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2017 (2) TMI 1513 - AT - Income TaxRejection of books of accounts - gross profit estimation - no item wise information on stock of jewellery given - As per DR GP rate of 30% applied by the AO was correct since it was based on GP ratio shown by comparable cases - HELD THAT - As gone through the order of Vivek Jain Prop. Vijay Jewellers 2016 (11) TMI 1714 - ITAT CHANDIGARH wherein I.T.A.T. held that in view of the nature of business carried out by the assessee and the trading of items as per customer s preference the FIFO method could not be applied as suggested by the Assessing Officer. The Hon'ble I.T.A.T., therefore, held that the rejection of books of account was incorrect and addition made on account of estimation of gross profit was, therefore, set aside. In the present case, we find that the basis for rejection of books is similar to that in the case of Vivek Jain Prop. Vijay Jewellers (supra) being that item-wise information of stock of jewellery had not been furnished by the assessee. Merely because item-wise details were not maintained, it could not be said that the books did not disclose true result of the assessee. The Ld. CIT (Appeals), we find, correctly held that no specific defect has been pointed out by the Assessing Officer by bringing on record any adverse material. Further, undisputedly, the books of account of the assessee were duly audited and there is no finding to the effect that the assessee had inflated the cost of raw material or cost of processing or that he had made sales outside the books or that the sale price were suppressed. The assumption of the Assessing Officer was clearly therefore sans documentary proof. The Ld. CIT (Appeals) has also given finding of fact that the gross profit rate shown by the assessee is progressive having increased from 12.48% in the preceding year to 14.30% in the year under consideration. In view of the same, we agree with the Ld. CIT (Appeals) that there is no reason at all to reject the books of account of the assessee and estimate the gross profit. - Decided against revenue.
Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) after rejecting the assessee's books of account under Section 145(3) of the Income Tax Act, 1961. 2. Justification of the rejection of books of account under Section 145(3) by the AO. 3. Application of a 30% gross profit (GP) rate by the AO. 4. Consistency of the method of stock valuation. Issue-wise Detailed Analysis: 1. Deletion of Addition by CIT(A): The AO rejected the assessee's books of account and applied a 30% GP rate, resulting in an addition of ?74,17,671 to the returned income. The CIT(A) deleted this addition, stating that the AO failed to provide any documentary evidence of profit suppression warranting the invocation of Section 145(3). The CIT(A) emphasized that the AO did not point out any specific defect in the books and that the books were duly audited. The CIT(A) also noted the progressive increase in the GP rate from 12.48% to 14.30%. 2. Justification of Rejection of Books under Section 145(3): The AO rejected the books due to non-maintenance of item-wise details of stock, purchases, and sales. The CIT(A) held that this was not a valid ground for rejection as the assessee maintained weight-wise details, which were confirmed by purchase bills. The CIT(A) found no evidence of inflated costs, unrecorded sales, or suppressed sale prices. The CIT(A) cited the Punjab & Haryana High Court ruling in CIT, Karnal Vs. Om Overseas, which held that books cannot be rejected without pointing out specific defects. 3. Application of 30% GP Rate: The AO applied a 30% GP rate based on comparable cases. The CIT(A) found this approach flawed, noting that the AO did not allow the assessee to rebut this comparison. The CIT(A) pointed out that factors like business location, range of goods, clientele, sales volume, and management efficiency impact the GP rate, making a direct comparison invalid. The CIT(A) concluded that the AO's assumption lacked documentary proof and was based on theoretical arguments. 4. Consistency of Stock Valuation Method: The CIT(A) upheld the assessee's use of the Weighted Average Cost (WAC) method for stock valuation, consistent with the method prescribed by the Institute of Chartered Accountants of India. The CIT(A) noted that the AO's preference for the FIFO method was based on the incorrect assumption that old stock was sold first. The CIT(A) cited the ITAT ruling in the case of Jagdish Chand, which supported the consistent use of the WAC method and rejected arbitrary revaluation by the AO. Conclusion: The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal. The ITAT found that the AO's rejection of the books and application of a 30% GP rate were not justified, as no specific defects were pointed out, and the books were duly audited. The ITAT also supported the consistent use of the WAC method for stock valuation. The appeal by the Revenue was dismissed, and the CIT(A)'s order was upheld.
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