MOHAMMAD AHMAD,BASTI V. ITO, BASTI

ITA 610/LKW/2024

AI Insights

The case involves Mohammad Ahamad, the proprietor of M/s Royal Associates, who appealed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. The dispute arose from the assessment year 2017-18, where the assessee was engaged in selling e-top up of mobiles and failed to file a return of income. The Assessing Officer (AO) estimated the assessee's income based on cash deposits and transactions with Bharti Airtel during the demonetization period. The NFAC reduced the profit margin estimated by the AO from 8% to 4%. The assessee contested this estimation, arguing for a lower profit margin of 1%, citing actual earnings of 0.59%. The Tribunal, considering the non-compliance and lack of verifiable data, set the net profit rate at 2%.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471110 (ITAT-LUCKNOW)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 14-11-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 07-10-2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJEEV KRISHNA SHARMA
• Assessee Lawyers: SHAILENDRA MISHRA
• Keywords: Set aside
• Section: 144; 142(1); 139(1); 139

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, LUCKNOW BEFORE SHRI. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA No.610/LKW/2024 Assessment Year: 2017-18 Mohammad Ahamad Prop. M/s Royal Associates Pancparia Road Gandhi Nagar, Basti v. The Income Tax Officer Basti TAN/PAN:AWMPA3926F (Appellant) (Respondent) Appellant by: Shri Shailendra Mishra, Advocate Respondent by: Shri Sanjeev Krishna Sharma, D.R. Date of hearing: 14 11 2024 Date of pronouncement: 19 11 2024 O R D E R This appeal has been preferred by the assessee against the order dated 26.07.2023, passed by the ld. Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi for Assessment Year 2017-18. 2. The brief facts of the case are that during the year under consideration, the assessee was engaged in the business of selling e-top up of Mobiles. Since the assessee had not filed the return of income, the Assessing Officer (AO) issued notice under section 142(1) of the Income Tax Act, 1961 (hereinafter called “the Act’), requiring the assessee to file the return of income for the year under consideration. However, the assessee neither responded to the notice nor filed any return under section 139 of ITA No.610/LKW/2024 Page 2 of 6 the Act. Thereafter, on the basis of data available with the Income Tax Department, the AO noticed that the assessee had made cash deposits to the tune of Rs.41,52,801/- in the bank account of Royal Associates (a proprietary concern of the assessee) with Vijaya Bank, Basti during the demonetization period. The AO also noticed that the assessee had paid Rs.4,05,39,214/- to Bharti Airtel Limited during the year under consideration. Treating the total transaction of Rs.4,05,39,217/- as the turnover of the assessee, the AO estimated net profit @8% on the turnover, which came to Rs.32,43,137/-, and added the same to the income of the assessee. The AO, accordingly, completed the assessment under section 144 of the Act, assessing the total income of the assessee at Rs.32,43,140/-. 3. The AO also initiated penalty proceedings under sections 270A, 272A(1)(d) and 271F of the Act. 4. Aggrieved, the assessee preferred an appeal before the Ld. First Appellate Authority. The appeal was migrated to NFAC, who estimated the profit margin @4% as against 8% estimated by the AO, by holding that the profit margin of 8% taken by the AO seemed to be on the higher side and that the profit margin of 4% was reasonable and possible in the business of sale of SIM Cards and Recharge Coupons. ITA No.610/LKW/2024 Page 3 of 6 5. Now, the Assessee has approached this Tribunal challenging the action of the NFAC by raising the following grounds of appeal: 1. That the learned Commissioner of Income-tax (Appeals), NFAC has erred in law and on facts in arbitrarily estimating the total income at Rs.16,21,569/- which is 4% of the turnover related to commission agency of Bharti Airtel for Sale of Sim Cards and Recharge Coupons only, as against 0.59% disclosed by the assessee-appellant as per Audit Report and estimate is not justifiable as such 2. That the appellant craves permission for amending the aforesaid grounds of appeal and/or for raising fresh grounds of appeal. 6. The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that there was a delay of 377 days in filing the appeal before the Tribunal. He submitted that the assessee had filed an application dated 07.10.2024 for condonation of delay, duly supported by an Affidavit of the Advocate, stating therein that the ld. CIT(A)’s order along with relevant documents and appeal fee were handed over by the assessee to Shri Manmohan Srivastava, Advocate on 28.07.2023 for filing the appeal before the Tribunal, however, he failed to file the appeal before the Tribunal within the prescribed time limit. It was further submitted that the delay in filing of the appeal was caused on ITA No.610/LKW/2024 Page 4 of 6 account of the failure of the Advocate, whose Affidavit narrating all these facts was placed on record. It was prayed that the delay caused in filing the appeal was not deliberate and was beyond the control of the assessee and therefore, the same may be condoned and the appeal be heard on merits. 7. The ld. D.R. had no objection to the delay being condoned. 8. In view of the prayer made by the Assessee, duly supported by Affidavit and no objection by the ld. Sr. D.R., I condone the delay in filing of the appeal and admit the appeal for hearing. 9. The Ld. A.R. submitted that the assessee is in the business of selling SIM Cards and Recharge Coupons of Airtel and although the return of income and Audited Balance Sheet and Profit and Loss Account were uploaded quite late, the assessee has earned net profit of 0.59% only, whereas the AO had estimated the same @8% and the NFAC had scaled it down to 4%. It was submitted that the Commission Agents in this line of business hardly earn more than 0.50% as net profit and therefore, the confirmation of 4% net profit rate by the NFAC was highly excessive. It was prayed that the net profit rate should be applied @ 1%. ITA No.610/LKW/2024 Page 5 of 6 10. In response, the Ld. Sr. D.R. vehemently opposed the prayer of the Ld. A.R. and submitted that the assessee had been non-compliant, inasmuch as, filing of return and uploading of Audited Accounts were concerned, and therefore, the net profit as claimed by the Ld. A.R., was neither verifiable nor had any basis as far as other comparable cases were concerned. He prayed that at best, the appeal of the assessee can be restored to the AO for the purposes of fresh determination of taxable income. 11. I have heard both the parties and have also carefully considered the material on record. It is true that the assessee had neither filed his return of income in terms of section 139(1) of the Act nor had produced/uploaded the Audited Balance Sheet and Profit and Loss Account within the prescribed time limit or even before the NFAC. Therefore, the claim of the assessee that the net profit rate @ 0.59% was the actual profit earned by the assessee during the year under consideration is not verifiable. I have also considered the prayer of the Ld. A.R. that direction may be given to complete the assessment by applying the net profit rate of 1% and the prayer of the Ld. Sr. D.R. that the file may be restored to the office of the AO. However, I find that in the absence of comparative data, even the rate of 1% remains unverifiable and on an overall view of the matter, I am of considered view that no useful purpose will also be served by ITA No.610/LKW/2024 Page 6 of 6 setting aside the file to the office of the AO. It is my considered view that the interest of justice would be served, if the net profit of 2% of the gross sales is applied. Accordingly, I set aside the order of the NFAC and direct the AO to complete the assessment and compute the tax liability thereon by applying the net profit rate of 2% and make no further addition. 12. In the final result, the appeal of the assessee stands partly allowed for statistical purposes. Order pronounced in the open Court on 19/11/2024. Sd/- [SUDHANSHU SRIVASTAVA] JUDICIAL MEMBER DATED:19/11/2024 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR By order Assistant Registrar "