NIZAR,THODUPUZHA V. ITO, NATIONAL E-ASSESSMENT CENTRE

ITA 825/COCH/2024

AI Insights

The case involves an appeal by Sri. Nizar Kuzhikandathil against the order of the Commissioner of Income Tax (Appeals) which confirmed an addition to his income for the assessment year 2018-2019. The addition was initially made by the Assessing Officer who estimated the income from agency business at 8% of the turnover, which was not disclosed in the return. The CIT(A) later reduced this profit percentage to 5% under section 44AF of the Act. The Tribunal upheld the CIT(A)'s decision, noting that the assessee did not provide any material to contest the findings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315366 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2018-2019
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LEENA LAL; SENIOR
• Keywords: Depreciation; Principle of natural justice; Presumptive income
• Section: 44AD; 28

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri George George K, Vice-President & Shri Inturi Rama Rao, Accountant Member ITA No.825/Coch/2024 :Asst.Year 2018-2019 Sri.Nizar Kuzhikandathil House Karikode P.O., Thodupuzha Idukki – 685 585. PAN :AJHPN3834D. v. The Income Tax Officer Iduki. (Appellant) (Respondent) Appellant by : --- None --- Respondent by : Smt.Leena Lal, Senior AR Date of Hearing :15.05.2025 Date of Pronouncement : 16.05.2025 O R D E R Per George George K, Vice-President : This appeal at the instance of assessee is directed against the order of the National Faceless Appeal Centre / Commissioner of Income Tax (Appeals) [hereinafter “CIT(A)”], dated 22.07.2024, passed u/s.250 of the Income-tax Act, 1961 (hereinafter “the Act”) The relevant assessment year is 2018-2019. 2. The solitary issued raised is whether the CIT(A) is justified in confirming the addition to the extent of Rs.36,65,248. 3. Brief facts of the case are as follows: ITA No.825/Coch/2024. Sri.Nizar. 2 The assessment was completed u/s.143(3) of the Act vide order dated 16.03.2021. In the said assessment order, the Assessing Officer (hereinafter “the AO”) had estimated income from agency business of Rs.7,62,54,049 at 8% and added to the total income a sum of Rs.61,00,323. The AO observed that the assessee had disclosed business profit u/s.44AD of the Act at 8% of direct trading business of Rs.1,33,87,774. It was stated by the AO that the turnover of Rs.7,62,54,049 from agency sales was not disclosed by the assessee. Since there was no cogent explanation from the assessee, the AO applied profit percentage on agency sales of Rs.7,62,54,049 at 8% u/s.44AD of the Act and added a sum of Rs.61,00,323 to the returned income of the assessee. 4. Aggrieved by the assessment completed u/s.143(1) of the Act, the assessee preferred appeal before the first appellate authority. The CIT(A) partly allowed the appeal of the assessee. The CIT(A) reduced the profit percentage to 5% instead of 8% applied by the AO as per provisions of sec.44AF of the Act. The relevant finding of the CIT(A), reads as follow:- “4.5 Having perused the action of the Id AO and the appellant's submission, I make the following observations. 1. Section 44AD of the Act does not attack in the present case as can be observed from the plain reading of the section reproduced by the appellant in earlier paragraph. 2. The applicable section in the present case would be 44AF of the Act as the appellant is a trader in case no books of accounts are maintained. ITA No.825/Coch/2024. Sri.Nizar. 3 3. However, the appellant can declare the real profit which can be more the prescribed percentage of 5% in the case of 44AF of the Act. 4. The Id AO could have applied correct section for the agency sale i.e 44AF of the Act for want of cogent explanation. 5. Submission of audited account u/s 44AB of the Act is a contradiction of opting for section 44AD of the Act. Section 44AD or any other which the assessee fall is availed only when no proper books of accounts are maintained to declare estimated income. However, the appellant by furnishing audit report u/s 44AB has tried misled the AO for which he was not successful as the Id AO rejected the same. 4.6 Section 44AF of the Act reads as under- Special provisions for computing profits and gains of retail business. 44AF. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee engaged in retail trade in any goods or merchandise, a sum equal to five per cent of the total turnover in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income shall be deemed to be the profits and gains of such business chargeable to tax under the head \"Profits and gains of business or profession\": Provided that nothing contained in this sub-section shall apply in respect of an assessee whose total turnover exceeds an amount of forty lakh rupees in the previous year. (2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed: Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40. (3) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed ITA No.825/Coch/2024. Sri.Nizar. 4 to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years. (4) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub- section (1) and in computing the monetary limits under those sections, the total turnover or, as the case may be, the income from the said business shall be excluded.] [(5) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-section (1), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.] [(6) Nothing contained in this section shall apply to any assessment year beginning on or after the 1st day of April, 2011.] 4.7 Considering my observations made in the above paragraph and to meet the principle of natural justice, it would fair and justified if the undisclosed trading sale of Rs. 7,62,54,049/- is computed as per provision of section 44AF of the Act taking 5% profit instead of applying section 44AD. Thus, I direct the AO to re-compute trading receipt of Rs.7,62,54,049/- which was not disclosed by the appellant in his return, u/s 44AF of the Act. The ground of appeal is thus, partly allowed.” 5. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. None was present on behalf of the assessee. However, the Bench Clerk had contacted the concerned AR, who stated that the assessee has not furnished any details to him and the case may be decided on the available material on record. 6. The learned Departmental Representative supported the order of the CIT(A). ITA No.825/Coch/2024. Sri.Nizar. 5 7. We have heard rival submissions and perused the material on record. It is an admitted position that the assessee had earned turnover from trading business of Rs.1,33,87,774 and Rs.7,62,54,049 from agency sales. When the assessee filed return (though belatedly), the agency sales turnover was not disclosed. The AO by invoking the presumptive taxation u/s.44AD of the Act, made addition of Rs.61,00,323 to the turnover from agency sales. The addition made by the AO was reduced to Rs.38,12,703 by the CIT(A), by adopting the rate of 5% as prescribed under the provisions of sec.44AF of the Act. The assessee has not placed any material on record to controvert the findings of the CIT(A). The CIT(A) has reduced the addition from Rs.61,00,323 to Rs.38,12,703. Since there was no material on record to interfere with the order of the CIT(A), we confirm the same as correct and in accordance with law. It is ordered accordingly. 8. In the result, the appeal filed by the assessee is dismissed. Order pronounced on this 16th day of May, 2025. Sd/- (Inturi Rama Rao) Sd/- (George George K) ACCOUNTANT MEMBER VICE-PRESIDENT Cochin; Dated : 16th May, 2025. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT, Cochin. 4. The DR, ITAT, Cochin. 5. Guard File. Asst.Registrar/ITAT, Cochin "