AI Insights
The case involves an appeal by Shri Ghanshyam Dayaram Bachani against the order of the CIT(Appeals), which confirmed an addition to the assessee's income based on an estimated gross profit rate. The assessee, engaged in the trading of vegetables and fruits, had undergone a survey under section 133A of the Income Tax Act, during which an undisclosed income was declared. However, this declaration was retracted shortly after. The Assessing Officer (AO) rejected the books of accounts and accepted the turnover as per the audited books but applied a higher GP rate. The CIT(Appeals) estimated a GP rate of 23.19%, which the assessee contested as being without basis. The Tribunal, after considering the submissions and precedents, allowed the appeal, reinstating the GP rate declared in the audited books.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 131360 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
20-04-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
12-03-2023
Assessment Year
2014-2015
Appeal Filed On
27-03-2019
Judgement Text
THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Shri Ghansh yam Dayaram Bachani, Vegetable Market, Nava Gu nj Bazar, Visnagar, Dist: Mehsana PAN: ADHPB288 5L (Appellant) Vs The ACIT, Circle Patan, Patan (Resp ondent) Asses see b y : Shri Su la bh Padsh ah, A. R. Revenue by : Shri Atul Pandey , S r. D. R. Date of hearing : 13-03 -2023 Date of pronouncement : 21-04 -2023 आदेश /ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals), Gandhinagar, Ahmedabad, in proceeding u/s. 250 vide order dated 08/03/2019 passed for the assessment year 2014-15. 2. The assessee has taken the following grounds of appeal: ITA No. 512/Ahd/2019 Assessment Year 2014-15 I.T.A No. 512/Ahd/2019 A.Y. 2014-15 Page No. Ghanshyambhai Dayaram Bachani vs. ACIT 2 “1. Learned CIT(A) has erred in law and facts in confirming the addition to the extent of Rs.48,36,891/- out of the addition made by AO of Rs.50,60,226/- on the basis of estimation of G.P. and income. 2. Learned CIT(A) has erred in law and facts in not considering the adhoc deduction of Rs.9,00,000 A from G.P. as claimed by appellant during the course of survey proceedings through recorded statements. 3. Learned CIT(A) has erred in law and facts in adopting the method of estimating GP @ 22.5% on the basis of GP for A.Y. 2033- 14 though not comparable as turnover was very low for A.Y.2013-14 in comparision to turnover for A. Y.2014-15. 4. Learned CIT(A) has further erred in law and facts by adopting estimation of GP by refusing book result only on the facts that books of accounts were not written on day to day basis though no specific material defects in audited books of accounts have been pointed out by AO or CIT(A). 5. Learned CIT(A) has erred in law and facts in rejecting the claim of retraction from the disclosed income by wrongly assuming that it was found to be forming the part of books of accounts and further erred in not considering the facts that statement recorded u/s 133A (without support of cognet evidences have no evidential value. 6. Learned CIT(A) and A.O. has erred in law and in facts in not considering the expense of Rs. 38,58,360/- as claimed in audited books of account while estimating the income of appellant. Total Tax Effect 14,94,599/-” 3. The brief facts of the case are that the assessee is engaged in the business of trading in vegetables and fruits and for the year under consideration, the assessee filed return of income at 25,70,959/-. A I.T.A No. 512/Ahd/2019 A.Y. 2014-15 Page No. Ghanshyambhai Dayaram Bachani vs. ACIT 3 survey action under section 133A of the Act was carried out at the premises of the assessee on 19-11-2014. During the course of survey proceedings, the assessee declared undisclosed income for the year under consideration, amounting to 53,70,607/-subject to expenses of 9 lakhs. The AO issued a show cause notice to the assessee, stating that the total turnover of the assessee as per the sales register is 2,06, 64,132/-, however, as per the audited books of accounts, the sales turnover is 3,21,87,526/-. Further, during the course of assessment proceedings, in the statement recorded under section 133 A on 19-11-2014, the assessee accepted that gross profit in the proprietary business is @25.99% as per G.P. rate shown in assessment year 2013-14. However, as per audited books, the GP is shown @19.46%. The assessee subsequently retracted the statement made during the course of survey on 21-11-2014 on the ground that the statement given on 19-11-2040 was made under pressure and therefore, it is not acceptable to the assessee. However, the AO held that the retraction made by the assessee is without any basis, and without any supporting evidences. Accordingly, the AO held that the income disclosed by the assessee in the statement recorded, and based on the impounded material is treated as true and correct disclosure. The amount not disclosed the return of income amounting to 1,12,18,238/-was added to the total income of the assessee. 4. In appeal, the Ld. CIT(Appeals) partly allowed the appeal of the assessee and estimated the GP rate @23.19%. Further, the Ld. CIT(Appeals) also directed that the ad hoc deduction of 9 lakh allowed by the assessing officer should also be disallowed. While passing the order, the Ld. CIT(Appeals) made the following observations: I.T.A No. 512/Ahd/2019 A.Y. 2014-15 Page No. Ghanshyambhai Dayaram Bachani vs. ACIT 4 “7.3 Thus, the A.O. has abstracted the details from the question No.23 and answer given by the appellant. He only proposed to estimate the G.P. @25.99% on the declared turnover of Rs.3,21,87,526/- merely on the basis of the gross profit rate declared in the AY 2013-14 and allowing the expenses of Rs.9,00,000/- on estimate basis. The A.O. omitted to refer to and consider the detailed reply given by the appellant vide his letter dated 21.11.2016. Thus, the sole basis of making the addition of Rs.50,60,226/- is the G.P. of A.Y.2013-14 declared @ 25.99% as against the declared G.P. rate of 19.46%.On the careful perusal of the assessment order, it is also noticed that no specific defects have been pointed out in spite of impounding the incomplete books of accounts , if any and he has also not examined the items of various direct and indirect expenses on the basis of such impounded material, if any (as nothing has been mentioned in the assessment order). However, the fact admitted is that the books of accounts were not regularly written and the cash balances have been drawn upto 18.11.2014 and also the ledger accounts of sales, etc. as evident from the contents of the statements recorded. Further, the appellant has committed to produce the cash tally and the physical stock tally within a period of 3-4 days but no such exercise appears to have been made. Therefore, the fact that the books of accounts were not written on day to day basis Is also an undisputed fact as noticed during the course of survey proceedings. 7.4 Considering all the above facts, it would be fair to estimate the G.P. rate of 22.5% (between 19.46% of the A.Y.2014-15 and 25.99% of A.Y.2013-14) so as to cover all the probable leakages of receipts, proper vouching of direct and indirect expenses and looking to the nature of business of trading of purchase and sale of the perishable items such a vegetables and fruits, purchases through agents and directly from farmers etc. Thus, this ground no.3 of the appeal is partly allowed by rejecting the claim of retraction from the disclosed income which was found to be forming the part of books of accounts. The gross profit is estimated at Rs.72,42,193/- worked out by applying the rate of 22.5% as against the G.P. of Rs.83,65,528/- made by the AO by applying the rate of 25.99%. Thus, relief to the appellant by applying this reduced rate of G.P. 22.5% is worked out to Rs.11,23,335/-. The A.O. is directed to re-work out the gross profit I.T.A No. 512/Ahd/2019 A.Y. 2014-15 Page No. Ghanshyambhai Dayaram Bachani vs. ACIT 5 accordingly and grant such relief as worked out herein. It is also clarified here that the ad-hoc deduction of Rs.9,00,000/- as claimed by the appellant during the course of survey proceedings through recorded statement is not required to be considered as the same is considered while allowing such relief and therefore, the A.O. will not allow such relief of Rs.9,00,000/- as given by him as per the working provided in the assessment order and the effective gross profit rate has been worked out to 23.19% against which the G.P. rate of 22.5% has now been estimated. In view of the foregoing discussion in para 7.1 to 7.3, the ground no.3 in relation to G.P. addition is partly allowed.” 5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) giving part relief to the assessee. The main contention of the assessee before us is that after survey proceedings and during course of assessment, the assessee had filed complete books of accounts showing complete details of sales, purchase, expenses incurred and other documentary evidences justifying GP rate declared @ 19.46% in audited books of accounts. Further, the AO has not pointed out any defect in the books of accounts filed before him during the course of assessment proceedings. Therefore, the AO, without pointing out any defect in the books of accounts filed by the assessee before him during the course of assessment proceedings, has erred in rejecting the books of accounts. Further, the counsel for the assessee submitted that on one hand, the AO has rejected the books of accounts of the assessee, but on the other hand, the AO has taken the figure of turnover of 3,21,87,526/ - reported by the assessee in its audited books of accounts and worked the GP rate @ 25.99% on the said the turnover. Therefore, the action of the AO in rejecting the books of accounts of the assessee on one hand and on the other hand, by taking the I.T.A No. 512/Ahd/2019 A.Y. 2014-15 Page No. Ghanshyambhai Dayaram Bachani vs. ACIT 6 figure of turnover as reported in the audited books of accounts, is clearly self-contradictory. The action of the AO in considering the turnover of 3,21,87,526/-as declared in the audited books of accounts and making addition of 50.60 lakhs is clearly self-contradictory. Further, the counsel for the assessee submitted that during the course of appellate proceedings before Ld. CIT(Appeals), while the CIT(Appeals) has made an observation that there is no reason mentioned by the AO as to why the books of accounts have been rejected except resorting to the declaration filed by the assessee (which was subsequently retracted by the assessee) and the estimated the GP rate at 23.19%. The counsel for the assessee submitted that there is no reasoning/logic behind adopting the rate of 23.19% by the Ld. CIT(Appeals). Therefore, the contention of the counsel for the assessee is that by the Department has accepted a turnover of 3,21,87,526/ -as declared in the audited books of accounts, but has taken the GP rate at 23.19% as against the rate of 19.46% declared by the assessing its books of accounts, which is clearly erroneous and without any basis. Further, the counsel for the assessee submitted before us that it is a well-established law that statement of the assessee taken during the course of survey proceedings, which has been retracted subsequently, has no evidentiary value. This is more so for the reason that the Department has not been able to produce anything on record to justify the declaration obtained during survey. Accordingly, Ld. CIT(Appeals) has erred in taking the GP rate at 23.19% without any basis and has also erred in disallowing the ad hoc deduction of 9 lakhs given by the assessing officer during the course of assessment proceedings. Another aspect pointed out by the counsel for the assessee before us is that for the immediately succeeding assessment year 2015-16, I.T.A No. 512/Ahd/2019 A.Y. 2014-15 Page No. Ghanshyambhai Dayaram Bachani vs. ACIT 7 the Department has accepted the GP rate of 16.78 %, which is lower than the G.P. rate declared by the assessee during the year under consideration @ 19.46%. In response, the DR has placed reliance on the observations made by the Ld. CIT(Appeals) in the appellate order. The DR submitted that looking into the instant facts, the average rate of GP taken by the Ld. CIT(Appeals) is justifiable in the instant set of facts. 6. We have heard the rival contentions and perused the material on record. It is well-settled law that statement of the assessee taken during the course of survey, which has been subsequently retracted has no evidentiary value. In the case of CIT v. S. Khader Khan Son25 taxmann.com 413 (SC), the Hon'ble Supreme Court held that Section 133A does not empower any ITO to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. In the case of CIT v. Agew Steel Mfg. (P.) Ltd.46 taxmann.com 120 (Gujarat), the addition was made by Assessing Officer in respect of excess stock found in search only on basis of statement of MD of assessee-company which was later on retracted. The Tribunal reconciled the entire material and concluded that the Assessing Officer was not right in making such addition. The High Court dismissed the appeal of the Revenue by holding that where after examining summary of stock valuation and other relevant material, Tribunal computed valuation of stock and deleted a part thereof, same was not to be interfered. In the case of ACIT v. Shree Krishna Developers88 taxmann.com 659 (Ahmedabad - Trib.), the ITAT held that where statement of partner of assessee-firm taken under section 133A was later on retracted and only evidence Department had I.T.A No. 512/Ahd/2019 A.Y. 2014-15 Page No. Ghanshyambhai Dayaram Bachani vs. ACIT 8 was duplicate set of books of account which were made for purpose of taking bank loan, addition made under section 68 had to be deleted. In the case of Abhi Developers v. ITO 12 SOT 444 (AHD.), the Ahmedabad ITAT held that no evidentiary value can be attached to a statement recorded under section 133A unless it is supported by some material. In the case of D.S. Agencies & Associates v. Addl CIT 82 taxmann.com 252 (Mumbai - Trib.), the ITAT held that addition made purely on basis of statement made during course of survey under section 133A which was later on retracted by assessee was to be deleted. In the case of ACIT v. Manjit Singh85 taxmann.com 210 (Amritsar - Trib.), the ITAT held that where there was no material with revenue to make addition in excess of physical stock found during survey, no addition could be sustained on basis of retracted surrender of unaccounted stock by assessee in survey proceedings. In the case of CIT v. Sunrise Tooling System (P.) Ltd47 taxmann.com 20 (Delhi), the Delhi High Court held that where Assessing Officer made addition to assessee's income on basis of statement recorded by director of company in course of survey to effect that said amount represented non-existent transaction, since statement so made did not have any evidentiary value and, moreover, Assessing Officer had not even rejected assessee's books of account while treating transaction in question to be bogus, impugned addition deserved to be deleted. In the case of Mahesh Ohri v. ACIT 35 taxmann.com 301 (Delhi - Trib.), the ITAT held that where apart from statement under section 133A(3)(iii), revenue had not brought anything on record in support of its conclusion that assessee had undisclosed income, addition made by Assessing Officer could not be sustained. In the case of Charanjit Singh v. ITO 88 taxmann.com 685 (Chandigarh - Trib.), the ITAT held that I.T.A No. 512/Ahd/2019 A.Y. 2014-15 Page No. Ghanshyambhai Dayaram Bachani vs. ACIT 9 Statement recorded on oath at time of survey under section 133 has no evidentiary value and no addition under section 68 should be made on that basis. In the case of CIT v. P. Balasubramanian 33 taxmann.com 130 (Madras), the High Court held that any statement recorded under section 133A would have an evidentiary value only if it is supported by relevant material to substantiate same. 6.1 Another notable aspect in the instant set of facts is that while the Department has rejected the books of accounts of the assessee, however, for the purpose of computing GP rate, the Revenue has taken the figure of turnover as declared by the assessee in its audited books of accounts. Therefore, to this extent, the stand of the Department in our considered view is contradictory. Further, we observe that in the immediately succeeding year, the Department has accepted the GP rate of 16.78% declared by the assessee, which is lower than the GP rate of 19.46% declared by the assessee for the year under consideration, in its audited books of accounts. Therefore, apparently, there is no justification for estimating the GP rate at 23.19% by Ld. CIT(Appeals) in appellate proceedings, for which no justifiable basis has been provided by the Ld. CIT(Appeals) in the appellate order. Even in the appellate proceedings, Ld. CIT(Appeals) has made a specific finding that the assessing officer has not pointed out any specific defects in the books of accounts in the assessment order. Further, Ld. CIT(Appeals) has also stated in the appellate order that the assessing officer has not mentioned as to why the books of accounts have been rejected except resorting to declaration made in the statement recorded during the course of survey proceedings and has relied upon several decisions in support of invalid retraction of statement I.T.A No. 512/Ahd/2019 A.Y. 2014-15 Page No. Ghanshyambhai Dayaram Bachani vs. ACIT 10 recorded during the course of survey proceedings, and therefore, to this extent, the assessing officer’s assessment is order is found to be on weak footing. Therefore, we are of the considered view, that there is no rational basis as to why and in what manner the Ld. CIT(Appeals) has arrived at the GP rate of 23.19% when in the immediately succeeding year, the Department itself has accepted the GP rate of 16.78 % , which is lower than the rate declared by the assessee during the year under consideration @19.46%. 6.2 Accordingly, in our considered view, the Department has erred in taking the GP rate @ 23.19% in the instant set of facts since firstly, the Department has not been able to point out any specific defect in the books of accounts maintained by the assessee, secondly, the books of accounts maintained by the assessee have been rejected solely on the basis of statement of the assessee recorded during the course of survey proceedings, which was subsequently/immediately retracted by the assessee, thirdly, it is settled law that a statement made by the assessee during the course of survey proceedings, which has been subsequently retracted has no evidentiary value, unless the additions made on the basis of statement of the assessee are supported by incriminating/corroborating documents, fourthly, while on one hand, the Department has rejected the books of accounts of the assessee, but on the other hand, for the purpose of computing the GP rate, the Department has taken/accepted the turnover as declared by the assessee in its audited books of accounts and finally, the Department has in the immediately succeeding assessment year 2015-16, accepted the GP rate of 16.78 % declared by the assessee in its audited books of accounts, which is lower I.T.A No. 512/Ahd/2019 A.Y. 2014-15 Page No. Ghanshyambhai Dayaram Bachani vs. ACIT 11 than the rate declared by the assessee during the year under consideration @19.46%, and therefore there is no apparent justification for adopting the GP rate of 23.19% in the assessment year 2014-15. In view of the above observations, the appeal of the assessee is allowed. 7. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 21-04-2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 21/04/2023 आदेश क त ल प अ े षत / 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 अपील य अ धकरण, अहमदाबाद
Other Referred Cases
CIT v. S. Khader Khan Son, CIT v. Agew Steel Mfg. (P.) Ltd., ACIT v. Shree Krishna Developers, Abhi Developers v. ITO, D.S. Agencies & Associates v. Addl CIT, ACIT v. Manjit Singh, CIT v. Sunrise Tooling System (P.) Ltd, Mahesh Ohri v. ACIT, Charanjit Singh v. ITO, CIT v. P. Balasubramanian
Laws Referred To
Income Tax Act
Consultation on Entity Formation
₹0
1:1 Consultation on Tax Litigation
₹0
Tax Holiday Secrets for Startups
₹0
Affidavit - Application for condonation of delay in filing the appeal before ITAT - Type 2
Mehul₹0
Assignment of Registered Trademark
Mehul₹500
Finance Bill, 2026: Key GST Reforms that will Reshape Compliance and Cash Flows
Team Counselvise - February 03, 2026
Why Lacoste Won a 20-Year Trademark Battle Against Crocodile ?
Team Counselvise - March 10, 2026
When Global Talent Meets GST: The Huawei Secondment Ruling explained
Team Counselvise - March 09, 2026