RAJESHBHAI DAHYABHAI PATEL,VALSAD V. ITO, WARD-3, VALSAD

ITA 831/SRT/2025

AI Insights

The case involves Rajeshbhai Dahyabhai Patel, who appealed against the order of the Commissioner of Income Tax Appeals (CIT(A)), which upheld the AO's rejection of the assessee's books of accounts under Section 145(3) of the Income Tax Act, 1961, due to discrepancies in the salary/wage records. The AO had estimated the profits by applying an 8% rate to the total turnover, which the CIT(A) upheld. The assessee contested this estimation, highlighting that the profit margin had never exceeded 1% in the past. The ITAT found the application of the 8% rate arbitrary and, considering the assessee's historical profit margins, reduced the profit rate to 3%. The ITAT also condoned the significant delay in filing the appeal, attributing it to the assessee's relocation and job change, which led to a lack of communication with his consultant.

• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Surat
• Assessment Year: 2014-2015
• Appeal Filed On: 07-08-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJAY UKE
• Assessee Lawyers: RAJESH UPADHYAY
• Keywords: Rejection of books of accounts; TDS
• Section: 145

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, BENCH [Conducted through Hybrid mode at Ahmedabad Bench] BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 831/SRT/2025 (िनधा[रण वष[ / Assessment Year : 2014-15) Rajeshbhai Dahyabhai Patel Hethlia Falia, At & Post – Gadaria, Dist. – Valsad, Gujarat - 396055 बनाम/ Vs. Income Tax Officer Ward - 3, Valsad èथायी लेखा सं./जीआइआर सं./PAN/GIR No. : AWKPP7999P (Appellant) .. (Respondent) अपीलाथȸ ओर से /Appellant by : Shri Rajesh Upadhyay, AR Ĥ×यथȸ कȧ ओर से/Respondent by : Shri Ajay Uke, Sr. DR Date of Hearing 17/03/2026 Date of Pronouncement 27/03/2026 O R D E R The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax Appeal, ADDL/JCIT (A)-1, Jaipur (hereinafter referred to as “CIT(A)”) dated 13.06.2024 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2014-15. 2. There is a delay 361 days in the filing of present appeal. The assessee had pleaded condonation of the delay stating that his appellate proceedings were being looked into by his Printed from counselvise.com ITA No.831/SRT/2025 [Rajeshbhai Dahyabhai Patel vs. ITO] A.Y. 2014-15 - 2 – Consultant Mr. Rajesh M. Upadhyay. That during the pendency of the appellate proceedings itself, the assessee had shifted to Bangalore and joined a job there. He was no longer in touch with his Consultant and was unaware of the passing of the Ld.CIT(A)’s order. He became aware of the order only when a recovery notice dated 10.06.2025 was received by him and immediately, thereafter, he filed an appeal before the ITAT on 07-08- 25, with a delay of 341 days. 3. The Ld. DR opposed the delay. 4. I am of the view that the assessee has adduced sufficient cause for the delay. He has stated on oath, by way of an affidavit, the circumstances, in which during pendency of appellate proceedings he had shifted to Bangalore taking up a job and abandoned his business carried out in Ahmedabad. The assessee, I have noted, has pursuing the matter before the AO and the Ld.CIT(A) diligently and, therefore, clearly the delay cannot be attributed to any laxity on the part of the assessee. There is no reason why the assessee who had been diligently pursuing the matter before the AO and the Ld. CIT(A) would not continue to do so before the ITAT also. Noting, therefore, the assessee to have adduced sufficient cause for the delay of 361 days in filing of the appeal, I condone the delay. 5. Brief facts relating to the case are that the assessee is in the business of providing services of manpower. For the impugned assessment year, the assessee has filed return of income declaring Printed from counselvise.com ITA No.831/SRT/2025 [Rajeshbhai Dahyabhai Patel vs. ITO] A.Y. 2014-15 - 3 – income of Rs.1,79,680/-. The assessee’s case was taken up for scrutiny and noting various discrepancies in respect of the salary/wages paid to the manpower employed by it, the AO rejected the books of accounts of the assessee and estimated the profits earned by the assesee by applying a rate of 8% to the total turnover of the assessee. Thus, determining the net profits earned by the assessee to Rs.12,54,814/-. 6. The matter was carried in appeal before the Ld. CIT(A) who upheld the order of the AO rejecting all the grounds raised by the assessee. 7. Aggrieved by the same, the assessee has come up in appeal before me. 8. Ground No.1 raised by the assessee reads as under: “1. Ld. ADDL/JCIT has erred in law and on facts to upheld A.O.'s action of rejection of books of account u/s 145[3] of the Act on so called discrepancies in wage / salary register over looking the fact that wage and salary paid to workers are subject to EPF, Service Tax. etc.” 9. Ground No.1 raised by the assessee challenges the order of the Ld. CIT(A) confirming the rejection of books of accounts by the AO u/s.145(3) of the Act. 10. I have gone through the orders of the AO and the CIT(A). The discrepancies noted by the authorities below leading them to believe that the accounts maintained by the assessee did not truly Printed from counselvise.com ITA No.831/SRT/2025 [Rajeshbhai Dahyabhai Patel vs. ITO] A.Y. 2014-15 - 4 – or correctly reflect the profits earned by it are mentioned at para 3 of the AO’s order as under: “The assessee was asked to submit a written explanation for the issues discussed above vide show-cause notice dated 22/11/2016 the relevant contents of which are produced as under: 2. On perusal of the submission made by you it is seen that you have paid Rs.13638560/- grass salary against which you have debited Rs.15620107/- in your P&L, A/c. From this it is seen that you have not debited/Credited all the entries of your income /expenses so as to prove the correction & completeness of your books of accounts. As per section 145 of the I.T Act the onus is upan the assessee to prove that the books of accounts are correct & complete in nature and that the method of accounting them is regularly followed. 3. Further on verification of the submission made by you it is seen that you have submitted copies of salary register. On analyses of the same the following defect are seen i. Signatures of numerous people are in identical handwritings. ii. Against the name of same person two different signatures have been placed. iii. In most of the cases signatures like PMT, NRP, MDP, SNP, HMP etc by a common handwriting are entered. Here it would be pertinent to mention that the assessee is deploying supervisors, Machine workers meaning that they would opt to inscribe better signature than to go for PMT, NRP etc as they know the importance of signature & its reflection of his/her personality. iv. Some of the payments above Rs.5000/- have not been signed on stamps as per provision of section 2(23) of Indian stamp Act 1899. v. The assessee has made salary register However, no names & address of the person deployed has been mentioned is them. Further the date of making payment is also not mentioned. Therefore, how the accounting for of wages is done! The wages are paid in cash and it is not possible that all the persons would take their salary on the same day itself, all the time. 4. Further on perusal of the balance sheet of the assessee it is seen that there are debtors and liability in form of wages& salary Printed from counselvise.com ITA No.831/SRT/2025 [Rajeshbhai Dahyabhai Patel vs. ITO] A.Y. 2014-15 - 5 – payable. The same is not verifiable as the same has been incurred in cash. Further TDS for F.Y.2013-14 is also not shown in the balance sheet. 5. Considering the various discrepancies, you are requested to show cause as to why your books of A/c should not be rejected u/s 145(3) of the Act and income should not be estimated at 8% of your total turnover of Rs.15685179/-. Which works out to Rs.1254814/-.” 11. A perusal of the above would reveal that the AO noted discrepancies vis-à-vis the amount of salary paid and that debited to the P&L account as also the genuineness of payments made to various persons on account of various discrepancies noted in the matter of signatures of the persons being in identical handwriting, signatures against the same person being different, signatures being made like PMT, NRP, MDP, SNP, HMP etc. when the persons were t manpower in the nature of supervisors, machine workers who were adept enough to inscribe better signature, No names and address of the persons being mentioned in the salary register and the entire salary being paid in cash. Before us, Ld. Counsel for the assessee was unable to dislodge in any way, the discrepancies noted vis-à-vis record of payment of salary in the salary register as noted by the AO above which created serious doubt on genuineness of the salary payments made. Nothing was pointed out to me from the orders of the authorities below relating to any submissions made by the assessee dislodging the above discrepancies noted by the AO. No submissions in this regard were made before me also. In the light of the same, it is evidently clear that the books of accounts maintained by the assessee were not reliable and genuine enough for determining the true and correct profit earned by the assessee Printed from counselvise.com ITA No.831/SRT/2025 [Rajeshbhai Dahyabhai Patel vs. ITO] A.Y. 2014-15 - 6 – during the year. The orders of the authorities below, therefore, rejecting the books of accounts of the assessee are confirmed. 12. Ground of appeal no.1 raised by the assessee is dismissed. 13. Ground No.2 raised by the assessee reads as under: “2. Ld. ADDL/JCIT has erred in law and on facts to upheld A.O.'s addition of Rs.12,54,814/- being 8% estimated N.P. on gross contract receipts out of labour supply services of Rs.1,56,85,179/- on adhoc and estimated basis, ignoring past record of the appellant's own case and further bringing any comparable cases on record.” 14. Ground of appeal no.2 raised by the assessee challenges the estimation of 8% net profit rate to the turnover of the assessee for determining the profits earned by the assessee on rejection of the books of accounts of the assessee. 15. I have gone through the orders of the authorities below. The AO, I find, though has noted that after rejection of books of accounts a fair estimation of net profits has to be made, but, however, he has adopted the rate of 8% of the total turnover without specifying how the said rate was justified. The AO’s act of applying 8% rate, therefore, appears to be arbitrary. It is s pertinent to consider the fact that the assessee stated to the AO that the net profit margin of the assessee had never exceeded 1% in the past. Before me, Ld. Counsel for the assessee placed a chart depicting the net profit earned by the assessee in the preceding years which I have noted was in the range of 1 to 2 %. Considering the fact that the AO had arbitrarily applied the rate Printed from counselvise.com ITA No.831/SRT/2025 [Rajeshbhai Dahyabhai Patel vs. ITO] A.Y. 2014-15 - 7 – of 8% and the assessee’s profit rate of 1 to 2% ranged in the past has not been shown to have been exceeded after scrutiny assessment, I am of the view that a net profit of 3% would be justified in the facts and circumstances of the case. Accordingly, I direct the application of 3% rate to the turnover for determining the net profit earned by the assessee during the year. 16. Ground of appeal no.2 is partly allowed in above terms. 17. In the result, the appeal filed by the assessee is partly allowed. This Order pronounced on 27/03/2026 Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad; Dated 27/03/2026 S. K. SINHA True Copy आदेश कȧ Ĥितिलǒप अĒेǒषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंिधत आयकर आयुƠ / Concerned CIT 4. आयकर आयुƠ(अपील) / The CIT(A)- 5. ǒवभागीय Ĥितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड[ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / सूरत / ITAT, Ahmedabad / Surat Printed from counselvise.com "