SALAUDDIN SAIFI,HAPUR V. ITO, WARD-3(5), HAPUR

ITA 1045/DEL/2018

AI Insights

The cases involve two separate appeals by Shri Salauddin Saifi and Shri Shamim Ahmad against the orders of the CIT(A), Muzaffarnagar, which pertained to the assessment year 2014-15. Both appellants are engaged in the trading of livestock and had their books of accounts rejected by the Assessing Officer, leading to estimated additions to their incomes. The main contention in both appeals was the rejection of the books of accounts and the subsequent estimation of profits at rates significantly higher than those declared by the assessee. The Tribunal noted that the CIT(A) had not adequately addressed the comparables and the specific circumstances of the assessee's business, leading to arbitrary and unjust estimations.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470712 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-09-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 12-02-2018
• Other Referred Cases: Smt. Zakira Kamil Vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA RAMAVAT
• Assessee Lawyers: ANKIT GUPTA
• Keywords: Set aside; Opportunity of being heard; Principle of natural justice; Bogus
• Section: 144; 234B; 40A(3); 145(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘B’ BENCH, NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 1045/DEL/2018 [A.Y 2014-15] Shri Salauddin Saifi Vs. The A.C.I.T S/0 Shri Jamaluddin Circle - 2 26, Avas Vikas Colony Muzaffarnagar Bulandshahr Road, Hapur Uttar Pradesh PAN: BEIPS 3427 N ITA No. 1046/DEL/2018[A.Y 2014-15] Shri Shamim Ahmad Vs. The A.C.I.T 667/1, South Khalapar Circle - 2 New Abadi, Near Qusair Muzaffarnagar Vakile Ki Koti, Muzaffarnagar PAN: AGOPA 0369 E (Applicant) (Respondent) Assessee By : Shri Ankit Gupta, Adv Department By : Shri Krishna Ramavat, Sr. DR Date of Hearing : 11.09.2024 Date of Pronouncement : 24.10.2024 2 ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- The above two captioned separate appeals by the two assessee are preferred against two separate orders of the ld. CIT(A), Muzaffarnagar dated 30.11.2017pertaining to A.Y 2014-15. 2. Since common grievances are involved in both the appeals, they were heard together and are disposed of by this common order for the sake convenience and brevity. 3. For the sake of our convenience, we are adjudicating on the facts of ITA No. 1045/DEL/2018on the agreement that the underlying facts in ITA NO. 1046/DEL/2018 are mutatis mutandis same. 4. The grievances of the assessee Shri Salauddin Saifi inI TA No. 1045/DEL/2018read as under: “1. That the assessment order passed U/s 143 (3) are illegal, bad in law and without jurisdiction. The CIT (A) has erred in upholding the same. 3 2. That, the assessing officer has erred in computing the total income at Rs.96,40,800.00 by estimating the Net Profit @8% of the total turnover as against declared income of Rs.5,68,950.00. The CIT(A) erred in also sustaining the adhoc estimated basis of profit @3.75% of total turnover, which is are illegal, unjust, highly excessive and are not based on any material on record. 3. That, the CIT (A) has erred in rejecting the books of accounts without any basis and purposed, the estimation of Net Profit @3.75%, whereas the CIT (A) has sustained the addition an estimation the addition @3.75%, which is illegal bad in law and without jurisdiction and against the principle of natural justice. 4. That, the CIT (A) has erred in rejecting the books of account U/s 145(3) of the Income Tax Act, 1961 without pointing the defects in the books maintained by the assessee company and never asked to produce the same before him, therefore, the rejection of books U/s 145(3) of the Act is highly presumptive, arbitrary and unjust. 5. That, the CIT (A) has erred in rejecting the books of accounts on the basis, that, the assessee has not maintained any purchase bills of the Live Stock without appreciating the nature of business of the assessee appellant, that, the assessee appellant use to purchase the animals from the villagers. 6. That, the CIT (A) has erred in estimating Net Profit @3.75% against the estimating @0.50% by assessee on Net Sales of 4 Rs.12,05,10,000.00 without any basis and making a addition of Rs.96,40,800.00 to the income of the assessee on account of Low Net Profit without appreciating the facts, which is highly arbitrary, unjustified and against the facts of the case. 7. That, the CIT (A) is totally unjustified in estimating G.P. @3.75% on Turnover ofRs.12,05,10,000.00 merely on the comparable available with him, which are not applicable to the facts and circumstances of the assessee's case and also ignored the comparables submitted by the assessee, which are comparable to the assessee's case, which is unjustified and purely based on surmises and conjectures. 8. The additions confirmed and the observations made by CIT (A) are unjust, unlawful and based on mere surmises and conjunctures. The additions made cannot be justified by any material on record. 9. That the explanation given evidence produced, material placed and available on record has not been properly considered and judicially interpreted and the same do not justify the additions/ allowances made. 10. That the impugned Assessment Order passed by the Assessing Officer and order passed by CIT(A) are against the principles of natural justice and the same has been passed without affording reasonable and adequate opportunity of being heard. 11. That the interest U/s 234A & 234B has been wrongly and illegally charged as the appellant could not have foreseen the 5 disallowances/additions made and could not have included the same in current income for payment of Advance tax. The interest charged under various sections is also wrongly worked out. 12. The appellant craves leave to add, amend, alter and or modify the grounds of appeal of the said appeal. All of the above grounds of appeal are without prejudice and are mutually exclusive to each other. 5. The grievances of the assessee Shri Shamim Ahmad in ITA NO. 1046/DEL/2018read as under: “1 That the ex-parte assessment order passed U/s 144 are illegal, bad in law and without jurisdiction. The CIT (A) has erred in upholding the same. 2. That, the assessing officer has erred in computing the total income at Rs.1,05,41,285.00 against declared income of Rs.11,47,220.00. The CIT(A) has erred in making the adhoc estimated basis addition of Rs.1,91,20,750.00 @2.75% on total turnover at Rs.69.53 Crore, which is are illegal, unjust, highly excessive and are not based on any material on record. 3. That, the CIT (A) has erred in rejecting the books of accounts without any basis and purposed, the estimation of Net Profit @2.75%, whereas the CIT (A) has sustained the addition an estimation the 6 addition @2.75%, which is illegal bad in law and without jurisdiction and against the principle of natural justice. 4. That, the CIT (A) has erred in rejecting the books of account U/s 145(3) of the Income Tax Act, 1961 without pointing the defects in the books maintained by the assessee company and never asked to produce the same before him, therefore, the rejection of books U/s 145(3) of the Act is highly presumptive, arbitrary and unjust. 5. That, the CIT (A) has erred in rejecting the books of accounts on the basis, that, the assessee has not maintained any purchase bills of the Live Stock without appreciating the nature of business of the assessee appellant, that, the assessee appellant use to purchase the animals from the villagers. 6. That, in view of the facts and circumstances, the CIT(A) has erred in law and on facts in making the enhancement of Rs.1,43,31,107.00 (Rs.1,91,20,750- 47,31,107.00) to the income of the appellant on account of estimate the Net Profit @2.75% without any basis and purely on presumption, which is purely arbitrary, excessive and unjust. 7. That, the CIT (A) is totally unjustified in estimating G.P. @2.75% on Turnover ofRs.69.53 Crores merely on the comparable available with him, which are not applicable to the facts and circumstances of the assessee's case and also ignored the comparables submitted by the assessee, which are comparable to the assessee's case, which is unjustified and purely based on surmises and conjectures. 7 8. That, The CIT(A) erred in making the enhancement to the income of the assessee appellant without confronting the actual facts and circumstances of the comparable applied by the CIT (A), which shows, that, CIT (A) has not given the proper opportunity to the assessee appellant, which is illegal, bad in law and against the Principle of Natural Justice. 9. The additions confirmed and the observations made by CIT (A) are unjust, unlawful and based on mere surmises and conjunctures. The additions made cannot be justified by any material on record. 10. That the explanation given evidence produced, material placed and available on record has not been properly considered and judicially interpreted and the same do not justify the additions/ allowances made. 11. That the impugned Assessment Order passed by the Assessing Officer and order passed by CIT(A) are against the principles of natural justice and the same has been passed without affording reasonable and adequate opportunity of being heard. 12. That the interest U/s 234A & 234B has been wrongly and illegally charged as the appellant could not have foreseen the disallowances/additions made and could not have included the same in current income for payment of Advance tax. The interest charged under various sections is also wrongly worked out. 8 13. The appellant craves leave to add, amend, alter and or modify the grounds of appeal of the said appeal. All of the above grounds of appeal are without prejudice and are mutually exclusive to each other.” 6. Briefly stated, the facts of the case are that the assessee is an individual being assessed to tax regularly. The assessee is engaged in the trading of live stock i.e. animals such as old buffalos, bulls, jhota and unused milkless animals. 7. The assessee filed his return of income on 27.11.2014 declaring an income of Rs. 5,68,950/-.During the year, the assessee has shown sales/turnover of Rs.12.05 crore and has shown GP of Rs.9.90 lac @ 0.82% and net profit of Rs.6.01 lac @ 0.50%. It has been observed by the AO that the appellant has made purchases of meat in cash and was not eligible for exemption u/s 40A(3) of the Act read with Rule 6DD of the I.T. Rules and Circular No.8 of 2006 dated 06-10-2006. The AO found that the assessee has not produced complete books of account, bills/vouchers of purchases in support of results declared in spite of giving repeated opportunities. Therefore the Assessing Officer has computed disallowance u/s 40A(3) of the Act for Rs.11,09,53,354/- on account of purchases made in cash in violation of Rule 6DD. However, 9 the AO rejected the books of account and has estimated the business profits by applying net profit @ 8% of total turnover and made addition of Rs. 96,40,800/- u/s 143(3). 8. Aggrieved, the assessee went in appeal before the first appellate authority who estimated the gross profit of the assessee @ 3.75% against 0.82% declared by the assessee and restricted the addition of Rs. 45,19,125/- and sustained the action by rejecting the books of account u/s 145(3) of the Act. 9. Now the aggrieved assessee is before us. 10. Both the rival representatives reiterated what has been stated before the lower authorities. The ld AR of the assessee forcefully submitted that the CIT (A) did not consider the other cases of similar business as referred by the assessee during the appellate proceedings, where the G.P. varies from 0.38% on a turnover of Rs 38.52 crore to 0.94% on a turnover of Rs 11.07 crore. The ld AR submitted that in identical facts and circumstances, the Hon'ble ITAT, in the case Smt. Zakira Kamil Vs. ITO, in ITA No.3022/Del/2016 dated 03.01.2019 has accepted, the books of accounts and deleted the addition made on 10 estimated basis of Net Profit @ 2%, which is identical to the case of the assessee appellant and squarely applicable. It was further submitted that the CIT(A) himself has not taken constant view while estimating the gross profit, as in other appeal ITA 1046/Del/2018, passed on same day, he has estimated at 2.75%, where in the case of the assessee appellant it is at 3.75%, which shows that the estimation made by CIT(A) is on adhoc basis and purely based guess work, without any justification and finding, to support for adopting the estimated rate of 3.75%.The ld AR produced the assessment order of Farman and Irshad Ahmad passed by the DCIT, Central Circle, New Delhi where after the search proceedings conducted on the other persons, who are engaged in the identical trade, the department has a taken a conscious view that 0.50% G.P. is the standard market rate in the trade of livestock, in which the assessee is engaged. It is finally submitted that in the instant case the gross profit has shown better than the market standard. 11. Per contra, the ld DR relied on the orders of the lower authorities. The ld DR could not controvert the factual position. 11 12. We have heard the rival submissions and have perused the relevant material on record. We find force in the contention of the ld. counsel for the assessee that the ITAT in ITA no 3022/Del/2016 in the case of Zakira Kamil for AY 2012-13, on identical set of facts, has accepted the books of account and deleted the addition made on estimate basis of Net Profit @ 2% which is identical to the present case in hand and squarely applicable. The coordinate bench of ITAT held as under: “8. When these details have been furnished before the AO, then the entire observation of the Ld. AO in the assessment order that these details have not been furnished renders factually incorrect. This fact was reiterated before the Ld. CIT (A) and there is no rebuttal either by the AO who was present in the appellate proceedings or by the Ld. CIT (A). Once the assessee had justified the entire sales which is purely through cheques and banking channels and has given the party wise details of the purchasers and also explained the nature of trade whereby the assessee has no option but to make the purchases in cash which otherwise has statutory sanctity in view of Income Tax Rules under 6DD, then simply because assessee could not furnish the particulars of the purchasers, that does not mean that the entire purchases are bogus or are not verifiable. While examining the trading result, it is important to keep in mind the nature of trade and the trade practices which needs to be understood and while determining the income, trade practices prevalent and the accounting system has to be appreciated. All the trade cannot be viewed from same glass as the different trade has different realities 12 especially in country like ours where most of us agrarians and not much of the population were exposed to banking systems at the relevant time; nor there are any organized sector especially dealing with rural people. Assessee is dealing in sale and purchase of meat and also livestock who procures the meat from local butchers or shepherds or farmers who are mostly illiterate and work in a much unorganised sector. In such circumstances it would very difficult to either make the purchases through account payee cheques or get proper bills. Thus, the reasons given by the AO for rejecting the books of accounts on the facts of the present case cannot be sustained. Ld. CIT(A) without properly analyzing the facts brought on record by the assessee has simply reiterated the reasoning given by the AO and noted that the assessee did not produce any books of accounts before the AO in order to claim deduction and expenses and therefore AO was justified in rejecting the books of accounts. He has not given any finding about the details and replies filed by the assessee before the AO and also the detailed explanation given before him in the written submissions. Hence reasoning given by the Ld. CIT (A) to uphold the order of the AO is completely de-hors the material and facts placed on record cannot be appreciated. Accordingly, the reasoning given by the Ld. CIT (A) is set aside; and on the basis of reasoning given by us as above, we hold that no proper grounds for rejection of books of account has been given and consequently the trading result cannot be disturbed. The additions thus made by the AO and as sustained by the Ld. CIT(A) for rejecting the estimate is deleted. 13 13. We also find force in the argument of the ld AR that the Department itself has estimated the market standard in such nature of business as not less than 0.50% which is evident from the assessment orders of the Central Circle, Delhi in the case of Farman and Irshad Ahmad (supra). 14. Considering the facts of the case in hand in totality and in light of the decision of the co-ordinate bench (supra), we set aside the findings of the ld. CIT(A) and direct the Assessing Officer to delete the impugned additions. ITA NO. 1046/DEL/2018 15. Similar additions have been sustained by the CIT(A) on Gross profit basis in the above case. Such additions have been considered by us wherein, following the decision of the coordinate bench in ITA No. 1045/DEL/2018 [supra], we have deleted the additions. The facts being mutatis mutandis similar to those of ITA No. 1045/DEL/2015, respectfully following the same, the additions are directed to be deleted in the case of this assessee also. 14 16. In the result, both the appeals of the assessee in ITA Nos. 1045 & 1046/DEL/2018 are allowed. The order is pronounced in the open court on 24.10.2024. Sd/- Sd/- [CHALLA NAGENDRA PRASAD] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 24th OCTOBER, 2024. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi 15 Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order "