2021 (1) TMI 904 - AT - Income Tax

Difference in the opening stock - CIT(A) allowing the appeal of the assessee on the ground that the discrepancies pointed out by the AO are only typographical errors - Rejection of books of accounts - estimation of income - GP rate determination - HELD THAT - All the discrepancies pointed out were only typographical errors and do not have any impact in any manner whatsoever on the computation of total income of the assessee for the year under consideration. There is mistake in reflecting the quantity figures in the tax audit report for A.Y.2011-12. However, right quantity details have been duly reflected together with the values thereon for the A.Y.2012-13 and there is absolutely no difference in value between the closing stock as on 31/03/2011 and opening stock as on 01/04/2011. Hence, there is absolutely no impact in the computation of profits as per books and computation of total income as per the Act for the year under consideration. Hence, there cannot be any grievance for the revenue at all in the instant case. AO grossly erred in not crediting the export benefits in the recasted trading account prepared while working out the gross loss. Assessee had earned only gross profit during the year under consideration. It is a fact that assessee had made only export sales during the year and no local sales were made. Export benefits needs to be considered as trading receipt for the purpose of working out the gross profit of the assessee for the year under consideration. We find the GP disclosed by the assessee for the A.Y.2012-13 was 2.92% and GP of A.Y.2011-12 was 3.02%. Hence, there is absolutely not much variation in the gross profit disclosed by the assessee also This is not a fit case for rejection of books of accounts u/s.145(3) of the Act by the ld. AO. We hold that the ld. CIT(A) had duly appreciated all the contentions of the assessee and rightly granted relief to the assessee in the instant case - Decided against revenue.

Issues Involved:
1. Alleged inflation of opening stock by the assessee.
2. Typographical errors in financial statements.
3. Discrepancies in the quantity and value of stocks.
4. Rejection of books of accounts under section 145(3) of the Income Tax Act.
5. Estimation of gross profit by the Assessing Officer (AO).

Detailed Analysis:

1. Alleged Inflation of Opening Stock:
The AO asserted that the assessee inflated the opening stock for the assessment year (A.Y.) 2012-13 by ?1,91,86,326 to deflate the profit. However, the assessee contended that there was no discrepancy in the valuation of closing stock as on 31/03/2011 and the opening stock as on 01/04/2011. The discrepancy was only in the quantity details in the tax audit report for A.Y. 2011-12, not in the values. The CIT(A) agreed with the assessee, noting that the AO did not change the closing stock figure for the earlier year or the subsequent year, indicating the addition was based on unfounded beliefs.

2. Typographical Errors in Financial Statements:
The AO identified typographical errors in the financial statements, such as the export sales being reported under local sales and incorrect bank balances between Dena Bank and Bank of India. The assessee clarified these as genuine typographical mistakes without any impact on the profit and loss account or the computation of income. The CIT(A) found these explanations satisfactory, noting that the books of account were duly audited and such errors did not warrant the rejection of the books.

3. Discrepancies in Quantity and Value of Stocks:
The AO observed discrepancies in the quantity chart of closing stock on 31/03/2011 and the opening stock on 01/04/2011. The assessee admitted to errors in the quantity figures in the tax audit report for A.Y. 2011-12 but maintained that the valuation was correct. The CIT(A) accepted this explanation, emphasizing that the AO did not point out any substantial defect in the books of account.

4. Rejection of Books of Accounts Under Section 145(3):
The AO rejected the books of accounts under section 145(3) of the Income Tax Act, citing various discrepancies. The CIT(A) disagreed, stating that the discrepancies were mere typographical errors and did not affect the accuracy of the books. The CIT(A) noted that the AO did not provide concrete reasons or point out substantial defects in the books to justify their rejection.

5. Estimation of Gross Profit by the AO:
The AO estimated the gross profit at 4% of the turnover, resulting in an addition of ?1,91,86,326. The AO did not consider the export benefits of ?2,47,68,736 in the recasted trading account, which led to an incorrect gross loss calculation. The CIT(A) found that the assessee had actually earned a gross profit of 2.92% during the year, consistent with the previous year's gross profit of 3.02%. The CIT(A) concluded that the AO's estimation was not justified and allowed the appeal of the assessee.

Conclusion:
The CIT(A) allowed the appeal of the assessee, finding that the discrepancies pointed out by the AO were typographical errors without any impact on the profit and loss account or the computation of income. The rejection of the books of accounts under section 145(3) and the estimation of gross profit by the AO were not justified. The appeal of the revenue was dismissed, and the CIT(A)'s decision to grant relief to the assessee was upheld.

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