Facts of the Case

The assessee, SPS Automobiles, filed its return of income for Assessment Year 2015-16 declaring total income of Rs. 6,71,980. During scrutiny proceedings, the Assessing Officer issued notices under Section 142(1) of the Income Tax Act, 1961. Although the assessee’s advocate attended and filed submissions, the books of account and supporting bills and vouchers were not produced despite multiple opportunities.

The Assessing Officer recorded that at least twelve opportunities were granted for producing books and supporting evidence, but only partial replies and copies of some expense accounts were furnished without verifiable documents. Consequently, penalty under Section 271(1)(b) was imposed. On continued non-compliance, the AO completed the assessment under Section 144 (best judgment assessment).

During assessment, the AO treated sundry creditors amounting to Rs. 22,15,090 as non-verifiable due to lack of purchase and sale vouchers and added the amount as income. Similarly, advances from others totaling Rs. 12,86,100 were treated as bogus liabilities for failure to establish identity, creditworthiness, and genuineness. Further, due to non-production of books and decline in profit rate compared to the preceding year, the AO rejected the books and made an additional addition of Rs. 3,89,587 based on prior year net profit rate. In total, additions of Rs. 45,62,760 were made.

On appeal, the CIT(A) noted repeated non-compliance and upheld all additions, observing that only names of creditors were provided without addresses or confirmations, and no meaningful details were furnished to enable verification.Aggrieved, the assessee filed an appeal before the ITAT.

 

Issues Involved

  1. Whether the best-judgment assessment under Section 144 was justified due to non-production of books and evidence.
  2. Whether additions for sundry creditors and advances from others as bogus liabilities were sustainable without detailed verification.
  3. Whether rejection of books and estimation of profit based on previous year net profit rate was justified.
  4. Whether additional evidence produced before the ITAT should be admitted and considered.

 

Petitioner’s Arguments (Assessee)

  • The assessee admitted that proper compliance was not made earlier due to failure of counsel to adequately represent the matter.
  • It was submitted that audited accounts existed and the doubts regarding creditors and advances could be satisfactorily explained.
  • Additional documents, not filed before lower authorities, were produced before the Tribunal to demonstrate that the additions were unwarranted.
  • The assessee requested that the matter be remanded to the Assessing Officer to allow production of all necessary records and proper adjudication on merits.
  • Assurance was given for full compliance in fresh proceedings.

 

Respondent’s Arguments (Revenue)

  • The Department contended that ample opportunities had already been provided during assessment and appellate proceedings.
  • The additions were made only due to persistent failure of the assessee to furnish required details.
  • It was argued that the case did not warrant interference; however, if remand was granted, strict directions for compliance should be issued.

 

Court Order / Findings (ITAT Allahabad)

  • The assessee had made certain submissions earlier explaining the origin and adjustment of advances but failed to provide supporting documentation.
  • Names of creditors were furnished, but complete details and evidence regarding transactions and settlements were not produced before the AO.
  • Examination of the paper book revealed that a substantial portion of the creditors represented opening balances from the preceding year and that documents relating to identity, transactions, and subsequent settlement were relevant for adjudication.
  • In the interest of justice, the Tribunal admitted the additional evidence under Rule 18(4) of the Income Tax Appellate Tribunal Rules, 1963.
  • The matter was restored to the file of the Assessing Officer for fresh assessment after considering the newly produced material.
  • The assessee was directed to produce all documents and explain the case before the AO.

Important Clarification

  • The Tribunal did not decide the merits of the additions but remanded the matter for proper verification.
  • Admission of additional evidence was granted due to its relevance and in the interest of natural justice.
  • Failure to comply in earlier proceedings can lead to adverse assessment, but where relevant evidence exists, authorities should examine the matter substantively.
  • The assessee was specifically directed to cooperate fully in fresh proceedings; otherwise, non-compliance could be viewed adversely.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1771222060_SPSAUTOMOBILESPRAYAGRAJVS.ITOWARD15ALLAHABAD.pdf

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