ITO-WD1(2)(1) AHMEDABAD, VEJALPUR INCOME TAX OFFICE V. BHRUGESH DINESHBHAI SHAH, KALUPUR AHMEDABAD

ITA 1219/AHD/2024

AI Insights

The case involves cross appeals by the assessee, Bhrugesh Dineshbhai Shah, and the Revenue against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. The appeals arose from the assessment order for the Assessment Year 2017-18, which included various additions to the assessee's income under different sections of the Income Tax Act, 1961. The Tribunal examined the grounds of appeal concerning the estimation of gross profit, disallowance of expenses, and additions related to unexplained credits and capital work in progress. The Tribunal's decision was based on the verification of documents and evidence provided by the assessee, which contradicted the additions made by the Assessing Officer.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 47024 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: PCIT vs. M/s. Adani Agro Pvt. Ltd., CIT V Ayachi Chandrashekhar Narsangji
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V NANDA KUMAR; KAVAN LIMBASIYA
• Assessee Lawyers: DIVYAKANT PARIKH
• Keywords: Set aside; Business expenditure; Corroborative evidences; Unexplained cash credit; Depreciation; Rejection of books of accounts; Third party statement
• Section: 143(3); 251; 48; 68; 145(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH BEFORE: DR. BRR KUMAR, VICE PRESIDENT & SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No. 1214/Ahd/2024 (Assessment Year: 2017-18) Bhrugesh Dienshbhai Shah 2531, Morwado Gali, Devsano Pado, Swaminarayan Mandir Road, Kalupur, Ahmedabad, Gujarat 380001 V/S Income Tax Officer Ward-1(2)(1), Ahmedabad PAN NO. : AJRPS4270Q (Appellant) (Respondent) & ITA No. 1219/Ahd/2024 (Assessment Year: 2017-18) Income Tax Officer Ward-1(2)(1), Ahmedabad V/S Bhrugesh Dienshbhai Shah 2531, Morwado Gali, Devsano Pado, Swaminarayan Mandir Road, Kalupur, Ahmedabad, Gujarat 380001 (Appellant) (Respondent) Assessee by : Shri Divyakant Parikh, AR Revenue by : Shri V Nandakumar, CIT.DR & Shri Kavan Limbasiya, Sr.DR ITA Nos. 1214 & 1219/Ahd/2024 (Bhrugesh Dineshbhai Shah) A.Y. 2017-18 2 (आदेश)/ORDER Date of hearing : 20-03-2025 Date of Pronouncement : 11-04-2025 PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER: These cross appeals are filed by the assessee and Revenue as against the appellate order dated 22.04.2024 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (in short ‘CIT(A)’) arising out of the assessment order passed under Section 143(3) of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2017-18. 2. Brief facts of the case are that the assessee is an individual and proprietor of Ruchit Enterprise engaged in chemical trading business. For the A.Y. 2017-18, assessee filed his return of income on 31.10.2017 declaring total income of Rs.6,92,020/-. The return was selected for scrutiny assessment and various notices were issued. In response, the assessee filed partial information before the AO who made the following additions: i. estimation of gross profit at 5% on purchases and disallowance of 25% expenses Rs.74,85,796/-, ii. unexplained credit u/s. 68 of the Act of Rs.18,77,688/-, iii. sundry creditors and unexplained Rs.8,83,31,369/- & iv. capital work-in-progress Rs.15,87,000/- ITA Nos. 1214 & 1219/Ahd/2024 (Bhrugesh Dineshbhai Shah) A.Y. 2017-18 3 Thus, the AO determined the total income at Rs.9,99,73,873/- and demanded tax thereon. 3. Aggrieved against the assessment order, the assessee filed an appeal before the CIT(A) who has partly allowed the appeal and partly confirmed the additions. 4. Aggrieved against the appellate order, both the assessee and Revenue are in appeal before us raising the following respective Grounds of appeal: ITA No.1214/Ahd/2024 – Assessee’s Appeal “1. Ld. CIT(A)-NFAC erred on facts and in law in confirming addition of Rs.4,17,662/- u/s.68 of the Act in respect of Sundry Creditors, without appreciating explanations and submissions of Appellant. It is submitted that, as per para.17 of the Notice issued u/s.142(1) dated 23/09/2019, Ld. A.O. asked for contra confirmation along with IT returns of Sundry Creditors above Rs.3 lakhs only and accordingly the documents of Sundry Creditors outstanding above Rs.3 lakhs were submitted. However disallowances of Rs.4,17,662/- is made of Sundry creditors accounts having outstanding balances below of Rs.3 lakhs. 2. Ld. CIT(A)-NFAC erred on facts and in law in confirming addition of Rs.18,77,688/- u/s.68 of the Act, in respect of Unsecured loans without appreciating explanations and submissions of Appellant. It is submitted that, out of Unsecured loans disallowed of Rs.18,77,688/-, disallowance is made of following Unsecured loans accounts totaling of Rs.13,77,688/- whose documents like their Balance confirmation, I.T. Ack., are submitted as Annexure-3 with CIT-A filed, in the case of (i) Bhogilal Bhimani (Ruchit Enterprises) having Op. outstanding Bal. Rs.1,47,918/-, ITA Nos. 1214 & 1219/Ahd/2024 (Bhrugesh Dineshbhai Shah) A.Y. 2017-18 4 (ii) Trishilaben Bhimani :Op. outstanding balance of Rs.2,29,770/-, (iii) Rakesh Manilal Shah : Rs.6,00,000/- and (iv) Rinable R Shah : Rs. 4,00,000/-. 3. Ld. CIT(A)-NFAC erred on facts and in law in confirming addition of Rs.15,87,600/- u/s.69 of the Act, in respect of capital work in progress without appreciating explanations and submissions of Appellant. It is submitted that while filing ITR, fixed assets. figures of Rs.15,87,600/- was inadvertently written under Capital Work in progress, though there is no such capital work in progress. This figure is total of Flat Account of Rs.10,71,100/- and Office Account of Rs.5,16,500/-, which is apparent from the audited Balance-sheet and Fixed assets accounts submitted as Annexure-7 with CIT- Appeal filed. It is submitted further that the said fixed assets ledgers are also submitted to Ld. ITO vide reply dated 07/12/2019. 4. The Appellant seeks liberty to add, alter and/or delete any of the grounds at the time of hearing of the appeal.” ITA No.1219/Ahd/2024 – Revenue’s Appeal 1. \"Whether on facts and circumstances and in law, the Ld. CIT(A) has erred in deleting addition made of Rs.71,92,084/ by estimating GP of 5% of purchases of Rs. 14,30,41,692/ and deleted addition made of Rs.2,93,712/- estimating disallowance of 25% of the total expenses of Rs. 11,74,851/, without appreciating the facts of the case?\" 2.\" Whether on facts and circumstances and in law, the LA CIT(A) has erred in deleting the addition made u/s 68 of Rs. 8,83,31,369/- by treating the same as unexplained credits of Sundry Creditors, without appreciating the facts of the case?\" 3. \"The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary\". 4.\"It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored\". 5. We have heard the rival submissions at length and perused the materials available on record. First we deal with the Revenue appeal. ITA Nos. 1214 & 1219/Ahd/2024 (Bhrugesh Dineshbhai Shah) A.Y. 2017-18 5 6. Regarding Ground No.1, namely deleting the addition of estimation of gross profit (GP) at 5% and disallowance of expenses estimated at 25%. It is observed that the actual GP is 1.18% as per the audited financial statement filed by the assessee. The decrease in GP is due to increase the raw material prices, while the sale prices remained the same. The quantity details and supporting documents submitted by the assesse were not fully verified by the AO, thereby estimated the GP at 5% on the purchase value, which is not logical and deviate from the accounting principles, thereby the CIT(A) deleted the estimated addition made by the AO by observing as follows: “4.4 In the assessment order, the AO has not mentioned what exactly is the complexity in the accounts of the appellant. As per AO, Assessee failed to provide supporting evidence such as contra confirmations, details of purchases/sales, explanations for falling ratios, etc. Due to incomplete submissions, the AO could not ascertain the actual GP and NP, leading to the rejection of the books of accounts under Section 145(3) of the Income Tax Act. In my view, the non-submission of documents should not lead to the conclusion that the accounts are not reliable. Non-submission of documents refers to a situation where the appellant has not provided the necessary documents or evidence to support their claims or reports. It basically emphasizes that one cannot assume or infer something solely based on the absence of the documents. In other words, AO can't jump to the conclusion that the accounts are unreliable just because the documents weren't submitted. The implication here is that the accounts, or whatever information is being discussed, may still be accurate or trustworthy despite the lack of supporting documents that the absence of documents doesn't automatically mean the accounts are untrustworthy. Other factors need to be considered before reaching such a conclusion. Considering the same the ground relating to rejection of books and estimation of gross profit @5% and disallowance of 25% of expenses are allowed.” 6.1 Revenue could not place on record the rejection of books of accounts merely based on non-furnishing of supporting evidences, namely, not submitting contra confirmation, details of purchase and sales. Furthermore, the Revenue could not controvert the submission ITA Nos. 1214 & 1219/Ahd/2024 (Bhrugesh Dineshbhai Shah) A.Y. 2017-18 6 that there was increase in the price of raw materials which are resulted in reduction of GP, whereas, the actual GP is 1.18% as per the audited financial statement. Similarly, disallowance of business expenses at 25% is not justified by the AO with any material evidences but only on adhoc basis. Thus, we do not find any infirmity in the deletion made by the Ld. CIT(A). Thus, Ground No.1 of appeal raised by the Revenue is devoid of merits and the same is liable to be dismissed. 7. Regarding Ground No.2, namely, addition made u/s.68 of the Act of Rs.8,83,31,369/- treating the same as unexplained sundry creditors. During the assessment proceedings, the AO found current liabilities of Rs.8,83,31,369/- and requested the assessee to file the details of sundry creditors outstanding with contra confirmations from the parties by issuing the show cause notice. The assessee failed to reply to the SCN. Therefore, the AO found the total purchase of Rs.14,38,41,692/-, out of which, total creditors pending as on 31.03.2017 was Rs.8,83,16,199/- which is 61.39% of the total purchase and the same is not reliable figure. Therefore, Ld. AO made the same as addition u/s.68 of the Act. 7.1 During the appellate proceedings, the assessee shown the following current liabilities in the balance sheet: SUNDRY CREDITORS Rs. AAGAM CORRUPACK INDUSTRIES 81,000 ARDOR GLOBAL PVT LTD 33,51,339 ARDOR INTERNATIONAL LTD 2,27,18,349 CAPITAL TRADERS 3,31,62,758 CHEM EDGE INTERNATIONAL PVT LTD 66,37,576 ITA Nos. 1214 & 1219/Ahd/2024 (Bhrugesh Dineshbhai Shah) A.Y. 2017-18 7 HIMANSHUBHALA SHAH 40,711 KB TRANSPORT 1,65,200 NAVKAR AGENCY 60,000 POOJA R SHAH 45,000 SIDDHI COMPUTAX 1,06,750 SWAPNESH ENTERPRISE 2,19,47,516 TOTAL 8,83,16,199 Out of 11 creditors, details of six creditors and its running accounts were produced by the assessee. After verification of the same, Ld. CIT(A) deleted the additions relating to six creditors. But for the remaining five creditors, no ledger or other documents were submitted to show that the current liability as genuine. Hence, the same was confirmed by the Ld. CIT(A). 7.2 Before us, the assessee filed a paper book wherein details of sundry creditors at Page Nos. 36 to 48 and also produced ledger account of M/s. Ardor Global Pvt. Ltd. [at Page No.36 of the paper book] which clearly states that there is a credit to Rs.85,40,997/- and debit of Rs.51,89,658/- with the closing balances as on 30.11.2016 of Rs.33,51,339/-. Similarly, in the case of M/s. Capital Traders, there is a closing balance of Rs.3,31,62,758/-. Similarly, in the case of Chem Edge International P. Ltd., there is a closing balance of Rs.66,37,576/- as on 30.11.2016 wherein the opening balance and purchase were not doubted by the AO. Thus, the AO is not correct in treating the above transaction as unexplained and in the absence of any contra evidence and made addition u/s.68 of the Act. 7.3 Hon’ble Jurisdictional High Court in the case of PCIT vs. M/s. Adani Agro Pvt. Ltd. held that the provisions of Section 41(1) of the Act ITA Nos. 1214 & 1219/Ahd/2024 (Bhrugesh Dineshbhai Shah) A.Y. 2017-18 8 could not have been invoked as there is no remission of cessation of liability by observing as follows: “10. As per the aforesaid provisions of Section 41(1) of the Act, 1961, there has to be remission or cessation of trading liability. Merely because the liability has remained outstanding for more than three years and the same is not written back in profit and loss account, application of provisions of Section 41(1) of the Act, 1961 cannot be made to consider such liability as income of the year under consideration without there being any remission or cessation of liability.” 7.4 Therefore, the deletion made by the CIT(A) does not require any interference. In the result, ground no.2 raised by the Revenue is devoid of merit and the same is liable to be dismissed. 8. In the result, appeal filed by the Revenue in ITA No.1219/Ahd/2024 is dismissed. 9. Regarding assessee’s appeal where CIT(A) confirmed the addition of Rs.4,17,662/- out of Rs.8,83,16,199/- in respect of 5 creditors as follows: i. HIMANSHUBHAI SHAH Rs. 40,711 ii. K. B. TRANSPORT Rs. 1,65,200 iii. NAVKAR AGENCY Rs.1,65,200 iv. POOJA R SHAH Rs.45,000 v. SIDDHI COMPUTEX Rs.1,06,750/- [OP. BAL: Rs.80,750/- Total Rs.4,17,661/- 9.1 It is the case of the Revenue, the assessee was required to produce details of sundry creditors of above Rs.3 Lakhs transaction. During the appellate proceedings, the assessee filed a ledger accounts of all the five creditors, wherein the opening balance as on 01.04.2016 ITA Nos. 1214 & 1219/Ahd/2024 (Bhrugesh Dineshbhai Shah) A.Y. 2017-18 9 being outstanding as per accounts and balance sheet, no addition could be made for the year under consideration. Since, these being the running account of the business transaction, the addition made on this count is not sustainable in law. In other words, no addition u/s.68 of the Act is warranted in the case of the assessee on account of opening balance in the books of accounts. In view of this matter, we set aside the order of the Ld. CIT(A) and direct the AO to delete the addition of Rs.4,17,661/-. In the result, Ground No.1 of the assessee is allowed. 10. Ground No.2 is regarding CIT(A) confirming the addition of Rs.18,77,688/- u/s.68 of the Act. The assessee in his paper book from Page Nos. 49 to 70 produced the copy of the confirmation, ITR and also re-payment made by cheques, more particularly, in the case of Hetal H Shah at Page No.55 produced the ledger copy of the re- payment of Rs.3 Lacs on 21.12.2017 by cheque payment from HDFC Bank. Further, copy of ITR was also filed. Similarly, in other cases, the loans were re-paid in the subsequent years. Thus, the Ld. CIT(A) is not correct in confirming the addition u/s.68 of the Act. 10.1 Hon’ble Gujarat High Court in the case of CIT V Ayachi Chandrashekhar Narsangji [2014] 42 taxmann.com 251 (Guj.) held that where department had accepted the re-payment of loans in the subsequent year, no addition was to be made in the current year on account of cash credit. Respectfully following the same, the addition confirmed by the Ld. CIT(A) is hereby directed to be deleted. In the result, Ground No.2 raised by the assesse is hereby allowed. ITA Nos. 1214 & 1219/Ahd/2024 (Bhrugesh Dineshbhai Shah) A.Y. 2017-18 10 11. Ground No.3 is regarding addition of Rs.15,87,600/- towards alleged capital work in progress. The Ld. CIT(A) held that the asset having been not reflecting in the blocks of assets in the depreciation chart, he confirmed the addition. Ld. Counsel clarified that the assessee in ITR by mistake shown Rs.15,87,600/- as capital work in progress but actually it comprised of Rs.10,71,100/- of flat and Rs.5,16,500/- being office, which is also evident from balance sheet at Page No.107 of the paper book. The above being personal asset and they were not claimed in the block of assets in the depreciation chart, however reflecting as Fixed Assets in the balance sheet of the firm. We find force in the submissions of the assessee that the Ld. CIT(A) erred in sustaining the above addition that too u/s.69 of the Act, when it is already reflecting in the books. Therefore, the addition is liable to be deleted. In the result, Ground No.3 raised by the assessee is hereby allowed. 12. In the result, ITA No.1214/Ahd/2024 filed by the assesse is allowed. 13. In the combined result, appeal filed by the Revenue in ITA No.1219/Ahd/2024 is dismissed and the appeal filed by the assessee in ITA No.1214/Ahd/2024 is allowed. Order pronounced in Open Court on 11- 04-2025 Sd/- Sd/- (Dr. BRR KUMAR) (T.R. SENTHIL KUMAR) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad: Dated 11-04-2025 True Copy ITA Nos. 1214 & 1219/Ahd/2024 (Bhrugesh Dineshbhai Shah) A.Y. 2017-18 11 S. K. SINHA आदेश कì ÿितिलिप अúेिषत/Copy of the Order forwarded to : 1. अपीलाथê / The Appellant 2. ÿÂयथê / The Respondent. 3. संबंिधत आयकर आयुĉ / Concerned CIT 4. आयकर आयुĉ(अपील) / The CIT(A)- 5. िवभागीय ÿितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडª फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad "