Shri Sanjay Agarwal Vs ITO (ITAT Jaipur)
In this case, the AO has rejected the books of accounts and has estimated G.P. rate of 0.69% on declared turnover as against G.P rate of 0.38% declared by the assessee and made a trading addition of Rs. 49,56,217/- in the hands of the assessee. The AO has stated that when the books of accounts are rejected, it is duty of the AO to deduce true and fair income of the assessee and it is open to him to take a higher percentage consistent with the state of trade in the locality or with any special circumstances of the assessee which warrants higher rate of profits.
Thereafter, he has referred to the discrepancies noticed in the books of accounts and stated that the assessee has failed to give evidence regarding payment of duties and taxes amounting to Rs 5,45,677/- and loss claimed in the profit/loss account amounting to Rs 36,96,691/- and thereafter went ahead and make an addition of Rs 49,56,217/- largely representing the aforesaid two figures which remain unverified.
To our mind, the addition so made is neither reflective of state of trade in the locality nor demonstrate any special circumstances of the assessee rather the additions have been made basis the discrepancies found in the books of accounts which are more in the nature of unverified payment of taxes and claim of losses. Once the books of accounts are rejected, the AO has to estimate the profits based on his best judgment and either the past year results or comparative profits declared in similar line of trade in commodities could be a guiding factor.
Regarding past year results, it is an admitted position of Revenue that past year results cannot be made a guiding factor and the assessee has also contended that given the exceptional circumstances where the turnover has increased by almost 130 times, the past year results are not reflective of state of affairs of current year. There is nothing on record in terms of comparative profits declared in similar line of trade in commodities.
Further, the assessee has explained the substantial fall in G.P rate due to fall in prices of cardamom where the prices have reduced by almost half the rate at the end of the year as compared to beginning of the year. Therefore, we find that there is no rational basis for estimating the gross profit rate by the AO even where the books of accounts are rejected.
In fact, in the remand report submitted to the ld CIT(A), the AO has admitted that there is no specific reason mentioned in the assessment order to estimate the gross profit rate of 0.69% as against declared gross profit rate of 0.38%. Further, the AO has acknowledged the fact that turnover has increased substantially during the year and the trading results are duly supported with documentary evidences.
Regarding commodity and cardamom trading losses of Rs 36,96,691/-, the ld CIT(A) has also recorded a finding that these are speculative losses and are not part of trading account of the assessee and thus, doesn’t effect the trading results so declared by the assessee. In the results, the trading additions so made by the AO and confirmed by the ld CIT(A) is hereby directed to be deleted.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The assessee has filed the present appeal against the order of ld. CIT(A)-I, Jaipur dated 16.02.2018 pertaining to assessment year 2012-13 wherein the assessee has taken the following grounds of appeal:-
“1. The assessment order passed u/s 144 is bad in law as well as on facts of the present case as the same is framed without proper service of notices u/s 142(1) & 142(2)/144 and hence, the same may please be quashed.
2. The ld. AO erred in law as well as on the facts of the present case in not providing opportunity of being heard and passing the order ex parte.
3. The ld. CIT(A) erred in law as well as on the facts of the present case in ignoring the remand report received from AO.
4. The ld. AO erred in law as well as on the facts of the present case in rejecting the books of accounts of the assessee and applying a GP rate of 0.69% as against 0.38% declared by the assessee and the ld. CIT(A) erred in confirming the same.
5. Rs. 49,56,217/- The ld. AO erred in law as well as on the facts of the present case in making trading addition without proper appreciation of facts on record and the ld. CIT(A) erred in sustaining the same.”
2. During the course of hearing, the ld. AR submitted that the assessee didn’t want to press the ground Nos. 1 & 2. Further, application for raising additional ground of appeal was withdrawn. Hence, these two grounds are dismissed as not pressed and additional grounds are dismissed as withdrawn at the admission stage.
3. During the course of hearing, the ld A/R submitted that the assessee derives income from trading in various commodities and he has filed the return of the income on 04-09-2012 declaring an income of Rs.14,07,110/-. The case was taken up for scrutiny and the notice U/s 143(2) was sent on 08-08-2013. However, the same could not be served as the assessee was not found available at the given address. Therefore the same was served by affixture on 13-09-2013. For the similar reason, the later notices also could not be served and the last such notice was served through affixture on 11-03-2015. On account of non-appearance of the assessee, the AO proceeded to make ex-parte assessment and accordingly, he has estimated G.P. rate of 0.69% on declared sales of Rs.1,57,35,47,863/- which gave gross profit of Rs.1,08,57,480/-. The assessee declared gross profit of Rs. 59,01,264/- and as such an addition of Rs. 49,56,217/- was made to the total income of the assessee. In the first appeal, the assessee submitted complete documents and records before the ld. CIT(A) and the same were accepted as additional evidence. In remand proceedings, the ld. AO has accepted the trading results of the assessee but the ld. CIT(A) rejected the remand report and went on to sustain the original trading addition. Now the assessee has filed this appeal.
4. In the aforesaid factual background, the ld. AR submitted that there has been a valid and bonafide reason for non appearance before the AO in assessment proceedings. A detailed explanation has been made before the ld. CIT(A) as well as before the AO in remand proceedings and the ld. CIT(A) has duly accepted the reasons and admitted all the additional evidences submitted by the assessee. The relevant para of ld. CIT(A) at page 8 para (iii) reads as under:-
“iii) During the appellate proceedings, the appellant has filed a number of documents as additional evidences under rule 46A of the IT Rules, which were forwarded to the AO for its comments and for making necessary enquiries thereof. These additional evidences were admitted as the assessment order was passed u/s 144 of the act, since no compliance was made by the appellant, during the assessment proceedings, before the AO, on account of change of its earlier address and in the interest of natural justice. The AO has submitted its remand report as under:”
Therefore, there being bona fide reason for non-appearance before the AO in original assessment proceeding, no adverse interference to be called for. In any case, in the remand proceedings, all the directions were fully complied with, while submitting all the desired information and documents.
5. It was further submitted that the trading results are fully accepted by the AO in the remand report. The remand report submitted by the AO is appearing at page 10 of the ld. CIT(A) order and the relevant extract of the same read as under:-
“In connection with the remand report, an opportunity was provided to the assessee vide letter no. 1695 dates on 27.01.2017 to submit all supporting documents/evidences for verification which could justify his claim by fixing on 06.02.2017. In response to the same, the A/R of the assessee has submitted the reply on 28.02.2017. I have carefully gone through the submission of the Ld. A/R of the assessee and found satisfactory. All supporting evidences/documents i.e. copy of rent receipt, supporting change of address, copy of ITR along with computation of total income, copy of tax audit report along with balance sheet and profit and loss account for the year ended on dated 31.03.2012, copy of speed post delivery details, sale and purchase bills, confirmations, quantitative details, copies of VAT returns, ledger accounts of commodities etc. have been produced by the assessee for the year under consideration.
In view of the above, I want to draw your kind attention that the then Assessing Officer was not justified to make an addition on account of trading addition of Rs.49,56,217/-. All notices was dispatched at the address of B-2, New Grain Mandi, Chand Pole, Jaipur instead of- DI, IInd Floor, Chand pole Anaj Mandi, Jaipur and that the address was wrong and due to this assessee could not get notices. On perusal of assessment order, there is no specific reason mentioned in the assessment order to take the rate of G.P at 0.69% of gross receipt whereas, the assessee has shown G.P. rate of 0.38 %. The sale of assessee has substantially increased during the year and hence not comparable. However, the trading results of the assessee are duly supported with documentary evidences as discussed above. Commodity trading loss and Cardamom trading loss are also fully supported with documentary proofs and the same were accepted in the original assessment proceedings also and hence require no interference.”
6. It was submitted that the ld. CIT(A) in an incorrect and unjustified manner has rejected the remand report: The ld. CIT(A) dealt with the remand report of the AO at clause (v) at page 12. The same reads as under:-
“v) In its remand report, the AO has accepted the submissions of the appellant as made during the remand proceedings. However, it appears that the AO has not examined the matter in the correct perspective and the documents filed by the appellant as additional evidences were not analyzed properly and thus, the remand report of the AO is to be ignored and no cognizance could be given to it. Therefore, in view of the totality of facts and circumstances of the case, it is held that the AO was justified in rejecting the books of account of the appellant u/s 145(3) of the Act.”
7. It was submitted that the ld. CIT(A) only made passing remark that the additional evidences were not analyzed properly. However, the fact remains that the ld. CIT(A) has not pointed even a single defect in the additional evidences submitted by the assessee. There is no iota of evidence or fact put on record by the ld. CIT(A) to support his conclusion that the evidences were not analyzed properly. In fact the ld. AO analyzed the complete details and discussed in remand report and remark by the ld. CIT(A) is a loose and passing remark without any supporting evidence. No specific direction by the ld. CIT(A) to the ld. AO:
8. It was submitted that the order of ld. CIT(A) makes it amply clear that the ld. CIT(A) just sent the additional evidences submitted by the assessee to the AO for examination and there is nothing on record to suggest that the additional evidences were to be analyzed in any particular manner. Further there is no other specific direction for the AO. In these circumstances, it is completely unjustified on the part of the ld. CIT(A) to conclude that the ld. AO failed to make proper analysis of the additional evidences whereas the fact is that the remand report of the AO is fully supported by evidences submitted by the assessee.
9. It was further submitted that the ld. CIT(A) kept complete silent before passing of order. It is notable that after receiving of remand report of the ld. AO, the ld. CIT(A) has kept complete silence on the same. The ld. CIT(A) has not communicated anything to the ld. AO to make any further enquiry nor pointed out specific defect in the remand report of the AO.
10. It was further submitted that no specific defect pointed out by the ld. CIT(A). As submitted above, the ld. CIT(A) has not pointed out any defect whatsoever in the details and evidences submitted before him in support of trading results declared by the assessee. Further, the ld. CIT(A) duly accepted the confirmations of debtors and creditors submitted before him and also failed to point out any defect in the sales and purchases bills placed before him. The ld. CIT(A) has absolutely nothing to say accepted loosely saying that the AO did not make requisite enquiry and even then it was not stated what further enquiry the AO was supposed to make.
11. It was further submitted that the ld. CIT(A) put himself in the shoes of the AO by rejecting his remand report and in these circumstances, it was incumbent upon him to make further enquiry if it was of the view that the remand report of the AO was deficient. But the ld. CIT(A) has not made a single independent enquiry even though it has summarily rejected the remand report of the AO.
12. It was submitted that as already pointed out that there was absolutely nothing with the ld. CIT(A) to suggest that there remained any discrepancy in the trading results disclosed by the assessee which was fully supported with the documentary evidences on record and in contrast, the remand report of the AO was fully supported with reasons and basis as would appear from the remand report. Therefore, in these circumstances, a summary rejection of the remand report was uncalled for. In these facts and circumstances, the ld. CIT(A) was completely unjustified in rejecting the remand report submitted by the ld. AO and hence, trading addition has to be completely deleted while accepting the remand report submitted by the ld. AO.
13. It was further submitted that the assessee has maintained complete books of accounts of the assessee including cash book, journal, ledger, purchases and sales book and the same were duly audited and the complete audit report was duly available with the department as the same were filed online. The same were again submitted during the course of appellate proceedings. There is a specific observation of the auditor at clause 9(b) regarding the books of accounts. Further the auditor has not pointed out any specific defects in the books of accounts maintained and as such it is incorrect observation of the ld. CIT(A) that no books of accounts were maintained.
14. It was further submitted that preceding year results are not comparable with year under consideration. It was submitted that the AY 2012-13 was an exceptional year in so far as the turnover during the year was extraordinarily high as compared to preceding years. The comparative trading results as appearing at page 7 of the assessment order would show the following turnover in three years:
