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2025 Supreme(Online)(ITAT) 6017
INCOME TAX APPELLATE TRIBUNAL (CHANDIGARH BENCH)
Laliat Kumar, J, Krinwant Sahay, AM
Assessee – Appellant
Versus
Revenue – Respondent
Income Tax Appeal|ITA No. 819/Chd/2024
For the Appellants/Petitioners: Shri Ashwani Kumar, Ms. Muskan Garg
For the Respondents: Shri Vivek Vardhan
The rejection of books and income additions absent specific evidence is unjustified; proper documentation and consistent accounting principles mandate taxpayer's claims should be upheld.
Headnote:(A) Income Tax Act, 1961 - Sections 69A and 145(3) - Rejection of books of accounts and addition of income upheld by CIT(A) - Assessee's books were maintained properly and transactions were substantiated with documents - Enhancements on GP and assumptions on cash deposits unfounded - Appeal allowed. (Paras 3, 8.6, 8.7)
(B) Tax assessments - Justification of income estimation requires clarity and substantiation - Reliance on inspector reports without verification of comprehensive records flawed and leads to arbitrary conclusions. (Paras 8.1, 8.3)
Facts of the case:
The assessee, a partnership firm engaged in manufacturing and trading, declared income of Rs. 16,27,100/- for AY 2017-18. They were scrutinized due to significant cash deposits during demonetization. The AO concluded transactions with M/s. B.S. Traders were bogus and rejected the books under Section 145(3), leading to income addition of Rs. 48,80,064/- based on enhanced GP rate of 13.06%. CIT(A) upheld AO's decision.
Findings of Court:
The rejection of books lacked substantial justification as adequate evidence was provided by the assessee. The addition towards gross profit rate adjustment was arbitrary and unfounded due to no evidence of income suppression. Addition for cash deposits was based on presumptions without factual support.
Issues: The validity of additions made on speculative grounds under Sections 69A and 145(3) and the basis of the gross profit rate enhancement were contentious.
Ratio Decidendi: The court found the rejection of books unjustifiable by the authorities due to non-identification of specific defects, asserting that mere absence of replies from a third-party cannot warrant income addition. The enhancement of GP lacked a rational basis and violated taxation principles requiring consistency.
Result: Appeal allowed.
| Table of Content |
|---|
| 1. appeal filed against a previous order of cit(a) regarding income tax assessment. (Para 1 , 2) |
| 2. the appellant declared income with the surrounding circumstances leading to scrutiny under cass. (Para 3 , 4) |
| 3. arguments presented against arbitrary enhancements and treatment of cash deposits. (Para 6) |
| 4. court's observations lead to the allowance of the appeal based on evidence and justifications. (Para 8) |
आदेश/Order
PER LALIET KUMAR, J.M:
This is an appeal filed by the Assessee against the order of the Ld. CIT(A)/NFAC, Delhi dt. 19/06/2024 pertaining to Assessment Year 2017-18.
2. In the present appeal Assessee has raised the following grounds:
1. That order passed u/s 250 of the Income Tax Act , 1961 by the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi is against law and facts on the file in as much as Learned CIT(A) was not justified to uphold the action of Learned Assessing Officer in rejecting the books of accounts without pin-pointing any specific defect in the maintenance of the books of accounts.
2. That Learned CIT(A) was further not justified to arbitrarily uphold the action of the Learned Assessing Officer in making an addition of Rs. 48,80,064/- by adopting an arbitrary G. P. rate of 13.06% as against 12.56% on the declared turnover of the appellant.
3. That Learned CIT(A) was further not justified to arbitrarily uphold the action of the Learned Assessing Officer in making an addition of Rs. 41,00,000/- on account of cash deposited during demonetization period u/s 69A of the Income Tax Act , 1961 without appreciating the fact that the entire cash deposited was out of withdrawals made from the bank account of the appellant firm in the earlier periods.
3. Briefly, the facts of the case are that the assessee is a partnership firm engaged in the manufacturing and trading of yarn and cloth, which filed its return on 27/10/2017 for A.Y. 2017-18, declaring an income of Rs. 16,27,100/-. The case was selected for scrutiny under CASS due to abnormal cash deposits during the demonetization period. As per AO, the facts and circumstances of the case lead to only one conclusion: there is only trading of bills with no actual purchase/sale transactions between the M/s. B.S. Traders and M/s. Kaur Sain Spinning Mills, therefore, the nature of the transaction with M/s. B.S. Traders are bogus purchase/sale transactions. These are sham transactions/paper transactions which result in inflating financial statements i.e. by increasing the turnover so as to increase the cash credit limits/loans from the bank. The Assessing Officer (AO) rejected the books of accounts under Section 145(3) of the Income Tax Act , 1961, mentioning discrepancies in transactions with M/s. B.S. Traders , the absence of supporting documents, and the lack of evidence for the actual movement of goods. The AO estimated the Gross Profit (GP) rate at 13.06% as against the declared 12.56%, leading to an addition of Rs.48,80,064/-. Further, cash deposits of Rs.41,00,000/- during demonetization were treated as unexplained under Section 69A . The total assessed income was computed at Rs.1,06,07,160/-.
4. Against the order of the Ld. AO the assessee went in appeal before the Ld. CIT(A). The Ld. CIT(A) sustained the order of the AO by stating as under:
“ I have gone through all the submissions and documents furnished by the appellant and the same are not tenable due to the reasons mentioned below. The appellant has not submitted gate inward register/gate outward register/bills and vouchers related to movements to goods and therefore has not discharged its onus regarding movements of goods. Appellant stated that there was no trading transaction between them and the said concern so the question of movement of goods should not be the basis of any adverse inference to be drawn. The appellant stated that they used to deliver the material directly to the purchasers. The appellant has not given any documentary evidences to prove this. It furnished only trad
