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TMI Blog2015 (3) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... compliance insisted by the learned Assessing Officer is beyond the business reality and not a prevalent trade practice. (iv) Otherwise, the assessee has maintained proper day to day stock register of the inward and outward day to day stock of mustard seed, and mustard oil; traded as well as manufactured. We are unable to see any infirmity in the record and book keeping of the assessee in both these years. In view thereof, we are inclined to hold that the assessee's books of accounts have been unjustifiably rejected. - Decided in favour of assessee. Low yield or GP - whether can be a factor to make the trading addition when the assessee otherwise maintains proper books of accounts and quantity wise details - Held that:- When the books of account of the assessee are upheld mere low yield or low GP cannot be ground for addition on account of trading results. This is more so as the edible oil business profitability is volatile and depends on various factors i.e. the abundance of crops, demand and supply ratio, market trends and import policy of edible mustard oil. It cannot be expected as a universal policy that the assessee will earn a fixed rate or increasing rates of GP year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the circumstances of the case, the Learned CIT(A) has erred in:- (1) The CIT(A) has erred in restricting the trading addition of ₹ 47,07,724/- made by the A.O. to ₹ 8,82,962/-, even while upholding the application of section 145(3), in the facts and circumstances of the case. (2) The CIT(A) has erred in holding that the G.P. rate of 1.5% would suffice, even when the G.P. rate of 1.98% applied by the A.O. was on the basis of the past history of the appellant. (3) The CIT(A) has erred in assuming that the G.P. rate of 1.5%, adopted by him was justified and was in proposition to the increase in turnover. Grounds in assessee's Cross Appeal for A.Y. 2009-10 (1) The learned Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the action of the A.O. in rejecting the books of accounts by applying the provisions of Section 145(3). (2) The Commissioner of Income Tax (Appeals) has erred on fact and in law in confirming the trading addition of ₹ 8,82,962/- by applying the G.P. rate of 1.50% as against the G.P. rate of 1.39% declared by the assessee. (3) The learned Commissioner of Income Tax (Appeals) has erred on fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the books of account of the assessee. 2.1 The assessee furnished following explanation in this behalf: i. Your goodself has mentioned in the notice that assessee has not maintained the quality wise stock register for seed. Here we wish to submit that all the mustard seeds are of same type. Therefore, it is not possible to separate the seeds in different qualities. In respect of yield we wish to submit that every lot purchased is sent for testing at an independent laboratory. We have already submitted the few test reports for every month. From the test reports your good self can verify that yield as books of accounts are matched with the laboratory test reports. Therefore, when assessee has maintained complete stock register and yield is supported by independent laboratory test report, yield as per books should be accepted. ii. Assessee has maintained complete day to day stock register. Assessee is manufacturer and trader of mustard oil. He maintains following stock register:- (a) Raw Material (Mustard Seed):- In raw material register day to day purchases of raw material, issue for production, opening and closing stock are properly entered. Further by product Cake can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy submitted that our yield was supported by independent test laboratory. (vi) Your good self is of the view that nil shortage is not possible during the process of packing and forwarding. In this regard, we are to say that packing of oil is processed through machines, therefore, there are very less chances for shortage. Further if any waste oil is refined and reused. (vii) Your good self has asked about the reasons for the excess of production of mustard oil and cake produced over the mustard seed consumed. In this regard we are to say that the assessee is engaged in production of oil from mustard seeds. When seeds are processed oil is produced. Further, a byproduct mustard cake is also produced from the seeds. The lumps of cakes are also produced along with cake. These lumps are not salable in this condition hence they assessee kept aside. During these months, these lumps were crushed and accounted for and due to which excess cake was produced. (viii) Assessee has paid wages of ₹ 1603660/- most of these labours are low educated and does not have any printed bills, etc. These people are from nearby villages of the factory. Therefore, assessee has paid the wages on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count cannot be rejected; the act of rejection of books of account is a serious matter and cannot be done in a casual or routine manner. The rejection of books can be recoursed only and only when specific defects are demonstrated which impede the ascertainment of assessee's profits. (ii) The learned Assessing Officer and learned CIT(A) both have emphasizes the reason of reduction in GP rate as compared to earlier years as their main reason for rejecting the books of account. (iii) The assessee's nearly 80% dealings are in trading of mustards oil and 20% of crushing of mustard seeds for production of edible mustard oil and its byproduct oil cake. The assessee's business is covered by Essential Commodity Act and has to maintain statutory quantity wise details, which has also been accepted by the learned Assessing Officer. The profitability in edible oil industry is volatile and depends on the success of crop, demand and supply position of the market, other market conditions and import policy of edible oils. Therefore, there is no universal rule that the mustard oil trader/manufacturer will earn same profit year after year. (iv) Mustard seed is only single commodi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied the GP rate of 1.98% across the board on the traded mustard oil also. 5.1 It is pleaded that the books of account of the assessee have been rejected without any justification; without pointing out any specific defects; the alleged defects do not exist as the furnishing of such record is nearly impossible. It is neither a trade practice nor requirement of ICAI standards and is impossible to maintain. Thus the books of accounts have been willy-nilly rejected without any justification. It has not been appreciated that on 80% of traded mustard oil no such defects are pointed out. Reliance is placed on the following case laws:- (i) ACIT Vs. Vijay Solvex Limited ITA No. 676/JP/2011 A.Y. 2006-07 dated 210/01/2012. (ii) DCIT Vs. Vijay Industries ITA 952/JP/2010 A.Y. 2006-07 order dated 23/09/2011. For the proposition that when day to day stock records of the assessee are reasonably maintained, the books of account cannot be rejected and GP cannot be applied. Similar situation arose in the case of Pankaj Diamond Vs. ACIT 5 ITR 469 (Trib.) (Ahd.), ld. Assessing Officer insisted on quality wise details of diamond lots and the assessee had reflected lesser GP, books were reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of mustard oil as a continuous process, this is also not disputed by the department. In these circumstances, it is unreasonable to expect from the assessee to shut the plant for crushing of every lot of mustard seed, the yield and maintain impossible day to day, lot wise stock in this behalf. Thus, the corresponding compliance insisted by the learned Assessing Officer is beyond the business reality and not a prevalent trade practice. (iv) Otherwise, the assessee has maintained proper day to day stock register of the inward and outward day to day stock of mustard seed, and mustard oil; traded as well as manufactured. We are unable to see any infirmity in the record and book keeping of the assessee in both these years. In view thereof, we are inclined to hold that the assessee's books of accounts have been unjustifiably rejected; our view is supported by the plethora of case laws cited above. Therefore, we reverse the action of the lower authorities in this behalf. 7.1 Since we have upheld the books of account, the next question which arises is whether low yield or GP can be a factor to make the trading addition when the assessee otherwise maintains proper books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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