2022 (8) TMI 1181 - AT - Income Tax

Rejection of books result - estimation of turnover - gross profit of the assessee has been estimated at 2.98% of the turnover - HELD THAT - Assessee has been consistently following the trading pattern and its trading results have been accepted by the A.O in prior and subsequent periods. Mere no availability of stock register cannot be sufficient to reject trading results when the audited final accounts and other sources including the VAT data are available to cross verify the trading results including the sales verification. It is not the case of the Revenue that the A.O has not doubted the bonafide of the purchases or sale, nor there is an allegation of any manipulation in purchases or sales. A.O has also accepted the turnover declared by the assessee and also accepted the books of accounts by not pointing out any specific defect therein In our opinion, rejection of trading results in isolation is not proper and the same is erroneous. Further, it is not in dispute that an assessment order was made u/s 143(3) of the Act for the AY 2012-13 and 2015-16 wherein the declared results were accepted, the facts of those Assessment Years are similar that of the year under consideration. As seen that the gross loss during the Assessment Year 2015-16 is 11.32% against the gross loss of 0.41% during the year under consideration which indicates significant increase. Therefore, the action of the A.O in rejecting the trading result is not found to be tenable. Mere none production of stock register particularly when the quantitative details of opening stock, purchase, sales and closing stock is available cannot be ground to reject the declared trading results and the submission is supported by the said judgments. CIT(A) has considered all the above factual aspects and came to a just conclusion in deleting the additions made by the A.O. Therefore, we are of the considered opinion that the order of CIT(A) requires no interference. Accordingly, we dismiss the grounds of Appeal of the Revenue.

Summary

Issues:
Assessment of trading results under section 145 of the Income Tax Act for the Assessment Year 2014-15.

Analysis:
The appellant, an assessee company, declared a loss in its income tax return for the year under consideration. The assessing officer estimated the gross profit at 2.98% of the turnover due to the nature and size of the business, resulting in an addition of Rs. 3,56,52,420. The CIT(A) allowed the appeal against this addition. The Revenue, aggrieved by this decision, contended that the rejection of trading results by the assessing officer was valid, and the addition should not have been deleted. The Tribunal examined the facts and found that the assessee had consistently followed its trading pattern, with audited final accounts and other sources available for verification. The Revenue failed to establish any malpractice in purchases or sales. The Tribunal noted that the assessing officer had accepted the turnover and books of accounts without specific defects. Additionally, similar results were accepted in previous and subsequent assessment years. Therefore, the rejection of trading results was deemed improper and erroneous.

The assessing officer also relied on the auditors' observations regarding the physical verification of inventories. While the auditors' comments were not entirely favorable, the assessee highlighted other parts of the audit report that confirmed proper inventory maintenance. The Tribunal noted that the absence of a stock register, when quantitative details were available, should not be the sole basis for rejecting trading results. The CIT(A) considered these factual aspects and correctly deleted the additions made by the assessing officer. Consequently, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision.

In conclusion, the Tribunal found that the assessing officer's rejection of the trading results was unjustified, given the consistent trading pattern, lack of malpractice, and proper record-keeping by the assessee. The CIT(A)'s decision to delete the addition was upheld, emphasizing the importance of considering all relevant factual aspects before making adjustments to declared results.