TaxTMI 
TaxTMI 
2021 (5) TMI 532
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.... as cash credit Under section 68 of the Act. The action of the Learned Commissioner of Income Tax (Appeals) is based on presumptions only, contrary to the facts of the case and deserves to be deleted. 2. On appreciation of the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has erred in estimating 2% of the turnover as taxable income in the case of the appellant as against 1.07% as disclosed by the appellant in his return of income for the year under consideration. 3. The appellant craves leave to add, amend, modify or alter the above grounds of appeal at any stage of appellate proceedings." 2. The brief facts qua the issue are that assessee before us is an individual and engaged in the business of scrap trading. The assessee has filed her Return of Income for assessment year 2011-12 on 26.09.2011 declaring total income at Rs. 4,20,170/-. The Return of Income of the assessee was processed by the Department under section 143(1) of the Income Tax Act, 1961. Later on, the assessee's case was selected for scrutiny under section 143(3) of the Act. During the assessment proceedings, the assessee has appeared from time to time before the Assessin....
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.... and supplies it to the organized paper mills. The assessee gets only a small middleman's margin as benefit in this whole process. Hence we humbly submit before your good self not to reject the book result Under section 145(3) of the Act as proposed by your good self. We humbly request to your good self to consider my case in view of the above modus operandi of the business as submitted before your good self and complete the assessment accepting the return of income filed by me in toto and oblige." 4. After going through the reply of the assessee, the Assessing Officer observed that assessee had not produced the books of accounts for verification. Therefore, without verification of books of accounts, bills, vouchers, invoices, cash book etc. the veracity of business activity carried out and the book result shown by the assessee cannot be relied upon. Therefore, in the absence of the same, the book results shown by the assessee was rejected under section 145(3) of the Act. 5. After rejecting the books of accounts, the Assessing Officer made addition on account of sundry creditors. The Assessing Officer noted that in order to verify the creditors, the books of accounts togethe....
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.... us, ld. Counsel for the assessee reiterated the submissions made before the authorities below. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. The first issue relates to estimated addition to the tune of Rs. 40,02,234/- being 15% of the total purchases of waste paper which were treated as non-genuine and unverifiable by the assessing officer. On appeal, ld CIT(A) held as follows: "Briefly stated the facts of this issue are that the appellant is engaged in the business of trading in waste paper. Besides this, the other items traded are scraps like core pipe, duplex kraft waste, paper tube and the like unusable products as disposed off by the end users. As these items are purchased from small time vendors popularly known as Raddiwalas who are mostly illiterate and belong to the lower strata of the society. Their transactions are mostly in cash due to the nature of their work. The appellant is mediator between the raddiwalas and the papaermills. As and when the stock of waste papers, etc. Piles up, the same is sold to di....
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....jarat, Ahmedabad in PCIT Vs. TAYAB YUNUS BARUDGAR in R/TAX Appeal No.81 of 2019 dated 18.06.2019 wherein it was held that when assessing officer rejected books of accounts, the separate addition by relying the said books of accounts should not be made. The findings of the Hon`ble Court is as follows: "10. Ms.Kalpana Raval, the learned senior standing counsel appearing for the Revenue, vehemently submitted that the Tribunal committed an error in interpreting Section 68 of the Act. The learned counsel would submit that the Tribunal committed an error in directing the Assessing Officer in deleting the addition. The learned counsel submitted that although the assessee was given an opportunity to prove the genuineness of sundry creditors, yet no evidence was led in that regard. The learned counsel submitted that in such circumstances the Assessing Officer as well as the CIT(A) were justified in treating the entire amount of sundry creditors as cashcredit and rejected the same under Section 143(3) of the Act. The learned counsel pointed out that the same was added back to the total income of the assessee as per the provisions of Section 68 of the Income Tax Act. Ms.Raval submitted that....
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....e of the glaring mistake and having rejected the books of accounts, could not have made additions by relying upon the same books of accounts. The ratio of the decision of this Court is that the Assessing Officer once having rejected the books of accounts could not have made further additions by relying upon the same books of accounts and the Assessing Officer should calculate the estimated reasonable profit of the assessee considering the history and nature of the business. 14. Having heard the learned counsel appearing for the parties and having gone through the materials on record, we are of the view that none of the two questions formulated in the memorandum of the Tax Appeal could be termed as the substantial question so f law. At best, they could be termed as the mixed questions of law and fact." 10. On the identical facts, our view is fortified by the judgment of the Hon`ble High Court of Jharkhand in the case of AMITABH CONSTRUCTION (P) LTD. Vs. ADDITIONAL COMMISSIONER OF INCOME TAX 335 ITR 523 wherein it was held as follows: "5. In the alternative, it has been submitted that once the AO has rejected the books of account after appreciation of the evidence of the alleged....
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....d after considering the reasons given by the CIT(A) and reasons given by the Tribunal while considering the credibility of those persons and the genuineness of the transactions we are of the firm opinion that the transactions shown in the books of account were not genuine in the light of the statements given by those persons who were examined by the AO. We may mention a few facts which have been taken by the AO as well as by the Tribunal that none of the alleged suppliers of the materials was maintaining the books of account, none of them have filed any return of income, none of them have any evidence regarding purchase of goods supplied by them, none of them have any evidence regarding transport of goods supplied by them and even though a number of them had claimed to have bank accounts, none of the payments was ever received by those persons for the goods from the assessee's bank account and even though the transaction of each of the sundry creditors run into several lakhs not even 'a single rupee out of the cash (bearer cheque) received was deposited into their bank accounts. 10. We have mentioned these reasons only because of the reason that the learned counsel for the assess....
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....e. The matter is remanded back to the AO for passing a fresh assessment order and the parties are directed to appear before the concerned authority on 13th June, 2011." 11. Thus, it is abundantly clear that the Assessing Officer, having once rejected the books of accounts, could not have made further additions on account of bogus sundry creditors at Rs. 56,68,960/- under section 68 of the Income Tax Act, 1961, by relying upon the same books of accounts. Therefore, respectfully following the judgment of the Hon'ble High Court of Gujarat, Ahmedabad in the case of PCIT Vs. TAYAB YUNUS BARUDGAR(supra) and Hon`ble High Court of Jharkhand in the case of AMITABH CONSTRUCTION (P) LTD (supra), we deleted the addition on account of bogus sundry creditors at Rs. 56,68,960/-. 12. Next grievance of the ld Counsel is that since assessee has disclosed net profit @1.79% of turnover (which was enhanced by ld CIT(A) to 2%), therefore, after rejection of books of accounts the profit may be estimated @1.79% of turnover instead of @ 2% of turnover. For that ld Counsel relied on the following judgment of the Co-ordinate Bench of ITAT, Surat in the case of Shri Tayab Yunus Barudgar in ITA No.1063/A....
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.... has given a finding that though the AO has doubted the purchases but has not brought on record any instance of bogus or inflated purchase and has also not doubted the sales "figure disclosed by the assessee. He has further given a finding that Paper Mill Association and fixed the price for purchases of waste-paper from the traders and, therefore, the scope of scope of manipulated sales price was not established and there was no evidence to conclude that wastepaper supplier have higher gross margin on sales only because their purchases are from small type vendors. He has further given a finding that 15% margin of profit is not possible in the case of assesse. He has further given a finding that Central Circle Surat had competed the assessment of small traders by estimating the Gross Profit and had considered the gross profit rate between 0.5% to 0.75% on similar facts as that of assessee. He thereafter after considering the Gross Profit and Net Profit ratio shown by the assessee, estimated the Net Profit at 2% as against 1.10% disclosed by the assessee. Before us, Revenue has not brought any material on record to controvert the findings of ld.CIT(A). Looking to the totality of the ....