Shri Pravinchandra J. Gondhia, JUNAGADH V. The Income Tax Officer, Ward-1(1), JUNAGADH

ITA 23/RJT/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8656 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 15-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NAMITA KHURANA
• Assessee Lawyers: MEHUL J RANPURA
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income; Corroborative evidences; Set aside
• Section: 143(3); 133(6); 201; 274; 145; 144

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT (CONDUCTED THROUGH E - COURT AT AHMEDABAD) BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS . MADHUMITA ROY, JUDICIAL MEMBER ./ ITA NO . 23 /RJT /2015 / ASSTT. YEAR : 2007 - 20 08 SHRI PRAVINCHANDRA J. GONDHIA , PROP. OF M/S. SHILPIN ELECTRONICS , M.G. ROAD , JUNAGADH . PAN: ACAPG6404A VS . INCOME TAX OFFICER , WARD - 1(1) , JUNAGADH . (APPLICANT) (RESPON D ENT) ASSESSEE BY : SHRI MEHUL J. RANPURA , A.R REVENUE BY : MS NAMITA KHURANA , SR .D R / DATE OF HEARING : 18 / 06 / 201 9 / DATE OF PRONOUNCEMENT: 03 / 09 /201 9 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER : THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMIS S IONER OF INCOME TAX (APPEALS) - IV , AHMEDABAD [ LD. CIT (A) IN SHORT] DATED 12/11 / 2014 ARISING IN THE MATTER OF ASSESS MENT ORDER PA SSED UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') DATED 16/11/2009 RELEVANT TO ASSESSMENT YEAR (A . Y . ) 2007 - 20 08 . ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.0 THE GROUNDS OF APPEAL MENTIONED HEREUNDER ARE WITHOUT PREJUDICE TO ONE ANOTHER. 2.0 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV, RAJKOT [HEREINAFTER REFERRED TO AS THE 'CIT(A)' ERRED ON FACTS AS ALSO IN LAW IN SUSTAINING AO'S ACTION OF REJECTION OF BOOKS OF ACCOUNT AND THEREBY CONFIRMING THE ADDITION MADE BY THE AO ON ACCOUNT OF ALLEGED LOW GROSS PROFIT OF RS.10.43.297/ - ON ESTIMATED SALES AND 9% GROSS PROFIT AT RS. 3,50,00,000/ - AND RS. 31,50,000/ - RESPECTIVELY AS AGAINST THE ACTUAL SALES AND GROSS PROFIT AT RS.3,17,69,903/ - AND RS 21,06,803/ - RESPECTIVELY. THE ADDITION IS TOTAL LY UNJUSTIFIED ON FACTS AS ALSO IN LAW AND MAY KINDLY BE DELETED. 3.0 THE LEARNED CIT(A) ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING DISALLOWANCE OF RS.11,405/ - MADE FROM TELEPHONE EXPENSES ON THE ALLEGED GROUND OF PERSONAL USE. THE DISALLOWANCE MAY KINDLY BE DELETED. 4.0 THE LEARNED CIT(A) ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING DISALLOWANCE OF RS.15.520/ - MADE FROM TRAVELLING EXPENSES ON THE ALLEGED GROUND OF PERSONAL USE. THE DISALLOWANCE MAY KINDLY BE DELETED. 5.0 THE LEARNED CIT(A) ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING DISALLOWANCE OF RS.10,290/ - MADE FROM EXPENSES ON PETROL ON THE ALLEGED GROUND OF PERSONAL USE. THE DISALLOWANCE MAY KINDLY BE DELETED. 6.0 YOUR HONOR S APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR WITHDRAW ANY OR MORE GROUNDS OF APPEAL O N OR BEFORE THE HEARING OF APPEAL. THE 1 ST ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION OF 10,43,297.00 ON ACCOUNT OF LOW GROSS PROFIT AFTER REJECTING THE BOOKS OF ACCOUNTS. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF TRADING IN ELECTRONIC GOODS UNDER THE NAME AND STYLE OF M/S SHILPIN ELECTRONICS. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS FILED HI S RETURN OF INCOME DATED 23 RD OCTOBER 2007 DECLARING TOTAL INCOME OF 1,21,100.00 AGAINST THE TURNOVER OF 3,17,69,903.00 ONLY. ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 3 2.1 THE ASSESSEE AGAINST SUCH TURNOVER HAS SHOWN GROSS PROFIT AND NET PROFIT AT RS. 21,06,803.00 AND 2,41,526.00 , WHICH IS CON STITUTING 6.63% AND 0.76% OF THE TURNOVER. 2.2 HOWEVER, THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED CERTAIN FACTS AS DETAILED UNDER: I. THE ASSESSEE HAS SHOWN THE GROSS PROFIT AND NET PROFIT AT THE RATE OF 7.7% AND 0.86% RESPECTIVELY AGAINST THE TURN OVER OF 2,70,00,000.00 IN THE IMMEDIATE LY PRECEDING ASSESSMENT YEAR. THUS , THERE WAS A DECLINE IN THE GROSS PROFIT AND NET PROFIT FOR THE YEAR UNDER CONSIDERATION VIZ A VIZ THE IMMEDIATE PRECEDING ASSESSMENT YEAR. II. THE ASSESSEE FURNISHED THE DETAILS OF THE OPENING AND CLOSING STOCK AS ON 1 ST APRIL 2006 , AND 31 ST MARCH 2007 CONTAINING THE QUANTITY AND THE VALUE OF THE STOCK VIDE LETTER DATED 11 TH JUNE 2009 WHICH WAS SUBSEQUENTLY CHANGED /REVISED BY HIM VIDE LETTER DATED 5 TH OCTOBER 2009 ON BEING QUESTIONED AB OUT THE DEFECTS THEREIN . ACCORDINGLY, THE STOCK REGISTER MAINTAINED BY THE ASSESSEE WAS DEFECTIVE. SIMILARLY , THE ASSESSEE DID NOT MAINTAIN THE QUANTITATIVE DETAILS OF ELECTRICAL GOODS, SPARES , AND OTHER MISCELLANEOUS ITEMS ON THE REASONING THAT A LOT OF I TEMS ARE INVOLVED. III. ANO THER PROPRIETARY CONCERNED DEALING IN IDENTICAL ACTIVITIES AND OPERATED BY THE WIFE OF THE ASSESSEE HAS DECLARED GROSS PROFIT RATIO AND NET PROFIT RATIO AT 8.70% AND 8.10% RESPECTIVELY WHICH IS MUCH HIGHER THAN THE PROFIT DECLARED BY THE ASSESSEE. ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 4 IV. THE ASSESSEE HAS SHOWN HUGE SUNDRY CREDITORS AMOUNTING TO 85,04,542.00 BUT FAILED TO FILE THE CONFIRMATION OF THE PARTIES EXCEPT IN TWO CASES. IN VIEW OF THE ABOVE, THE AO WAS NOT SATISFIED WITH THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASS ESSEE. ACCORDINGLY , THE AO REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE UNDER SECTION 145(3) OF THE ACT. THE AO FURTHER ESTIMATED THE TURNOVER OF THE ASSESSEE AT 3,50,00,000.00 AND WORKED OUT THE GP AT THE RATE OF 9% OF THE TURNOVER AMOUNTING TO 31,5 0,000.00 ONLY. ACCORDINGLY , THE AO ADDED THE AMOUNT OF 10,43,197.00 (31,50,000.00 MINUS 21,06,803.00) BEING THE DIFFERENCE IN THE AMOUNT OF GROSS PROFIT DECLARED BY THE ASSESSEE AND GROSS PROFIT WORKED BY THE AO. THUS THE AO ADDED THE SUM OF 10,43,197. 00 TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) WHO HAS CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 2.2 DURING THE COURSE OF APPELLATE PROCEEDINGS, SHRI DEEPAK RINDANI, C.A. AND THE AUTHORIZED REPRESENTATIVE FURNISHED THE PAPER BOOK, WHEREIN THE ARGUMENTS TAKEN ARE MORE OR LESS SIMILAR AS WERE TAKEN BEFORE THE ASSESSING OFFICER. THE AUTHORIZED REPRESENTATIVE IS SILENT ON SIGNIFICANT VARIATIONS / DISCREPANCIES FOUND IN THE OPENING STOC K AND CLOSING STOCK DISCOVERED BY THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS. THE AUTHORIZED REPRESENTATIVE FAILED TO SUBSTANTIATE THESE DISCREPANCIES. THE VARIATIONS IN STOCK IN TRADE AS APPEARING IN OPENING STOCK AND CLOSING STOCK REMAINED UNSUB STANTIATED. THE CASE LAW RELIED UPON BY THE AUTHORIZED REPRESENTATIVE IS NOT RELEVANT TO THE FACTS OF THIS CASE, HENCE, NOT APPLIED. TO SUM UP, AS DISCUSSED IN GREAT DETAIL, THE ASPECT OF SERIOUS DEFECTS FOUND IN OPENING STOCK AND CLOSING STOCK BY THE ASSE SSING OFFICER, I AM ALSO OF THE VIEW THAT THE TRADING RESULTS DECLARED BY THE APPELLANT ARE FOUND TO BE UNRELIABLE AS THE SUPPORTING EVIDENCE IN THE FORM OF SALES AND PURCHASES ARE NOT, VERIFIABLE. HENCE, I DECLINE TO INTERFERE WITH THE ACTION OF THE ASSES SING OFFICER IN ESTIMATION O: THE BUSINESS RECEIPTS AND SO ALSO THE GROSS PROFIT THEREON. I THEREFORE, UPHOLD THE REJECTION BOOKS OF ACCOUNTS BY THE ASSESSING OFFICER BEFORE SUCH ESTIMATION. ONCE THE BOOKS ARE REJECTED, IT IS FOR THE ASSESSING OFFICER TO E STIMATE THE PROFITS IN THE BEST POSSIBLE MANNER. AS HELD BY HON BLE SUPREME COURT IN THE CASE OF CIT V. H. M. ESUFALI & ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 5 H.M. ABDULALI (1973) 90 ITF ), IF THE ESTIMATE MADE BY THE ASSESSING AUTHORITY IS A BONA FIDE ESTIMATE AND IS BASED ON A RATIONAL BASIS, THE FACT THAT THE THERE IS NO GOOD PROOF IN SUPPORT OF THAT ESTIMATE IS IMMATERIAL. HENCE, THE ADDITION MADE AT RS.10,43,297/ - ON ACCOUNT OF LOW GROSS PROFIT MARGIN SANDS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. BEING AGGRIEVED , THE ASSESSEE ASSAIL ED THE ORDER OF CIT(A). 4. THE LD. AR BEFORE U S SUBMITTED THAT THE BOOKS OF ACCOUNT OF APPELLANT ARE DULY SUPPORTED BY THE BILLS AND VOUCHER AND AUDITED. THE COPY OF THE AUDIT REPORT HAS BEEN ATTACHED AT PAGE 1 TO 35 OF THE PAPER BOOK. 4.1 THE L D.A R, SUB MITTED THAT APPELLANT VIDE LETTER DATED 05/10/2009 WHICH IS AT PAGE NO.39 TO 43 OF PAPER BOOK FURNISHED DETAILED TRADING ACCOUNT WITH QUANTITY AND THE STOCK STATEMENT OF WHOLE YEAR WHICH IS INCLUSIVE OF ITEM WISE STOCK DETAILS OF ALL ITEMS EXCLUDING ONLY O NE ITEM I.E MISC. ELECTRONIC ITEM. COPIES OF GENERAL TRADING ACCOUNT AND STOCK STATEMENTS ARE ATTACHED AT PAGE NO.44 TO 52 OF PAPER BOOK. THE APPELLANT HAS FURNISHED COPIES OF BILLS/INVOICE OF ALL THE APPLIANCES TRADED BY HIM (SAMPLES ARE VERIFIABLE AT PAG E 55 TO 84 OF PAPER BOOK) TO SHOW GENUINE SALE AND PURCHASE. THE APPELLANT S BOOKS OF ACCOUNTS ARE ALSO SUBJECT TO THE VAT AUDIT AND AS A MATTER OF FACT VAT ASSESSMENT WAS ALSO FINALIZED UNDER CENTRAL SALES TAX ACT, 1956 ACCEPTING BOOK RESULTS OF THE APPEL LANT. COPIES OF VAT AUDIT REPORT AND VAT ASSESSMENT ORDER ARE ATT ACHED AT PAGE 85 TO 105 OF PAPER BOOK. 4.2 THE LD.AR, SUBMITTED THAT THE ASSESSMENT IN CASE OF APPELLANT FOR A.Y. 2006 - 07 AND 2009 - 10 ARE FINALIZED VIDE ORDERS U/S.143(3) OF THE ACT DATED 1 6.07.2008 AND 21.11.2011 RESPECTIVELY, ACCEPTING TRADING RESULTS OF THE APPELLANT. THE COPIES OF THE ORDERS ARE ATTACHED AT PAGE 106 TO 108 OF PAPER BOOK. ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 6 IN VIEW OF THE ABOVE, LD. AR HAS REQUESTED TO ACCEPT THE BOOK RESULT OF APPELLANT. 4.3 THE LD.AR, AL SO SUBMITTED THAT APPELLANT S WIFE SMT. RAXABEN P. GONDHIA IS OPERATING ON VERY SMALL SCALE BASIS WITH HER OWN CAPITAL ONLY. WHERE A S THE APPELLANT IS DOING BUSINESS ON LARGE SCALE WITH BORROWED FUNDS. THUS, THE APPELLANT HAS TO BARE INTEREST EXPENDITURE WH ICH RESULTS IN LOWER NP RATIO AS COMPARED TO HIS WIFE S BUSINESS. THIS FACT IS VERIFIABLE FROM COPIES OF AUDITED PROFIT AND LOSS ACCOUNT ON THE APPELLANT WHICH IS AT PAGE 15, 213,225 AND 232 OF PAPER BOOK. THUS, OBSERVATION AND COMPARISON BY AO IS WITHOUT APPRECIATION OF FACTS OF THE CASE AND INCORRECT. 4.4 THE LD.AR, FURTHER SUBMITTED THAT AO HAS INCORRECTLY RAISED DOUBTS REGARDING CREDITORS THOUGH HE HAS ACCEPTED PURCHASES. THIS ACTION ITSELF IS CONTRADICTORY ON THE PART OF THE AO. FURTHER, THE AO FAILED TO APPRECIATE THE FACT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS APPELLANT HAS PROVIDED COPIES OF LEDGER ACCOUNT AND OF ALL SUNDRY CREDITORS WHICH IS AT PAGE NO.112 TO 211 OF PAPER BOOK FROM WHICH IT MAY CLEARLY BE SEEN THAT MAJORITY OF PURCHASE AR E THOROUGH ACCOUNT PAYEE CHEQUES. FURTHER, MAJORITY OF PARTIES FROM WHICH APPELLANT HAS DEALT WITH ARE NATIONAL OR MULTINATIONAL COMPANIES PURCHASE OF WHICH ARE DULY SUPPORTED BY DETAILED INVOICES ISSUED BY SUCH PARTIES WHICH CLEARLY MENTIONS ALL CONTACT D ETAILS OF SUCH PARTIES. 5. ON THE OTHER HAND, LD. DR RELIED ON THE ASSESSMENT ORDER AS WELL AS THE ORDER OF LD. CIT(A). ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 7 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE , INCLUDING THE MATERIALS AVAILABLE ON RECORD . 6.1 AS PER SECTION 145 OF THE ACT , THE AO IS EMPOWERED TO REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND MAKE BEST JUDGMENT ASSESSMENT IN THE MANNER AS SPECIFIED UNDER SECTION 144 OF THE ACT IF HE IS NOT INTER - ALIA SATISFIED WITH THE COMPLETENESS OR CORRECTNESS OF THE BOOKS OF ACCOUNTS OF THE ASSESSEE. GENERALLY, THE I NSTANCES F OR THE REJECTION OF BOOKS OF ACCOUNT INCLUDE W HEN ENTRIES IN RESPECT OF CERTAIN TRANSACTIONS ARE ALTOGETHER OMITTED OR INCORRECT OR W HERE THE ACCOUNTS SHOW AN ABNORMAL LY LOW RATE OF PROFIT OR W HERE THERE IS AN INHERENT LACUNA IN THE SYSTEM OF ACCOUNTING. 6.2 HOWEVER, THE AO CANNOT USE THIS POWER AS A TOOL TO REJECT THE BOOKS OF ACCOUNTS MERELY DUE TO NON - MAINTENANCE OF THE STOCK REGISTER, VARI ATION IN GROSS PROFIT AND NON - FURNISHING OF CERTAIN VOUCHERS OR ITS EXPLANATION OR NON - CONFIRMATION OF SUNDRY CREDITORS . ANYWAY, B EFORE REJECTING THE BOOKS OF ACCOUNTS, THE AO MUST RECORD THE SPECIFIC REASON FOR REJECTING THE BOOKS OF ACCOUNTS. SUCH SATISF ACTION HAS TO BE ESTABLISHED AND SUBSTANTIATED BASED ON FACTS AND FIGURES , WHICH FURTHER DEPENDS ON THE CIRCUMSTANCES OF EACH CASE. MERE MINOR MISTAKES/TYPOLOGICAL ERRORS/ABSENCE OF STOCK REGISTERS/LOWER GP MAY NOT IPSO FACTO AMOUNT TO INCORRECTNESS/INCOMP LETENESS OF ACCOUNTS IN TERMS OF SECTION 145(3) OF THE A CT. BUT THE CASE WOULD BE DIFFERENT WHERE THE ABOVE - MENTIONED MISTAKES ARE COUPLED WITH OTHER FINDINGS. 6.3 IN THE GIVEN CASE , AO HAS REJECTED THE BOOK RESULTS OF THE ASSESSEE BASED ON THE FACTS AND FIGURED CULLED OUT BY HIM AS DETAILED HEREUNDER: ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 8 I. LOWER GROSS PROFIT AND NET PROFIT IN COMPARISON TO THE LAST YEAR VIS A VIZ IN THE SIMILAR BUSINESS CARRIED ON BY THE WIFE OF THE ASSESSEE. II. DEFECTS IN THE ORIGINAL AS WELL AS REVISED STOCK REGISTER. III. NON - CONFIRMATION FROM THE SUNDRY CREDITORS IN RESPONSE TO THE NOTICES ISSUED UNDER SECTION 133(6) OF THE ACT. IV. NON - MAINTENANCE OF QUANTITY - WISE STOCK REGISTER IN THE LIGHT OF THE ABOVE FACTS, THE AO INVOKED THE PROVISIONS O F SECTION 145(3) OF THE ACT AND T HEREBY HE HAS MADE CERTAIN UPWARD ADDITIONS IN THE BOOKS WHICH HA VE RESULTED IN INFLATION IN GP AND ULTIMATELY NP OF THE ASSESSEE. IN DOING SO , THE AO HAS DRAWN AUTHORITY GIVEN TO H IM UNDER SECTION 145(3) OF THE A CT. THE LEARNED CIT (A) SUBSEQUENTLY CONFI RMED THE FINDINGS OF THE AO. NOW WE ANALY Z E EACH OF THE FINDING S OF THE AO . 6.4 THE PROFIT SHOWN BY THE OTHER CONCERN ENGAGED IN A SIMILAR ACTIVITY CANNOT BE A CRITERI ON TO REJECT THE BOOKS. IT IS BECAUSE THE PROFIT OF CONCERN DEPENDS UPON VARIOUS FACTOR S. THERE IS A DIFFERENCE IN THE TURNOVER BETWEEN THE ASSESSEE AND THE OTHER CONCERN. SIMILARLY , THERE MAY BE MANY MORE REASONS SUCH AS CAPITAL INVESTMENT, BANK BORROWINGS, STIFF COMPETITION, THE ACHIEVEMENT OF HIGHER TURNOVER , ACCOUNTING POLICIES, CREDIT P ERIOD , ETC. FOR THE LOW GP RATIO. BUT THE AUTHORITIES BELOW HA VE NOT BROUGHT ALL THESE FACTS ON RECORD. THEREFORE WE DISAGREE WITH THE FINDING OF THE AUTHORITIES BELOW. 6.5 SIMILARLY, T HE DECLINE IN THE GP RATE AND NP RATE IN COMPARISON TO THE IMMEDIATE LY PRECEDING ASSESSMENT YEAR CANNOT BE CRITERIA TO REJECT THE BOOKS. IT IS BECAUSE THE ASSESSEE EXPLAINED THAT IT HA D REDUCED THE SALE PRICE TO ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 9 ACHIEVE A HIGHER TURNOVER. THIS REASON FOR FALL IN GP AND NP OF THE ASSESSEE WAS NOWHERE CONTROVERTED BY THE AUTHORITIES BELOW. LOWER GROSS PROFIT AS COMPARED TO EARLIER YEAR CANNOT BE THE GROUND TO REJECT THE BOOKS OF ACCOUNTS. WE TAKE THE SUPPORT FROM THE CASE OF MALANI RAMJIVAN JAGANNATH VS AS STT. CIT REPORTED 316 ITR 120 WHERE IT WAS HELD BY RAJASTHAN HIGH COURT AS DETAILED UNDER: THE TRIBUNAL COMMITTED BASIC ERROR IN NOT APPRECIATING THE REASONING GIVEN BY THE COMMISSIONER (APPEALS). IT WAS TRITE TO SAY THAT IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, ACCOUNT BOOKS WERE MAINTAINED AS THEY WERE ORDINARILY MAINTAINED YEAR AFTER YEARS AND WHICH WERE FOUND TO YIELD A FAIR RESULT. MERE DEVIATION IN GROSS PROFIT RATE CANNOT BE A GROUND FOR REJECTING BOOKS OF ACCOUNT AND ENTERING REALM OF ESTIMATE AND GUESSWORK. LOWER GROSS PROFIT RATE SHOWN IN THE BOOKS OF ACCOUNT DURING CURRENT YEAR AND FALL IN GROSS PROFIT RATE WAS JUSTIFIED AND ALSO ADMITTED BY THE ASSESSING OFFICER AS WELL AS COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL. THEREFORE, F ALL IN GROSS PROFIT RATE LOST ITS SIGNIFICANCE. HAVING ACCEPTED THE REASON FOR FALL IN GROSS PROFIT RATE, NAMELY, STIFF COMPETITION IN MARKET AND ALSO THAT HUGE LOSS CAUSED IN PARTICULAR TRANSACTION, NEITHER THE REJECTION OF BOOKS OF ACCOUNT WAS JUSTIFIED NOR RESORT TO SUBSTITUTION OF ESTIMATED GROSS PROFIT BY RULE OF THUMB MERELY FOR MAKING CERTAIN ADDITIONS WAS JUSTIFIED. THEREFORE, THE FINDINGS ARRIVED AT BY THE TRIBUNAL SUFFERED FROM BASIC DEFECT OF NOT APPLYING ITS MIND TO THE EXISTING MATERIAL WHICH W ERE RELEVANT AND WENT TO THE ROOT OF THE MATTER. WHEN ALL THE DATA AND ENTRIES MADE IN THE TRADING ACCOUNT WERE NOT FOUND TO BE INCORRECT IN ANY MANNER, THERE COULD NOT HAVE BEEN ANY OTHER RESULT EXCEPT, WHAT HAD BEEN SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. THEREFORE, THE ORDER OF THE TRIBUNAL, WAS UNSUSTAINABLE. [PARA 11] 6.6 AS FAR AS THE CASE ON HAND IS CONCERNED, ADMITTEDLY THERE WAS A MISTAKE IN THE DETAILS OF THE OPENING AND CLOSING STOCK FURNISHED BY THE ASSESSEE DATED 11 - 06 - 2009. BUT WE NOTE THAT THE ASSESSEE SUBSEQUENTLY FURNISHED THE REVISED DETAILS WHICH W ERE SUPPORTED BY PURCHASE BILLS, SALES BILLS , ETC AS PLACED ON PAGES 53 TO 84 OF THE PB. THE AO DID NOT POINT OUT ANY DEFECT IN THE REVISED DETAILS OF THE STOCK STATEMENT FURNISHED BY THE ASSESSEE . T HEREFORE IN OUR CONSIDERED VIEW , THE BOOKS OF ACCOUNTS OF THE ASSESSEE CANNOT BE REJECTED UNTIL AND UNLESS THE AO POINT OUT THE SPECIFI C MISTAKES. I T IS ALSO VERY CLEAR ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 10 FROM THE VARIOUS JUDGMENT OF THE COURT THAT MERE TYPING MISTAKE CANNOT BE T HE REASON FOR THE REJECTION OF BOOKS. A S IMILAR PRINCIPLE HAS BEEN LAID DOWN BY THE HON BLE ALLAHABAD HIGH COURT IN CASE OF AWADHESH PRATAP SINGH ADBUL REHMAN & BROS V/S. CIT 201 ITR 404(ALL) WHICH READS AS; IT IS DIFFICULT TO CATALOGUE THE VARIOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHICH MAY RENDER REJECTION OF ACCOUNT BOOKS ON THE GROUND THAT THE ACCOUNTS ARE NOT COMPLETE OR CORRECT FROM WHICH THE CORRECT PROFIT CANNOT BE DEDUCED. WHETHER PRESENCE OR ABSENCE OF STOCK REGISTER IS MATERIA L OR NOT, WOULD DEPEND UPON THE TYPE OF THE BUSINESS. IT IS TRUE THAT ABSENCE OF STOCK REGISTER OR CASH MEMOS IN A GIVEN SITUATION MAY NOT PER SE LEAD TO AN INFERENCE THAT ACCOUNTS ARE FALSE OR INCOMPLETE. HOWEVER, WHERE A STOCK REGISTER, CASH MEMOS, ETC., COUPLED WITH OTHER FACTORS LIKE VOUCHERS IN SUPPORT OF THE EXPENSES AND PURCHASES MADE ARE NOT FORTHCOMING AND THE PROFITS ARE LOW, IT MAY GIVE RISE TO A LEGITIMATE INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS AND THE SAME CANNOT BE RELIED UPON TO ASSESS THE INCOME, PROFITS OR GAINS OF AN ASSESSEE. IN SUCH A SITUATION THE AUTHORITIES WOULD BE JUSTIFIED TO REJECT THE ACCOUNT BOOKS UNDER SECTION 145(3) AND TO MAKE THE ASSESSMENT IN THE MANNER CONTEMPLATED IN THESE PROVISIONS. 6.7 THE SUNDRY CREDITORS SHOW N BY THE ASS ESSEE IN ITS BOOKS OF ACCOUNTS A R E ARISING FROM THE PURCHASES MADE BY THE ASSESSEE WHICH HAVE BEEN DULY ACCEPTED BY THE R EVENUE. THEREFORE IN OUR CONSIDERED VIEW , THE SUNDRY CREDITORS CANNOT BE DISTURBED WITHOUT FINDING OUT ANY DEFECT IN THE PURCHASES. THUS IN OUR CONSIDERED VIEW , THIS CANNOT BE A REASON TO REJECT THE BOOKS OF ACCOUNTS. 6.8 WE ALSO NOTE THAT THE BOOKS OF ACCOUNTS CANNOT BE REJECTED IF THE ASSESSE E DOES NOT MAINTAIN THE STOCK REGISTERS UNTIL AND UNLESS IT IS COUPLED WITH OTHER DEFECTS SUCH AS SALES/ PURCHASE OUTSIDE THE BOOKS OF ACCOU N TS . BUT IN THE INSTANT CASE, WE NOTE THAT THERE WAS NO SUCH ALLEGATION BY THE AUTHORITIES BELOW. ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 11 6.9 W E ALS O FIND SUPPORT AND GUIDANCE FROM THE ORDER OF ITAT B ENCH IN THE CASE OF HARIDAS PARIKH VS. ITO REPORTED IN 113 TTJ 274 WHEREIN IT WAS HELD AS UNDER: UNLESS THE ASSESSING OFFICER 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 SPECIFIC REASONS. IN THE INSTANT CASE MERELY BECAUSE DIFFERENT RANGE AND NATURE OF ITEMS WERE BEING DEALT WITH BY THE ASSESSEE AND THE MAINTEN ANCE OF QUANTITATIVE STOCK OF EACH AND EVERY ITEM WAS NOT PRACTICALLY POSSIBLE, THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WHICH WERE FREE FROM ANY DEFECT COULD NOT BE REJECTED MERELY BECAUSE THE AVERAGE GP RATE WAS SLIGHTLY LOWER THAN THE AVERAGE GP RATE OF THE EARLIER YEAR. IN THE INSTANT CASE, THE SALES OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD INCREASED SUBSTANTIALLY FROM RS. 1.24 CRORES TO RS. 1.54 CRORES WHICH RESULTED IN MARGINAL DECLINE IN GP RATE FROM 11.51 PER CENT TO 9.94 PER C ENT, THE SAME COULD NOT BE MADE REASON FOR REJECTING THE BOOK RESULTS. IT IS WELL - SETTLED BUSINESS PROPOSITION THAT FOR HAVING INCREASE IN SALES, A BUSINESSMAN HAS TO SACRIFICE A SMALL MARGIN OF PROFIT RATE. DURING THE YEAR THE TOTAL SALES OF THE ASSESSEE HAD INCREASED FROM RS. 1.24 CRORES TO RS. 1.54 CRORES. NO DEFECT WAS FOUND IN THE BOOKS OF ACCOUNT. THERE WAS NO VALID REASON FOR REJECTION OF BOOKS OF ACCOUNT DURING THE YEAR UNDER CONSIDERATION AND THEREBY APPLYING HIGHER GP RATE OF 11.51 PER CENT, WHICH WAS EARNED BY THE ASSESSEE ON LOW SALES OF RS. 1.24 CRORES IN THE PRECEDING YEAR. THE OTHER REASON STATED BY THE ASSESSING OFFICER OF MAKING TRADING ADDITION WAS THAT IN THE ASSESSMENT YEAR 2001 - 02, GP RATE DECLARED BY THE ASSESSEE AT 9.64 PER CENT WAS NO T ACCEPTED AND TRADING ADDITION SO MADE BY REJECTING THE BOOKS OF ACCOUNT WAS CONFIRMED BY THE COMMISSIONER (APPEALS), THEREFORE, BY FOLLOWING THE ORDER OF THE EARLIER YEAR THE ASSESSING OFFICER HAD MADE AN ADDITION BY REJECTING THE GP RATE OF 9.64 PER CEN T DECLARED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE PLACED ON RECORD THE ORDER OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE IN THE ASSESSMENT YEAR 2001 - 02 WHEREIN ADDITION MADE BY THE ASSESSING OFFICER BY APPLYING GP RATE OF 10.14 PER CENT WAS DELET ED BY THE TRIBUNAL AND THE GP RATE OF 9.64 PER CENT DECLARED BY THE ASSESSEE WAS FOUND TO BE REASONABLE AND CORRECT. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION WERE THE SAME, THE ISSUE WAS SQUARELY COVERED BY THE ORDER OF THE TRIBUN AL IN THE PRECEDING YEAR. RESPECTFULLY FOLLOWING THE SAME, THE FINDINGS AND CONCLUSION OF THE LOWER AUTHORITIES WERE TO BE REJECTED AND THE ASSESSING OFFICER WAS TO BE DIRECTED TO DELETE THE IMPUGNED TRADING ADDITION MADE BY HIM. IN VIEW OF THE ABOVE , WE OPINED THAT THE AO CANNOT REJECT THE BOOKS OF ACCOUNTS FOR THE REASONS AS DISCUSSED ABOVE IN A SITUATION WHERE THE ASSESSEE DOES NOT MAINTAIN THE STOCK REGISTER. ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 12 6.10 ACCORDINGLY, WE NOTE THAT T HE REASONS WHICH WERE BASED BY THE AO FOR REJECTING THE BOOKS OF ACCOUNTS ARE NOT SUFFICIENT ENOUGH AND COGENT TO REJECT THE BOOKS OF ACCOUNTS. IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY, WE ARE OF THE VIEW THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT LI ABLE TO BE REJECTED AS PER THE PROVISIONS OF SECTION 145 OF THE ACT. ACCORDINGLY , WE CONCLUDE THAT ONCE THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT LIABLE TO BE REJECTED THEN IT S BOOK PROFIT SHOULD BE ACCEPTED IN THE GIVEN FACTS A ND CIRCUMSTANCES. ACCOR DINGLY , IN THE BACK DROP OF THE AFORESAID DISCUSSION AND PRECEDENT, WE SET ASIDE THE ORDER OF THE LEARNED CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. THE NEXT ISSUE RAISED BY THE ASS ESSEE IN GROUND NO. 3, 4 AND 5 IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE EXPENSES AMOUNTIN G TO 3 7 , 215 .00 BEING 15 PERCENT OF THE TELEPHONE, TRAVELLING AND PATROL EXPENSES ON ACCOUNT OF THE PERSONAL ELEMENT. 7. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS CLAIMED THE FOLLOWING EXPENSES: I. T ELEPHONE EXPENSES 76 , 027. 00 II. TRAVELLING EXPENSES 1 , 03 , 447.00 III. PATROL EXPENSES 68, 585.00 7.1 THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE PE RSONAL USE OUT OF THE ABOVE EXPENSES CANNOT BE RULED OUT. THE AO ALSO NOTED THAT THE ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 13 ASSESSEE , ON THE QUESTION, HAS NOT SATISFACTORY REPL IED THAT THERE WAS NO ELEMENT O F PERSONAL USE IN SUCH EXPENSES . THEREFORE, T HE AO MADE THE AD - HOC DISALLOWANCES OF 37 , 215 .00 BEING 15% ON ACCOUNT OF PERSONAL USE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 8. THE A GGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) WHO HAS CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 3. AS REGARDS TO GROUND NUMBDER 3,4 AND 5 RAISED AGAINST THE OTHER ADDITIONS AS MENTIONED IN THE FOREGOING PARAGRAPH, NO CREDIBLE EXPLANATIONS IS GIVEN BY THE AUTHORIZED REPRESENTATIVE IN THE SUBMISSIONS MADE. I THEREFORE, DECLINE TO INTERFERE WITH THE ADDITIONS MADE BY THE ASSESSING OF FICER AT RS.11,405/ - , 14,520/ - AND RS.10,290/ - ON ACCOUNT OF DISALLOWANCE OF EXPENSES OUT OF TELEPHONE, TRAVELLING AND PETROL RESPECTIVELY FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE SAME STANDS CONFIRMED. THESE GROUNDS OF APPEALS ARE DISMISSED. B EING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US 9 . T HE LEARNED AR BEFORE US SUBMITTED THAT THERE WAS NO PERSONAL ELEMENT OF THE ASSESSEE IN THE AFORESAID EXPENDITURE AS ALLEGED BY THE LD. AUTHORITIES BELOW. 10 . O N THE OTHER HAND, THE LEARNED DR BEFORE US VEHEMENTLY SUPPORTED THE AUTHORITIES BELOW. 11 . W E HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LEARNED AR FOR THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD AT THE TIME OF HEA RING SUGGESTING THAT THERE WAS NO PERSONAL USE OUT OF THE EXPENSES DISCUSSED ABOVE. THEREFORE, IN THE ABSENCE OF ANY SUBMISSION CONTRARY TO THE FINDING OF THE LEARNED CIT (A), WE DO NOT FIND ITA NO.23 /RJT/2015 ASSTT. YEAR 2007 - 0 8 14 ANY REASON TO INTERFERE IN THE ORDER OF THE LEARNE D C IT - A. HENCE, WE UPHOLD THE SAME. ACCORDINGLY, THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 12 . IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE COURT ON 03 /09 / 2019 AT AHMEDABAD. - SD - - SD - (MS MADHUMITA ROY ) (WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER A HMEDABAD; DATED 03 / 09 /2019 MANISH