2011 (6) TMI 996 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of Books of Account
2. Estimation of Net Profit
3. Verification of Transactions with Parties
4. Quantitative Reconciliation of Stock
5. Confirmation of Loans

Summary:

Rejection of Books of Account:
The assessee contended that the CIT(Appeals) erred in rejecting the books of account and estimating the net profit at 2.5% of sales, assessing the income at Rs. 1,45,36,030/- against the disclosed income of Rs. 47,39,887/-. The AO rejected the books of account due to unreliable records and assessed the income at Rs. 1,72,39,090/- based on 12% of average capital employed. The CIT(Appeals) upheld the rejection of books due to non-compliance by certain parties and lack of quantitative reconciliation of stock.

Estimation of Net Profit:
The CIT(Appeals) estimated the net profit at 2.5% of disclosed sales, reducing the income to Rs. 1,45,36,030/-. The assessee argued that the estimation was arbitrary and not based on objective evidence or past results. The Tribunal found that the lower authorities did not provide a fair basis for profit determination and concluded that the book results should not have been disturbed.

Verification of Transactions with Parties:
The AO conducted enquiries from 11 parties, with mixed compliance. Some parties confirmed transactions, while others did not respond or had moved premises. The CIT(Appeals) drew adverse inferences from non-compliance by certain parties. The Tribunal noted that sufficient grounds did not exist for rejection of books based on non-verification from a few parties, especially when most transactions were confirmed.

Quantitative Reconciliation of Stock:
The CIT(Appeals) noted the assessee's failure to submit quantitative reconciliation of gold and jewellery stock based on sale and purchase vouchers. The Tribunal found that this alone was insufficient to reject the books of account, given the overall compliance and past acceptance of book results.

Confirmation of Loans:
The assessee could not file confirmation from some loan parties. The Tribunal held that non-filing of loan confirmations could not be a basis for rejecting the books of account for trading addition purposes.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the books of account should not have been rejected and the net profit estimation by the CIT(Appeals) was unsustainable. The revenue's appeal was dismissed. The order was pronounced on 17th June, 2011.