TMI Blog2022 (2) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of account of the assessee. Considering the GP rate of 4% on the estimated turnover - It is important to mention here that the assessee s turnover jumped by 141% at ₹ 9.40 Crores this year from 6.64 Crores last year. We are of the view that to achieve such abnormal increase in the turnover, one has to compromise on its margins and such a fact certainly deserved consideration as far as the matter of fair estimation is concerned. While reaching to this conclusion, we also draw strength from the decision of CIT v/s Amrapali Jewels (P) Ltd. [ 2011 (10) TMI 470 - RAJASTHAN HIGH COURT] - At the same time, we cannot lose sight of the fact that the GP declared even at 1.61% on the turnover of ₹ 11.12 Cr. in assessee s own case in AY 2012-13 was also accepted by the Revenue. Thus, we restrict the addition to the tune of ₹ 10.00 lacs and remaining additions are directed to be deleted. Hence, grounds No. 1 to 1.2 of the Revenue s appeal and grounds No. 1 to 5 of the assessee s C.O. are partly allowed. Addition of various expenses - HELD THAT:- Assessee has maintained complete Books of account and other subsidiary record and all the expenses are fully supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleting the addition of ₹ 2,23,42,465/- made on account of suppressed sale and unexplained investment in purchase including expenses, without appreciating that the assessee failed to reconcile the figures of opening stock, purchase and sales, freight as shown in VAT returns with return of income audit report, specially when the Ld.CIT(A) himself accepted that there is no explanation with regard to the difference in figures of sales and freight as appearing in the VAT returns and in the audited books of accounts; 1.2 Ld.CIT(A) erred in deleting the addition of ₹ 2,23,42,465/- by considering that the AO cannot pick and choose some figures (sales) from the VAT return and some figures (opening stock, purchase and freight) from the audited books of accounts, to assess the income of the assessee whereas the AO took the value of sales, purchases and freight expenses from audit report ITR and compared the same with the figures of VAT returns, for making the additions; 2. The Ld. CIT(A) erred in restricting the disallowance out of various expenses from ₹ 2,31,962/- to ₹ 1,15,981/-, without appreciating that the assessee failed to produce bill/vouc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also showing without specific defect in vouchers. 7. That all above additions maintained were against the law written submission provided in detail with covered binding judgements. The he maintained the additions against the law. 8. That the assessee reserves his rights to add amend or alter any of the grounds on a before the hearing of cross objections or at the lime of haring of Appeal. 2. The hearing of the appeal and C.O. were concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. 3. The brief facts of the case are that the assessee is engaged in the business of trading of old irom material. The assessee e-filed his return of income on 26/11/2014 declaring total income of ₹ 5,59,530/-. The case was selected for scrutiny under CASS and notices were issued to the assessee. The A.O. after discussing all the facts and circumstances as well as the documents placed before him passed assessment order U/s 143(3) of the Income Tax Act, 1961 (in short, the Act) determining total income of assessee at ₹ 2,48,63,340/- by making various additions. 4. Being aggrieved by the order of the A.O., the assessee ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted with the invoices issued by the assessee. Copy of the ledger account alongwith the invoices copy are being produced herewith. 4. The figure of opening stock is same as the figure of closing stock of last year(PB 1 4). Since, both the figures are duly vouched, verified and certified by the Tax Auditor, the genuineness of the same cannot be doubted. Also, the figures of-direct expenses incurred by the appellant as recorded in books of accounts were duly vouched, verified and certified by the Tax Auditor and no discrepancy therein was noticed by him. Further, there was no discrepancy in the figures of closing stock as per VAT return(PB 56) as per Tax Audit Report (PB 4). A chart showing trading account of the appellant as appearing in Tax Audit Report and appellant's specific comment against each of those items appearing in Tax Audit Report is enclosed herewith for your Honour's ready reference. Also, as stated above all the bills of purchases and sales recorded by the appellant in its books of accounts are hereby produced for verification. The assesse further submitted as under: Sl.No. Particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and closing stock in the books of accounts are in agreement with the audit report (audited financial statement).He, though raised, an objection that the production of books of accounts at present is no means inspiteof ample opportunities fiven to the assessee . . However, when the assessee produced books of accounts, no defect therein was pointed out therein. Hence, the aforesaid comment/observation is irrelevant. 2.2 The relevant finding of the AO in his remand report (reproduced at Pg-10 of CIT(A) order are as under: ..CA attended the proceedings from time to time and produced the purchase and sales vouchers, freight bills with the computerized ledgers for examination. These have been examined on test check basis. Moreover, verification has been made regarding the vouchers/bills with reference to the books of accounts produced and few of the expenses vouchers were missing i.e. freight bill, vehicle expenses, petrol etc. During the course of examination, it was noticed that the assessee could not reconcile the figures of-opening stock, purchases and sales, freight gross profit and closing stock with reference to the VAT returns filed from the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at being the factually admitted position, it is only the VAT return which is the faulted one and in absence of any independent verification / examination by any other expert of the field or the Chartered Accountant or by the VAT Authority or in absence of VAT audit, the VAT return alone could not have been blindly believed as done by the AO. The Revenue is stressing on the figures of VAT returns unwarrantedly. 4. No independent corroborative evidence brought on record:4.1 It is surprising to note that the AO has solely relied upon the figures given in the VAT return. He completely failed to support his inference or conclusion of the alleged suppression/ inflation of sale/ purchase with the help of any other corroborative evidence. It is not the case of the revenue that the ld. Chartered Accountant who audited the accounts u/s 44 AB, has adversely commented in the audit report supporting the AO. No inquiry was made from Commercial Tax Department (or any other government department) w.r.t the alleged differences as noticed by him between the figures of the VAT return and inthe audited accounts nor it is his case that the accountant, supported his case. In other words, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be such as to give a true and fair view of the state of affairs of the companies. 5. No motive: The AO has not applied his mind that if there was/ could be some motive to the assessee particularly when the figures of the gross profit and the closing stock were the same in at both the places. Consequently, there was no loss to revenue in any manner nor it is so alleged. In other words, the AO unwarrantedly stressed upon the wrong figures filled in the VAT return when compared with the audit report and made it a sole basis of the impugned addition. Such a basis though could be sufficient to arouse suspicion in the mind of AO but could not have been a valid basis, (unless corroborated by independent evidences) to make a huge addition. Even otherwise, these mistakes are revenue neutral because there are equal amount addition and deletion. Kindly refer the chart enclosed with submission. Further, an allegation remains a mere allegation unless proved. Suspicion can-not take the place of reality, are the settled principles kindly refer Dhakeshwari cotton Mills 26 ITR 775 (SC). 6. Entire amount of the alleged suppressed sale of ₹ 20,00,000/-, even assuming if it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 9. We also strongly rely upon the findings by the ld. CIT (A) (to the extent they are not adverse to the respondent assessee). Hence this ground of revenue deserves to be dismissed. Submissions of Cross Objection: 1.1 Invalid Application of S.145 by CIT(A): At the outset, it is submitted that it is an admitted fact that the AO has not invoked S.145 (3) of the Act though he discussed the difference in the figures found on a comparison between the VAT return the audited accounts but then he made a half-hearted attempt only. It is not their case of serious defects calling for the wholesome rejection of the accounts. Even in the remand proceedings, when the assessee produced complete books of account before the AO, the AO did not comment on the applicability of S.145(3), which is an incorrect finding and hence in the remand report, the AO accepted that the assessee maintained books of accounts stating as under (refer CIT(A) Pg-10): In such circumstances and the facts of the case, it can be easily ascertain that the assessee has maintained the books of accounts .assessment order 1.2 Deptt. challenges S. 145 applicability: This fact is also evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has maintained all the books of account consisting of cash book, ledger of purchase, sale, etc. The entire sales, purchases and expenses are fully vouched. The accounts are audited u/s 44AB of the Act(PB 49-51). Further the audit report and other details were duly produced before the AO. Thus, the ld. CIT(A) not having established any of the three conditions, could not have invoked S.145(3). Since it was a conscious decision taken by the AO not to invoke S.145(3), the ld. CIT(A) could not have acted as a revisionary authority. If the action / order of the AO was erroneous and prejudicial to the interest of the revenue, it was only the ld. CIT(A) who could have invoked S.263 but the ld. CIT(A) could not have stepped into. Therefore, the ld. CIT(A) has clearly acted beyond his jurisdiction. This extent only, we agree with the revenue and do not oppose GOA 1. 2.3 Pertinently, in the remand proceedings, the AO has verified vouchers / bills with reference to the books of accounts produced and he fully agreed that the book of accounts and audited financial statements are same stating as under: During the course of examination, it was noticed that the assessee could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of S. 145(3) are applicable. These principles are directly applicable on the facts of this case. 4.1 Past History-Best Guide: We may submit that past history has been held to be the best guide in the cases of fair estimation. Kindly refer Kindly refer CIT v/s Gupta K.N. Construction Co. (2015) 116 DTR 377 (Raj), CIT v/s Inani Marbles 316 ITR 125 (Raj). However, it will appears that in the present case, the ld. CIT(A)has not made a fair estimation in conformity of the above settled judicial guideline. The assessee, this year declared GP rate of 2.17% on sales of ₹ 9,40,65,836/- as against GP rate of 2.84% on sales of ₹ 6,64,75,224/- (Refer AO Pg- 3-4)in the immediately preceding year (i.e. A.Y.2013-14). Thus, there was a minor fall of 0.67%, which is within the acceptable range. 4.2 Justified reason behind declined in G.P.: It is further submitted that there were justified reasons behind the minor fall of 0.67% of GP rate in as much as the assessee deals in iron scrap and during the financial year 2013-14 (A.Y. 2014-15) there was a big down fall in iron market and to survive in market the assessee has to reduce his margin, which resulted in sharp increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation from the Sales Tax Department was obtained by the AO and it was noticed by the AO that the figures of opening stock, purchases, sales and freight declared in the VAT return were different from the figures appearing in the audited books of accounts of appellant, on the basis of which the return of income was filed. The AO has given the different figures appearing in VAT return and audited books of accounts as under: Particulars As per VAT Return As per Audit Report and IT Return Difference (effect on profit) Opening Stock 3,26,14,956/- 1,03,11,148/- (1-) 2,23,03,808/- Purchases 9,50,22,574/- 11,63,26,383/- (-) 2,13,03,809/- Sales 9,60,65,836/- 9,40,65,836/- (-) 20,00,000/- Freight 17,48,940/- 7,48,940/- (+) 10,00,000/- Gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellant, or on the basis of the figures as appearing in VAT return. The gross profit declared in the VAT return (₹ 20,38,656) and in the audited Profit Loss Account is same. Therefore, the AO whether he makes assessment on the basis of figures appearing in the audited books of accounts or VAT return, no addition could have been made in the income declared by the appellant. 4.7 During the course of appellate proceedings, the copy of VAT returns and Profit Loss Account of the F.Y. 2012-13 (A.Y. 2013-14) was also filed by the appellant. It can be seen that the figures of closing stock as appearing in the VAT return and audited books of accounts of the F.Y. 2012-13 was also different, which are also reproduced for ready reference as under: Particulars As per VAT Return As per Audit Report and IT Return Difference Closing Stock 32614956 10311148 22303808 From the above, it can be seen that the opening stock of ₹ 3,26,14,956/-appearing in the VAT return for F.Y. 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sales are confirmed by your honour, then the addition to the total income on the account of the same should be restricted to the amount derived by applying the gross profit rate declared and accepted by the department, as income tax can be levied to the income earned and not on gross receipts . In view of the discussion made above, the book result declared by the appellant are rejected by invoking the provisions of Section 145(3), as neither the figures of sales reported by the AO in the audited books of accounts are reliable (because in the audited books of accounts, sales declared is of ₹ 9,40,65,836/- and the sales declared in the VAT return is ₹ 9,60,65,836) nor the rate of GP declared by the appellant can be accepted as correct. The appellant had declared gross profit rate of 2.84% in the immediately preceding assessment year and rate of gross profit of 3.24% in the immediately subsequent assessment year. Therefore, I am of the considered view that it would be fair and reasonable to estimate the gross profit of the appellant at the rate of 4% on the estimated turnover of ₹ 10 crore. The gross profit of the appellant works out to ₹ 40 lac. As the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO held that the assessee failed to explain the variation between the figures of Tax Audit report and the VAT return and finally he made addition of ₹ 20,00,000/- on account of suppressed/undisclosed sales, and ₹ 2,23,03,809/- on account of bogus/inflated/unexplained investment in purchases including expenses vide order dated 29.12.2016 u/s 143(3) of the Act. 10. We also observed from perusal of the record that the ld. CIT(A) called for remand report from the AO. The AO in turn issued notice no. 478 dated 24.07.2017 to the assessee and in pursuance thereof, the assessee produced books of account along with vouchers before the AO. After perusal of written submissions, remand report and rejoinder, the ld. CIT(A) applied GP rate of 4% as against 2.17% declared by the assessee which resulted into the addition of ₹ 19,61,344/-. 11. Having considered the rival contentions and carefully perused the material placed on record, we observed that in this case the return of income was filed declaring total income at ₹ 5,59,530/- and the total income was assessed at ₹ 2,48,63,339/-. In other words, the assessed income was 4444% of the returned income. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 20,00,000/- were made on account of inflated/ bogus purchases and suppressed sale respectively. The AO has ignored the difference in the amount of opening stock and freight as appearing in the VAT return (₹ 3,26,14,956 and ₹ 17,48,940) and amount as appearing in the audited books of accounts (₹ 1,03,11,148 and ₹ 7,48,940). The assessee has contended that the return of income has been filed on the basis of audited books of accounts. The AO has not pointed out any instance of inflated/ bogus purchases or suppressed sale. All the purchases of the assessee are fully verifiable and complete details of all the purchases in the form of bills/vouchers and proof of payment made towards the purchases recorded in the audited books of accounts are available. The AO has also not pointed out any instance of sale having been made out of books of accounts by the assessee. The figures of inflated purchases and suppressed sales have been worked out by the AO on the basis of the figures appearing in the VAT return. According to the assessee, no addition can be made by the AO by picking only selected figures (purchase and sale) from the VAT return and ignoring the other figur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of accounts was bogus or inflated. If any investigation in this regard was made by the AO, no finding of such investigation has been discussed in the assessment order. Major purchases of the assessee are from Indian Railways and complete details of remaining purchase parties are also available. Therefore, we are of the considered view that the AO has not been able to prove any of the purchases debited in the P L account as bogus or inflated. But it is also true fact that there is no explanation with regard to the difference in figures of sales and freight as appearing in the VAT return (₹ 9,60,65,836 and ₹ 17,48,940) and in the audited books of accounts (₹ 9,40,65,836 and ₹ 17,48,940). Therefore, we are of the view that the books of accounts of the assessee on the basis of which the return of income has been filed by the assessee are also not correct or reliable. The book results declared in such books of accounts cannot be accepted true and correct. Correct profit cannot be deduced from the books of accounts of the assessee. Therefore, the book results declared by the assessee was rightly rejected by invoking the provisions of Section 145(3) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. 14. Whereas on the contrary, the ld. DR has strongly relied upon the order passed by the ld. CIT(A) as far as the additions to the tune of ₹ 19,61,344/- is concerned. 15. After having gone through the facts of the present case, we are of the view that even after invoking Section 145 of the Act, ipso facto does not confer blind powers upon the A.O. to make additions and in our view, the A.O. is not had liberty to assess the income of the assessee at whatever figures he wants. The A.O. is bound to make an honest estimation of income keeping in view the material available on record, past history of the case, local knowledge and repute of the assessee. At the same time, the A.O. is also supposed to collect necessary material for the purpose, if so required. An arbitrary, capricious and wild estimation is not permitted in the eyes of the law and in this regard, we relied upon the decision of Hon ble Allahabad High Court in the case of Jotram Shershing vs. CIT 2 ITR 119 (All). As far as past history of the present case is concerned, the assessee in the year under consideration declared G.P. rate of 2.17% on sale of ₹ 9,40,65,836/- as against GP rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the assessee has maintained complete Books of account and other subsidiary record and all the expenses are fully and duly supported by vouchers. A bare reading of the order of lower authority shall reveal that in almost all the cases the disallowances have been made on ad hoc basis, simply on mere suspicion, surmises and conjectures. No specific instance of any nature whatsoever has been given by the AO in the impugned order to support his contention with the documentary evidence that the expenditures were incurred for non-business purposes, element of personal user was there. An allegation remains a mere allegation unless proved. Suspicion can-not take the place of reality, are the settled principles kindly refer Dhakeshwari cotton Mills 26 ITR 775 (SC). All the above expenses were fully supported by vouchers which were even produced before the ld. AO during the remand proceeding as admitted by him [refer Pg-10 of ld. CIT(A)]. The Freight, Telephone expenses, Petrol Diesel Expenses and Vehicle Expenses were dully supported by Bills and vouchers etc. In these expenses there was no possibility of personal user. 1.2 Businessman is the best judge: It is settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 962/- 1.4 Depreciation is a statutory allowance:Further disallowance of Dep. on vehicles is also not warranted with the facts and merits of the case as Dep. being a statutory allowance and hence cannot be restricted on the basis of personal use as held by Hon bl e ITAT Jaipur Bench (B) in ITA no. 373/JP/2002 in case of Triveni Pharma (2006) 35 T.W. 64 (Jp) and also in Kailash Chand Gupta v/s DCIT 35 Tax World 36 (Jp). No such disallowance was made in past. 2. We strongly rely upon the Written Submissions, Rejoinders etc. filed before ld. CIT(A) time to time and reproduced in the CIT(A) order. Therefore, the allegation of the revenue in its GOA-1.1 1.2, are not valid.(PB 22-46 52-53). 3. We also strongly rely upon the findings by the ld. CIT (A) (to the extent they are not adverse to the respondent assessee). Hence this ground of revenue deserves to be dismissed. Therefore, also the entire disallowance, so made may kindly be deleted in full. Accordingly, the appeal of revenue to be dismissed. 18. Having considered the rival contentions and from perusal of the record, we found that, as per the the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Exp. on Turnover of this year % of Exp. on turnover of previous year Turnover ₹ 9,40,65,836/- ₹ 6,64,75,224/- Freight 7,48,940/- 1,87,235/- 25% of Total Expenses 50% restricted by the ld. CIT(A) i.e. ₹ 1,15,981/- 0.80% 0.64% Petrol Diesel Exp. 58,948/- 14,737/- 0.06% 0.08% Telephone Expenses 16,784/- 4,196/- 0.017% 0.02% Vehicle Expenses 42,947/- 10,737/- 0.05% 0.05% Depreciation 60,229/- 15,057/- 0.06% 0.10% Total ..... X X X X Extracts X X X X X X X X Extracts X X X X
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