ITO, WARD- 58(2), NEW DELHI V. NEERAJ KUMAR, DELHI

ITA 5818/DEL/2017

AI Insights

The case involves cross appeals by the Income Tax Officer (ITO) and Neeraj Kumar, proprietor of M/s Neeraj Metal, against the order of the Ld. CIT(A)-19, New Delhi, dated 03.07.2017, for the assessment year 2012-13. The appeals were centered around the rejection of books of accounts by the AO and subsequent estimations and additions made to the income of Neeraj Kumar. The main contention was the estimation of the Gross Profit rate and various additions related to unverifiable purchases, sundry creditors, and other expenses. The Tribunal's decision focused on the appropriateness of the GP rate applied and the handling of the additions made by the AO.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471547 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOCH
• Assessee Lawyers: SURESH K. GUPTA
• Keywords: Additional evidence; Rejection of books of accounts; Assessment record; Bogus
• Section: 144; 68

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER, AND SHRI VIMAL KUMAR, JUDICIAL MEMBER I.T.A. No.5818/DEL/2017 A.Y.: 2012-13 ITO, WARD 58(2), NEW DELHI ROOM NO. 308, F-BLOCK, 3RD FLOOR, VIKAS BHAWAN, I.P. ESTATE, NEW DELHI – 2 VS NEERAJ KUMAR PROP. M/S NEERAJ METAL, D-5/111, AVADH COMPLEX, LAXMI NAGAR, DELHI -92. (PAN: AJRPK9840J) (ASSESSEE) (RESPONDENT) AND ITA NO. 5957/Del/2017 A.Y. : 2012-13 NEERAJ KUMAR PROP. M/S NEERAJ METAL, D-5/111, AVADH COMPLEX, LAXMI NAGAR, DELHI -92. (PAN: AJRPK9840J) VS. ITO, WARD 58(2), NEW DELHI ROOM NO. 308, F-BLOCK, 3RD FLOOR, VIKAS BHAWAN, I.P. ESTATE, NEW DELHI – 2 (REVENUE) (ASSESSEE) Assessee by : Shri Suresh K. Gupta, CA Department by : Shri Amit Katoch, Sr. DR. Date of hearing : 06.02.2025 Date of pronouncement : 06.02.2025 ORDER PER SHAMIM YAHYA, AM : These cross appeals filed by the Assessee and Revenue are directed against the order of the Ld. CIT(A)-19, New Delhi dated 03.07.2017 pertaining to assessment year 2012-13. 2 2. The grounds raised in the Revenue’s appeal read as under:- 1. The order of the Ld. CIT(A) is bad in law and not in consonance with the facts of the case. 2. The ld. CIT(A) has erred in accepting the additional evidences without confronting the AO which is in contravention with Rule 46A. 3. The Ld. CIT(A) has erred in deleting the addition without calling remand report from the AO despite of the fact that the case was completed u/s. 144 of the Act. 4. The Ld. CIT(A) has erred in estimating the GP at 1% instead of 1.5% as estimated by the AO despite the fact that assessee did not submit any document in order to verify sale / purchase. 5. The Ld. CIT(A) has erred in deleting the addition of Rs. 3,17,76,113/- made by the AO @ 10% of total unsubstantiated purchases despite of the fact that the purchases remained unverifiable even during appellate proceedings. 6. The Ld. CIT(A) has erred in deleting the addition of Rs. 1,18,82,031/- made by the AO despite the of the fact assessee failed to reconcile sundry creditors. 7. The Ld. CIT(A) has erred in restricting the addition of Rs. 1,44,925/- to Rs. 86,955/- despite of the fact that the expenses remained unverifiable. 8. The appellant craves leave for reserving the right to amend, modify, alter, add, or forgo any ground(s) of appeal at any time before or during the hearing of this appeal. 3 3. The grounds raised in the Assessee’s appeal read as under:- 1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and facts of the case while sustaining the estimated gross profit rate to the extent of 1% of the Sales Turnover, being estimated at 1.5% by the Ld. AO on ad-hoc basis as compared to the Gross Profit rate of 0.20% declared by the assessee in its return of income without appreciating the facts of the case. As such, the addition of Rs.24,33,094/- is bad in law and therefore, the same may please be deleted. 2. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and facts of the case while sustaining part of disallowance made by the Ld. AO on ad-hoc basis to the extent of 20% of the expenses incurred by the assessee without any cogent reason as compared to 50% of expenses disallowed by the Ld. AO. As such, the addition of Rs.57,970/- is bad in law and therefore, the same may please be deleted. 3. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and facts of the case while sustaining the addition of Rs. 1,85,599/- made to the income of assessee by the Ld. AO on account of addition in Capital Account without appreciating that the submissions filed by the assessee. Also, no specific cogent material against the assessee was brought on record by the Ld. AO. As such, the addition of Rs.1,85,599/- has been made merely on the basis of suspicion and therefore, the same may please be deleted. 4. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and facts of the case while sustaining the addition of 4 Rs.6,02,350/- made by the Ld. AO under section 68 of the Income Tax Act, 1961 without appreciating the submissions of the assessee and facts of the case. As such, the addition of Rs.6,02,350/- is bad in law and therefore, the same may please be deleted. 5. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and facts of the case while sustaining the disallowance made by the Ld. AO of Rs. 1,00,000/- in respect of deduction claimed under Chapter VI-A by the assessee without appreciating the submissions of the assessee. As such, the disallowance of Rs. 1,00,000/- is bad in law and therefore, the same may please be allowed. 4. In this case the assessment order u/s. 144 of the Act was passed on 28.03.2016. AO had rejected the books of accounts and thereafter, made the following additions:- - Addition due to enhancement of GP rate - Rs. 39,62,489/- - Disallowance of unverifiable purchases/ - Rs. 3,17,76,113/- Sundry creditors. - Addition on account of sales shown less by- Rs. 1,18,82,031/- - Disallowance of unverifiable expenses - Rs. 1,44,925/- - Disallowance of unexplained addition to - Rs. 1,85,599/- Capital account. - Addition on account of explained credits in- Rs. 6,02,2350/- PNB Account 5. Upon assessee’s appeal, Ld. CIT(A) elaborately considered the issues. Ld. CIT(A) held that since books have been rejected, hence, estimating the 1% 5 GP instead of 1.5% estimated by the AO would serve the end of justice. He held that other additions were made on adhoc basis because the books have already been rejected ultimately, Ld. CIT(A) restricted the addition to 1% of the GP by holding as under:- “8. I have gone through the submissions and the order. It is a fact that the Assessing Officer has rejected accounts and estimated the GP in respect of turnover shown by the appellant. Once the books of accounts are rejected, it does not warrant any ad-hoc addition in respect of the purchases, since the purchases have been taken into consideration while estimating the gross profit. The appellant had furnished the confirmation and even representative of the company had appeared before the Assessing Officer. The Assessing Officer should have cross examined the person who appeared before him to check his genuineness & obtained whatever confirmation he wanted to obtain. 8.1 Moreover, the Assessing Officer has not denied that the appellant is undertaking trading and he has accepted the sales to apply the Gross profit margin on the same. Any sales have to be backed by equivalent purchases to give the estimated GP. The purchases could have been estimated commensurate with the GP but no ad-hoc disallowance can be made in respect of the total amount shown as outstanding. It is not the case of the Assessing Officer that the purchases have been made in cash by the appellant and the creditor, are bogus. There is only a single creditor who has supplied the goods. The Assessing Officer himself observe that “keeping in view the fact that the appellant has started his business in the year under consideration and the purchases from 6 M/s. Indian Technometal Co. Ltd. have been made in the year under consideration therefore in order to arrive at some conclusion and have justice with revenue as well as the assessee, 10% of amount outstanding against this unverifiable sundry creditors is being added”. The Assessing Officer himself accepted that the purchases have been made from M/s. India Technometal Co. Ltd. and thereafter he states it to be unverifiable. I fail to understand what justice is he making with the revenue or the appellant by disallowing 10% of the outstanding credits. If we accept that the purchases have been made then why he is making disallowance of 10% in respect of credit balance of M/s. India Technometal Co. Ltd. In view of the facts that books of accounts have already been rejected the adhoc addition made is deleted. 9. As far as the addition in respect of the sales is concerned the appellant has explained that the difference in the sundry creditors and purchase and sales shown was on account of the VAT but he was not able to furnish a reconciliation. I have gone through the financial accounts which were available in the assessment record. Perusal of the balance sheet and profit and loss account shows that the purchases shown in profit and loss account are Rs. 30,53,63,475/-. The sundry creditors are appearing in Schedule C at Rs. 31,77,61,135/-. The difference between the two figures is 1,23,97,660/-, this reflects a percentage of 3.90%. As far as the sales are concerned, they are to the tune of Rs. 30,58,79,104/- and the Schedule G Sundry Debtors show a balance of Rs. 31,81,21,214/- revealing a difference of Rs. 1,22,42,110/-This again reflects a difference of around 3.85 percent. Clearly therefore element of VAT ranging from 3.85-To 3.9 percent is 7 observed. Since the VAT is not been routed through the trading account, this difference is bound to be there. Thus the presumption of the Assessing Officer is erroneous and the addition in respect of the undisclosed sales is deleted. 10. Next ground is in respect of disallowance of expenses amounting to Rs. 1,44,925/-. The Assessing Officer has disallowed 50% of the total expense debited in the profit and loss account in absence of verification since the books of accounts have not being produced. It is not the case of the Assessing Officer that no business has been carried out and if business is being undertaken there are bound to be expenses in the nature of salary, computer, telephone etc. However, in absence of verification & considering the fact that books of accounts and the vouchers have not been produced the disallowance is restricted to 20% of these expenses. 11. Next Ground is in respect of addition to capital account. The Assessing Officer observed that appellant had made an addition of Rs. 1,85,599/- in his capital account. It was explained that the same was made out of withdrawal from the personal account of the appellant. However, appellant was not able to substantiate the same. Even during the course of appeal, the appellant has not been able to illustrate as to how money was withdrawal from his personal account and deposited in his firm. The addition is therefore sustained. 12. The Assessing Officer observed there were deposits in the Punjab National Bank account of the assessee to the tune of Rs. 6,02,350/-. The appellant explained that Assessing Officer did not considered the cash withdrawal from the bank and made an addition on account of cash deposits. He stated that the cheques deposited in the bank were routine business credit in normal 8 course of business. Even during the appeal the appellant has only given a general reply and not illustrated as to how these entries were in the course of business. Since, as per the trading account the entire purchases have been made in the credit and entire sales are also on credit, there was no instance of any payment being received or made. How the entries were in the nature of routine business has not been clarified. Since the appellant has not been able to explain these entries. The addition is sustained. 13. The last ground is in respect of disallowance under section 80IC. The appellant had claimed deduction under section 80C. He was not able to provide any evidence in support of the payment being made. Therefore, the addition was made. During the course of appeal, the appellant has stated that he has paid interest on housing loan and the tuition fee of his children, but again he has failed to submit any evidence in support of that and therefore the addition is sustained.” 6. Against the above order of the Ld. CIT(A), both the Revenue and Assessee are in cross appeals before us. 7. After hearing both the parties and perused the records, we find that Ld. CIT(A) has observed that it is a fact that the AO has rejected accounts and estimated the GP in respect of turnover shown by the assessee, hence, Ld. CIT(A) has taken a correct view that once the books of accounts are rejected, it does not warrant any adhoc addition. Accordingly, he rightly restricted the GP @ 1% instead of 1.5% estimated by the AO. During the hearing, both the parties fairly agreed that restricting the GP @1% by the Ld. CIT(A) serves the 9 end of justice, which does not need any interference. Accordingly, we affirm the action of the Ld. CIT(A) and dismiss both the cross appeals filed by the Revenue as well as Assessee, for which both the Ld. Representatives has agreed. 8. In the result, both the cross appeals filed by the Revenue and Assessee stand dismissed in the aforesaid manner. Order pronounced on 06/02/2025. Sd/- Sd/- (VIMAL KUMAR) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER SRBHATNAGAR Copy forwarded to: - 1. Appellant. 2. Respondent. 3. CIT 4. CIT(A) 5. DR, ITAT Assistant Registrar "