2013 (11) TMI 1264 - AT - Income Tax

Deletion of Low GP Non-Acceptance of Gross Profit Ratio The Assessing Officer rejected the book results on the ground that the GP rate was ridiculously low as compared to the results of the preceding two years - Held that - There was no finding by the AO that the finished product was sold by the assessee at a price higher than what was declared in the account books - the CIT (A) and the Tribunal were justified in holding that the AO could not have increased the GP ratio merely because it was low as compared to the GP ratio of the preceding year Relying upon COMMISSIONER OF INCOME TAX-XII Versus SMT. POONAM RANI 2010 (5) TMI 57 - HIGH COURT OF DELHI and CIT Vs. K.S. Bhatia 2002 (9) TMI 8 - PUNJAB AND HARYANA High Court - The fall in GP ratio, in the absence of any cogent reasons, could not by itself, have been a ground to hold that proper income of the assessee cannot be deduced from the accounts maintained by her and consequently, could not have been a ground to reject the accounts invoking s. 145(3). Non maintenance of Stock Register Held that - No stock register was maintained by the assessee he had maintained monthly sales and purchase of gold ornaments giving opening stock in value as well as in quantity and purchase in value as well as in quantity - The assessee had maintained sales and purchase bills which were fully vouched and no discrepancy was found either by the survey party or by the Assessing Officer Assessee s trading account was fully supported by quantitative account had not been controverted by the Revenue - Assessing Officer had found no other discrepancy in the books of account except non-maintenance of stock register - it purchases only old ornaments and after remaking them sells the same - the estimate of sales of Rs.20,000 per day by taking 300 days in the year as the working days of the assessee firm and estimation of GP rate @25% of the turnover was purely on the basis of surmises and conjectures and therefore should not be accepted Decided against Revenue.

Summary

Issues Involved:
1. Deletion of the addition made by the Assessing Officer on account of low Gross Profit (GP).
2. Rejection of the books of account by the Assessing Officer under Section 145 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Deletion of the Addition Made by the Assessing Officer on Account of Low Gross Profit (GP):
The revenue challenged the order of the CIT(A) in deleting the addition of Rs.9,69,338/- made by the Assessing Officer due to low GP. The Assessing Officer noted that the GP rate disclosed by the assessee for the assessment year 2008-09 was significantly lower than the preceding years. He observed discrepancies such as lack of day-to-day stock maintenance and limited sales bills, leading him to reject the book results and estimate sales and GP. The CIT(A) deleted this addition, reasoning that the Assessing Officer rejected the books without proper examination and failed to provide comparable profit rates or cases. The CIT(A) emphasized that mere absence of a stock register does not justify rejection of books and that the Assessing Officer's approach was based on suspicion and surmises.

2. Rejection of the Books of Account by the Assessing Officer Under Section 145 of the Income Tax Act:
The Assessing Officer rejected the book results under Section 145 due to the low GP rate and non-maintenance of a stock register. The CIT(A) countered that the accounts maintained by the assessee were regular and free from serious qualifying remarks, and the defects pointed out were not substantial enough to reject the books. The CIT(A) relied on judicial precedents which state that low GP alone, without material evidence of falsity, cannot justify rejection of accounts. The Tribunal supported this view, noting that the assessee maintained monthly sales and purchase records with no discrepancies found by the survey party or Assessing Officer. The Tribunal cited the Hon'ble Delhi High Court's decision in the case of Smt. Poonam Rani, which held that a fall in GP ratio alone, without cogent reasons, cannot justify rejection of accounts under Section 145(3).

Conclusion:
The Tribunal upheld the CIT(A)'s order, finding no infirmity in the deletion of the addition made by the Assessing Officer. The Tribunal emphasized that the Assessing Officer's rejection of the books was based on presumptions and lacked specific discrepancies or material evidence. Consequently, the appeal filed by the revenue was dismissed, and the Cross Objection (CO) filed by the assessee, being merely supportive of the CIT(A)'s order, was also dismissed.