2019 (5) TMI 945 - AT - Income Tax

Rejection of books of accounts - addition on account of suppression of sale - Under valuation of closing stock - HELD THAT - No specific instance has been pointed out by the A.O about any transaction which could prove that the assessee had suppressed the sales by way of receiving higher amount for sales but entered the figure on lower price in the books of accounts. The basis taken by the A.O is the MSP and MRP. No weightage has been given by the A.O that the goods are not always sold on MRP due to competition which forces to make sale at lower price. Gross Profit rate remains consistent. Books of accounts have been duly audited. Quantitative details of various qualities of goods have been maintained. We find that in the similar set of facts in the case of ACIT Vs Avinash Chalana Co 2013 (5) TMI 985 - ITAT INDORE after considering the position of strict regulation and condition over the country liquor contractor under the provisions of law and after considering the facts that regular books of accounts were maintained which is duly audited and in view of fact no discrepancy in any manner in the quantitative details maintained was found by the AO has held that there was no justification in rejection of books of accounts and application of provisions of Section 145(3). ITAT also held that estimation of sales at higher figures are not justified and held that Net Profit Rate of 1.77% was reasonable. We find that similar type of business has been carried out i.e. sale of liquor. Purchases are not doubted at any stage as they are through Excise Department controlled by the Government. Quantitative details have been filed for all the purchases. Books of accounts are duly audited. Better Net profit rate has been declared i.e. 3.47% as against 3.17% in the immediately preceding financial year. In these given facts and circumstances of the case we find no inconsistency in the well reasoned finding of fact by CIT(A) applying net profit rate of 3.5%. We accordingly confirm the view of Ld. CIT(A) of deleting the addition of suppressed sales and dismiss revenue s Ground No. 1 2. Addition towards undervaluation of closing stock - HELD THAT - A.O has merely calculated the stock as per the price value on the Excise records without giving any benefit of damaged as shortages in goods due to handling and transportation. Surprisingly in the Tax Audit Report furnished by the assessee in Annexure-B showing the quantitative details NIL shortage has been shown. Before the lower authorities assessee has claimed about the element of breakage in stock damaged in the process of handling but no such shortage has been entered in the books of accounts nor has been pointed out in the tax audit report which does not support the contention of the assessee as well as finding given by Ld. CIT(A). Where on one hand no shortage has been reported in the audited financial statements and on the other hand one cannot deny the possibility of breakage and damage in the process of handling goods. In order to be fair to both the parties and meet the ends of justice, we sustain addition of ₹ 2,00,000/- for under valuation of closing stock and allow partly revenue s Ground No.3.

Summary

Issues Involved:
1. Addition for suppression of sales.
2. Under valuation of closing stock.

Issue-wise Detailed Analysis:

1. Addition for Suppression of Sales:

The Revenue challenged the deletion of additions made for suppressed sales by the Assessing Officer (AO). The AO had rejected the books of accounts, citing the absence of sale bills and the sale of liquor below the Minimum Sale Price (MSP). The AO computed the suppressed sales based on MSP and Maximum Retail Price (MRP), resulting in significant additions for both assessees.

The Ld. Commissioner of Income Tax (Appeals) [CIT(A)] deleted these additions, stating that the AO failed to point out any specific defects in the books of accounts, which were duly audited. The CIT(A) observed that selling liquor below MSP is a common practice due to market competition and that penalties for such sales are nominal. The CIT(A) also noted that the AO did not provide any concrete evidence of sales being made at higher prices than recorded. The CIT(A) applied a net profit rate of 3.5%, which was consistent with similar cases, and confirmed a minor addition of ?31,968/- for Smt. Gurucharan Kaur Oberoi, giving relief of ?3,09,63,422/-. For Shri Jaswinder Singh Oberoi, the CIT(A) deleted the addition of ?6,16,66,374/-.

The Tribunal upheld the CIT(A)'s findings, emphasizing that the AO's rejection of books of accounts was unjustified without specific evidence of suppressed sales. The Tribunal confirmed the deletion of the additions for suppressed sales, citing consistency with judicial precedents and the absence of discrepancies in the quantitative details of sales and purchases.

2. Under Valuation of Closing Stock:

The AO added amounts for undervaluation of closing stock, rejecting the assessees' claims of damaged stock. The AO calculated the stock value based on Excise records without considering breakages.

The CIT(A) deleted these additions, accepting the assessees' claims of reasonable breakages and shortages. The CIT(A) observed that the breakage rate was 0.54%, which was reasonable.

The Tribunal partly allowed the Revenue's appeal on this issue. It noted that while the Tax Audit Report showed no shortages, breakages during handling were plausible. To balance both parties' interests, the Tribunal sustained a partial addition of ?2,00,000/- for Smt. Gurucharan Kaur Oberoi and ?1,50,000/- for Shri Jaswinder Singh Oberoi for undervaluation of closing stock.

Conclusion:

The Tribunal partly allowed the Revenue's appeals, confirming the deletion of additions for suppressed sales but sustaining partial additions for undervaluation of closing stock. The detailed analysis and judicial precedents supported the Tribunal's decision to uphold the CIT(A)'s findings on suppressed sales and make a balanced judgment on the closing stock valuation.