PARAS NATH GUPTA,RAMNA ROAD , GAYA V. ASSISTANT COMMISSIONER OF INCOME TAX, DC/AC CIRCLE-I

ITA 345/PAT/2024

AI Insights

The case involves Paras Nath Gupta, a wholesale trader of paddy and pulses, who appealed against the assessment order for the Assessment Year 2017-18. The AO had rejected the books of account under section 145(3) of the Income Tax Act, 1961, due to non-submission of essential documents like bills and vouchers, and estimated the net profit at 2% of gross turnover. The CIT(A) upheld the AO's decision. The Tribunal, after considering the submissions and the nature of the business, modified the AO's decision by applying a lower net profit rate of 0.75%.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 46684 (ITAT-PATNA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Other Referred Cases: Gopal Jaiswal vs. Income Tax Officer, Sanjay Kundu v. CIT, Rohtak, Sage Infrastructure (P.) Ltd v. ACIT, Narender Kumar Anand v. PCIT, Kachwala Gems v. JCIT, Jaipur
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Corroborative evidences
• Section: 144; 143(3); 142(1); 143(2); 250; 68; 145(3)

Judgement Text

"आयकर अपीलीय अधिकरण पटना पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH AT KOLKATA [वर्चुअल कोटु] [Virtual Court] श्री संजय शमाु, न्याधयक सदस्य एवं श्री राक ेश धमश्रा, लेखा सदस्य क े समक्ष Before SHRI SONJOY SARMA, JUDICIAL MEMBER & SHRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.A. No.: 345/PAT/2024 Assessment Year: 2017-18 Paras Nath Gupta Vs. Assistant Commissioner of Income Tax, DC/AC, Circle-I (Appellant) (Respondent) PAN: ACNPG7622B Appearances: Assessee represented by : Deepak Saw, CA. Department represented by : Ashwani Kr. Singal, JCIT. Date of concluding the hearing : January 30th, 2025 Date of pronouncing the order : April 4th, 2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of the CIT(A)- NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2017-18 dated 30.01.2024, which has been passed against the assessment order u/s 143(3) of the Act, dated 12.12.2019. Page | 2 I.T.A. No.: 345/PAT/2024 Assessment Year: 2017-18 Paras Nath Gupta. 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal: “1. For that while making the assessment, the learned A.O. has not found any omission or commission either in sales or purchase. 2. For that though the learned A.O. has not found any omission or commission, he is not justified in rejecting the books of account by applying the proviso of section 145(3) of the I.T Act, 1961. 3. For that by not finding any omission or commission either in sales or purchases, the learned A.O. has accepted the gross profit shown by the appellant. 4. For that the learned A.O. has erred in estimating the net profit @2% of the turnover without assigning any reason and adding the difference of Rs. 1,65,09,996/- to the total income appellant. 5. For that by estimating the net profit at the rate of 2 percent of the turnover of Rs.97,44,07,1268/- and adding the difference of the net profit shown and estimated to the income of the appellant, the learned A.O. has disallowed the expenses to the extent of the addition so made. 6. For that the learned A.O. has made the addition of Rs. 1,65,09,996/-, being the difference of the net profit estimated and shown, without pointing out which of the expenses he has disallowed and why. This disallowance of the expenses without any reason, is unjustified and unreasonable. 7. For that the learned A.O. has erred in making addition of Rs. 1,65,09,996/- on account of additional estimated income, which is unjustified and unreasonable and therefore the same may be deleted. 8. For that the learned A.O. has erred in calculating Net Profit @ 2% of the turnover of Rs 97,44,07,126/- after rejecting Books of Accounts applying the proviso to section 145(3), which is not Fair and Reasonable since there is very low margin in the wholesale trading in bulk volume business of necessary FOODGRAIN PRODUCTS. The learned A.O erred in justifying the Net Profit Margin after rejected Books of accounts. The learned A.O apply Net profit margin arbitrarily. This is clear cut case of non- application of mind by A.O and such addition (i.e. Rs. 1,65,09,996/-) is not only high pitched, but it has also given rise to infructuous demand.” 3. Brief facts of the case are that the assessee had e-filed the return of income showing total income of Rs. 28,28,150/- in which income from sale and purchase of paddy, pulse etc. on wholesale basis was Page | 3 I.T.A. No.: 345/PAT/2024 Assessment Year: 2017-18 Paras Nath Gupta. shown. The case was selected for scrutiny during the FY 2018-19 for the reason that there was large revenue operations including other income and the case had not been scrutinized for the preceding 5 assessment years. Statutory notices u/s 143(2) and 142(1) of the Act were issued which were duly served upon the assessee but the assessee failed to comply with the notices. The final show cause notice was issued on 21.11.2019 as prior to that the assessee had submitted the copy of audit report, ledger copy of unsecured loan but had failed to submit supporting documents. In response to the show cause notice issued on 21.11.2019, the assessee furnished submissions along with documents such as ledger advance from customer, summary of stock, sales A/c, Purchase A/c, Creditors a/c, unsecured loan and expenses and bank statement but failed to submit the cash book, ledger, bills and vouchers of sales and purchases, ledger and bills and vouchers of expenses, confirmations and creditworthiness of the creditors and other proper supporting documents. The details were not found to be satisfactory and the correctness or completeness of the books of account was also not satisfactory. Hence, a final notice u/s 142(1) of the Act was issued on 27.11.2019 requiring the assessee to explain why adverse view may not be taken for failure of the assessee to file the required documents/statements and further to explain why the books of account should not be rejected u/s 145(3) of the Act and the order may be passed by estimating Net Profit @8% of gross turnover of Rs. 97,44,07,126/- as the required details were not filed. Since the assessee failed to furnish any explanation but urged for adjournment, which was rejected, hence on the basis of submission and for non-production of bills and vouchers and other documents, the Ld. AO rejected the books of account by applying the proviso to section 145(3) of the Act and Page | 4 I.T.A. No.: 345/PAT/2024 Assessment Year: 2017-18 Paras Nath Gupta. considering the facts and the circumstances in this case, he estimated the net income at Rs. 1,94,88,142/- i.e. @ 2% of the gross turnover of Rs. 97,44,07,126/- after considering expenses debited in the trading and profit and loss account and a sum of Rs. 1,65,09,996/- was added to the total income of the assessee and the total income was assessed at Rs. 1,93,38,146/-. 3.1 Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who issued notice for hearing. The assessee filed responses which have been considered by the Ld. CIT(A) who has also reproduced the assessment order. The Ld. CIT(A) also considered the written submissions filed by the assessee and dismissed the appeal of the assessee after observing as under: “12.0 Briefly stated the facts of the case are that the assessee Sri Paras Nath Gupta is an individual engaged in wholesale trading of paddy, pulses, etc. The assessee filed his return of income for the impugned AY 2017-18 on 10.11.2017, declaring a total income of Rs. 28,28,150/-. Subsequently, the case was picked up for scrutiny under CASS to verify the issue of “There is large revenue operations including other income and the case has not been scrutinized for preceding 5 assessment years”. Accordingly, the AO issued the statutory notices u/s. 143(2) and 142(1) to the assessee. In response thereto, the assessee filed certain submissions before the AO, but failed to produce bills and voucher, complete cash book, ledger and stock register, etc. After having considered the submissions made by the assessee, the AO framed the impugned assessment order u/s. 143(3) of the Act, dated 12.12.2019, determining the total income of the assessee at Rs. 1,93,38,146/-. While doing so, the AO made an addition of Rs. 1,65,09,996/- towards additional estimated income. 13.0 The ledger extracts of the sales and purchases are produced before the AO but not the bills and vouchers as called for by him for verification. Without evidences of incurring the expenses, the AO cannot come to a conclusion that the expenses claimed are genuine and incurred while doing the business. The non-furnishing of bills and vouchers for the expenditure incurred is certainly a defect in the books of accounts and completeness of the books of accounts is missing when the entries are made in the books of account for the cause of not having the support of basic documents. Page | 5 I.T.A. No.: 345/PAT/2024 Assessment Year: 2017-18 Paras Nath Gupta. Therefore, the Ground No.1 raised is not having any merit and hence, dismissed. 14.0 The AO has asked the proofs of unsecured loans, advances received from customers, stock register, method of valuation of closing stock, bank account statements, proofs of purchases & other expenditure, details to believe the entries in capital account entries and specifically asked the assessee to prove that the cash credits appearing in the books of accounts are explainable u/s 68 by providing identity, genuineness of transactions and creditworthiness of the creditors. The assessee failed to submit any of the above during the scrutiny proceedings. Due to the failure of the assessee to prove that the entries made in the books of account are genuine and reliable, the show cause notice was issued by recording the satisfaction for rejection of books of account and to estimate the profit. Since the assessee failed to respond to the notice, the AO had made a downward revision of profit from trading @2% of the gross profit instead of initially proposed rate of 8% by considering the nature of business of the assessee. The appellant is not correct in stating that the AO had not assigned any reason in the assessment order before rejecting the books of account and the gross profit shown by the appellant. The reason for selection of case is perused and the method followed to examine the issues under complete scrutiny is in order. The reason specified in the selection of case under CASS is the basis and a compulsory aspect to examine all the suspicious issues in offering the total income in the return. In the process of scrutinizing the return, the AO called for various accounts and evidences from the assessee but the assessee failed to produce the same before the AO. The AO had given opportunity to the assessee to prove that the income offered in the return is correct and in support of the same all the necessary documents to be submitted by appellant as directed by AO during the assessment proceedings in performing his legitimate duty. In the absence on the part of the appellant in submitting the same, the application of Sec. 145(3) of the Act cannot be found fault with. Mere furnishing of audit report and ledger accounts cannot force the AO to accept the book results shown in the audit report. It is the duty of the assessee to prove each and every entry which is doubted by the AO as not genuine, shall be explained with the supporting and corroborative evidences. Since the AO disputed the audited results of the assessee, he has called for proofs to accept the entries made in the books of account. Therefore, the case law relied on by the AO vide Gopal Jaiswal vs. Income Tax Officer is not having any application to the facts of the appellant’s case. The assessee has not given any scope for the AO to point out specific defects by way of producing the books of account. Therefore, the appellant’s plea that the AO had accepted the book results is far from truth. The reasons are evident from the show cause notice and impugned order of the AO to reject the books of account and estimating the profit @2% of the gross receipts. The Page | 6 I.T.A. No.: 345/PAT/2024 Assessment Year: 2017-18 Paras Nath Gupta. total addition made is understood to be 2% on the gross receipts reduced by the profit admitted by the appellant in the return of income. The AO shall compute the income accordingly. 15.0 In support of the AO’s action the following judicial decisions are found to be appropriate. (I) In the case of Sanjay Kundu v. CIT, Rohtak [2017] 88 taxmann.com 575 (P&H), the Hon’ble High Court Held “that more than sufficient opportunity was provided to the assessee to explain his case of furnishing the books of account and other relevant material. The assessee failed to avail of the opportunity provided by the Assessing Officer on several occasions. Thus, the Assessing Officer was justified in rejecting books of account of assessee. Further, there had been a lot of variation in the profit rate of the assessee during different years. Therefore, in absence of production of books of account by the assessee, no benefit could be derived by him by claiming lower profit rate.” (II) In the case of Sage Infrastructure (P.) Ltd v. ACIT [2013] 37 taxmann.com 32 (Gujarat), the Hon’ble High court had the occasion to examine the issue of defects in the maintenance of books of account and non-maintenance of proper books of account and decided the issue in favour of Revenue. The relevant portion of the decision is extracted below for ready reference. “5.2 Now, so far as the case on behalf of the assessee that under the law, there was no requirement of maintaining the books of account site-wise, is concerned, it is required to be noted that as such on facts and considering the explanation to the queries raised by the Assessing Officer and after giving an opportunity to the appellant and having found that there are defects in the maintenance of the books of account and the assessee has failed to maintain proper books of account to enable the revenue authorities to determine true and correct income and therefore, as such no error and/or illegality has been committed by the authorities below in rejecting the books of account under section 145(3) of the Act on account of the same being incomplete and incorrect. ” (III) In the case of Narender Kumar Anand v. PCIT [2022] 145 taxmann.com 213, the Hon’ble High Court of Delhi decide the similar matter i.e., where the assessee is a wholesale trader stating that the rejection of books of account and estimation of income is an issue of fact finding and in the absence of furnishing the confirmations from the sundry debtors and also not furnishing the gross profit earned by the comparable cases. Page | 7 I.T.A. No.: 345/PAT/2024 Assessment Year: 2017-18 Paras Nath Gupta. “7. The Assessee aggrieved by the assessment order passed by the AO, filed an appeal before the CIT(A), which after perusing the record, concurred with the findings of the AO and held that the sales of the Assessee could not be verified in view of the non-confirmation from the sundry debtors. The CIT(A) upheld the rate of gross profit determined by the AO and further observed that the Assessee himself had not furnished any comparative information of the rate of gross profit earned by a comparable wholesaler. Aggrieved by the order of the CIT(A), an appeal was preferred by the Assessee before the ITAT. In the appeal filed before the ITAT as well, the ITAT has concurred with the findings of the AO and the CIT(A) and upheld the rate of gross profit at 2% on the gross sales declared by the Assessee. The ITAT rejected the submission of the Assessee for deduction of the statutory taxes i.e., CST by holding that while estimating the gross profit, all expenditure has been accounted for and this includes the expenditure towards taxes. 8. We do not find any perversity in the concurrent findings of the CIT(A) and ITAT. The ITAT is the final fact-finding authority, accordingly no substantial questions of law arise for consideration in the present appeal and accordingly, the same is dismissed.” (IV) In the case of Kachwala Gems v. JCIT, Jaipur [2007] 158 Taxman 71 (SC), the Hon’ble Supreme Court delivered a decision on application of Sec. 144 and 145 of the Act wherein the assessee failed to maintain and kept any quantitative details/stock register for goods traded and not produced any evidence to verify the basis of valuation of closing stock. The head note explaining the decision of the Apex Court runs as under which is applicable to the facts of the assessee’s case on hand is reproduced below. “Section 144 of the Income-tax Act, 1961 - Best judgment assessment -Whether no doubt, authorities concerned should try to make an honest and fair estimate of income even in a best judgment assessment, and should not act totally arbitrarily but there is necessarily some amount of guess work involved in a best judgment assessment, and it is assessee himself who is to blame as he did not submit proper accounts - Held, yes Section 145 read with section 144 of the Income-tax Act, 1961 - Method of accounting - Rejection of accounts - Assessing Officer, on finding that assessee had not maintained and kept any quantitative details/stock register for goods traded in by it; that there was no evidence on record or document to verify basis of valuation of closing stock shown by assessee; and that GP rate declared by assessee during assessment year did not match result declared by assessee Page | 8 I.T.A. No.: 345/PAT/2024 Assessment Year: 2017-18 Paras Nath Gupta. itself in previous assessment years, rejected assessee's books of account and resorted to best judgment assessment under section 144 -Whether since cogent reasons had been given by Assessing Officer for doing so, there was no reason to take a different view - Held, yes” Based on the facts and circumstances of the case and respectfully following the decisions of various high courts and Apex Court as cited above, the ground nos. 2 to 7 raised by the appellant are here by dismissed. 16.0 In result, the appeal filed by the appellant, by Sri Paras Nath Gupta against the order u/s. 143(3) of the Act for the AY 2017-18 is dismissed” 4. Aggrieved with the order of the Ld. CIT(A) the assessee has filed the appeal before the Tribunal. 5. Rival submissions were heard and the record and the submissions made have been examined. During the course of hearing before the Tribunal it was argued by the ld. Counsel for the assessee that 80% of purchases and sales were made to the institutions and 80% of the sales were made in January and February. The purchases were made from vendors and local farmers which are in the unorganized sector. The attention of the ld. Counsel for the assessee was drawn to the fact that the Ld. CIT(A) has given details for supporting the action of the Ld. AO and on examination of the submission filed it was noted that the assessee’s turnover was Rs. 97,44,07,125/- during the impugned assessment year on which net profit of 0.31% and gross profit of 1.07% was shown while it was Rs. 6.3 Crore in the preceding year on which net profit of 1.07% and gross profit of 6.11% was shown. The assessee contended that there was 14.5 times increase in the turnover and therefore, the gross profit rate of 2% applied by the Ld. AO was not justified. However, the attention of the Ld. AR was drawn to the fact that the purchases were not fully vouched and the required details were not furnished before the Ld. AO and on query from the Bench as to whether the supporting bills and vouchers could be filed, it was replied by the Page | 9 I.T.A. No.: 345/PAT/2024 Assessment Year: 2017-18 Paras Nath Gupta. Ld. AR that the assessee was not in a position to furnish all the bills and vouchers before the Bench. Thus, the Ld. AO was justified in rejecting the books of account and estimating the net profit, but the estimate has been made at a higher side. Therefore, in view of the facts and circumstances of the case, it was considered appropriate that in place of the net profit rate of 0.31% shown (which was 1.07% in the immediately preceding year) and as against the net profit rate of 2% applied by the AO, it would be justified if net profit rate of 0.75% is applied on the turnover (which is higher this year) as the same was 1.07% in the immediate past year and no supporting bills and vouchers could be filed to justify the fall in the net profit rate, to which the ld. Counsel for the assessee also agreed and the Ld. DR also did not raise any serious objection. Hence, the order of the Ld. AO is modified and he is directed to apply the net profit rate of 0.75% on the gross turnover of Rs. 97,44,07,126/- in place of net profit rate of 2% applied by him which works out to Rs. 73,08,053/- and recompute the additional estimated income after giving allowance for Rs. 29,78,146/- as made by him while estimating the income. The net addition, thus works out to Rs. 43,29,907/- in place of Rs. 1,65,09,996/- made by the Ld. AO. The Ld. AO is directed to recompute the addition and the income accordingly. 6. In the result, the appeal filed by the assessee is partly allowed in view of the above directions. Order pronounced in the open Court on 04th April, 2025. Sd/- Sd/- [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 04.04.2025 Bidhan (P.S.) Page | 10 I.T.A. No.: 345/PAT/2024 Assessment Year: 2017-18 Paras Nath Gupta. Copy of the order forwarded to: 1. Paras Nath Gupta, S/o Late Kasturi Lal Gupta, Near K L Gupta Auto Centre, Ramna Road, Gaya, Bihar, 823001. 2. Assistant Commissioner of Income Tax, DC/AC, Circle-I. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Patna Bench, Patna. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata "