Case Law Details
Naresh Kumar & Sons HUF Vs ITO (ITAT Raipur)
In the case of Naresh Kumar & Sons HUF vs. ITO (ITAT Raipur), the main issue involves the determination of the nature of the assessee’s business and the resulting addition made by the Assessing Officer (AO) under section 44AD of the Income Tax Act, 1961.
Background: The assessee, a Hindu Undivided Family (HUF), filed its return of income for the assessment year 2015-16, declaring an income of Rs. 2,60,160. The case was selected for scrutiny assessment under section 143(2) of the Income Tax Act.
AO’s Observations: The AO observed that the assessee, despite claiming to be a commission agent, had made sales and purchases of fruits and vegetables in its own name. The AO concluded that the assessee was engaged in the business of trading fruits and vegetables. The AO determined the income under section 44AD at 8% of the turnover of Rs. 81,39,050, resulting in an addition of Rs. 3,91,016 to the assessed income.
CIT(A) Decision: The CIT(A), after considering the AO’s observations, upheld the addition. The CIT(A) noted that the sales and purchase invoices were in the name of the assessee, indicating direct involvement in the trading business. The CIT(A) mentioned that the assessee had accepted to offer income at 8% of the total turnover during the assessment proceedings.
Assessee’s Grounds of Appeal: The assessee appealed to the ITAT, challenging the CIT(A)’s order. The primary contention was that the CIT(A) did not consider the written submission filed during e-proceedings before him.
ITAT’s Observations: The ITAT observed that the CIT(A) had disposed of the appeal without considering the written submission filed by the assessee on 04.10.2022 during e-proceedings. The ITAT found that the failure to consider the written submission warranted a revisit of the matter.
ITAT’s Decision: The ITAT allowed the assessee’s appeal for statistical purposes. The matter was restored to the file of the CIT(A) with a direction to re-adjudicate after affording a reasonable opportunity of being heard to the assessee, considering the written submission and supporting documentary evidence.
In summary, the ITAT directed the CIT(A) to re-examine the matter, taking into account the written submission filed by the assessee during e-proceedings. The ITAT emphasized the importance of affording the assessee a fair opportunity to substantiate its claims with supporting evidence.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 10.11.2022, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 03.11.2017 for the assessment year 2015-16. The assessee has assailed the impugned order on the following grounds of appeal:
“1. That under the facts and the law, the learned Commissioner of Income Tax (Appeals), NFAC, Delhi erred in confirming the observation of the Ld. Assessing Officer that the Appellant was engaged in trading of vegetables rejecting the explanation that he was working as Commission Agent, thereby maintaining the addition of Rs.3,91,016/- to the returned income by taking 8% net profit on turnover of Rs.8 1,39,050/-. Prayed that the Appellant is working as Commission Agent and his income shown at Rs.2,60, 160/-be accepted.
2. That under the facts and the law, the learned Commissioner of Income Tax(Appeals), NFAC, Delhi further erred in not considering the written submission filed on 19.10.2022 vide Acknowledgement No.73450720119 1022, he passed the Order on 03.11.2017. Prayed to delete the addition of Rs.3,91,016/-.
2. At the very outset, I may herein observe that the aforementioned appeal that the Tribunal had earlier disposed off vide its order dated 03.2023 on an ex-parte basis was thereafter recalled by MA No.54/RPR/2023 dated 23.08.2023.
3. Succinctly stated, the assessee had e-filed its return of income for A.Y 2015-16 on 20.11.2015, declaring an income of Rs.2,60,160/. The case of the assessee was thereafter selected for scrutiny assessment u/s. 143(2) of the Act.
4. During the assessment proceedings, it was observed by the A.O that the assessee, which had ostensibly made a turnover from the sale of fruits and vegetables of Rs. 81,39,050/- had claimed that it was not engaged in any trading activity but had rendered services as a commission agent. The explanation above of the assessee did not find favor with the A.O for twofold reasons, viz. (i) that the assessee had sold fruits/vegetables directly to parties and had received cash which was deposited in its bank account; and (ii) that the assessee had paid the purchase consideration to the supplier parties from its account. The A.O. believed that if the assessee would have rendered its services as a commission agent, then it would have merely acted as a facilitator and would not have carried out purchase/sale transactions on its own. Accordingly, the A.O based on his observations above, concluded that the assessee was engaged in the business of trading of vegetables and fruits and determined its income u/s.44AD @8% of the turnover of Rs.8 1,39,050/-. For the sake of clarity, the relevant observations of the A.O in the context of the issue in hand are culled out as follows:
“3. Addition on account of business income– During the course of assessment proceedings assessee has stated that his turnover on sale of fruit was Rs 81,39,050/-but has claimed that he did the work of commission agency and not the work of trading. Vide written submission made on 17.10.2017 assessee has stated that he received fruits from various suppliers in bulk quantity and sold fruits on behalf of suppliers to small retailers in open market. He further stated that the entire sales from the small retailers are in cash and the same cash were deposited into the bank account. Assessee has claimed to have received commission of 0.5% on the above transaction. Thus, he has shown commission income of Rs. 4,01,918/- and has claimed various expenses and net profit is shown at Rs. 2,60,108/-. However, on perusal of the details furnished and on discussion with the AR of the assessee it is observed that assessee was engaged in trading of fruits because assessee has sold fruits directly to parties and received cash and deposited the same to its own account. Similarly, it has given money to the parties from its own account against the purchases. While as in the case of commission work, no such activity is done. Had it been commission based work, assessee would have only facilitated the work and doing all the work of trading. Therefore, vide note sheet notings dt 20.10.2017 assessee was asked to explain as to why the work carried out by the assessee be not considered as trading and also since assessee has shown income less than 8% of the turnover why penalty u/s. 271 B should not be imposed and income be not held to be 8% of the turnover. On this query, during hearing proceeding on 2.11.2017 though assessee has initially insisted that it was doing the work on commission basis, on being asked as to why purchases and sales were made by him only and also in case of commission direct bill should have been issued by seller and not by the assessee, as is the case with assessee who itself raises the bills, assessee has accepted to offer the income at 8% of the turnover.
Thus, considering the above, business of the assessee is held to be trading of vegetables and so income u/s. 44AD is arrived at 8% of the turnover of Rs.81,39,050/-, which comes to Rs.6,51,124/-. Since assessee has shown income of Rs 2,60,108/-only, the difference amount of Rs 3,91,016/- (i.e Rs 6,51,124/- less Rs.2,60,108/-) is added to the returned income of the assessee. Penalty proceedings u/s.271(1)(c) of the I.T Act, 1961 are also initiated as assessee has furnished inaccurate particulars of its income. Penalty proceedings u/s 271 B are also initiated as assessee has not got its book of account audited despite the fact that it had shown its profit less than 8%.”
5. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. The CIT(Appeals), after taking cognizance of the fact that purchases/sales of fruits and vegetables were made by the assessee in its name, thus finding no infirmity in the view taken by the A.O upheld the same and dismissed the appeal by observing as under:
“4.2 I have carefully gone through the statement of facts, grounds of appeal of the appellant and assessment order of the A.O. The appellant in this case is claimed to be engaged in the business as commission agent. However, from the assessment order, it appears that sales and purchase of fruits and vegetables were made in the name of the appellant. If the appellant was to be commission agent, the sales and purchase invoice should have been made in the name of owner of the shop not in the name of the appellant. Therefore, it is clear that the appellant is himself engaged in such business. Moreover, in the assessment proceedings, the appellant had accepted to offer the income @8% of the total turnover. Hence, in my considered opinion, there is no need to interfere with the order of the AO. The appeal of the appellant is hereby dismissed.”
6. The assessee, being aggrieved with the order of the CIT(Appeals), has carried the matter in appeal before me.
7. At the very outset, Ld. Authorized Representative (for short ‘AR’) submitted that the CIT(Appeals) had disposed off the appeal of the assessee without considering the written submissions dated 04.10.2022 that the assessee had filed in the course of e-proceedings before him. The Ld. AR drew my attention to the copy of the written submissions dated 04.10.2022 that the assessee had filed with the CIT(Appeals), NFAC, Pages 51 to 57 of The Ld. AR to fortify the factual position that the documents mentioned above were duly uploaded during e-proceedings before the CIT (Appeals) had drawn my attention to the e-proceedings acknowledgment placed at Page No.58 of APB. Apart from that, the Ld. AR averred that both the lower authorities had grossly erred in dubbing the assessee as a trader of fruits while the fact was that it was merely a commission agent.
8. The Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities. However, the Ld. DR on being confronted with the fact that the CIT(Appeals) NFAC had not dealt with the assessee’s written submissions dated 04.10.2022, failed to rebut the same.
9. I have heard the Ld. Authorized representatives of both parties, perused the orders of the lower authorities and material available on record.
10. Admittedly, it is an uncontroverted fact that the assessee, during the proceedings before the CIT(Appeals), had filed a written submission dated 04.10.2022, Pages 51 to 57 of APB. The aforesaid factual position can safely be gathered on a perusal of the e-proceedings acknowledgment No.734507201191022, dated 19. 10.2022, Page 58 of APB. Considering that the CIT(Appeals) had disposed off the appeal without considering the written submission dated 04.10.2022, which was filed in the course of e-proceedings before him, I believe that the matter, in all fairness, requires to be revisited by him. Accordingly, in terms of my observations above, I restore the matter to the file of the CIT(Appeals) with a direction to him to re-adjudicate the same after affording a reasonable opportunity of being heard to the assessee appellant. Needless to say, the assessee appellant, in the course of the set-aside proceedings, shall remain at liberty to substantiate its claim mentioned above based on supporting documentary evidence.
11. In the result, the assessee’s appeal is allowed for statistical purposes in terms of my observations above.
Order pronounced in open court on 11th day of October, 2023.
