TaxTMI 
TaxTMI 
2024 (7) TMI 1791
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....d. ii. Because the order is bad in the eyes of law and against the facts." 2. The facts of the case are that the assessee is a partnership firm deriving income from the business of wholesale trading of Gur, Sugar, Dal etc,. It filed its return of income for the assessment year 2017-18 on 31.10.2017, declaring a total income of Rs. 2,38,450/-. The case was selected for scrutiny under CASS. During the assessment proceedings, after examination of the books of accounts, the ld. AO observed that the debit and credit entries in the bank account were not commensurate with the purchases and sales, as declared by the assessee. The ld. AO also observed, that despite an increase in sale by more than Rs 02 Crores during the financial year 2016-17, the gross profit still remained at 1.76%, which was the identical figure for the financial year 2015-16. The Assessing Officer also observed discrepancies between the cash in hand as on 31.03.2016, reflected in the cash book and in the audit report, which in his view showed that the books of accounts that assessee maintained, were not authentic. The Assessing Officer also observed, that the assessee had only filed copy of cash book, ledge....
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....der. The assessee is aggrieved at this sustenance of enhanced gross profit and has accordingly come in appeal before us. 4 A written submission has been filed by the assessee through his Authorized Representative, Sh. Sanjay Kumar, Advocate. The same is reproduced below :- "B) Facts in Brief "1. That the Appellant is a partnership firm of more than 40 years and deriving income from the Business of wholesale Trading of Gur, Galla, Dal, Sugar etc. The Case of the appellant was selected for Scrutiny because there was Information with the Department that there were huge deposits made by the appellant during the Demonetization period i.e. 09/11/2016 to 31/12/2016. 2. That while passing the Assessment Order dated 27/12/2019 the Ld. Assessing Officer rejected the Books of Accounts due to the reason mentioned in the Assessment Order and made addition of Rs. 45,00,000/- u/s 69A (Page And further made Addition applying the proviso to Section 145(3) of Rs 12,25,374/- applying the Subsequent year (A.Y.2018-19) rate of Gross Profit and also adding Rs. 5,80,953/- applying the rate of Net profit Rate. 3. That in the Appeal before the NFAC, the Appeal was par....
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....g the declared GP rate at 0.05% and considering the case of Rellan Motors Pvt. Ltd for AY 2013-14 which has declared GP rate of 3.92%, applied 3.25%. Firstly, we find that it was a case of AY 2013-14 which is later to the year under consideration. Needless to say, that the result of the subsequent year cannot be applied in the preceding year. The Copy of Judgment is enclosed as Annexure 5. B) Average Rate of Gross Profit Applied considering the Past History and Comparable cases. The Agra Bench of the Hon'ble Income Tax Appellate Tribunal in I.T.A No. 331/Agra/2016 of A.Y.2011-12 in the case of Shri Om Prakash Singh, 2307, Jheengur Pura, Mathura. PAN: ADMPS3229F (Appellant) Vs .. Asst. Commissioner of Income Tax, Circle-3, Mathura. (Respondent), while partly allowing the Appeal relied upon the Past History & comparable cases and applied the average Rate of past two years (A.Y.2009-10 AND A.Y.2010-11) Kindly see Para 9 onwards of the Judgement which is reproduced below "9. We have heard both the sides, perused the material on records and the judgments relied upon. We agree with the argument of the learned Sr. D.R that estimation is a pure quest....
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....sider it fair, reasonable and logical to apply an average rate of two years referred above i.e. (A.Y 2009-10 N.P rate of 1.88% and A.Y 2010-11 N.P rate of 5.25%) which gives N.P rate of 3.50% as against 2.04% shown by the assessee on turnover of Rs. 14,35,07,199/-. This view of ours is in conformity with the view recently adopted by the Division Bench of Agra ITAT, in ITA No. 330/Agra/2016, order dated 14.05.2018, in the case of Smt. Archana Dutta Vs ACIT, Circle-3, Matura for A.Y 2011-12 in which one of us was the party to the Bench. In this case after due consideration of past history average N.P rate was arrived and applied by the Division Bench. In the referred case, material facts have been found to be same, as assessee therein was also from Mathura and the Assessing officer being the same in person, impugned order was also on same lines and so is the Assessment Year i.e. A.Y. 2011-12. This decision of ours is after consideration of the past history of the assessee and comparable case. Similar view was taken by the Agra Bench in the case of M/s Sri. Siddheshwar Engineers India (P) Ltd. Vs ACIT, Firozabad in ITA No. We also make it clear that assessee shall not be enti....
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.... produce relevant details and evidences before the AO and hence dismissed the assessee's appeal (Para 6)," 6. We have duly considered the facts of the case and the legal precedents cited by both the parties. It is observed that the assessee has not questioned the act of the ld. AO in rejecting the books of accounts under section 145(3). Therefore, this issue is final and accepted by both sides. The only issue that requires determination is what the estimate of gross profit should be, after the rejection of the books of accounts. The estimation of gross profit is purely a question of fact and must necessarily depend on the facts of each case, rather than decisions of higher authorities. At best, those decisions can act as a guide in helping us towards a fair estimation of the assessee's profits, after considering the facts of the case in question. From a perusal of the order, it appears that, in view of the assessee declaring a higher gross profit in the subsequent year on a higher turnover than previous years, the ld AO has derived a correlation that the increase in turnover would translate into higher gross profits. The assessee has not questioned the rejection of the b....
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..... 8. The ld. DR, in his submission, has also drawn our attention to several case laws wherein the Hon'ble Courts have upheld the decision of the Assessing Officer to estimate a higher rate of gross profit / net profit in cases where the books of accounts had been rejected under section 145(3), despite the fact that lesser rates of gross profit/ net profit had been accepted by the Department in earlier assessment years. Among the decisions relied upon by the ld. Sr. DR, in our view the decision of the Hon'ble Delhi High Court in the case of CIT vs. Chadha Automobiles (India) (2011) 13 taxman.com 152 Delhi is of particular relevance to the arguments raised by the ld. Sr. DR. In the said order, the Hon'ble High Court has laid down that accounts of the past assessment years could not be the sole basis for arriving at a G.P. rate for the year in question because during the year in question, the books of accounts had been specifically rejected finding discrepancies therein. The Court observed that the discrepancy was found in respect of stock and cash entered into the books of accounts and discovered during survey, due to which the assessee had offered the unexplained amou....
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....laimed by it to explain such deposit, led the assessing officer to reject the books of account as incorrect and incomplete. The Assessee was unable to bring out, at any stage of the proceedings, any special circumstances that could have suddenly led to the enhancement of its turnover in FY 2016-17 by over 50%, leading to an apprehension that it was suppressing its turnover and profits in the years preceding demonetization. Moreover, it is observed that in the year subsequent to demonetization, the assessee more than doubled its gross profit. Again no explanation was ever provided as to the reason for this sudden increase in gross profit that could explain it, as an aberration. Thus, like in the case of CIT vs. Chadha Automobiles (supra), the assessee displayed trading results in the immediately succeeding year that stood accepted by the department. Any fair estimation of the gross profit of the assessee must therefore necessarily take into account the trading results declared by it in the immediately succeeding year. However, we are not in agreement with the Ld AO or the Ld CIT(A) when they adopt the latter years gross profit as the sole criteria to determine the gross profit of th....