DCIT, Central Circle-2(2), Ahmedabad V. Rajeshkumar Babulal Agrawal (HUF), Banaskantha

ITSSA 68/AHD/2018

AI Insights

The case involves appeals by the Revenue against the CIT(A)'s reduction of gross profit addition from 4% to 2% for the Assessment Years 2012-13 and 2013-14. The original assessment by the ACIT, Central Circle-2(4), Ahmedabad, estimated a gross profit of 4% due to discrepancies in the assessee's records and unregistered dealer purchases. The CIT(A) later reduced this to 2% after considering the profits declared by sister concerns and the acceptance of similar profit margins by the Income Tax Settlement Commission. The Tribunal found no merit in the Revenue's appeals and dismissed them, aligning with the CIT(A)'s reasoning and the precedents set in similar cases.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124712 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 08-06-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-06-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 04-03-2018
• Other Referred Cases: Kedaranth Agri Tradelink Pvt. Ltd., M/s B. B. Trade Link, Kedarnath Corporation, Mahavir Trading Co.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts
• Section: 40A(3); 143(3); 153A; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER & Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील (SS) सं./ I. T. (SS)A. Nos. 67 & 68 /Ahd/2 018 ( नधा रण वष / Assess ment Years : 2 012-13 – 2013 -14) D e pu t y C o m mi s s io ne r o f I n co me- t a x C e n tr a l C ir cle -2 (2 ) , A h me da ba d बनाम/ Vs . Shri Rajeshkumar Babulal Agrawal HUF 3 9, A P MC M a r ke t, I q b al g a d h , D i st. B a na s k a th a थायी लेखा सं./जीआइआर सं./P A N/ G I R N o . : A A C H A5 5 4 6 F (अपीलाथ /Appellant) . . ( यथ / Respondent) अपीलाथ ओर से /Appellant by : None यथ क ओर से/Respondent by : Shri Vijay Kumar Jaiswal, CIT.DR स ु नवाई क तार ख / D a t e o f H e a r i ng 07/06/2023 घोषणा क तार ख /D a t e o f P ro n o u nc e me n t 09/06/2023 O R D E R PER Ms. MADHUMITA ROY - JM: The instant two appeals filed by the Revenue are directed against the order dated 06.12.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-12, Ahmedabad arising out of the order dated 30.03.2015 passed by the ACIT, Central Circle-2(4), Ahmedabad under section 143(3) r.w.s. 153A of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Years 2012-13 & 2013-14. IT(SS)A Nos.67 & 68/Ahd/2018 (DCIT vs. Shri Rajeshkumar B. Agrawal HUF.) A.Ys.– 2012-13 & 2013-14 - 2 - 2. At the time of hearing of the appeal, none appeared on behalf of the assessee. It appears from the records that though the number of occasions matter was taken up for hearing but neither any adjournment has been sought for nor any written submission has been filed by the assessee. Having no other alternative, we have decided to proceed with the matter ex parte. IT(SS)A No. 67/Ahd/2018 ( A.Y. 2012-13) 3. The addition of Rs.8,56,82,745/- on account of GP @4% made by the Ld. AO restricted to 2% of GP to the tune of Rs.4,76,01,525/- by the Ld. CIT(A) is the subject matter before us. 4. We have heard the Ld. DR and we have also perused the relevant materials being orders passed by the authorities below available on record. 5. The brief facts leading to this case is this that a search under Section 132 of the Act was carried out by Agrawal & Group on 27.09.2012. Subsequently, notice under Section 153A of the Act dated 05.04.2013 was issued upon the assessee directing him to file the return of income within 30 days from the receipt of the said notice, whereupon, the assessee filed return on 19.08.2014 declaring total income of Rs.95,81,570/- and agricultural income of Rs.11,33,432/-. The assessee engaged in the business of trading in agricultural commodities, particularly, castor seed, guvar, bajra etc. declared GP of 0.5% for the year under consideration. It is further found from the documents placed before the Ld. AO that the assessee had shown unregistered dealers purchases which constitutes about 93% of the total purchases for the year whereupon complete details of those purchases including name and IT(SS)A Nos.67 & 68/Ahd/2018 (DCIT vs. Shri Rajeshkumar B. Agrawal HUF.) A.Ys.– 2012-13 & 2013-14 - 3 - postal address, bills/vouchers and mode of payment and receipts taken for such payment were directed to be produced by the assessee before the Ld. AO. The assessee while furnishing details claimed purchase was made from farmers. However, perusal of details further reveals that payments to single person on a single day exceeded Rs.20,000/- whereupon the assessee was directed to explain as to why the provision of Section 40A(3) of the Act would not be applicable in the case. The assessee duly filed its reply and details of purchases and sales with purchase and sale bills/vouchers, vouchers for URD purchases, stock register etc. examination whereof reveals discrepancies to this effect that these bills/vouchers are not signed by the person selling the goods and quality of the commodity was also not mentioned therein. In some cases, even the addresses of the sellers are not reflecting. Though the assessee claimed that majority of purchases were from APMC, no bifurcation of direct purchases and purchases through APMC was furnished. It is a fact that APMC charges market cess on the purchases and sales made through it but the assessee has not claimed any payment of market cess. The purchases claimed by the assessee made through Mandi was not considered genuine by the Ld. AO. Further that, the case of large fluctuations in the rates on every day basis has also been found from the details of URD purchases filed by the assessee. Apart from that difference in stock as per books qua physical verification also found by the Ld. AO. Finally, the Ld. AO found the books of account maintained by the assessee not correct and complete and thus, could not compute the correct profit therefrom. The books of account maintained by the assessee was thus rejected under Section 145(3) of the Act. He further estimated gross profit @ 4%. The addition of Rs.8,56,82,745/- was made by the Ld. AO estimating the gross profit @ 4% with the following observations: IT(SS)A Nos.67 & 68/Ahd/2018 (DCIT vs. Shri Rajeshkumar B. Agrawal HUF.) A.Ys.– 2012-13 & 2013-14 - 4 - “6.5. Now the question arises that what amount of profit should be estimated. It is correct that after rejection of books, profit is required to be estimated, but there cannot be a fixed formula or basis for such estimation. However, the estimation of profit should be fair and based on certain cogent basis having regard to the facts and circumstances of each and every case. As discussed in the preceding paras, about 75% of assessee's total purchases were URD purchases made in cash. These purchases were not completely verifiable in the absence of necessary details and documents with the assessee and therefore, there is every scope of manipulation of correct quantum of purchases to show lower profit. A comprehensive chart regarding trading results declared by the group concerns doing identical business from the same premises and controlled by the same persons has been given in para 6.3 above showing effect of variation in URD purchases on the gross profit. Further, if the assessee makes purchases directly from farmers without any middleman, Aadhatiya or any other concern, cost price will definitely be low leading to higher profit margin. So far as comparable case is concerned, there can be no suitable case other than assessee's sister concern belonging to the same group and doing identical business from same premises and controlled by same persons to adopt gross profit rate to be applied to compute gross profit in assessee's case after rejection of books of accounts. The said chart shows that one of the concerns M/s B. B. Tradelink Agro Pvt. Ltd. was earning maximum gross profit @ 3.25% during Financial Year 2012-13 in all the case and for all the years involved. As discussed in the para 6.3 above, reasonableness of gross profit shown by the said concern has not been established in the absence of corroborative evidences. Therefore, having regard to all the facts and circumstances of the case, the gross profit rate of 4% can reasonably be adopted for computing gross profit in the case under consideration and all other cases of the group concerns. Accordingly, Gross profit is estimated @4% of sales in each year and in each case as given below:- M/s Kedarnath Agri Trade Link A.Y. Total Purchase URD Purchase Percentage of URD Purchase Sales G.P. Gross Profit as per Assessee N.P. G.P. @ 4% Difference in gross profit 2013-14 1137881699 795097651 69.88 1039409185 2.15% 22347297 0.97% 41576367 19229069 Total 1137881699 795097651 69.88 1039409185 22347297 41576367 19229069 M/s B. B. Trade Link A.Y. Total Purchase URD Purchase Percentage of URD Purchase Sales G.P. Gross Profit as per Assessee N.P. G.P. @4% Difference in gross profit 2012-13 1829507817 1185409725 64.79 1849720605 1.09% 20161954 0.33% 73988824 53826369 2013-14 1481546101 695794348 46.96 1168824338 3.25% 37986790 0.99% 46752973 8755182 Total 3311053918 1881204073 56.82 3018544943 58148745 120741797 62593052 Kedarnath Corporation A.Y. Total Purchase URD Purchase Percentage of URD Purchase Sales G.P. Gross Profit as per Assessee N.P. G.P. @ 4% Difference in gross profit IT(SS)A Nos.67 & 68/Ahd/2018 (DCIT vs. Shri Rajeshkumar B. Agrawal HUF.) A.Ys.– 2012-13 & 2013-14 - 5 - 2007-08 331658203 285760145 86.16 314584086 1.07% 3366049 0.18% 12583363 9217313 2008-09 708874542 687981223 97.05 706371185 0.98% 6922437 0.13% 28254847 21332409 2009-10 669016228 607031053 90.73 690080159 1.44% 9937154 0.19% 27603206 17666052 2010- 11 750451900 634917700 84.60 . 750303765 1.94% 14613808 0.17% 30012150 15398342 2011-12 587224038 526733641 89.70 630983024 1.21% 7634894 0.43% 25239320 17604426 Total 3047224911 2742423762 90.00 3092322219 42474342 123692888 81218544 Mahavir Trading Co. A.Y. Total Purchase URD Purchase Percentage of URD Purchase Sales G.P. Gross Profit as per Assessee N.P. G.P. @4% Difference in gross profit 2009-10 97698303 68723799 70.34 100036968 1.84% 1840680 0.88% 4001478 2160798 2010- 11 644891641 460645212 71.43 638213265 0.38% 2425210 0.19% 25528530 23103320 2011-12 210815552 157264282 74.60 212457538 1.28% 2719456 0.09% 8498301 5778845 2012-13 1930629796 1800903928 93.28 1904061002 0.50% -9520305 0.52% 76162440 85682745 2013-14 1480025086 740678453 50.04 1516277438 1.21% 18346957 0.23% 60651097 42304140 Total 4364060378 3228215674 73.97 4371046211 15811999 174841848 159029849 Grand Total 11860220906 8646941160 72.91 11521322558 138782386 460852902 322070515 6.6 Accordingly, addition of Rs. 8,56,82,745/- being the difference between gross profit shown by the assessee and computed @4% of sale as per the above table is made to the trading results declared by the assessee for the year under consideration. As the assessee has furnished inaccurate particulars of its income, penalty proceedings under section 271(1)(c) are being initiated against the assessee.” 6. In appeal, the Ld. CIT(A) restricted the gross profit to 2% to the tune of Rs.4,76,01,525/-. Upon perusal of the order passed by the Ld. CIT(A), it appears that the Ld. CIT(A) took into consideration the order passed in the case of sister concern, namely, Kedarnath Agri Tradelink Pvt. Ltd. wherein the Ld. AO on 19.12.2016 estimated gross profit @2% as reasonable profit for A.Y. 2014-15 taking into consideration the order passed by the Settlement IT(SS)A Nos.67 & 68/Ahd/2018 (DCIT vs. Shri Rajeshkumar B. Agrawal HUF.) A.Ys.– 2012-13 & 2013-14 - 6 - Commission, Mumbai upon application filed by the Karta of the said assessee HUF in his own individual case whether he offered 2% gross profit; needless to mention that the same was accepted as the most reasonable percentage by the Settlement Commission. It is also relevant to mention that the business of the said concern is also in the same line. The Ld. CIT(A), in fact, observed as follows while restricting addition to gross profit @ 2% of sales: “4.7 It is observed that Kedaranth Agri Tradelink Pvt. Limited has shown profit @ 1.41% in A.Y.2015-16 and the AO accepted such profit while passing the Assessment Order u/s 143(3) of the Act on 29- September, 2017. It is also observed that appellant in its own case has shown gross profit @ 1.76% m AY 2014-15 and on similar facts the AO has passed an order u/s 143(3) of the Act on 19 th December, 2016 estimating gross profit @ 2% as reasonable profit and observing as under: “Now the question arises that what amount of profit should be estimated. It seen that in the applications before the Hon'ble Income Tax Settlement Commission, Mumbai, the Karta of this Assessee HUF, in his own individual case had offered 2% gross profit and hence, it being the same line of business, this is accepted as most reasonable percentage. Accordingly Rs.2,98,44,681 taken as Gross Profit @2% of sales as against Rs.2,62,63,320 shown by Assessee.” 4.8 It is also seen that Mr. Rajesh B. Agrawal, who had filed settlement potion for search carried out in his case, had offered income considering gross profit @ 2% before Hon’ble Settlement Commission and same was accepted by the Commission Even the AO in the case of the appellant for A.Y.2014-15 has considered gross profit @2% as reasonable profit. Considering the order passed by the Hon'ble Settlement Commission as well as subsequent orders passed by AO, it appears reasonable that gross profit for the appellant be estimated @ 2% for the Assessment Years involved. Thus as the Appellant has shown gross profit @ 1.28% in AY 2011-12 and hence after allowing credit of gross profit already shown by appellant, addition made by AO for Rs.57,78,845/- is restricted to Rs.15,29,695/-. Further, in A.Y. 2012-13 appellant has shown gross loss @-0.50% and the AO has made addition of Rs.8.56,82,745/- based upon estimation of gross pro@4% and so after considering reasonable gross profit at the rate of 2%, addition of Rs.4,76,01,525/- is confirmed. Similarly in A.Y. 2013-14 wherein gross profit has been shown by appellant @ 1.21%, out of total addition made by AO for Rs.4,23,04,140/-, addition of Rs. 1,19,78,592/- is confirmed. These grounds of appeal are partly allowed.” 7. Upon considering the entire aspect of the matter and the observation made by the Ld. CIT(A) as narrated hereinabove, we find no ambiguity in restricting the addition made by the Ld. CIT(A) to gross profit @2% of sales IT(SS)A Nos.67 & 68/Ahd/2018 (DCIT vs. Shri Rajeshkumar B. Agrawal HUF.) A.Ys.– 2012-13 & 2013-14 - 7 - so as to warrant interference. The same is, therefore, upheld. This ground of appeal is found to be devoid of any merit and, thus, dismissed. 8. In the result, Revenue’s appeal for A.Y. 2012-13 is dismissed. 9. The decision in IT(SS)A No. 67/Ahd/2018 for A.Y. 2012-13 shall also apply mutatis mutandis in IT(SS)A No. 68/Ahd/2018 for A.Y. 2013-14 on the identical facts and circumstances of the case. 10. In the combined result, Revenue’s both appeals are dismissed. This Order pronounced on 09/06/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 09/06/2023 True Copy S. K. SINHA आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं%धत आयकर आय ु 'त / Concerned CIT 4. आयकर आय ु 'त(अपील) / The CIT(A)- 5. *वभागीय -त-न%ध, आयकर अपील य अ%धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड3 फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील$य अ%धकरण, अहमदाबाद / ITAT, Ahmedabad