SANDHYA,SONIPAT V. INCOME TAX OFFICER, SONIPAT

ITA 2398/DEL/2024

AI Insights

The case involves an appeal by Sandhya against the order of the Commissioner of Income Tax (Appeals), which confirmed an addition of Rs.5,19,239 to her income as unexplained capital and rejected her books of accounts, estimating her business profits at 8% of total turnover for the assessment year 2011-12. The assessee argued that the capital introduced was from the sale of a house and gifts from relatives, which the CIT(A) partly accepted. The Tribunal found that the books of accounts could not be rejected merely because purchases exceeded sales, especially in a manufacturing context where closing stock must exist.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312706 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR
• Assessee Lawyers: AKSHAT SHARMA
• Keywords: Business income; Rejection of books of accounts; Gift; Source of fund
• Section: 44AD; 145

Judgement Text

"आयकर अपीलीय अिधकरण िदʟी पीठ “एस एम सी”, िदʟी ŵी िवकास अव̾थी, Ɋाियक सद˟ IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “SMC”, DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER आअसं.2398/िदʟी/2024 (िन.व. 2011-12) ITA No.2398/DEL/2024 (A.Y.2011-12) Sandhya, H.No. 29, Patel Nagar, Sonipat, Haryana 131001 PAN: CFGPS-3437-G ...... अपीलाथᱮ/Appellant बनाम Vs. Income Tax Officer, Income Tax Department, Atlas Road, Sonipat, Haryana 131001 New Delhi ..... ᮧितवादी/Respondent अपीलाथŎ Ȫारा/ Appellant by : Shri Akshat Sharma, Advocate ŮितवादीȪारा/Respondent by : Shri Sanjay Kumar, Sr. DR सुनवाई कᳱ ितिथ/ Date of hearing : 04/02/2025 घोषणा कᳱ ितिथ/ Date of pronouncement : : 29/04/2025 आदेश/ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as 'the CIT(A)') dated 22.03.2024, for assessment year 2011-12. 2. Shri Akshat Sharma, appearing on behalf of the assessee submits that the assessee in appeal has assailed the addition of Rs.5,19,239/- confirmed by the CIT(A) on account of unexplained source of capital and rejection of books of accounts and consequent estimation of profits @ 8% of the total turnover. The ld. Counsel submits that the assessee had explained before the Assessing Officer (AO) and the CIT(A), that the assessee had introduced new capital of Rs.27,05,000/- in 2 ITA No.2398/Del/2024 (AY 2011-12) the business from sale of house Rs.24,00,000/- and gifts received from relatives Rs.3,05,000/-. The CIT(A) partly accepted submissions of the assessee i.e. to the extent of funds received from sale of immovable property and confirmed the remaining amount. 2.1. The ld. Counsel for the assessee further contended that the AO and the CIT(A) have erred in estimating profits from business at 8% of the total turnover, whereas, GP of the assessee in impugned assessment year is 8.7% which is higher than the GP declared in the preceding assessment year at 6.19%. Similarly, net profit of the assessee in the impugned assessment year is 2.75% which is higher than the net profit declared by the assessee in preceding assessment year at 0.76%. The assessee has maintained regular books of accounts, hence, the income of the assessee cannot be assessed under the provisions of section 44AD of the Income Tax Act, 1961(hereinafter referred to as 'the Act'). The AO has erred in rejecting books of accounts. The ld. Counsel thus prayed for accepting books of account and profit declared by the assessee as per the books. 3. Per contra, Shri Sanjay Kumar representing the department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. The ld. DR submits that the assessee has failed to produce sale and purchase register before the AO and the CIT(A). Hence, the AO invoked the provisions of section 145 of the Act and thereafter, estimated business income at 8% of the total turnover declared by the assessee. 4. Both sides heard, orders of the authorities below examined. The assessee in appeal has raised two grounds: (i) assailing addition of Rs.5,19,239/- on account of capital introduced in the business; 3 ITA No.2398/Del/2024 (AY 2011-12) (ii) rejection of books of accounts and estimation of business income at 8% of the total turnover Rs.1,96,61,249/-. 5. As per TEP, the assessee introduced new capital to the extent of Rs. 29,19,239/- from undisclosed sources. As per the assessee, the assessee introduced fresh capital to the extent of Rs.27,05,000/- in her business of manufacturing and trading of PP/HDPE woven sacks. During assessment proceedings, the assessee was asked to explain source of funds for introduction of fresh capital in her proprietorship business. The assessee explained that fresh capital was sourced from sale of residential house in village within laal dora Rs.24,00,000/- and gifts received from relatives Rs.3,05,000/-. The AO rejected submissions of the assessee as they were unsubstantiated and made addition of the entire amount of Rs. 29,19,239/-. 5.1. In First Appellate proceedings the CIT(A) accepted assessee's submissions with regard to source of funds from sale of immovable property i.e, a residential house in village. However, in the absence of any documentary evidence to substantiate gifts the CIT(A) rejected submissions of the assessee and confirmed the remaining amount i.e. Rs.5,19,239/-. The assessee has furnished a list of fifteen relatives before the AO who have allegedly given cash gifts to the assessee. The AO has rejected the same as the said list neither contained the addresses of the donors nor confirmations were filed by the assessee from the persons making gifts. Before the Tribunal the situation is no different. The cash gifts from relatives is unsubstantiated. It is understandable that confirmations cannot be obtained from all relatives; however, the assessee could have easily obtained confirmations from parents and siblings. The said addition cannot be deleted merely on bald unsubstantiated assertions. Hence, I find no reasons to interfere with findings of the CIT(A) on this issue. Thus, ground no. 1 of appeal is dismissed. 4 ITA No.2398/Del/2024 (AY 2011-12) 6. In ground no. 2 of appeal, the assessee has assailed rejection of books of account and estimation of business profits at the rate of 8%. The short contention of ld. Counsel for the assessee is that books of accounts have been rejected primarily for the reason that the purchases are more than sales. This cannot be a reason for rejection of books especially when the assessee has furnished Balance Sheet and Profit and Loss account before the AO. I find merit in the submissions of the assessee that the books cannot be rejected merely for the reason that the purchases are more than sales. The AO and CIT(A) while deciding the issue have lost sight of the fact that if purchases are more than sales than their must be some closing stock of either finished product or the raw material as the assessee is engaged in manufacturing activity. Neither the AO nor the CIT(A) have commented on availability of closing stock or has called for stock register. The assessee has declared GP of 8.7% and NP of 2.57% for the impugned assessment year, which is higher than the GP 6.9% and NP 0.76% in the preceding assessment years. The business profits declared by the assessee are accepted. Thus, the assessee succeeds on ground no. 2 of appeal. 7. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on Tuesday the 29th day of April, 2025. Sd/- Sd/- (VIKAS AWASTHY) ᭠याियक सद᭭य/JUDICIAL MEMBER िदʟी/Delhi, ᳰदनांक/Dated 29.04.2025 5 ITA No.2398/Del/2024 (AY 2011-12) NV/- ᮧितिलिप अᮕेिषतCopy of the Order forwarded to : 1. अपीलाथᱮ/The Appellant , 2. ᮧितवादी/ The Respondent. 3. The PCIT/CIT(A) 4. िवभागीय ᮧितिनिध, आय.अपी.अिध., िदʟी /DR, ITAT, िदʟी 5. गाडᭅ फाइल/Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, DELHI "