2016 (8) TMI 1159 - AT - Income Tax

Rejection of books of accounts - trading addition - Held that - We find that Assessing Officer had not found any discrepancy in the books of account other than non maintaining of stock records. From the nature of activities of the assessee, we find that maintenance of day to day stock records is quite different in this case and similarly it is not possible to maintain consumption records on day to day basis due to the nature of business. The assessee has declared G.P rate of 16.12% as compared to G.P rate 16.10%. We further find that assessee during the proceedings before learned CIT(A) had submitted that assessee was following same system of accounting as was being followed in earlier year and we further find that there was no specific defect pointed out by Assessing Officer in the books of account. Also we find that the trading results of M/s Satish Steel Works were not confronted to the assessee and assessee was not provided opportunity to rebut the same. The findings of learned CIT(A) that trading results of M/s Satish Steel Works were confronted to assessee is not correct. In view of the above, we hold that the addition sustained by learned CIT(A) is not justified, therefore, we delete the same. - Decided in favour of assessee

Summary

Issues:
- Appeal against the order of CIT(A) confirming trading addition made by AO after rejecting books of accounts
- Justification of the trading addition of ?10,00,000
- Comparison of trading results with another case
- Maintenance of stock records and consumption details
- Allegation of arbitrary addition by AO without specific defects in books of accounts
- Consistency in accounting method
- Lack of confrontation of trading results of another company to the assessee

Analysis:
The appeal pertains to the confirmation of a trading addition of ?10,00,000 made by the Assessing Officer (AO) after rejecting the books of accounts of the assessee. The AO observed a discrepancy in the gross profit rate declared by the assessee and the lack of stock details regarding material consumption. The assessee's contention that the closing stock value was determined based on the Gross Profit rate fixed by the partners was not accepted. The AO compared the trading results with another company, M/s Satish Steel Works, which had a higher G.P rate, leading to the adhoc addition.

The CIT(A) upheld the AO's decision, stating that the books of account were rightly rejected. The assessee argued that the addition was arbitrary, with no specific defects pointed out in the books of accounts. It was contended that the trading results were comparable to previous years, and the method of accounting was consistent with no irregularities. The assessee also highlighted the lack of confrontation with the trading results of M/s Satish Steel Works.

Upon review, the ITAT found that the AO did not identify any other discrepancies in the books of account besides the lack of stock records. Considering the nature of the business, the maintenance of daily stock and consumption records was deemed impractical. The ITAT noted that the assessee declared a similar G.P rate to the previous year and followed a consistent accounting method. Moreover, the trading results of M/s Satish Steel Works were not provided to the assessee for rebuttal, contradicting the CIT(A)'s findings.

Consequently, the ITAT concluded that the sustained addition by the CIT(A) was unjustified and proceeded to delete the same, allowing the appeal filed by the assessee. The order was pronounced in open court on 12.08.2016.