Income Tax Appellate Tribunal - Pune
Champalal Mukanchand Jain., Dhule vs Department Of Income Tax on 29 January, 2013
INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri R.K. Panda, Accountant Member
ITA No. 1238/PN/2011
(Assessment Years 2008-09)
ACIT, Circle-3(1), Dhule. .. Appellant
Vs.
Champalal Mukanchand Jain,
Prop. C.M. Jewellers, Tilak Road,
Nandurbar.
Pan No.AALPJ 4586D. .. Respondent
Co. No. 90/PN/2011
(Assessment Years 2008-09)
Champalal Mukanchand Jain,
Prop. C.M. Jewellers, Tilak Road,
Nandurbar.
Pan No.AALPJ 4586D. .. Appellant
Vs.
ACIT,Circle-3(1), Dhule. .. Respondent
Assessee by : Sri Sunil Ganoo
Department by : Ms. Ann Kapthuama
Date of Hearing : 29-01-2013
Date of Pronouncement : 31-01-2013
ORDER
PER R.K. PANDA, AM :
The appeal filed by the revenue and the CO filed by the assessee are directed against the order dated 25-07-2011 of the CIT(A)-I, Nashik relating to Assessment Year 2008-09. For the sake of convenience, these were heard together and are being disposed of by this common order.
2. The revenue in its only ground of appeal has challenged the order of the CIT(A) in deleting the addition of `9,69,338/- made by the Assessing Officer on account of low GP.
3. Facts of the case, in brief, are that the assessee, an individual, is engaged in the business of retailer in Gold, Silver ornaments and Bullions. A survey u/s.133A was carried out on the business premises of the assessee on 18-10-2007. On being confronted by the survey party about the discrepancies noted during the survey, the assessee had made a total declaration of `15,04,491 under the following heads :
a. Excess stock `5,90,363
b. Excess cash `6,04,128
c. Unexplained investment
in construction `3,10,000
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3.1 During the course of assessment proceedings the assessee filed copies of balance sheet,
trading account, P&L account, capital account etc. The Assessing Officer noted that the assessee in its gold ornaments sale/purchase account has shown total sales at `34,37,662. The GP disclosed on that account was `5,30,662 which comes to 15.43%. He noted that during the assessment year 2007-08 the GP disclosed was `8,63,660 on a total sale of 37.94 lakhs which works to 22.76%. Similarly, during assessment year 2006-07 on a total sale of 34.49 lakhs the GP disclosed was `11,76,662 which comes to 34.12%. Therefore, the Assessing Officer came to the conclusion that the GP disclosed during the year under consideration is ridiculous. He observed that the assessee has not maintained any day to day stock in respect of various types of gold ornaments, tounch-wise and item-wise. There was no inventory of opening stock and closing stock. During the course of assessment proceedings the assessee had produced only two bill books for the entire year which shows each bill ranging from `18000 to `19000. He noted that during the whole year the assessee has issued only 194 sale bills. The Assessing Officer, therefore, came to the conclusion that the books of accounts are not reliable. Applying the provisions of section 145 the Assessing Officer rejected the book results. After giving due consideration to the holidays etc. the Assessing Officer held that there should be 300 minimum number of working days in a year. Considering the average sale of `20,000 per day, the Assessing Officer determined the total sales for 300 days @ `20,000 per day at `60 lakhs. Applying the GP rate @25% and after giving credit to the GP declared by the assessee the Assessing Officer determined the suppressed gross profit at `9,69,338 and added the same to the total income of the assessee.
4. Before the CIT(A) it was submitted that the assessee maintains regular books of account and also maintains quantity account in the ledger itself. It was submitted that the fall in GP was attributable to the fluctuations in the rate of gold and also due to overhead expenses on account of interest payment. It was submitted that the purchase and sale bills are duly vouched and were verified by the survey party and no discrepancy was found. The month- wise purchase and sales were produced before the Assessing Officer and no defects were found by the Assessing Officer. It was further submitted that non-maintenance of day to day stock and non-maintenance of inventory of opening and closing stock cannot lead to reject the books since the details maintained by the assessee are sufficient to determine the correct book results. Relying on a couple of decisions, it was submitted that if stock register is not 3 maintained by the assessee that may put the Assessing Officer on guard against falsity of return made by the assessee and persuade him to carefully scrutinise the account books of the assessee but absence of one register alone does not amount to such a material which would lead to a conclusion that account books were incomplete or inaccurate. Similarly, relying on various other decisions, it was submitted that if rate of GP declared by the assessee in a particular period is lower than the gross profit declared by the assessee in the preceding year, that may alert the Assessing Officer and serve as a warning to him to look into accounts more carefully, but a low rate of GP, in absence of any material pointing towards falsehood of account books, cannot by itself be a ground to reject account books u/s.145. It was submitted that the assessee purchases only old ornaments and after remaking them sells the same. Therefore, whenever customers come to sell their ornaments, purchases are recorded and remade ornaments are resold. Whenever sales have been effected the sale bills are prepared. Since the assessee operates in a smaller place, it cannot be said that there will be sale and purchase every day. It was further submitted that the estimate of sales @ `20,000 per day for 300 days is arbitrary, based on presumptions, surmises and conjectures. Similarly the adoption of GP rate at 25% also is very high. It was accordingly submitted that the addition made by the Assessing Officer should be deleted.
5. Based on the arguments made by the assessee the learned CIT(A) deleted the addition. While doing so, he noted that the Assessing Officer rejected the books of account without examining the same properly. He noted that the Assessing Officer rejected the book results only on the ground that no stock register is maintained and no opening and closing stock are maintained. According to the Ld. CIT(A) that alone cannot lead to a conclusion that the books are not reliable or from which profit could not be determined. According to him, the accounts, which are regularly maintained in normal course of business under the provisions of I.T. Act, are free from any serious qualifying remarks and should be taken as correct unless there are any strong and sufficient reasons to indicate that they are unreliable. According to him, the defects pointed out by the Assessing Officer to justify the rejection of the books of accounts are infact no defects. Relying on a couple of decisions, he observed that it is the settled proposition of law that section 145 of the I.T. Act cannot be undertaken in light hearted manner. The Assessing Officer has to point out specific mistake or discrepancy in the books of account which in the instant case he has not pointed out. Mere absence of stock register 4 cannot justify resort to estimation of profits. He further noted that the Assessing Officer has not given any comparable profit rate nor has he brought any comparable case to justify the addition made by him. Further, the system of accounting of working out profit by the assessee is being followed consistently and therefore there is no justification to reject the system by making estimated profit. He noted that the approach of the Assessing Officer in the instant case is incorrect and unwarranted in the facts and circumstances of the case. He accordingly deleted the addition made by the Assessing Officer which according to him was on the basis of suspicion and surmises. Aggrieved with such order of the CIT(A) the revenue is in appeal before us.
6. The learned Departmental Representative heavily relied on the order of the Assessing Officer. She submitted that since the assessee has not maintained stock register the true profit cannot be determined. Therefore, the order of the CIT(A) should be set-aside and the order of the Assessing Officer should be restored.
7. The learned counsel for the assessee on the other hand heavily relied on the order of the CIT(A). He reiterated the same submissions as made before the learned CIT(A). He submitted that mere fall in gross profit rate cannot be a ground for rejecting the book results and going for estimation that too on the basis of presumptions and surmises in absence of any other defect in the books of account. He submitted that the assessee is consistently following the method of accounting which he has followed during the year. No discrepancy whatsoever were pointed out by the Assessing Officer except the non-maintenance of the stock register. Further, the sales and purchases are fully vouched and the assessee's trading account is fully supported by quantitative details.
8. Relying on the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Smt.Poonam Rani reported in 326 ITR 223 he submitted that when assessee furnishes complete details including quantitative data in respect of purchase of raw material, manufacturing of copper wire and sale of finished products and the Assessing Officer having not pointed out any particular defect or discrepancy in the books of account maintained by the assessee, fall in GP rate alone could not by itself be a ground to reject the accounts by invoking the provisions of section 145(3).
58.1 Referring to the decision of Hon'ble Punjab and Haryana High Court in the case of CIT Vs. K.S. Bhatia reported in 269 ITR 577 he submitted that in the absence of any definite finding that the case of the assessee comes within the ken of the first proviso to section 145(1), it is not possible for the Assessing Officer to reject the book results and make addition to the gross profit. It was held that the mere fact that the profits are low compared to the earlier year is not a circumstance or material aliunde which could justify an estimate in the circumstances of the case. He also relied on the decision of the Ahmedabad Bench of the Tribunal in the case of ACIT Vs. Budhalal and Company reported in (2011) 10 taxmann.com 52 and the decision of the Bangalore Bench of the Tribunal in the case of DCIT Vs. Gajanan Traders reported in 104 TTJ 1030.
9. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case the Assessing Officer rejected the book results and made addition of `9,69,338 by estimating the sales and gross profit on the ground that the GP rate declared by the assessee is ridiculously low as compared to the results of the preceding two years and that the assessee has not maintained any stock register. From the various submissions made by the assessee, we find although no stock register was maintained by the assessee he has maintained monthly sales and purchase of gold ornaments giving opening stock in value as well as in quantity and purchase in value as well as in quantity. The assessee has maintained sales and purchase bills which were fully vouched and no discrepancy was found either by the survey party or by the Assessing Officer. Further, the submission of the assessee that its trading account is fully supported by quantitative account has not been controverted by the learned Departmental Representative. We find the Assessing Officer has found no other discrepancy in the books of account except non-maintenance of stock register. The submission of the assessee before the lower authorities that it purchases only old ornaments and after remaking them sells the same has also not been controverted by the learned Departmental Representative. We also find merit in the submission of the learned counsel for the assessee that the estimate of sales of `20,000 per day by taking 300 days in the year as the working days of the assessee firm and estimation of GP rate @25% of the turnover is purely on the basis of surmises and conjectures and therefore should not be accepted.
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10. The Hon'ble Delhi High Court in the case of Smt. Poonam Rani (Supra) at Para 8 and 9 of the order has observed as under :
"8. The fall in GP ratio, in the absence of any cogent reasons, could not by itself, have been a ground to hold that proper income of the assessee cannot be deduced from the accounts maintained by her and consequently, could not have been a ground to reject the accounts invoking s. 145(3) of the Act.
9. The fall in GP ratio could be for various reasons such as increase in the cost of raw material, decrease in the market price of finished product, increase in the cost of processing by the assessee etc. There is no finding that the actual cost of the raw material purchased by the assessee was less than what was declared in the account books. There is no finding that the actual cost of processing carried out by the assessee was less than what had been declared in her account books. No particular expenditure shown in the account books has been disallowed by the AO. There is no finding by the AO that the actual quantity of finished product produced by the assessee was more than what was shown in the accounts books. There is no finding that the assessee had made any such sale of the finished product which was not reflected in the accounts books. There is no finding by the AO that the finished product was sold by the assessee at a price higher than what was declared in the account books. In these circumstances, the CIT(A) and the Tribunal, in our view, were justified in holding that the AO could not have increased the GP ratio merely because it was low as compared to the GP ratio of the preceding year."
11. Similarly, we find the Hon'ble Punjab & Haryana High Court in the case of K.S. Bhatis (Supra) has upheld the order of the Tribunal in holding that in absence of a definite finding that the case of the assessee comes within the ken of the first proviso to section 145(1), it is not possible for the Assessing Officer to reject the book results and make addition to the gross profit. It was held that the mere fact that the profits are low compared to the earlier year is not a circumstance or material aliunde which could justify an estimate in the circumstances of the case. Similar view has been taken in various other decisions relied on by the assessee before the learned CIT(A). In this view of the matter and in view of the elaborate discussion made by the learned CIT(A) while deleting the addition made by the AO, we find no infirmity in the same. Accordingly, the order of the CIT(A) is upheld and the ground raised by the revenue is dismissed.
CO No.90/PN/2011 (By Assessee) :
12. After hearing both the sides, we find the CO filed by the assessee is merely in support of the order of the CIT(A). Since the appeal filed by the revenue has been dismissed, therefore, the CO filed by the assessee becomes infructuous and accordingly the same is also dismissed.
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13. In the result, the appeal filed by the revenue as well as the CO filed by the assessee are dismissed.
Pronounced in the open court on this the 31st day of January, 2013.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune Dated: the 31st January 2013
satish
Copy of the order forwarded to :
1. Assessee
2. Department
3. CIT(A)-I, Nashik
4. CIT-I, Nashik
5. The D.R, "A" Pune Bench
6. Guard File
By order
// True Copy //
Senior Private Secretary
ITAT, Pune Benches, Pune