2015 (6) TMI 362 - AT - Income Tax

Rejection of books of accounts - trading addition - Held that - During the course of search, no incriminating documents were found and seized. The ld Assessing Officer rejected the book result for non-producing of the stock register but various courts has held that non-maintaining of stock register or not producing the stock register before the Assessing Officer is not sufficient ground to reject the Book result U/s 145(3) of the Act. Further, the assessee company is in manufacturing of medicine where Drug Control Act also applicable. According to that Act also, he has to maintain various records in compliance of that Act. It is a fact that no adverse comment had been given by the Assessing Officer on account of any discrepancy in manufacturing of medicines on the basis of search material or any other inquiry made by him. Therefore, the lower authority is not justifying in receiving books U/s 145(3) of the Act. - Decided in favour of assessee. G.P. addition by applying 60% rate of total turnover - assessee has shown G.P. @ 44.79%, - CIT(A) has applied G.P. rate @ 48% and reduced the total addition to the tune of ₹ 4,99,081/- by rectifying the order U/s 154 r.w.s. 250 - Held that - The finding based on past history and not submitting the stock register before the Assessing Officer but no solid reasons have been assigned by the ld CIT(A). Both the lower authorities have not pointed out any defect in the books of account. The books of account has been audited under the Income Tax as well as Companies Law. The case law relied by the ld AR in the case of Malani Ramjivan Jagannath Vs. ACIT (2006 (10) TMI 145 - RAJASTHAN HIGH COURT) is squarely applicable. As per Income Tax law, in Section 2 (12A) books of account includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device. The Hon ble Delhi High court in the case of CIT Vs. Jack Elegance Exports (2010 (4) TMI 84 - DELHI HIGH COURT ) has held that no provision either in the Act or in the Rules requiring an assessee carrying business of nature, to maintain the stock register as a part of its account has been brought to notice. The other case laws referred by the assessee on rejection of book and maintenance of stock register are also squarely applicable. Thus, we hold that the addition confirmed by the ld. CIT(A) is not justified. - Decided in favour of assessee.

Summary

Issues:
Appeal against rejection of books of accounts and trading addition made by Assessing Officer.

Analysis:
1. The appeals by the assessee and the revenue revolve around the rejection of books of account under Section 145(3) of the Income Tax Act, 1961, and the trading addition made by the Assessing Officer. The Assessing Officer observed discrepancies in the books of accounts of the assessee, who is a manufacturer and trader of medicines, leading to an estimated Gross Profit (G.P.) addition. The Assessing Officer applied a G.P. rate of 60% on the turnover, resulting in an addition of Rs. 61,05,371 to the income of the assessee.

2. The assessee contended that the books of accounts were not produced during assessment proceedings due to a dispute between directors, and additional evidence was submitted before the CIT(A) to justify the non-production. The CIT(A) accepted the additional evidence, noting that the appellant was prevented from producing the books of accounts due to sufficient cause. The CIT(A) partially allowed the appeal, reducing the trading addition to Rs. 18,71,094 by applying a G.P. rate of 48%.

3. The assessee argued that no incriminating documents were found during the search, limiting the scope of assessment under Section 153A of the Act. The assessee emphasized that the books of account were audited and no defects were pointed out, challenging the rejection of books under Section 145(3). The assessee relied on various case laws to support the argument that non-maintenance of stock register does not warrant rejection of book results.

4. The Tribunal noted that non-production of the stock register is not sufficient ground to reject the book results under Section 145(3). The Tribunal found that the G.P. rate applied by the Assessing Officer was higher than the rate shown by the assessee, and the CIT(A) had not provided solid reasons for the reduction to 48%. The Tribunal held that the addition confirmed by the CIT(A) was unjustified and allowed the assessee's appeal while dismissing the revenue's appeal.

5. In conclusion, the Tribunal allowed the assessee's appeal and dismissed the revenue's appeal, emphasizing that the rejection of books of accounts and the trading addition made by the Assessing Officer were not justified. The Tribunal's decision was based on the lack of incriminating evidence, the audited nature of the books of account, and the legal principles regarding the maintenance of stock registers in relation to determining Gross Profit.