9911796707
TMI Blog2021 (3) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has filed return of income for the year under consideration on 01/01/2013 declaring total income of Rs. 92,91,120/-. The case of the assessee was selected for scrutiny and notices were issued to him which was duly served upon the assesssee. The A.O. passed assessment order U/s 143(3) of the Income Tax Act, 1961 (in short, the Act) on 10/03/2015 determining total income of Rs. 1,93,58,940/- by making trading addition. 4. Aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering all the details and material placed on record, given part relief to the assessee. Against the order of the ld. CIT(A), the assessee has preferred present appeal before the ITAT on the grounds mentioned above. 5. The assessee has raised sole effective ground of appeal which is against the order of the ld. CIT(A) in estimating G.P. rate @ 12.86% on the basis of five years average assessed gross profit rate and sustained GP addition of Rs. 20,43,900/-. The ld AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... So AO is wrong to state that non maintenance of day to day stock by assessee in deliberate. The Ld. Assessing officer also referred the irrelevant case of Howrah Trading Co., Ltd vs The Commissioner Of Income(1968)67 ITR 582 (CAL)- which is not relevant with the assessee's case as assessee's matter is related to rejection of books of accounts u/s 145(3) whereas this case is referred to High Court with Question as " Whether in the facts and circumstances of this case, the Applicant (the assessee) was entitled to have this dividend income grossed up under section 16(2) and claim credit for tax deducted at source under section 18(5) of' the Income-tax Act? " So facts of this case totally different and this case is irrelevant in the case of assessee. 1.6 In the para 3.4 of the AO order at page no. 5 the Ld. AO has himself accepted in order however, it remains a fact that the assessee has successfully achieved a substantial turnover despite severe competition and adverse market condition which could not have been possible unless margins were lowered . so only on this ground even if the books are rejected on stock register issue , no GP addition can be made. 1.7 In the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein the books of accounts are rejected, a fair estimate is required to be made by the Assessing Officer. The principle of average taking into consideration last 5 years past history is clearly a robust and fair basis of estimation to determine the gross profits for the year under consideration. The ld. AR has submitted that average G.P rate of last 5 years comes to 12.29% as against declared G.P. rate of 13.19% in the year under consideration. On perusal of records, the track record of declared Gross profit by the assessee and gross profit as upheld either by AO or by higher appellate authorities is as under:- Assessment year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 G.P% (as declared) 13.85 14.11 12.03 8.48 12.96 13.19 G.P. (as affirmed as applicable) 17.20 17.20 12.03 8.52 12.96 13.58 In light of above, the average G.P rate of last 5 years as finally affirmed comes to 13.58%.A0 is accordingly directed to apply the G.P. rate of 13.58% as against G.P rate of 13.19% declared by the assessee. The respective grounds of appeal are accordingly disposed off " So as per assessee declared average G.P rate of last 5 years comes to 12.15 % i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in reasons of decrease of G.P. from 17.20% to 11.75% which is based on actual facts and figures. Hence declared GP must be accepted. 1.14 Your goodself is also requested to see the concluding part of assessment order of same assesse u/s 143(3) of A.Y 2010-11 vide PB no. 71-72 where the assesse declared GP at the rate of 8.48 % against the G.P of 12.03 % in the immediate preceding year A.Y 2011-12 and Ld AO made only lumsum trading addition of Rs. 1.00,000/- and G.P. remained unchanged at 8.48% . So your honor is requested to accept the genuine G.P. of 11.75% against 12.86% accepted by CIT(A) . There was also very stiff competition from various local exporters as many our type of manufacturers have been crop up during these years who were operating at very low margin to establish their market. Due to this reason Assessee's Gross Profit was dipped during the year under consideration. 1.15 Honorable ITAT as already decided in the case of Shri Mukesh Kumar Jain Vs ITO Tonk ITA No. 1023/JP/2011 and Shri Padam Chand Jain Vs ITO Tonk 1TA No. 1024/JP/2011 (ITAT Online) enclosed vide PB No. 73-81 it was held that "As regards the addition made on account of lower yield in compariso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear old G.P. ignoring own assessment of A.Y. 2010-11 and pointing out non maintenance of stock register. The fact is the assessee has made valuation of closing stock by verifying the items physically. In the year end a note on details of inventory/closing stock had been prepared by the supervisors with the help of labours. They have been doing valuation of each and every article, products, furnished/semi furnished/ finished goods in packing/goods in process/goods lying in open grounds, stocked or at saw-mills, woods in paya, gattu, beems and planks, consumable stocks of all working sites of Ramgarh. The factory staff & labour count the goods and then the proprietor with the help of supervisors cross-examines it and properly value the Closing Stock. In the nature of such kind of artistic business, where each item has different quality, different shape, different look, different value different dimension, it is not possible to maintain stock register for each raw material . That's why the assessee has physically verified inventory and made valuation of inventory. 1.18 In-spite of above submission, the Ld A.O. has made an opinion on this mere ground that quantitative tally of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10-11 is as follows:- Reason of low GP rate: The reason of low G.P. rate is sudden increase in cost of raw material during the relevant period. The assessee offered low rates of its goods to the purchasers to compete with the existing exporters. Further to capture the market, the assessee had to work at more competitive rates. Furthermore, the assessee faced more competition in his business from other competitors during the relevant period. Here, it is pertinent to note that in the present case, orders from foreign buyers are received in advanced and sales price is determined and settled at that time. As requested in my earlier written reply, goods are then manufactured as per specifications of the importers. During this gap of time, some time, cost of raw material is increased and sometime rate of Indian currency is valued down. This result in low gross profit. During the relevant period, the cost of the assessee has also increased because of increase in transportation, cost of raw material, cost of power and increase in wages due to inflation. There is a tough competition in assessee's business and to achieve the sales, the target sale price of the exported goods was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is very difficult for the assessee to affect the sales without bills. Under such circumstances, the figures of raw materials, finished goods, polishing materials, and packing materials shown in regular books of accounts may kindly be accepted. We are submitting some case laws which are highlighted here to further supports that AO cannot resort to provisions of the section 145(3) of the IT Act,1961, in case of non maintenance of stock register and other issues as already decided in many cases but G.P. addition can not be made, such as : A. CIT Vs Gotan Lime Khaniz Udhyog (2002) 256 ITR 243 (Rajasthan High Court). The assessee had maintained regular books of account, which are supported by regular bills and vouchers, and no defect or discrepancy had been observed by the learned assessing officer in the records so maintained. The sales are also export where payments are fully verifiable and through banking channels. Unless the regular books are found to be not acceptable, there would be no justification for any estimation. Even for any reasons, the books are technically rejected, the same would not justify any addition and in this regard reliance is placed on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer laid no material on record to suggest that there has been any suppression of income nor that the assessee carried any activity outside the books. Hence in the light of above all cases, it is not justifiable to reject the books of accounts on the ground of non maintenance of day to day Closing Stock Register and no G.P. rate can be applied arbitrarily without any basis. There was also very stiff competition from various local exporters as many our type of manufacturers have been crop up during these years who were operating at very low margin to establish their market. Due to this reason our sales was dipped during the year under consideration. In-spite of agreed with the above facts and submission, the learned assessing officer has made an opinion on this mere ground that itemwise stock register are not available with the assessee and it is not possible to verify the trading results and apply the provisions of section 145. Section 145 of the Income Tax Act requires that the business income shall be normally, computed in accordance with the method of accounting regularly employed by the assessee, if the assessee has maintained accounts, the section leaves it to the assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From perusal of the record, we observe that the ld. CIT(A) has dealt with the issue in para 4.3 of his order and the same is reproduced below: "4.3 I have carefully considered the material before me. I find that Assessee deals in purchase/manufacture and sale of furniture handicraft items. Clause 28 of the form No. 3CD of the audit report requires quantitative; details of items traded and also of items manufactured. Shortage in the manufacturing process and percentage of yield in the manufacturing process are required to be given. Quantitative tally of traded items and finished products is also required to be given. However no such details are given. Auditor's remarks against these clauses is details not maintained. Vide notice u/s 142(1) dated 27/07/2015 alongwith detailed questionnaire, the assessee was asked to file complete details of opening stock & closing stock alongwith the valuation method adopted to arrive such opening and closing stock. However, the assessee could not file the required details during the course of assessment proceedings. Vide para 20 of letter dated 13/11/2015, the assessee could only give value of opening and closing stock under broad heads lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em. Today when books are maintained on computer and advanced software like tally are available and used, maintenance of quantitative details is very easy and convenient. Assessee's failure to provide the quantitative details is thus deliberate. Assessee is not maintaining day to day stock register. He has not maintained inventory of closing stock. Assessee deals in manufacture/trading of wooden furniture items. Purchases of wood are in volume i.e. cft / m cube measurement but sales are in nos. of various items. Adoption of different standards for receipts and production in stock, accounts can justify rejection of accounts:- If the stock received are shown in the books by one standard and goods produced from those stocks are shown by another standard it is quite clear that profits cannot be correctly deduced. In such cases the assessing officer would be justified in rejecting the method and in estimating the income- Howrah Trading Co (P) Ltd. V.CIT(1968)67 ITR 582(Cal). There is no record of yield, shortage. Such hooks of accounts and such system of accounting cannot be considered so sacrosanct that trading result cannot be disturbed when the circumstances suggest otherwise. Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits for the year under consideration." Therefore following the decision of the Hon'ble ITAT in the appellant own case and considering the above observation I adopt the average Gross profit rate of 5year which comes to 12.86% (17.2% + 12.03% + 8.52% + 12.96% + 13.58%). Hence I apply the Gross profit rate @12.86% instead the Assessing officer apply 17.02%. Thus the Gross profit comes to Rs. 2,37,75,945/-. The appellant shown Gross profit of Rs. 2,17,32,045/-. The addition comes of Rs. 20,43,900/-. The Assessing officer made the addition of Rs. 1,00,67,820/-. I confirm addition of Rs. 20,43,900/- and balance amount of Rs. 80,23,920/- is deleted. This ground is partly allowed. 8. Having considered the rival contentions and from perusal of the record, we observe that the assessee deals in purchase/manufacture and sale of furniture handicraft items. Clause 28 of the form No. 3CD of the audit report requires quantitative details of items traded and also of items manufactured. Shortage in the manufacturing process and percentage of yield in the manufacturing process are required to be given. Quantitative tally of traded items and finished products is also required to be given. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. If the stock received are shown in the books by one standard and goods produced from those stocks are shown by another standard it is quite clear that profits cannot be correctly deduced. In such cases the A.O. would be justified in rejecting the method and in estimating the income. The assessee failed to file any evidence against the defect pointed out by the A.O.. 9. The ld. DR has drawn our attention towards the decision of the Coordinate bench of this Tribunal in assessee's own case for the A.Y. 2012-13 wherein the Coordinate Bench has held as under: "9 We have heard the rival contentions and perused the material available on record. In view of the specific observations of the auditors in terms of inconsistency in maintaining the books of account and not following the well accepted accounting principles and the Coordinate Bench decision in assessee's own case for A.Y. 2008-09 wherein on similar basis the books of accounts were rejected, we see no reason to interfere with the order of the lower authority in terms of rejection of the books of accounts. 10. Regarding estimation of G.P. rate, wherein the books of accounts are rejected, a fair estimate is required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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