2005 (2) TMI 494 - AT - Income Tax

Method Of Accounting - addition made on account of low gross profit - correctness of the sales/purchases in the books of account - best judgment assessment - HELD THAT - The duty of the Assessing Officer is to administer the provisions of the Act in the interest of public revenue and to prevent evasion or escapement of tax legitimately due to the State. At the very same time the duty of the Appellate Authority is to ensure not only that the provisions of the Act are administered in the interest of public revenue so as to prevent evasion/ escapement of tax but at the very same time to ensure that only the tax legitimately due to the State is collected. The First Appellate Authority has all the powers which the original authority may have. In the absence of any statutory provisions to the contrary the appellate authority is vested with the plenary powers which the subordinate authority has in the matter. In this case the CIT (Appeals) himself has looked into audited accounts as well as quantitative statement of daily sales and purchases and compared it with the rate prevailing in Ahmedabad Bullion Merchant Association and found that the profit arrived at in each and every transaction was correct. All these exercise was done by the CIT(A) in the presence of the Assessing Officer. No ground has been taken by the Revenue with regard to any additional materials relied on by the CIT (Appeals) in contravention of rule 46A while reaching to such conclusion. The Hon ble Supreme Court in Brij Bhushan Lal Praduman Kumar v. CIT 1978 (10) TMI 2 - SUPREME COURT categorically observed that while making best judgment assessment the Assessing Officer should keep in mind what honestly he believes to be fair estimated or the proper figure of assessment. Furthermore Hon ble Calcutta High Court in the case of CIT v. Popular Electric Co. (P.) Ltd. 1992 (3) TMI 15 - CALCUTTA HIGH COURT wherein it was observed that while making best judgment the Assessing Officer should make independent and well grounded estimate and such estimate may be based on adequate and relevant materials. In the instant case no mistake has been pointed out by the Assessing Officer either in the books of account or in the statement of purchases sales and stock which was maintained quantitatively on day-to-day basis. The findings recorded by the CIT(A) at page Nos. 3 and 4 have not been controverted by the department by bringing any positive material on record. We are therefore inclined to agree with the learned AR Mr. Rindani that the assessee has maintained proper books of account and full details regarding the purchases sales and stock registers were furnished to the Assessing Officer in which no defect whatsoever was pointed out thus there was no reason before the Assessing Officer for rejecting the book results and thereby estimating the profit merely by comparing the assessee s G.P. rate. M/s. Gayatri Bullion which was standing entirely on different footings than the assessee. In the result the appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition made on account of low gross profit.
2. Rejection of books of account by the Assessing Officer.

Summary:

Deletion of Addition Made on Account of Low Gross Profit:
The Revenue's grievance pertains to the deletion of an addition amounting to Rs. 18,08,310 due to low gross profit. The Assessing Officer observed that the assessee, who had recently started trading in gold, silver, and diamond, reported a gross profit (G.P.) of 0.18% on a turnover of Rs. 79,39,22,675, which was significantly lower compared to other dealers. The Assessing Officer estimated the G.P. at 0.41% based on a comparable dealer, M/s. Gayatri Bullion, and made a trading addition of Rs. 18,08,310.

The CIT(A) deleted the addition, noting that the assessee had maintained day-to-day quantitative details of purchases and sales which showed no discrepancies. The CIT(A) also observed that many purchasers did not disclose their identities, making it difficult for the assessee to record complete details. The CIT(A) found no evidence that the sales rate was below the market rate and concluded that the book results could not be rejected.

Rejection of Books of Account by the Assessing Officer:
The Assessing Officer rejected the book results on two grounds: (i) sales were mainly in cash without full addresses of purchasers, making them unverifiable, and (ii) the assessee's recasting of accounts regarding sales tax was against the principles of accountancy.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the Department must prove that the accounts are unreliable, incorrect, or incomplete before rejecting them. The Tribunal noted that the assessee had furnished all necessary details, including day-to-day rates from the Ahmedabad Bullion Merchant Association, and the Assessing Officer had not found any defects in these records. The Tribunal also highlighted that the comparable case of M/s. Gayatri Bullion was not appropriate as the assessee was new to the business and lacked the same market advantages.

The Tribunal reiterated that books of account should not be rejected lightly and that the Assessing Officer must provide evidence of specific defects. The Tribunal agreed with the CIT(A) that non-supply of full names and addresses in cash sales could not be a reason for rejecting the books, as supported by the judgment in M. Durai Raj v. CIT.

In conclusion, the Tribunal found no merit in the Assessing Officer's rejection of the book results and dismissed the Revenue's appeal.