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TMI Blog2015 (1) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of ld.CIT(A). - Decided in favour of assessee. - I.T.A. No. 5116/Del/2012 - - - Dated:- 31-12-2014 - Shri I. C. Sudhir And Shri T. S. Kapoor,JJ. For the Appellant : Shri Y Kakkar, DR For the Respondent : Shri Ankit Gupta ORDER Per T. S. Kapoor, AM: This is an appeal filed by Revenue against the order of Ld. CIT(A) dated 05.07.2012. The Revenue has taken following grounds: 1. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals), Muzaffarnagar has erred in law in deleting the addition of ₹ 13,80,077/- made by the AO on account of low gross profit by applying the G.P. rate of2% as against 1.19% shown by the assessee on the sale of mobile hand sets after rejecting the books of account under section 145(3) of the : I.T. Act, 1961 for want of any supporting bills/vouchers /evidence and as the assessee did not maintain the stock register as per the Audit Report. 2. On the fact and in the circumstances of the case, the CIT(A) has erred in law in deleting the addition of ₹ 12,39,724/- made by the assessing officer on account of low gross profit by applying the G.P. rate of 2% as against 0.69% sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em and sold mobile handset in wholesale to the retailers in Muzaffarnagar and adjoining areas. The assessee's contention that a number of item sold on less than the purchase price is not accepted. The aforesaid reply of the assessee is not supported by any documentary evidence. On the basis of aforesaid facts the books of assessee is rejected under section 145(3) and the G.P. is taken 2% of his total sales from mobile handset business which is fair and reasonable. The total amount of gross profit comes to ₹ 3396805/- as against G.P. shown ₹ 2016728/- (round 'figure). (Addition of ₹ 1380077/-. 3. The A.O. further observed that the assessee was also engaged into sales and recharge business of mobile phone cards and it was receiving profits from Bhjarti Airtel Ltd. It was observed by A.O. that the record of margin passed on by assessee to other retailers was not maintained, therefore, an inquiry u/s 133(6) was made from Bharti Airtel Ltd. and in reply Bharti Airtel Ltd. has submitted that margin to the assessee was 4%. The A.O. observed that assessee had declared GP ratio of only 0.69% therefore, vide notice u/s 142(1), the assessee was asked to explain. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Stock register was not maintained as claimed by the assessee in his reply. Column 28(a) of the audit report clearly showed that stock register was not maintained. (ii) The assessee has not denied results of test checking of items. Further, the GP of 42 items was found in negative by the AO during the course of test check. Furthermore, the appellant had not enclosed the sale/purchase details in the items shown in the list. On the other hand, it has been vehemently contended by the appellant that he had maintained books of account in the regular course of business with supporting purchase and sale voucher along with stock register and no discrepancies were pointed out by the AO. As per the appellant the AO selected higher gross profit rate in sale bill whereas sale bill of low gross profit rate has not been considered. As such, it has been argued that GP cannot be worked out on selected item for the whole year. It has been contended that a list of bills of purchase sales were furnished before the AO where-there was loss in some items and profit varied from item to item ranging from .98% to 2% approximately. It has been explained that the loss in profit was due to the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion explained-the deficiencies pointed out by the A.O. in the assessment order in respect of the impugned issue. The AO has rejected books of account without pointing out any defects in the books of account and merely for the reason that there was negative GP which has already been explained in the preceding paras. Further, the AO cannot override the business prudence of the assessee. Further, the rejection of books of account and estimation of GP made by the AO is held untenable for the following reasons:- (i) The fact that the A.O. has found some faults with the accounts will not necessarily bring the case within the scope of 145(3). The Hon'ble Supreme Court in the case of CIT v. Padamchand Ramgopal (1970) 76 ITR 719, observed that insignificant mistakes cannot afford a ground for resorting to this section. So long as it is not impossible to deduce the true income from the accounts maintained by the assessee, its computation cannot be made in any other way. Reliance is placed on the decision of Hon'ble Hon'ble Andra Pradesh High Court in the case of CIT v. Margadarsi Chit Funds Pvt. Ltd. (1985) 155 ITR442. (ii) Before rejection of the accounts, the A.O. must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit to Spoke and Retailer from the appellant's account. It has been explained that the appellant has no control over passing profit margin of Spoke and Retailer at the time of billing of purchase. Thus it has been contended that the profit margin (commission on flexi) remains only at 0.27% as under:- HUB .27% SPOKE 1% RETAILER 3% In the remand report the AO had reported that the appellant had received. commission from Mis Bharti Airtel and passed on commission to Spoke and Retailer. Thus the appellant vide order sheet entry dated 07-06-2012 was required to furnish the details of TDS made by the aforesaid company and also to show cause as to why TDS had not been made by him on the commission passed on to Spoke and Retailer. The appellant was further required to furnish the complete details of commission received along with commission passed on to Spoke and Retailer. In response it was contended that the relationship between the parties is solely on principal to principal basis. The appellant has also furnished copy of agreement with M/s Bharti Airtel Ltd. in support of its contention. The appellant further produced sales/ purchase bills and explained the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t maintaining stock registers which in fact was incorrect as complete copy of stock register was also submitted and A.O. in the remand proceedings had accepted it to be mistake on the part of auditors. With respect to GP from Bharti Airtel Ltd., the ld.AR submitted that GP passed on by Bharti Ltd., was being shared by assessee, Retailer Spoke and in this respect the findings of A.O. during remand proceedings placed at page 37 were referred. 8. We have heard the rival parties and have gone through the material on record. We find from the written submissions of assessee to ld.CIT(A) placed at Paper Book page 85 that combined GP of assessee for Asstt. Year 2006-07 to 2008-09 ranged from 0.89% to 1.09% and the declared combined GP ratio in the present year is 1.17%. Therefore, GP declared by assessee in the present year is in line with earlier years. Moreover, we find that A.O. in the remand report has not raised any objections against written submissions filed by the assessee and the ld. CIT(A) has passed a well reasoned and speaking order. As regards the contention of ld.DR that detail of profit passed on to Retailers Spoke were not provided, we find that the billing rates wer ..... 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