2009 (8) TMI 39 - HC - Income Tax

Rejection of Books of Accounts - assessee had failed to furnish the requisite separate trading and profit & loss account of trading of various commodities and that of the bottling plant CIT(A) and ITAT hold that there is no case for rejection of books of accounts Held that Admittedly, every Assessment Year is a separate and independent year which should be considered to the facts of that year. Even otherwise the Assessing Officer has not given any basis while increasing the Gross Profit rate while comparing the rate of purchases and sales of the last year specially when the rate of purchases for the impugned Assessment Year considerably increased in comparison to last year - The assessee has followed the Fifo method while valuing the stock at cost and copies of bills were submitted during assessment proceedings and the latest rates were available with the assessee in respect of its products Order of CIT(A) and ITAT upheld.

Issues:
1. Rejection of books of account by the Assessing Officer.
2. Justification for rejecting the books of account.
3. Valuation of stock.
4. Method of valuation consistently followed by the assessee.
5. Gross Profit rate applied by the Assessing Officer.
6. Comparison of Gross Profit rates for different assessment years.
7. Compliance with accounting procedures.
8. Consideration of relevant circumstances in arriving at findings.

Analysis:

Issue 1: Rejection of books of account by the Assessing Officer
The Assessing Officer rejected the books of account and made an assessment based on a Gross Profit rate. The CIT(A) set aside this order, stating there was no justification for rejecting the books of account. The Tribunal upheld this view, emphasizing that the books were maintained with the same procedure as in previous years, and no defects were pointed out by the Assessing Officer.

Issue 2: Justification for rejecting the books of account
The CIT(A) found that the assessee provided an explanation for the decrease in sales, and there was no infirmity in the valuation of stock. The method of valuation was consistently followed by the assessee for many years. The Tribunal concurred with this view, noting that the assessee had maintained all bills and vouchers, and the Assessing Officer did not provide a basis for increasing the Gross Profit rate.

Issue 3: Valuation of stock
The assessee followed the Fifo method for valuing stock at cost, submitting copies of bills during assessment. The latest rates were available for the products. The Tribunal found no infirmity in the valuation of closing stock and upheld the CIT(A)'s conclusion based on the facts presented.

Issue 4: Method of valuation consistently followed by the assessee
The Tribunal highlighted that the method of accountancy was consistent with previous years and that the books of account were maintained diligently. The Tribunal supported the CIT(A)'s decision, emphasizing the lack of defects in the valuation of stock and the adherence to accounting procedures.

Issue 5: Gross Profit rate applied by the Assessing Officer
The Assessing Officer applied a Gross Profit rate based on the previous year, resulting in a significant addition to the assessed income. The Tribunal found no justification for this increase, especially considering the differences in purchase rates between the years, and supported the CIT(A)'s decision to set aside the Assessing Officer's order.

Issue 6: Comparison of Gross Profit rates for different assessment years
The Tribunal compared the Gross Profit rates for different assessment years, noting that the rates were similar and there was no significant difference. The Tribunal considered the explanations provided by the assessee regarding the decrease in sales and Gross Profit rate, ultimately upholding the CIT(A)'s decision.

Issue 7: Compliance with accounting procedures
The Tribunal emphasized that the assessee complied with accounting procedures, maintaining bills, vouchers, and relevant documents. The Tribunal found no defects in the books of account and supported the CIT(A)'s decision based on the consistent method of valuation followed by the assessee.

Issue 8: Consideration of relevant circumstances in arriving at findings
The Tribunal concluded that the findings were based on an analysis of relevant circumstances and were not shown to be perverse. No substantial question of law was found to arise from the case, leading to the dismissal of the appeal.

In conclusion, the judgment upheld the decisions of the CIT(A) and Tribunal, emphasizing the importance of consistent accounting practices, proper valuation of stock, and the lack of justification for rejecting the books of account.

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