2018 (6) TMI 220 - AT - Income Tax

Rejection of books of account - Trading addition - CIT(A) has deleted the addition by observing that the AO s action to reject the books of account is not tenable - Held that - In assessee s own case for the Assessment Year 2011-12 had granted relief to the assessee for the same issue. It is also noted that the assessee had filed the statutory audit report before the CIT(A) which had not been disputed by the Department. AR of the assessee also submitted the reason of decrease in percentage of G.P. is increase of input cost in comparison to previous year. AR further that the cost of material and wages increased due to production of high quality product but the price of the product could not be increased in same proportionate due to stiff competition with China. No addition to be confirmed - Decided in favour of assessee Addition of ESIC and PF (employee s contribution) - sum not deposited within time - Held that - addition of ₹ 9,706/- observing that the assessee collected employees contribution towards ESIC but did not deposit it within the due date as prescribed under the relevant Act and treated the same as income u/s 2(24)(x) of the Act. In first appeal, the ld. CIT(A) has deleted the addition taking the support of Jurisdictional High Court in the cases of CIT vs Udaipur Dugdh Utpadak Sahakari Sangh Ltd 2014 (8) TMI 677 - RAJASTHAN HIGH COURT and in the case of CIT vs SBBJ 2014 (5) TMI 222 - RAJASTHAN HIGH COURT . It is pertinent to mention that such liabilities were paid by the assessee before due date of filing of return then no such disallowance can be made. - Decided against revenue

Summary

Issues Involved:
1. Justification of rejection of books of account.
2. Deletion of trading addition of ?45,96,781/-.
3. Addition for delayed deposit of employee's contribution to PF & ESI.

Issue-wise Detailed Analysis:

1. Justification of Rejection of Books of Account:
The Revenue questioned the CIT(A)'s decision to hold that the rejection of books of account was not justified. The AO had rejected the books due to the assessee's failure to maintain a stock register and details of raw material consumption, which made the book results unverifiable. However, the CIT(A) found that mere non-maintenance of a stock register and a slight fall in G.P. were insufficient grounds for rejecting the books. The CIT(A) referenced the assessee's past history and previous ITAT rulings, which consistently held that the absence of a stock register alone could not justify the rejection of books if sales and purchases were verifiable.

2. Deletion of Trading Addition of ?45,96,781/-:
The AO applied a G.P. rate of 22% based on past years, which led to an addition of ?45,96,781/-. The CIT(A) deleted this addition, noting that the AO's rejection of books was not justified. The CIT(A) highlighted that the assessee's accounts were audited and no discrepancies were found in the statutory audit report. The CIT(A) also observed that the ITAT had previously granted relief on similar grounds. The assessee argued that maintaining a stock register was impractical due to the nature of the business and that the AO had not demonstrated how the non-maintenance of such a register impacted the profit. The ITAT concurred with the CIT(A), emphasizing that the AO had not provided sufficient evidence to justify the rejection of books or the trading addition.

3. Addition for Delayed Deposit of Employee's Contribution to PF & ESI:
The AO added ?9,706/- to the assessee's income for not depositing the employee's contribution to PF & ESI within the prescribed time limit. The CIT(A) deleted this addition, citing judicial precedents, including the Rajasthan High Court's rulings, which held that such contributions, if paid before the due date of filing the return, should not be disallowed. The ITAT upheld the CIT(A)'s decision, noting that the payments were made before the due date for filing the return and thus, no disallowance was warranted.

Conclusion:
The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The rejection of books of account was deemed unjustified, the trading addition of ?45,96,781/- was deleted, and the addition for delayed PF & ESI contributions was also removed. The ITAT's decision was consistent with previous rulings and judicial precedents, emphasizing the importance of verifiable sales and purchases and the timely payment of statutory dues.