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TMI Blog2018 (6) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... levant Act and treated the same as income u/s 2(24)(x) of the Act. In first appeal, the ld. CIT(A) has deleted the addition taking the support of Jurisdictional High Court in the cases of CIT vs Udaipur Dugdh Utpadak Sahakari Sangh Ltd [2014 (8) TMI 677 - RAJASTHAN HIGH COURT] and in the case of CIT vs SBBJ [2014 (5) TMI 222 - RAJASTHAN HIGH COURT]. It is pertinent to mention that such liabilities were paid by the assessee before due date of filing of return then no such disallowance can be made. - Decided against revenue - ITA No. 1048/JP/2017 - - - Dated:- 31-5-2018 - Shri Vijay Pal Rao, JM And Shri Bhagchand, AM Revenue by : Smt. Seema Meena, JCIT - DR Assessee by : Shri Vijay Goyal, CA ORDER Per Bhagchand, AM The appeal filed by the Revenue emanates from the order of the ld. CIT(A)-4, Jaipur dated 03-10-2017 for the Assessment Year 2013-14 raising therein following grounds of appeal. 1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) is justified in holding that rejection of books of account is not justified without appreciating the facts that the assessee has not maintained stock register and details of quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % . The AO observed that the assessee has neither maintained the day today stock register nor any details pertaining to the day today consumption of raw material or production of finished goods. The AO further noted that in absence of quantitative tally and the stock register, the quantity of the raw material consumed, wastage occurred during manufacturing process, wages paid viz a viz goods manufactured are not open to verification and thus the declared trading results are not acceptable. The AO had stated that in case of non-maintenance of stock register, application of sec 145 has been justified and since the books of account of the assessee are rejected the gross profit declared by the assessee are required to be estimated. The AO worked out the simple average rate of G.P. of last year which comes to be 21.31%. The AO observed that in A.Y. 2012-13, the assessee had shown the G.P. Rate of 22%. The AO thus considering the facts and circumstances of the case applied the G.P. Rate of 22% on declared turnover of ₹ 17,94,82,618/- as against 19.43% shown by the assessee and thus the AO made the trading addition of ₹ 45,96,781/-. 2.2 In first appeal, the ld. CIT(A) has d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that the assessee has not maintained stock register and deleted the trading addition. (PB 77) No appeal before Hon ble Tribunal 2011- 12 1489.74 21.06% Ld AO rejected books of account on the ground non maintenance of stock register and estimated GP at 22% (PB 89-90) Ld CIT(A) upheld the rejection of books of account on the ground that the assessee has not maintained stock register and estimated GP rate of 21.50% (PB 99- 100) Hon ble ITAT has held that AO has not given any finding that whether correct profit can be deduced from books of account. When sales and purchases are verifiable, books of account cannot be rejected. 2012- 13 1812.47 20.83% (AO wrongly quoted it at 22% in AY 2013-14)) Ld AO rejected books of account on the ground non maintenance of stock register and estimated GP at 22% (PB 116- 117) Ld CIT(A) held that books of account cannot be rejected merely on the ground that the assessee has not maintained stock register and deleted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. AO rejected the books of account on the same ground. Hon ble ITAT has not upheld the rejection of the books of account. The finding of Hon ble ITAT is reproduced (PB 107-108) as under:- 4.3. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the AO is within his power to reject the books of account where he finds that the books so produced before him, does not give true picture of the profit. It is also settled position of law that assessee is required to maintain books of account by which the true picture of profit can be deduced. The AO rejected the books of account, he is required to find out whether the correct profit is being deduced or not. In the case in hand, the AO has not given such finding. The AO has merely proceeded on the basis of past history of the assessee. Therefore, in our considered view, this act of the AO is not justified. The AO ought to have found out what is the impact on the profit by non maintenance of stock register. As the assessee has demonstrated that it has 100% export sales, the AO has not doubted the sales. Consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l admitted facts noticed by us above, in the face of which there was no occasion for the AO to have resorted to estimate method. The GP is primarily result of excess of sales over purchases, opening stock, closing stock, the unsold stock at two terminals is only balancing factor. Admittedly out of this four components of trading result, there could not have been any ground for the Revenue to arrive at different result. So far as closing stock is concerned, inventories of existing stock were not found to be incorrect by the AO i.e. that position of stock as shown in the account books was not incorrect. There being no dispute about the sales and purchases, non-maintenance of stock register lost its significance so far as arriving at GP is concerned. Therefore, the CIT(A) was right in his reasoning about admitted state of affairs. Resorting to estimate of GP rate was founded on no material. It was merely a case of making certain additions on the basis of certain defects pointed out by the AO and which he has shown in different account by giving margin of unvouched expenses. He has disallowed certain expenses. 11. The Tribunal committed basic error in not appreciating the reasonin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re correct and complete, and whether the income can be properly computed from the accounts. There is no finding that the purchases have been exaggerated or the sales have been suppressed, or that any transaction has not come into the accounts. In these circumstances, the grounds stated by the Tribunal are neither valid nor relevant in rejecting the accounts of the assessee. (ii) ST Teresa s Oil Mills Vs State of Kerala 76 ITR 365 (Ker) PB 157-159 Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reason to indicate that they are unreliable. (iii) CIT Vs Jas Jack Elegance Exports 324 ITR 95 (Delhi) PB 160- 163 :-Hon ble Delhi High Court held that Sec. 145(3) provides for assessment in the manner prescribed in s. 144, where the AO is not satisfied about the correctness or completeness of the accounts of the assessee or where either the method of accounting provided in sub-s. (1) or the Accounting Standards as notified under sub-s. (2) have not been regularly followed by the assessee. This is not the case of the Revenue that the assessee had not followed either cash or mercantile system of accountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther important aspect of this case is that, admittedly, the GP percentage declared by the assessee in the asst. yr. 2003-04 which was the immediate preceding year, was more or less the same as was declared in the asst. yr. 2004-05, to which this appeal pertains. However, the AO, instead of applying the GP ratio declared in the immediate preceding year, applied the GP ratio declared in the asst. yr. 2002-03, thereby failing to maintain the accepted principle of continuity and consistency. The question whether fall in gross profit stood explained by the assessee or not is a question of fact. Both, the Tribunal as well as CIT(A) has accepted the explanation given by the assessee. No substantial question of law arises. (iv) Haridas Parikh Vs ITO 113 TTJ 274 (ITAT Jodhpur) PB 164- 166:- Hon ble ITAT Jodhpur Bench has held that unless the AO is able to point out certain transactions which have been left to be entered in the books of account or that the assessee has sold some of the items at a price higher than what is disclosed in the books of account or if proper particulars, bills, vouchers, are not forthcoming etc., the books of account cannot be rejected without assigning specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vdesh Pratap Singh Abdul Rehman Bros Vs CIT (1994) 210 ITR 406 (All) 186-187 -Held that absence of stock register may not per se lead to an inference that accounts are false or incomplete. (vii) Pandit Bros Vs CIT (1954) 26 ITR 159 (Pun) PB 188-194-Held that absence of stock register is not sufficient ground to reject the books of account. (viii) Ashok Refractories Pvt Ltd Vs CIT (2005) 279 ITR 475 (Cal) PB 195-201 -Held that absence of stock register may not per se lead to an inference that accounts are false or incomplete. (x) Antiquairiate Vs ACIT 37 Taxworld 145 (ITAT. Jaipur) PB 202- 209. 6) The ld AO relied upon the following decision but the facts of these cases are not identical to the assessee s case. Therefore, the ratio laid down in these decisions are not applicable for the assessee Courts Name of case Citation indings in these case which are not in assessee s case Allahabad HC Awadesh Pratap Singh vs CIT 210 406 ITR Purchase/Sales not verifiable Various defects, Held books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,48,89,395 19.44% Thus the GP declared by the assessee for AY 2012-13 was 20.83% as against 22% mentioned by ld. AO in his assessment order. The entire addition is based on wrong consideration of GP of last year at 22% as against 20.83% ii) During this year sale was of high value items wherein GP in terms of % was low but in terms of margin it was high. The trading addition was made by ld. AO on the ground that GP of the assessee was less in comparison to previous years. The main reason of low GP rate was that during the year the assessee sold high value goods on which the GP rate was less than in comparison to previous years. Up to previous years the average sales rate of items of the assessee was ₹ 162-165 per pc on which the assessee was earning average ₹ 34 per pc i.e. margin of about 21% while during the year under consideration the average sales rate of items of the assessee as ₹ 205 per pc on which the assessee was earning average ₹ 40 per pc i.e. Margin of about 19.44%. Thus the value per piece in comparison to previous year increased due to increase in cost of input or sales of high value goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock register nor any detail pertaining to the day today consumption of raw material or production of finished. For want of complete details the AO invoked the provisions of section 145(3) of the Act and made the trading addition of ₹ 45,96,781/- by applying the g.p. rate of 22% on the turnover of ₹ 17,94,82,618/- as against g.p. rate of 19.43% shown by the assessee. In first appeal, the ld. CIT(A) has deleted the addition by observing that the AO s action to reject the books of account is not tenable and further observed that ITAT Jaipur bench in assessee's own case for the Assessment Year 2011-12 had granted relief to the assessee for the same issue. It is also noted that the assessee had filed the statutory audit report before the ld. CIT(A) which had not been disputed by the Department. The ld.AR of the assessee also submitted the reason of decrease in percentage of G.P. is increase of input cost in comparison to previous year. The ld.AR further that the cost of material and wages increased due to production of high quality product but the price of the product could not be increased in same proportionate due to stiff competition with China. Taking into considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jurisdictional High Court, I find that there is no justification in the action of the AO in making a disallowance on account of delay in deposition of PF ESIC. These payments have been made before the due date of filing of return and therefore, such addition are directed to be deleted. Appellant gets a relief in Gr.No.3. 3.3 During the course of hearing, the ld. DR supported the order of the AO. 3.4 On the other hand, the ld.AR of the assessee relied upon the order of the ld. CIT(A) for which the ld.AR of the assessee filed the following written submission. 3.3 Submission of Assessee:- 1) During the course of assessment proceedings the assessee submitted the detail of deposit of PF ESI contribution of employees and it was submitted that during the year under consideration the assessee deposited all the employee contribution to PF within time except contribution of ₹ 9706/- of October-2012 which was deposited on 17.11.2012 i.e. only two days late. However the contribution was paid before the due date of filing of Income Tax return. The payment of PF was made by the assessee by a/c payee cheque and the delay is on account of non clearing of cheques by 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 36(1)(va) of the Act. Admittedly, the payments were made before filing of return of income in all the years. Ld. CIT(A) has relied on the Tribunal s order rendered in the case of this assessee for A.Y. 2005-06. A copy of this order is also available in the assessee s paper book. 5. Before us both the parties have reiterated their earlier arguments. The Ld. D.R. did not deny the fact that this issue stands covered in the favour of the assessee by the T.O. in assessee s own case for A.Y. 2005- 06, but he has justified the action of the Assessing Officer. After considering the rival submissions we are satisfied that the law on the issue stands settled that in case assessee deposits PF/ESI employees contribution before the due date of filing of return, it cannot be disallowed under section 36(1)(va) of the Act. We have gone through the decision of the Tribunal inter-alia, therefore, by respectfully following the same specifically the Tribunal s order in assessee s own case, for A.Y. 2005-06 dated 13/01/2011, we confirm the impugned deletion and cannot allow ground No. (i) of the Revenue s appeal. Facts of this case are similar to the facts of the assessee s case ..... 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