2017 (1) TMI 1297 - AT - Income Tax

Rejection of books of account - non-maintenance of sales vouchers - Held that - In the case of Commissioner of Sales Tax vs. Vishnbu Chandra Vipin Chandra 1981 (9) TMI 255 - ALLAHABAD HIGH COURT wherein the Court held that failure to issue cash memos was insufficient to reject the books of account, where the books were otherwise verifiable. In the present case, the assessee in its reply dated 31.10.2011 noted at page 2 of the assessment order had clearly stated that Stock Register was maintained by assessee which gave all the details of opening stock, purchases and sales quantity-wise. The assessee had also filed month-wise details of purchases, sales and closing stock which has been noted at page 3 of the assessment order. Thus, in the present case also, it cannot be said that there were no details maintained by the assessee in regard to sales. Therefore, the decision relied upon by Ld. counsel for the assessee is squarely applicable to the facts of the present case and, therefore, respectfully following the same, it is held that the rejection of books of account solely on the basis of non-maintenance of sales vouchers was not justified. Accordingly, the addition made by the Assessing Officer, as confirmed by Ld. CIT(A), is deleted. - Decided in favour of assessee

Issues:
1. Appeal against rejection of books of account and application of higher GP.
2. Rejection of books based on sales not vouched.
3. Comparison with similar cases and judgments.
4. Application of excessive GP by AO.
5. Failure to confront cases with better GP.
6. Enhancement of sales based on conjecture.
7. Legitimacy of penalty proceedings under section 271(1)(c).

Issue 1: Appeal against rejection of books of account and application of higher GP:
The appellant filed an appeal against the rejection of books of account and the application of a higher GP by the Assessing Officer. The AO rejected the books as sales were not vouched and estimated a GP of 21% of total purchases. The CIT(A) confirmed the addition, leading to the appellant's appeal before the Tribunal. The appellant argued that the rejection was unjustified as proper accounts were maintained, including a Stock Register. The appellant cited comparable cases and judgments to support their claim, emphasizing the excessive nature of the applied GP.

Issue 2: Rejection of books based on sales not vouched:
The Assessing Officer rejected the books of account under section 145(3) due to unvouched sales. The AO re-drafted the Profit & Loss Account, disallowing expenses and making additions to the net profit. The CIT(A) upheld the rejection, stating that the appellant failed to substantiate claims of sales below M.R.P. and that the AO's estimation of GP was justified. However, the Tribunal overturned this decision, citing precedents where the failure to issue cash memos did not warrant book rejection.

Issue 3: Comparison with similar cases and judgments:
The appellant presented comparable cases and judgments to challenge the rejection of accounts and the application of a higher GP. They argued that the CIT(A) did not consider these references, leading to an unjust confirmation of the rejection. The Tribunal, following relevant legal precedents, found the rejection solely based on sales vouchers to be unjustified and deleted the addition made by the AO.

Issue 4: Application of excessive GP by AO:
The AO applied a GP of 21% to total purchases, resulting in a higher net profit determination. The appellant contended that the applied GP was excessive, especially when compared to similar cases and higher court decisions supporting their GP calculations. The Tribunal considered these arguments and ruled in favor of the appellant, allowing the appeal against the excessive GP application.

Issue 5: Failure to confront cases with better GP:
The appellant highlighted the AO's failure to address cases with better GP than theirs, emphasizing the lack of thorough examination in determining the GP rate. Despite providing evidence and comparable cases, the AO did not adequately consider these factors, leading to an unjustified application of a higher GP rate.

Issue 6: Enhancement of sales based on conjecture:
The appellant raised concerns about the enhancement of sales based on conjecture and surmises, without proper substantiation or comparison with other cases. The Tribunal acknowledged these arguments and, considering the lack of concrete evidence supporting the sales enhancement, ruled in favor of the appellant, rejecting the enhancement based on conjecture.

Issue 7: Legitimacy of penalty proceedings under section 271(1)(c):
The penalty proceedings under section 271(1)(c) were initiated by the AO in relation to the addition made in the assessment order. However, since the Tribunal had deleted the addition in the quantum appeal, the grounds for penalty imposition were deemed invalid, leading to the allowance of the appellant's appeal against the penalty proceedings.

This detailed analysis covers the various issues addressed in the judgment, outlining the arguments presented, legal precedents cited, and the final decisions made by the Tribunal.

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