MS DM AJAY KUMAR VIVEK KUMAR V. ASSTT.COMMISSIONER OF INCOME TAX

ITA/59/2007

AI Insights

The case involves M/s.D.M Ajay Kumar Vivek Kumar, a firm dealing in herbs, which appealed against the addition of Rs.4,13,015 to its income for the assessment year 1996-97, imposed by the Assessing Officer due to a low gross profit rate. The Assessing Officer rejected the firm's books of account due to the absence of purchase vouchers and details of sellers, and assessed the gross profit at 33%. The Commissioner of Income Tax (Appeals) initially deleted this addition, but the ITAT reinstated it, citing the Kachwala Gems case, which supports the rejection of unreliable books of account and allows for a best judgment assessment.

• Counselvise Citation: [2009] 140 COUNSELVISE.COM (IT) 748025 (HC-HIMACHAL_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 15-12-2009
• Assessment Year: misc
• Other Referred Cases: M/s.Kachwala Gems versus JCIT (2007) 288 ITR 10(SC)
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: M S VINAY AND VANDANA KUTHIALA ADVOCATES
• Assessee Lawyers: M M KHANNA; VAYUR GAUTAM
• Keywords: Best Judgment Assessment; Books of account rejection; Gross Profit Rate; Kachwala Gems case
• Section: 260A

Judgement Text

"IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA I.T.A No. 59 of 2007 Date of decision: 15.12.2009 M/s.D.M Ajay Kumar Vivek Kumar, A.B., Kullu. …. Appellant Versus Assistant Commissioner of Income Tax & anr. ….. Respondent Coram: The Hon’ble Mr. Justice Deepak Gupta, J. The Hon’ble Mr.Justice V.K.Ahuja, J. Whether approved for reporting? No For the appellant: Mr.M.M.Khanna, Senior Advocate with Mr.Vayur Gautam, Advocate. For the respondents: M/s.Vinay and Vandana Kuthiala, Advocates. Deepak Gupta, J.(Oral) This appeal was admitted on the following substantial question of law:- “1. Whether the case of M/s.Kachwala Gems versus JCIT (2007) 288 ITR 10(SC) is applicable and covers the case of appellant 2 with regard to application of rate of 33% imposed by the Tribunal?” Briefly stated the facts of the case are that the assessee-firm deals in herbs. It declared an income of Rs.17,350/- for the assessment year 1996-97. The Assessing Officer assessed the income vide assessment order dated 19.3.2002 at Rs.11,80,590/-. The main dispute relates to the addition of Rs.4,13,015/- made by the Assessing Officer on account of low gross profit rate. The facts necessary for the decision of the case are that despite opportunity given, the assessee did not produce purchase vouchers in respect of the herbs. It also could not produce the addresses of the sellers from whom it has purchased the herbs. No detail of the persons from whom the assessee had purchased the herbs was given or maintained by the assessee. The opening and closing stock statement could not be verified. Therefore, the Assessing Officer did not accept the books of account of the assessee and assessed the gross profit of the assessee at the rate of 33% of the sales. The assessee had 3 declared gross profit of Rs.6,98,577/- on total sales of Rs.33,68,447/- which gave gross profit rate of 20.73%. In the previous year, the gross profit rate was 33.04%. On appeal the Commissioner of Income Tax (Appeals) deleted the addition on the ground that the Assessing Officer had not pointed out any specific defects or discrepancies in the books of account. He accepted the plea of the assessee and deleted the addition of Rs.4,13,015/-. On further appeal to the ITAT, the Tribunal relying upon the judgment of the Apex Court in M/s.Kachwala Gems Vs. JCIT 2007 (288) ITR 10 held that in view of the fact that the assesse could not produce the purchase vouchers and details of the vendees and in the absence of stock register, the Assessing Officer was well within his right to reject the books of account. In Kachwala Gems’ case, the Apex Court held that where the assessee did not maintain the quantitative details/stock register and there was no evidence to verify the stocks and the genuineness of purchases was not 4 proved without any doubt, the Assessing Officer was well within his right to reject the books of accounts. The Apex Court held as follows:- “10. As regards the rejection of the books of account, cogent reasons have been given by the income-tax authorities for doing so, and we see no reason to take a different view. 11. It is well settled that in a best judgment assessment there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts.” It is obvious that this judgment applies to the present case. Faced with the situation, Sh.M.M.Khanna, learned Senior Advocate argued that in Kachwala Gems’ case, the Assessing Officer made comparative analyses with other dealers whereas in this case only one year’s return for the previous year was taken into consideration. He further submits that in the previous year, the gross profit was on the higher side due to the fact that certain addition had been made on account 5 of disclosures of unaccounted sales which had inflated the gross profit rate, and, therefore, the Assessing Officer should not have based the profit on the percentage of the previous year. Following the law laid down in kachwala Gems, it is apparent that the books of account of the assessee had to be rejected since there is no material on record, i.e., purchase vouchers to support the entries made in the books of account about the payments made to the sellers. Even the names and addresses of the sellers had not been entered whereby such entries could have been verified even in the absence of purchase vouchers. No proper stock registers were maintained. Hence the books of account were rightly rejected. The question as to what should be the percentage of gross profit is a pure question of fact and not a question of law. As held by the Apex Court in Kachwala Gems’ case itself when best judgment assessment is made, some element of guess work is involved. We cannot interfere in the same in exercise of the powers vested in us 6 under Section 260A. The appeal is dismissed accordingly. No order as to costs. ( Deepak Gupta ) Judge December 15, 2009 (V.K.Ahuja) (m) Judge "