IN INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T. S. KAPOOR, ACCOUNTANT MEMBER ITA No.213(Asr)/2016 Assessment year:2007-08 PAN : AIEPG4160F Sh. Gurcharan Singh Ghuman, vs. Income Tax Officer, Phagwara. Ward-1, Phagwara. (Appellant) (Respondent) Appellant by: Sh. Atul Vij, CA Respondent by: Sh. Bhawani Shanker, CA Date of hearing: 30/06/2016 Date of pronouncement: 15/09/2016 ORDER PER T.S. KAPOOR, AM: This is appeal filed by assessee against order of ld. CIT(A)-2, Jalandhar, dated 21.03.2016, for assessment year 2007-08. assessee has taken following grounds of appeal: 1. That order of CIT(A) to extent sustaining additions made by A.O is against law and facts of case. 2. That CIT(A) had erred in law and facts of case in upholding Net profit addition of Rs. 91,787/- in hands of proprietary concern of assessee, i.e. M/s Gurcharan Singh Ghuman. 3. That CIT(A) had erred in law and facts of case in upholding Net profit addition of Rs. 3,63,455/- in hands of proprietary concern of assessee, i.e. M/s Ghuman Motors, and therein sustaining adverse inferences drawn by A.O in hands of assessee on basis of infeasible comparison. 2 ITA No.213/Asr/2016 A.Y. 200708 4. That CIT(A) had gravely erred in law and facts of case in sustaining flat application of Net profit rate of M/s Balak Motors, Ludhiana to case of assessee concern, loosing sight of fact that said infeasible comparison had been resorted to by A.O in absolute violation of basic Principles of Natural Justice . 5. That CIT(A) had erred in law and facts of case in sustaining addition of Rs. 57,614/- in hands of assessee. 6. That CIT(A) had erred in law and facts of case by failing to appreciate that once A.O had estimated income of assessee by applying Net profit rate , thereafter no disallowance u/s 40(a)(ia) of Act could have been separately made in hands of assessee. 7. Any other grounds as may be allowed to be raised at time of hearing of appeal. 2. Out of three additions sustained by ld. CIT(A), two additions relate to trading additions and one addition relates to disallowance under section 40(a)(ia) of I.T. Act, 1961. 3. brief facts, as noted in assessment order are that assessee is proprietor of two different concerns, namely, Gurcharan Singh Ghuman, where he is doing contract work for International Tractor Ltd., Hoshiarpur and Ghuman Motors, where he is doing dealership of Rhino Jeeps. case of assessee was selected for scrutiny. During assessment proceedings, assessee did not produce any books of account, as he claimed that all records has been destroyed in fire. AO in case of Gurcharan Singh Ghuman observed that in earlier years assessee had declared net profit rate of 12.80%, whereas in present year, net profit rate had been declared at 10.39%. Therefore, assessee was show caused to explain same. 3 ITA No.213/Asr/2016 A.Y. 200708 assessee submitted that in earlier years, he was working for two companies, namely, ITL and ICML Ltd. and profit in case of ICML was higher and therefore, in earlier years, profit margin was higher. It was submitted that in present year, assessee undertook work of ITL only . However, AO was not satisfied and he worked out net profit rate at 12.80%. Similarly in respect of Ghuman Motors, AO observed that assessee had declared only 0.20% net profit rate, whereas firm, namely, Balak Autos engaged in similar trade had declared net profit rate at 1.50%. Therefore, AO applied net profit of 1.50% as against 0.20% declared. AO further observed that assessee had made payment without deduction of TDS and therefore disallowance of Rs.77506/- was made u/s 40(a)(ia) of Act. 4. Aggrieved, assessee filed appeal before ld. CIT(A) and reiterated submissions made before A.O. ld. CIT(A) noted down all submissions of assessee. However, he confirmed addition made by AO in respect of net profit rate, but allowed marginal relief in respect of disallowance under section 40(a)(ia) of Act and sustained addition to extent of Rs.56,714/-. Aggrieved, assessee is in appeal before us. 5. At outset, ld. counsel for assessee submitted that details submissions were made before ld. CIT(A) regarding decrease in profit ratio in respect of contract business of assessee, wherein it was explained that in present year work of only one firm was 4 ITA No.213/Asr/2016 A.Y. 200708 undertaken which was less profitable as compared to other firm. ld. CIT(A) noted submissions of assessee but he did not rebut same and simply upheld action of A.O. Reliance was placed on decision of Hon ble Punjab & Haryana High Court in case of Telelinks vs. CIT, reported at 377 ITR 158 (P&H). Similarly, it was submitted hat net profit ratio of Balak Autos was never confronted to assessee and therefore, application of 1.50% net profit rate in case of Ghuman Motors was against principles of natural justice. 5.1. Regarding disallowance under section 40(a)(ia) of Act, ld. counsel submitted that since profit of assessee has been estimated and therefore, further disallowance was not warranted. In this respect, reliance was placed on judgment of Hon ble Punjab & Haryana High Court in case of CIT vs. Smt. Santosh Jain, 296 ITR 324 (P&H). Alternatively, it was submitted that matter may be remitted back to file of A.O. who in view of decision of Hon ble Supreme Court, in case of Hindustan Coca Cola Beverage (P) Ltd. vs. CIT, 293 ITR 226 (SC), should re-calculate quantum of liability, as payee had paid taxes thereon. 6. ld. DR, on other hand, relied upon orders of Authorities below. 7. We have heard both parties and have perused material available on record. As regards trading addition made by applying higher net profit ratio as compared to declared 5 ITA No.213/Asr/2016 A.Y. 200708 net profit ratio, we find that before ld. CIT(A), detailed submissions were made. However, ld. CIT(A) did not comment upon same and simply brushed aside contentions of assessee. 7.1. Similarly, addition in case of M/s. Ghuman Motors was made on basis of net profit rate declared by Balak Autos. assessee before ld. CIT(A) has explained that said Balak Autos was not comparable with assessee s case but ld. CIT(A) just ignored submission and without commenting upon, upheld addition. We further find that net profit rate as declared in Balak Autos was not confronted to assessee. Hon ble Punjab & Haryana High Court in case Telelinks vs. CIT, 377 ITR 158 (P&H), under similar circumstances has held as under: Discretion to determine adequate net profit rate undoubtedly vests with authorities under Act but discretion so vested is neither unbridled nor unguided as it must be guided by reason i.e. should be preceded by reasons which, in turn, should be preceded by perceptible process of reasoning based upon due consideration of all relevant acts . If Assessing Officer proceeds to rely upon assessments of other assessees engaged in similar business to do so only after determining points of similarity etc. 8. In view of above, we deem it appropriate to remit issue back to file of AO to be decided afresh in accordance with law after confronting same to assessee. 6 ITA No.213/Asr/2016 A.Y. 200708 9. As regards disallowance under section 40(a)(ia), ld. counsel for assessee has submitted that same may be remitted back to AO to give effect to decision of Hon ble Supreme Court, in case of Hindustan Coca Cola Beverage (P) Ltd. vs. CIT(supra). We, therefore, deem it proper to remit issue back to file of A.O. to be decided afresh in accordance with law, as directed hereinabove, after affording due and adequate opportunity of hearing to assessee. 10. In result, appeal of assessee is allowed for statistical purposes. Order pronounced in open court on 15/09/2016. Sd/- Sd/- (A.D. JAIN) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER /SKR/ Dated: 15/09/2016 Copy of order forwarded to: 1. Assessee:Sh. Gurcharan Singh Ghuman, Phagwara 2. ITO Ward-II, Phagwara. 3. CIT(A), JLR 4. CIT, JLR 5. SR DR, ITAT, Amritsar. True copy By order Income Tax Appellate Tribunal, Amritsar Bench: Amritsar. Gurcharan Singh Ghuman v. Income-tax Officer, Ward-1, Phagwara