requisitions made by the Assessing Officer for production of complete books of accounts and vouchers in support of expenses, the assessee failed to produce the same. Even during the remand proceedings, the assessee failed to produce complete books of accounts and therefore, the Assessing Officer was having no option but to estimate the income of the assessee by adopting the net profit rate at 8% as provided under section 44AD of the Income Tax Act. The learned DR has further submitted that though the provisions of section 44AD are not applicable in the case of the assessee however, the net profit rate prescribed under the provisions of section 44AD can be taken as guiding factor. ITA No.39/VNS/2020 Geeta Gupta 4 5. I have considered the rival submissions as well as relevant material on record. Since the issue of rejection of books of accounts is not raised before the Tribunal, therefore, I do not propose to go into the correctness of the decision of the Assessing Officer on this point. However, once the books of accounts of the assessee are rejected, the Assessing Officer is required to estimate the income of the assessee on some reasonable and proper basis as guidance. It is settled proposition on this point that the past history of NP/GP declared by the assessee can be a proper guidance for estimation of the income after rejection of books of accounts. In the case in hand, since it is a first year of a business therefore, the past history is not available and in that case a proper and reasonable guidance would be prevailing profit margins in the similar trade and business. The Assessing Officer has adopted the net profit at 8% solely by invoking the provisions of section 44AD which is not justified owing to the fact that the turnover of the assessee is beyond the limit as prescribed under section 44AD and further the assessee’s books of accounts were duly audited under section 44AB. The Assessing Officer has not disputed the fact that books of accounts of the assessee have been audited and audit report was available with the Assessing Officer. Therefore, the adoption of net profit without bringing any comparable case of net profit as prevailing in the same trade / business is highly arbitrary and excessive. The CIT(A) has accepted and confirmed the addition made by the Assessing Officer based on net profit of 8%. The learned AR has referred to the net profit declared by the assessee for the subsequent year i.e. assessment year 2017-18 at 4.5% and pointed out that the net profit declared by the assessee for the year under consideration in the line with the net profit prevailing business / trade as well as net profit declared by the assessee in the subsequent year. On the one hand, the Assessing Officer has adopted the net profit of 8% without any reasonable and proper basis however, the assessee has also not brought on ITA No.39/VNS/2020 Geeta Gupta 5 record any comparable cases in respect of the net profit declared by the assessee at 4.37%. 6. Hence, in the peculiar facts and circumstances of the case, where neither the Assessing Officer nor the assessee has brought on record a reasonable and proper basis for estimation of the income after rejection of books of accounts the Income of the assessee is estimated to bring to the end of the litigation by adopting the net profit of 5.5%. It is clarified that the estimation of the income being reasonable and proper is made in the peculiar facts and circumstances of the case for the year under consideration and therefore, the same would not apply as precedent for the other assessment years of the assessee or in any other case. Hence the Assessing Officer is directed to re-compute the income of the assessee on the basis of the net profit @ 5.5%. 7. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court after conclusion of hearing on 19.04.2022. Sd/- [VIJAY PAL RAO] JUDICIAL MEMBER DATED: 19/04/2022 Varanasi Sh Copy forwarded to: 1. Appellant- 2. Respondent- 3. CIT(A),Varanasi 4. CIT 5. DR By order Sr. P.S.