If an estimation is made in absence of books of account, then it is considered that books of account have not been relied upon and deemed to be rejected.

IN THE INCOME TAX APPELLATE TRIBUNAL
VISAKHAPATNAM BENCH, VISAKHAPATNAM

BEFORE SHRI N.K. CHOUDHRY, HON’BLE JUDICIAL MEMBER &
SHRI D.S. SUNDER SINGH, HON'BLE ACCOUNTANT MEMBER

I.T.A. No. 603/VIZ/2019
(Asst. Year : 2014-15)

ACIT, Circle-2(1),
Vijayawada.
(Appellant)

 Vs. 

Smt. Dhulipudi Saroja
Ramesh, D.No. 59-7-18/4,
Acharya Ranga Street,
Gayatrinagar, Vijayawada.
PAN No. AFVPD 0846 D
(Respondent)

Assessee by : Shri C.Subrahmanyam, FCA
Department by : Shri T.S.N. Murthy, CIT DR

Date of hearing : 01/02/2021.
Date of pronouncement : 12/02/2021.

O R D E R

PER N.K. CHOUDHRY, JUDICIAL MEMBER

This appeal has been preferred by the RevenueDepartment against the order dated 17/07/2019 impugnedherein passed by the ld.CIT(A), Vijayawada u/sec. 250(6)of the Income Tax Act, 1961 (hereinafter referred to as "Act") for the A.Y. 2014-15.

2. Brief facts of the case are that the Assessee beingproprietor of M/s. Laasya Garments, engaged in the business of cutting and stitching of uniforms had filed her return of income by admitting total income of Rs. 13,30,280/- for the year under consideration on30/11/2014. The AO while completing the assessmentu/sec. 143(3) of the Act determined the total taxableincome at Rs. 3,27,36,875/- and made certain additionswhich includes ad hoc disallowance to the tune of Rs.2,36,88,075/- i.e. @25% of various heads of expenditureand disallowance of interest paid on gold loan u/sec. 37(1) of the Act to the tune of Rs.3,84,184/-, which are under consideration in the instant appeal.

3. The assessee challenged the additions/disallowancesinter-alia mentioned above before the ld. CIT(A). Theld.CIT(A) vide impugned order deleted the ad hocdisallowance of expenditure and directed the AO todetermine the business income @8% of the turnover.Further the Ld. CIT(A) directed the AO to delete thedisallowance of interest on gold loan to the tune of Rs.3,84,184/- made in the assessment order.

4. The revenue department preferred the instant appealand submitted that the impugned order is not only erroneous and against the law but also improper and suffers from perversity. On the contrary the Ld. A R refutedthe claim of the Department and supported the impugned order.

5. Heard the parties and perused the material availableon record. In the instant case, two issues are involved, therefore, we will deal with the issues separately.

6. First issue relates to the deletion of adhocdisallowance @25% made by the AO and direction to theAO to determine the business income @8% of the turnover by the ld. CIT(A).

The AO while framing the assessment issued statutorynotices and asked the Assessee to furnish copies of the balance sheet, profit & loss account, computation, 3CB &3CD reports, 26AS statement and books of account etc. Though, the Assessee has submitted all the documents asked for by the AO, however, failed to produce the books of account and expressed her inability to produce the sameand also failed to produce the bank account for verification.The assessee also expressed her inability to produce thebills/vouchers before the AO, therefore, on the basis of the material available on record, the AO completed theassessment and disallowed 25% of the expenses claimedand consequently made the addition of Rs. 2,36,88,075/ -. The said addition came into consideration before theld.CIT(A), who vide impugned order, directed the AO todelete the disallowance and to determine the business income @8% of the turnover. The concluding part of theimpugned is reproduced herein for the sake of convenience and ready reference:-

“12. It is seen that the facts of the case of the instant assessment year are similar to the facts of the case for A.Y. 2012-13 for which the Hon'ble Tribunal upheld theappellate order of the CIT(A) directing the AO to estimatethe income of the assessee at 8% of the turnover. Hence, respectfully following the decision of the Hon'ble Tribunal in the assessee’s own case for A.Y. 2012-13, the ad hoc disallowance of the expenditure to the extent ofRs.2,36,88,075/- made in the assessment order is directedto be deleted and the business income of the assessee isdirected to be determined at 8% of the turnover of Rs.9,50,66,470/-. These grounds of appeal are therefore allowed.”

6. We have perused the decision of the ld. CIT(A) on the instant issue and are of the considered view that as the ld. CIT(A)while following the decision of the his predecessor and Co-ordinate Bench of Tribunal in the Assessee’s own case for the relevantA.Y. 2012-13, directed the AO to delete the adhoc disallowance stated above and to determine the business income @ 8% of theturnover. Even there is nothing on record contrary to theconclusion of the ld. CIT(A), hence, no case is made out for interference by this Court on this issue.

7. Second issue relates to the deletion of disallowance of interest paid on gold loan. The AO disallowed the interest paid ongold loan to the tune of Rs. 3,84,184/- which was debited to the profit & loss account. The ld. CIT(A) by following the decision ofthe Hon'ble A.P. High Court in the case of Indwell Constructions Vs. CIT [(1998) 232 ITR 776] held that no separate disallowance of the gold loan interest debited to the P & L A/c. can be madeonce the Books of account of the Assessee have been rejected andbusiness income has been directed to be estimated at 8% of the turnover, hence the AP is directed to delete the disallowance of gold loan interest of Rs.3,84,184/- made in the Assessment order.

8. The Revenue/Department specifically raised an objection that both the authorities below failed to reject the books ofaccount and therefore separate gold loan interest debited to theprofit & loss account by the AO was justifiable and estimation of   business income @8% does not come into picture for the aforesaid reason.

9. The ld.AR of the Assessee refuted the claim of the Revenue Department.

10. We have given our thoughtful consideration to the claim of
the Revenue Department and analysed the facts of the instant case again. It is undisputed fact that the Assessee has failed to produce the books of account and therefore in the absence of same , the AO made the disallowance of expenditure to the tune of 25% and the ld. CIT(A) also in absence of books of accountdirected to determine the business income to the tune of 8% ofthe turnover. May be the authorities below have failed to reject the books of account specifically due to its unavailability or non production by the Assessee but it is a fact that the income has been estimated on the turnover while not relying upon the books of account and therefore in our considered opinion if any estimation is made in the absence of books of account, then it impliedly goes to show that books of account have not been relied upon and deemed to have been considered as rejected. The Ld.CIT(A) while coming to the conclusion for deletion of the disallowance under consideration respectfully relied upon and followed the decision rendered by the Jurisdictional High Court in the case Indwell Constructions Vs CIT {1998} 232 ITR 776 wherein it was held that where Books of account have beenrejected and income is estimated, then no separate disallowanceis warranted. We also could not find out any material on record,contrary to the conclusion drawn by the Ld. CIT(A) hence on the aforesaid considerations, the issue in hand does not require any interference, consequently, the ground related to deletion of interest on gold loan is rejected.

 In over all consideration, the order of the Ld. CIT(A) is upheld.

11. In the result, appeal filed by the Revenue Department stands dismissed.

Order Pronounced in open Court on this 12th day of Feb., 2021.

sd/-                                                   sd/-
 (D.S. SUNDER SINGH)                  (N.K. CHOUDHRY)
Accountant Member                     Judicial Member

Dated: 12th February, 2021.
vr/-

Copy to:
1. The Assessee - Smt. Dhulipudi Saroja Ramesh, D.No.
59-7-18/4, Acharya Ranga Street, Gayatrinagar,
Vijayawada.
2. The Revenue – ACIT, Circle-2(1), Vijayawada.
3. The Pr.CIT, Vijayawada.
4. The CIT(A), Vijayawada.
5. The D.R., Visakhapatnam.
6. Guard file.

 By order

(VUKKEM RAMBABU)
Sr. Private Secretary,
ITAT, Visakhapatnam.