KOHLI BROTHERS,KAROL BAGH, NEW DELHI V. INCOME TAX OFFICER, WARD 51(4), NEW DELHI, PRATYAKSH KAR BHAWAN, CIVIC CENTRE, J.L. NEHRU MARG, NEW DELHI

ITA 999/DEL/2024

AI Insights

Kohli Brothers appealed against the order of the National Faceless Appeal Center (NFAC), which arose from an assessment order passed by the Income Tax Officer (ITO) under Section 143(3) of the Income Tax Act, 1961 for the Assessment Year 2015-16. The main issues revolved around the rejection of audited books of accounts due to a decline in the gross profit rate compared to the preceding year, and various additions made by the AO which were upheld by the CIT(A). The Tribunal noted that the appellant did not appear for the hearings and thus decided the matter ex parte based on the records and the arguments presented by the Departmental Representative.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34440 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Other Referred Cases: Amiya Kumar Roy Brothers V. Commissioner of Income Tax-1993(3) TMI26-Calcutta High Court
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR
• Keywords: Set aside; Business income; Bad and doubtful debts; Corroborative evidences; Principle of natural justice
• Section: 144; 143(3); 250; 271(1)(c); 13; 145; 145(3); 20

Judgement Text

"P a g e | 1 ITA No.999/Del/2024 Kohli Brothers (ASSESSMENT YEAR: 2015-16) IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, DELHI BEFORE MS.MADHUMITA ROY, JUDICIAL MEMBER ITA No.999/Del/2024 (Assessment Year: 2015-16) Kohli Brothers, Karol Bagh, 13-A, Prahlad Market, D.B. Gupta Road, Karol Bagh New Delhi – 110005 Vs. Income Tax Officer, Ward 51(4) E-2 Pratyaksh Kar Bhawan, Civic Centre, J.L. Nehru Marg, New Delhi – 110002 \u0001थायीलेखासं./जीआइआरसं./PAN/GIR No: AANFK5499A Appellant .. Respondent Appellant by : None Respondent by : Sh. Sanjay Kumar, Sr. DR Date of Hearing 27.02.2025 Date of Pronouncement 07.03.2025 O R D E R PER MADHUMITA ROY, JM: The instant appeal filed by the assessee is directed against the order passed by the National Faceless Appeal Center (NFAC) Delhi, dated 09.01.2024 arising out of the Assessment Order passed by the ITO, Ward 51(4) under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for Assessment Year 2015-16. The assessee has raised following grounds before us: P a g e | 2 ITA No.999/Del/2024 Kohli Brothers (ASSESSMENT YEAR: 2015-16) “1. That order passed u/s 250 of the Income-tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals), Delhi is against law and facts on the file in as much as he was not justified to arbitrarily uphold the addition at Rs.39,33,861/-. 2. That the Ld. CIT(A) has erred in confirming the order of the Assessing Officer in assessing the income at Rs. 41,61,261/- against the returned income of Rs. 2,27,400/- 3.(a) That the Ld. CIT(A) has erred in confirming the addition of Rs. 33,43,975/-on account of rejecting the Audited Books of Accounts under Section 145(3) read with Section 2(12A) of the Act for decline in Gross Profit Rate as compared to preceding year Gross Profit Rate. (b) That the Ld. Income Tax Officer arbitrary made addition of Rs. 33,43,975 at the Gross Profit rate of 4 percent of Turnover on account of decline in Gross Profit rate from 3.52 percent in preceding year to 1.47 percent in the year under consideration. The appellant received debit note of Rs. 14,40,270/- against purchase which has been credited to profit and loss account instead of reducing from purchase which would result of 2.55% of gross profit as alleged by the Income Tax Officer at the rate of 1.47% for the current year. Hence, the Gross Profit Rate for the year under consideration was 2.55 percent In any case treating 4 percent gross profit rate is on higher side. (c) That the system of accounting adopted by an assessee cannot be rejected merely on the ground that the gross profit disclosed by his books low. (d) That the appellant has been maintaining regular books of accounts and which are subject to audit and that the Return was filed based on such audited books of account only. At the very outset, it was brought to the notice of the Bench, that though the Assessing Officer had made additions by rejecting books of accounts but no adverse view had been drawn by the authorities in this regard. Hence, books of accounts had also not been rejected u/s 145(3) of the Act. (e) That the Ld. CIT(A) has erred in not considering the fact that the appellant firm wants to increase the Turnover to enlarge his network, hence sold the goods with minimum margin to capture the market resulting gross profit rate decline as compare to preceding year. 4.(a) That the Ld. CIT(A) has red in confirming the addition of Rs.3,96,000/- by disallowance of rent expenses for Godown of Partnership Firm for the reason that Rent agreement was made in the name of one of the Partner of the Firm. (b) That the Ld. CIT (A) has erred in not considering the fact that such rent agreement made in the name of Partner was just for Contentment of the Landlord only while the premise is under the possession of the Firm for its business operation. No any partner used this premise for his personal P a g e | 3 ITA No.999/Del/2024 Kohli Brothers (ASSESSMENT YEAR: 2015-16) use or any other individual business of partners. The Godown is a registered additional place of the appellant under DVAT. The actual user of the Godown is appellant firm. Thus, the addition of Rs. 3,96,000/- as confirmed by the CIT(A) required to be deleted. 5.(a) That the Ld. CIT(A) has erred in confirming the addition of Rs. 1,51,486/- on account of Bad Debts Written Off for the reason that expense write off are just one year old. b) That the Ld. CIT(A) has erred in not considering that Bad debts write off due to irrecoverable of the same because the debtors are non-traceable, Thus, the addition of Rs. 1,51,486/- as confirmed by the CIT(A) required to be deleted. 6.(a) That the Ld. CIT(A) has erred in confirming the, addition of Rs. 42,400/- on account of disallowing expenses personal in nature (b) That the Ld. CIT(A) has erred in not considering that the expenses were incurred by the appellant Firm for Business activities and nothing is incurred for the Partners for their personal uses. Addition is merely on Adhoc basis. Thus, the addition of Rs. 42,400/- as confirmed by the CIT(A) required to be deleted. 7. That the confirmation of all the additions are against the facts & circumstances of the case and on surmises and the submission of the applicant along with the evidences furnished before the CIT(A) have been ignored summarily. 8. That the Ld Income Tax Officer did not pass Order under section 144 of the Act while rejecting the books of accounts Order must be passed under section 144 of t the Act but Ld Income Tax Officer passed order under section 143 (3). 9. That the Ld Income Tax Officer was not justified in initiating penalty proceedings under section 271(1)(c). 10. That the CIT(A), Delhi was not justified to arbitrarily turn down the explanation furnished by the appellant that the entries at the impugned paper were mere estimates. 11. On the facts and in the circumstances of the case the impugned order passed by the Ld. A.O. is violated of natural justices without fair and objective application of mind to the facts of the case and the law applicable and without being guided by the binding decisions of courts and tribunals and hence liable to be set aside and quashed. 12. On the facts and in the circumstances of the case and in law, the AO erred in violating the principles of natural justice without fair and objective application of mind to the grounds of the case. P a g e | 4 ITA No.999/Del/2024 Kohli Brothers (ASSESSMENT YEAR: 2015-16) 13. That the Ld. CIT (A) has ignored the detailed written submission along with the other evidences as furnished by appellant and the judgments relied upon and, thus, the confirmation of all the additions is bad in law. 14. That the appellant craves leave to add, amend, or alter any of the above ground or grounds of appeal during the course of appellate proceedings. 2. At the time of hearing non appeared on behalf of the assessee, it is also perused from the records that previous occasions the assessee did not appear despite notice being served upon the assessee. Thus, having no other alternative the matter is decided exparte. 3. Heard the Ld. DR and the relevant materials available on record. It is found that before the Ld. CIT(A) though on very many occasions notices were served upon the assessee, the assessee not attended and the Ld. CIT(A) therefore, proceeded with the matter exparte and upheld the additions made by the AO with the following observations: “7.2 Grounds of Appeal No. 2 to 8 of the appellant are pertains to addition of Rs.33,43,975/- made by AU on account of suppression of Gross Profit vide order dated29.12.2017. The Ld. AO gave facts of the issue in Paras 5 and 6 of his order, the same is reproduced as under:- “5. The details filed by the assessee alongwith it's enclosures have been examined. Perusal of the same reveal that the assessee while submitting the reply in respect of reason for fall in G.P. Ratio the assessee has shown at 3 52% for the F Y. 2013-14 & 2.55% in respect of F.Y. 2014-15. The G.P. Ratio declared in the Audit Report has been shown at 1.47% for the Asstt. Year under consideration. No reason whatsoever has been given for the difference reflecting in the G P Ratio shown in the submission filed on 15.12.2017 and as per Audited Books of accounts. The assessee furnished this ratio of GP just to deviate the attention of the AO the assessee shown G.P. ratio at 2.55% instead of 1.47 reflecting in the Audited Accounts. P a g e | 5 ITA No.999/Del/2024 Kohli Brothers (ASSESSMENT YEAR: 2015-16) 6. Further, the assessee, vide questionnaire dated: 11.12 2017 at Point No 2was asked to produced Stock Register, Opening & Closing Stock etc. However the assessee did not furnish copy of Stock Register rather furnished a Stock Statements on 31.03.2015 (Scanned copy produced above). As is evident from the statement filed by the assessee in place of Stock Register has been examined Perusal of the same reveal that the statement shows the total quantity rate and total value (Opening) and Quantity rate and value (Close in Balance) However certain bills of purchase have been filed alongwith the submission filed by the assessee. These Bills clearly indicate the Model name and it's price the stock register should have been prepared on the bases of models. As one item can we of different price depending on the model of the product/item. This fact can be verified from the purchase bill submitted alongwith the letter. For example a scanned copy of few bills produced by the assessee is reproduced here under which clearly shows that one product has different model similarly the price of the product depends on the model of the product………………. 7. The above bills which have been produced by the assessee itself shows that one product can have different models with different price tag. Therefore, the statement is not prepared item wise rather total quantity of the goods has been provided. There is no record of day today purchase, sale and Closing Stock. Certain items mentioned in this list shows some strange items and their rates are also very strange. For example an item Pen Drive has been shown and amount of this Pen Drive has been mentioned at Rs.0.07 for 7 Pen Drives. However, closing balance has been shown at 47 PCS and rate of the same is quoted at Rs.315/- Similarly, T.V. Accessories has been mentioned at Rs.0.89. Further, one item appearing in the list in the name of 'Voucher' has been priced at Rs. 2,150/-. Other items mentioned in quantitative manner a no item wise details have been furnished. The reply submitted by the assessee and its enclosures are reproduced hereunder, which shows that the assessee is not maintaining the Stock Register and day to day books.” 7.2.2 The Ld. AO further gave his findings in Paras 10, 11, 12 and 13 of his order on this issue, the same are reproduced as under:- “10. Despite the assessee have been given ample opportunities to submit the Stock Register and other supporting evidences, no Stock Register has been produced. The assessee was Trading of Electronics Goods items of well established Companies. In order to check veracity of the gross profit disclosed by the assessee, maintenance of stock register by the assessee was essential. The Assessing Officer had compared the gross profit rate of the assessee viz-a-viz other similar concerns as well as Gross Profit declared in the immediately preceding Financial Year. No Stock Register and satisfactory explanation had been furnished by the assessee for not maintaining the stock register. Reliance is placed in P a g e | 6 ITA No.999/Del/2024 Kohli Brothers (ASSESSMENT YEAR: 2015-16) 'Amiya Kumar Roy Brothers V. Commissioner of Income Tax'-1993(3) TMI26-Calcutta High Court'. 11. During the year under reference, the have shown Gross Profit (G.P.) of Rs. 19,33,301/- against the total turnover of Rs. 13,19,31,896/- which is 1.47% whereas in the immediately preceding year i.e. Asstt. Year 2014-15 the G.P. shown by the assessee was Rs.51,52,050/- against the total turnover of Rs. 11,79,55,966/-which is 3.52% of the turnover. 12. Therefore, it is clear that the stock records and books of accounts have not been maintained by the assessee firm properly. Hence, the correctness and completeness of its books of accounts cannot be verified and the same is not satisfactory and the gross profit shown by the assessee firm in its books of accounts cannot be verified. The provision of Section 145 supposes that the assessee's books of accounts must include day to day registers of stock. The assessee is a trader of Electronics items of various reputed brands, undoubtedly such registers are necessary to be maintained by the assessee for arriving at the correct profits. In the present case the assessee is not maintaining day today - stock registers, which is evident from the papers in the name of stock register filed during the assessment proceedings. Even in the Audit Report the auditor has mentioned at Point No. 35(a) of the Audit Report in the trading concern, give quantitative detail of principal item of goods traded — the Auditor has written \"Stock details are not provided by the partners before us for Audit\". Similarly, during the course of assessment proceedings no such records were produced. Only valuation of group items of opening and closing stock are provided instead of item-wise records. The assessee on various occasions was asked to produce Stock Register, Books of Accounts etc. However, no such details were produced. 13. In view of above, the books of accounts of the assessee firm are being rejected Under Section 145(3) read with Section 2(12A) of the Income-tax Act, 1961 and the justified gross profit @ 4% on the total sales of Rs. 13,19,31,896/- which comes to Rs. 52,77,276/- is estimated and the difference GP between the estimated GP of Rs. 52,77,276/- and declared GP of Rs. 19,33,301/- i.e. Rs.33,43,975/- is to be added back to the total income of the assessee firm for the A.Y. 2015-16. The assessee has furnished inaccurate particulars of his income and accordingly, penalty proceedings u/s 271(1)(c) are being initiated separately.\" 7.2.3 During the appellate proceedings, the appellant has not made specific replies to the issues raised by the AO, he has made submissions which are either legal or general. The appellant did not mention that why he was not maintaining the stock register. Similarly, the appellant did not enclosed evidence to support his contention regarding the sale and gross profit. I have gone through the order of the AO and submissions made by the appellant. I P a g e | 7 ITA No.999/Del/2024 Kohli Brothers (ASSESSMENT YEAR: 2015-16) have noticed that the Ld. AO rejected the books as the stock register of quantity detail of items traded. The Ld. AO further noticed that there was a fall in gross profit rate and the appellant failed to submit evidence in support of it. On the other hand, the appellant submitted that rejecting the books on the ground of non-maintenance of stock register is not justifiable. I disagree with the view of appellant that the ground taken by AO for rejecting the books is not as per the law. The trading results cannot be obtained without valuing the closing stock. Mere an estimation of closing stock is not sufficient to get the profit and loss amount from the trading account. The Ld. AO has made elaborate discussion and detailed analyses on the GP rate and stock register of the appellant. He has further pointed out specific issues in Para 7 of his order. The efforts of the AO are appreciable. The Ld. AO arrived on a very reasonable GP Rate after due consideration. I hold that the action of the AO for rejecting the books and re- casting the trading account is as per the law. The addition made by the AO on this issue is confirmed the ground of the appellant is dismissed. 7.3 Ground of Appeal No. 9 of the appellant pertains to addition of Rs.3,96,000/- made by the AO on account of rent paid for the godown. The Ld. AO noticed that rent agreement was not prepared in the name of the appellant's firm but in the name of individual. The Ld.AO doubted whether such godown was used for the business purpose or not for the appellant. During the appellate proceedings, the appellant made general comments but did not furnish any evidence that such godown was being used for business purposes. This ground is dismissed. 7.4 Ground of Appeal No. 10 of the appellant pertains to addition of Rs. 1,51,486/- on account of bed debts written off. The Ld. AO gave his finding in Para 19 of his order, the same is reproduced as under:- “19. The submission filed by the assessee has been examined and the enclosed at the list of balance written off has also been perused. The list provided reveal that the bad debts are from the period 02.03.2015 to 31.03.2015. It shows that the balances which have been written off are just one year old. It is not clear why the assessee was in hurry to write off these expenses. It appears that no effort for the recovery of these balances have been made by the assessee. Deduction is allowed in case of only those debts which have become irrecoverable in the previous year. Any debt which has some possibility of recovery and till this \"possibility persists, the debt cannot be said to have become irrecoverable [C.I.T. v. SankaraAyyar (1951) 20 I.T.R. 597 (S.C.)]. In the instant case the debts are just one year old therefore, there are possibility of recovery of the same in view of the above the claim of bad debts written off is rejected and addition of Rs. 1,51,486/- is made in the total income of the assessee. The assessee has furnished inaccurate particulars of his income and accordingly, penalty proceedings u/s 271(1)(c) are being initiated separately.\" P a g e | 8 ITA No.999/Del/2024 Kohli Brothers (ASSESSMENT YEAR: 2015-16) 7.4.2 During the appellate proceedings, the appellant did not make specific comments on the findings of the AO. I find that the Ld. AO has rightly arrived on the conclusion that the appellant has pre-maturely wrote of such debts. The action of the AO is justifiable and the ground of the appellant is dismissed. 7.5 Ground of Appeal No. 11 of the appellant pertains to disallowance of Rs. 42,000/-as personal nature of expenses. The Ld. AO added 1/10th of certain expenses such as car insurance, vehicle running, conveyance expense and telephone expense. On the other hand, the appellant furnish that no expense was incurred for personal purposes. I have noticed that the Ld. AO as made very reasonable deduction on account of such expenses, hence, justifiable. The ground of the appellant is dismissed. 8. In the result, the appeal filed by the appellant is dismissed.” 4. Considering the reasons assigned by the Ld. CIT(A) it is found that the order passed by him is just and proper so as not to warrant interference particularly in the absence of any assistance rendered by the assessee today. The appeal is, therefore, found to be devoid of any merit and thus, dismissed. 5. The appeal of the assessee is dismissed. Order pronounced in the open court on 07.03.2025 Sd/- (Madhumita Roy ) JUDICIAL MEMBER Dated 07.03.2025 PS: Rohit P a g e | 9 ITA No.999/Del/2024 Kohli Brothers (ASSESSMENT YEAR: 2015-16) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI "