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TMI Blog2012 (7) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the assessee. - I.T.A. No. 289/Del/2011 - - - Dated:- 15-6-2012 - A. D. Jain And Shamim Yahya, JJ. Assessee by : Rohit Jain Janpriya Department by : R. S. Negi ORDER Per Shamim Yahya: AM This appeal by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), Karnal dated 12.11.2010 pertaining to assessment year 2007-08. 2. The grounds raised in the appeal read as under:- 1. That the Ld. Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the trading addition of ₹ 24,36,039/- made by the Assessing Officer by applying average gross profit rate of 4.90%. 2. That the Ld. Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the Assessing Officer in rejecting the books of accounts of the appellant under section 145(3) of the Act, 1961. 2.1 That the Ld. Commissioner of Income Tax (Appeals) erred on facts and in law in holding that the appellant failed to furnish item-wise trading results and quantitative details of opening and closing stock of timber without appreciating that having regard to the nature of the business it was not possib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 27.11.2009, which is reproduced by the Assessing Officer from page No. 3-7 of the assessment order. Details of some of the purchase bills and of sale bills were specified in the show cause notice as per which purchase prices vary from US $125 per unit to US $305 per unit and the sale rate varies from ₹ 4500 per unit to ₹ 11,000, Rs,.11500, ₹ 12,200 and to ₹ 12,700/- per unit. The AO as per this show cause notice asked the assessee to file, inter alia, trading a/c for different type of timber reflecting the quality wise opening stock as on 1.4.2006, quality wise purchases and sales made during the year and quality wise closing stock as on 31.2.2007, failing which the AO proposed to reject the trading results and to estimate the GP @4.9% on the basis of average GP worked out of the 3 concerns which are in the the similar nature of business. The assessee filed reply on 8.12.2009 but did not address the issues raised by the AO that for want of quality / description of the timber on the sale bills, correctness of the trading results could not be verified. The AO also noted that complete information called for was not furnished. 3.1 Assessing Officer further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26,23,057/- in the immediate preceding year, resulting in reduction in over all GP in comparison to immediate preceding year. (v) that in view of the fact that the purchase of timber are from foreign countries, the sale proceeds has to pay in foreign currency equivalent to value in Indian rupee. There has been rate difference due to fluctuation in currency amounting to ₹ 11,16,743/- which was directly related to purchase itself and resulted in reduction in the cost of purchases, which the appellant under wrong notion of accountancy credited in the P L account instead of trading account. After taking the same in the trading account, the trading results works out to 3.59% as against 2.58% already declared. This aspect of the matter were ignored proper consideration by the Assessing Officer in assessment and again in the report submitted in appeal proceedings; vi) that the stock left has to be valued at cost or market value, whichever is lower. AO's action in not giving benefit of rate currency fluctuation has tentamounted to pay tax on the rate fluctuation amount even not sold till the end of the year and was lying in stock; vii) that the AO's action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neither quantitative tally of the purchase/sale of goods nor correct valuation of closing stock could be verified. Ld. Commissioner of Income Tax (Appeals) further observed that no stock register has been maintained by the assessee. Further in the Tax Audit Report method of valuation of closing stock has been specified to be cost or net realizable value whichever is less, which is not possible to ascertain for want of maintenance of quality wise / item wise stock register. Ld. Commissioner of Income Tax (Appeals) further noted that assessee was asked by the Assessing Officer during the assessment proceedings to file the item wise / quality wise trading account of the timber dealt with and also of the separate trading account of the High Sea Sales claimed to be made, which were not filed. Ld. Commissioner of Income Tax (Appeals) further noted that assessee has claimed that maintenance of stock register is not feasible. Ld. Commissioner of Income Tax (Appeals) further observed that this plea of the assessee is not tenable. 4.2 Ld. Commissioner of Income Tax (Appeals) further observed that assessee has taken a plea that exchange fluctuation benefit should be considered in the tradi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . : 38 ITR 52 (Ker.); Ashoke Refractories (P) Limited : 279 ITR 457 (Cal.); Bhagwati Emporium vs. ITO (1995) 80 Taxman 227 (Ahd.); Kabir Leathers vs. Addl. C.I.T. 27 SOT 498 (Delhi); C.I.T. vs. Jas Jack Elegance Exports 324 ITR 95; C.I.T. vs. Jacksons House : 198 Taxman 385. 6.1 In light of the aforesaid case laws, assessee submitted that the aforesaid decisions are squarely applicable to the case of the assessee. As explained above in the Timber trading activity of the assessee raw timber is purchased / imported and is thereafter, sawed and sold in wholesale / retail basis. It was therefore, not practically feasible to maintain item-wise stock register of each and every type of timber. It has further been submitted that the Assessing Officer failed to appreciate that nature of business was such that it was not practically feasible for the assessee to maintain stock register containing quantitative item wise tally of the timber. In such circumstances, it has been submitted that mere non-maintenance of stock register cannot be the sole basis for rejecting the books results and estimating the profits. It has further been submitted that Assessing Officer has failed to appreciate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imber. We further note that there is no allegation by the AO that there has been any pilferage or sale outside the books of account. Thus there is no case of suppression of sales. Moreover, assessee s books of accounts were duly audited, which signifies that books of accounts and method of accountancy are in order. Moreover, in the case of laws cited by the ld. Counsel of the assessee it has been expounded that mere fall in G.P. and absence of stock register cannot be a reason to reject the books of accounts. 6.5 Furthermore, it is assessee s plea that fluctuation in foreign currency amounting to ₹ 11,16,743/- is directly related to purchase itself and resulted in reduction in the cost of purchase. But the assessee under wrong notion of accountancy credited it in P L A/c instead of trading account. After taking into account the same in trading account, the trading result works out to 3.59% as against 2.5% already declared. 6.6 In the light of aforesaid discussion and precedents, we hold that there were no cogent reasons for rejection of the assessee s books, and estimation of GP rate. The details sought by the AO were not practically feasible to be maintained. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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