ACIT, CIRCLE-6, JAIPUR V. M/s RAJASTHAN STATE HANDLOOM DEVELOPMENT CORPORATION LIMITED , JAIPUR

ITA 253/JPR/2022

AI Insights

The case involves the ACIT, Circle-6, Jaipur as the appellant and M/s Rajasthan State Handloom Development Corporation Limited as the respondent. The dispute arose from the assessment year 2007-08, where the AO made several additions to the assessee's income, which were later modified by the CIT(A). The Revenue challenged the CIT(A)'s decision, particularly the modification of the gross profit addition and the deletion of unverifiable liabilities. The Tribunal's decision focused on the appropriate GP rate and the treatment of unverifiable liabilities, ultimately supporting the CIT(A)'s modifications.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132234 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-06-2023
• Assessment Year: 2007-2008
• Appeal Filed On: 26-06-2022
• Other Referred Cases: Collector, Land Acquisition vs. Mst. Katiji and Others, 167 ITR 471 (SC), UOI vs. Ashis Agarwal, ITAT Jaipur Bench decisions on non-maintenance of proper stock record
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: APPLYING PROVISION OF SECTION OF
• Keywords: Gross profit estimation; Rejection of books of accounts; Additional evidence; Reasonable cause; Condonation of delay; Set aside
• Section: 43B; 143(3); 143(2); 145(3)

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh]U;kf; dlnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 253/JPR/2022 fu/kZkj.k o"kZ@Assessment Years : 2007-08 ACIT, Circle-6, Jaipur. cuke Vs. M/s Rajasthan State Handloom Development Corporation Limited, Hath Kargha Bhawan, Chomu House, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACR 9931 L vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Manish Agarwal (CA) jktLo dh vksj ls@ Revenue by : Shri Ajey Malik (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 14/06/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 28/06/2023 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by Revenue and is arising out of the order of the National Faceless Appeal Centre, Delhi dated 08.04.2022 [here in after (NFAC)/CIT(A)] for assessment year 2007-08, which in turn arise from the order dated 06.11.2009 passed under section 143(3) of the Income Tax Act. 2 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. 2. At the outset of hearing, the Bench observed that there is delay of 20 days in filing the appeal by the Revenue for which the ld. DR of the Revenue filed an application for condonation of delay with following prayers:- “2. In this connection, I am directed to request you to condone the delay in filing of appeal in this case of M/s Rajasthan State Handloom Development corporation Limited, Hath Kargha Bhawan, jaipur for A.Y. 2007-08. The brief reason for condonation of delay in filing of appeal are as under:- i) Scrutiny assessment in the case was completed by then DCIT, Circle-6, Jaipur and therefore, appeal order dated 08.04.2022 was received by DCIT, Circle-6, jaipur. The relevant assessment recorded was transferred to ITO, Ward-6(2), jaipur on 02.05.2022. Hence there was delay of one month in commencement of processing of central scrutiny report and appeal effect order for the relevant appeal order. ii) During the month of May-2022, large number of case(s) were received to JAo from Faceless Assessment Unit in compliance of Hon’ble supreme court of India decision dated 04.05.2022 in the case of UOI v/s Ashis Agarwal which needs to be completed by 31.07.2022 after following the due process as per dirdctions of Supreme Court and Board. During the month of may and June-2022, such cases were attended and issued show cause notice(s). iii) During the month of June-2022, selection case9s) for scrutiny assessment are required to be completed as per guidelines issued by the Board vide Instruction No. F. No. 225/81/2022/ITA-II dated 11 th May 2022. Task of selection was required to be completed by end of June 2022. 3. In view of the reasons cited above, there was delay of 21 days in filing of appeal in this case. Therefore, it is requested to kindly condone the delay in this case for filing the appeal.” 3. As regard the delay in filing the appeal, the ld. AR of the assessee objected the reasons of the delay in filing the appeal of the Revenue did not justify the delay and the same should not be 3 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. condoned as the heavy work load cannot be a reason and the Revenue has failed to establish the reasonable cause. Based on these reasons he submitted the appeal should not be admitted as the same is without any reasonable cause. 4. We have heard the rival contention of the parties and perused the materials available on record. The prayer by the Revenue for condonation of delay of 20 days has merit and we concur with the submission of the Revenue. Thus, the delay of 20 days in filing the appeal by the Revenue is condoned in view of the decision of Hon’ble Supreme Court in the case of Collector, land Acquisition vs. Mst. Katiji and Others, 167 ITR 471 (SC) as the Revenue is prevented by sufficient cause in bringing this appeal. 5. In this appeal, the Revenue has raised following grounds: - “1. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in modifying the addition of Rs. 1,94,37,117/- made by the AO to Rs. 68,64,308/- thereby giving relief of Rs. 1,25,72,809/- to the assessee. 2. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in estimating the GP rate @ 8% as compared to 21.96% applied by the AO after invoking the provisions of section 145(3) of the Act. 3. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs. 196.84 lakhs out of total addition made of Rs. 3,73,83,000/- on account of unverifiable liabilities. 4. The appellant crave its rights to add, amend or alter any of the grounds on or before the hearing.” 4 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. 6. Succinctly, the fact as culled out from the records is that the assessee is a Limited Company and an undertaking of the Government of Rajasthan, engaged in the business of manufacturing and trading of cotton, woolen and synthetic handmade fabrics. The assessee filed e-return income for A. Y. 2007-08 on 28/10/2007 declaring gross total income as loss (-) Rs. 2,24,03,913/- as income from business. The case was selected for scrutiny and the notice u/s. 143(2) of the Act was issued on 05/09/2008 and served upon the assessee on 29/09/2008. The assessment was completed u/s. 143(3) of the Act on 06/11/2009 at an assessed income at Rs. Nil. The AO made addition on account of gross profit of Rs.1,94,37,117/-, on account of unverifiable liabilities of Rs. 3,73,83,000/- and on account of prior period expenses of Rs. 50,236/- 7. Aggrieved from the order of the AO, the assessee preferred an appeal before the ld. CIT(A). A propose to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below: “6.3.3 Considering the facts of the case in totality, I am of the considered opinion that the decision given by my brother colleague CIT(A)-2, Jaipur in his order dated 01/09/2009 for AY 2005-06 in the case of the appellant Company as quoted above is more appropriate in view of the facts that the Audit Report clearly revealed that the appellant Company did not maintain any quantitative details regarding stock. No physical verification of inventory of stock was ever made and further thrift funds of the appellant company remained unreconciled and stock of yearn with weavers had also remained unverifiable. I do not find from the 5 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. submission of the appellant made for this relevant assessment year dated 17/11/2011 wherein the appellant had given an explanation casually taking into the figure on example basis as discussed above about the discounted sales and sale price, which in no case had given the actual and real picture identifying the discounted sales effected by the appellant Company. which was the basis of appellant's explanation regarding low gross profit shown during the year. I further find from the quoted order of the Ld. CIT(A)-2. Jaipur as above that when no explanation about the specific discrepancies pointed out by the Tax Auditor in general and particularly in respect of the stock of goods as mentioned therein, the Hon'ble CIT(A) following the decisions of ITAT Jaipur Bench on the issue of rejection of book result invoking the provisions of section 145(3) of the Act for non-maintenance of proper stock record and venliable stock inventory, had upheld such rejection of books of accounts by the Assessing Officer for AY 2005- 06. However, he had found it justifiable to adopt the GP rate @8% on the disclosed turnover, as against the GP rate adopted by the AO in the said year at 14.79%. Respectfully concurring with the view of my brother colleague taken for AY 2005-06 in this regard in the appellate order as quoted above. I hold that the AQ was justified in rejecting the book result books of accounts of the appellant Company for this year under consideration However, considering the facts of the case of the appellant and further that there would not have been much variation about the GP rate of 8% adopted by the CIT(A)-2, Jaipur for AY 2005-06 with those of the business activities of the appellant's Company for AY 2007-08 L.e. during this relevant assessment year, as the appellant Company could not furnish any such details and evidences with facts and figures so as to differentiate with the business activity/trading income in this year under consideration than in the said year. I therefore consider it justified to adopt the GP rate for this year at 8% on the total turnover. The AO is directed to re-compute the profit from the sale of goods for the purpose of trading addition @8% of total turnover during this year under consideration and re-compute the total income accordingly. Ground Nos. 1 and 2 raised by the appellant are accordingly partly allowed. 7. In Ground No.3, the appellant has contested the addition of Rs 3.73,83,000/- on account of unverifiable liabilities. The facts of the case have been stated in detail above and therefore the same are not repeated. 7.1 In the submission dated 17/11/2011 before the CIT(A)-2, Jaipur (though no submission was made against the notice of hearing issued by the national faceless appeals Centre (NFAC) dated 28/05/2021 asking to file the written submission on or before 14/06/2021), the appellant in this regard submitted as below:- 6 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. "Ground of Appeal no. 3 An addition of Rs.3,73,83,000,00/- was made by the Ld. AO merely on the basis of remarks given by the auditor in their audit report on account of unverifiable liabilities. Brief facts are that auditor make a remark "Correctness and genuineness of following items remain unverified in absence of adequate details & documents. a) Sundry debtors of Rs. 24.29 lacs b) Sundry debtors with units S.R/Depot Rs. 37.35 lacs c) Sundry creditors of Rs. 28.67 lacs d) Salary payable of Rs. 196.84 lacs e) Security & earnest Money received Rs. 39.05 lacs f) Unutilised grant 109.27 lacs The Ld. AO has made addition on account of above c) to f) on the basis of auditor's remarks. Submission of appellant is that this is the continuity of old audit remark since a long period and the figures are also old and not of the year under appeal. The assessment order is framed on the basis of qualifications appearing in the audit report, your good self will find that the qualifications are being repeated by auditors one year and again. but the auditors have not given any specific comments regarding there non pay ability. Some time auditor's demands confirmations from the parties and if management not provide the same till audit then auditor made such qualification. In such circumstances qualification does not carry any substances. Also Ld. AO also has not given any specific defect relating to qualification, Moreover the Ld. AO has never asked to provide the details of above items. In such circumstances qualification does not carry any substances. In view of above the arbitrary action of the AQ therefore deserves to be quashed and addition of Rs. 3,73,83,000.00 made by the AO may kindly be deleted." 7.1.1 The appellant also made another submission dated 25/04/2014 in this regard which was almost similar submission made as submitted dated 17/11/2011. Only additional portion added in the letter submission is as below:- "In the last hearing your good self asked about the present position of above mentioned balances. In this regard our submission as follows: 7 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. 1. Salary Payable of Rs. 196.84 lacs Old outstanding in salary payable account ha been settled fully by the Company, in different years out of inflow of company and one time grant of Rs. 1.00 Crore from Govt. of Rajasthan. Supporting attached. 2. Unutilised Grant Rs. 109.27lacs Balances of old outstanding of unutilized grant was very old, presently in the year 2012-13 we have already adjusted in the accounts as extra ordinary income, copy of current year balance sheet is attached. In view of above the arbitrary action of the AO therefore deserves to be quashed and addition of Rs. 3,73,83,000.00 made by the AO may kindly be deleted." 7.2 I have perused the assessment order and the submission of the appellant as above carefully. I find that the AO made the addition as the Auditor had given an adverse report in respect of various amounts to the extent of Rs. 3.73.83.000/- shown by the appellant Company in the accounts inter-alia stating in the said report as "Correctness and Genuineness of following items remained unverified in absence of adequate details & documents", indicating that the veracity, genuineness and correctness of the said amounts shown under different heads remained unverified in absence of adequate details and documents furnished before the Auditor. I further do not find from the assessment order that in this regard any explanation/ submission had been made by the appellant Company. In the two submissions made before the CIT(A) dated 17/11/2011 and 25/04/2014 as quoted above in regard to such unverified liabilities, I do not find that the appellant had furnished any relevant details and documents in regard to such liabilities so as to prove the genuineness and correctness of such liabilities. In other words, both before the Assessing Officer and before the appellate Authority, the appellant Company could not prove the genuineness and correctness of such liabilities held in accounts. In the submission made, the appellant contended that the Auditor made the remark in continuation of old Audit Remark since a long period and the figures were also old and not of the year under appeal. The appellant contended that the assessment order was framed on the basis of qualifications appearing in the Audit Report but the Auditors have not given any specific comments regarding their non-payability. It was also contended that sometimes Auditors demand confirmations from the parties and if Management could not provide the same till Audit, then the Auditor used to make such qualifications! comments in the Audit Report and in such circumstances, such qualification did not carry any substance. The appellant also had taken a plea that the AO had never asked to provide the details of the above items and therefore Auditor's qualification did not carry any substance. I cannot agree with the contention of the appellant. It was the obligation of the appellant Company to furnish necessary details and documents before the Auditors while the accounts 8 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. are audited. The qualification/ remark had been given by the Auditor for this relevant year under consideration while auditing the accounts for this year. It was due to the non-production of relevant details and documents in respect of liabilities before the Auditors, for the reasons best known to the appellant Company, the Auditors could not verify the genuineness and correctness of such liabilities claimed which claim has substantially affected the trading result of the appellant Company. The allegation of the appellant Company that no such details were called for by the AO during assessment proceedings cannot also be adhered to for the reason that despite of facts that two submissions in years 2011 and 2014 had been made by the appellant as stated above, but the appellant had not come forward to furnish the relevant details and documents in respect of such liabilities added by the AO in the assessment order though ground in this regard was taken for filing appeal. I also cannot agree with the contention of the appellant that Auditors demand confirmation from the parties and if Management did not provide the same till Audit, then the Auditor used to make such qualification/ comment. In an Audited Accounts what else the Auditors could do. If the assessee was unable to furnish the required details and documents for auditing the accounts, the Auditor is duty bound to make necessary adverse comments in the Audit Report in this regard. I re-iterate that the appellant Company could have furnished the additional evidences in regard to the liabilities during the appellate proceedings, which opportunity was also in accordance with law had not been availed by the appellant Company. Considering the facts of the appellant Company as details above. I do not find any infirmity in the decision of the AO in the assessment order of adding the amount on account of liabilities in the assessment order 7.2.1 Having said so, I find that the appellant had given an explanation regarding salary payable of Rs. 196.84 lacs which included in the liabilities of Rs 3,73,83,000/- inter-alia contending that the old outstanding in salary payable account had been settled fully by the Company in different years out of inflow of Company and onetime grant of Rs.1.00 crore from Government of Rajasthan. thereby attaching supporting details. Therefore, I am of the opinion that the said amount of Rs. 196.84 lacs being settled fully, the same could not be added to the total income on account of liabilities. The AO is directed to delete the said amount of Rs. 196.84 lacs from the total addition of Rs.3,73,83,000/-. 7.2.2 I however do not find any merit in regard to the submission of the appellant Company on account of unutilized grant of Rs. 109.27 lacs in the submission dated 25/04/2014 wherein the appellant Company had contended that the balances of old outstanding unutilized grant was very old, presently in the year 2012-13, which it had adjusted in the accounts as extraordinary income, thereby 9 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. attaching the copy of current year Balance Sheet, for the only reason that neither before the Auditor, nor before the AO nor even before the undersigned during appellate stage, the appellant in this regard could furnish any such details and evidences relating to the unutilized grant of Rs. 109.27 lacs. Therefore, the contention of the appellant Company in regard to unutilized grant is hereby rejected.” 8. As the Revenue, feeling dissatisfied with the order of the ld. CIT(A), preferred this appeal on the grounds as raised and reiterated here in above. A propose to the grounds so raised by the Revenue, the ld. DR appearing on behalf of the Revenue submitted that the findings of the ld. CIT(A) so far as the rejection of books of account of the assessee is not disputed but the contention of the AO while estimating the profit was not considered by the ld. CIT(A). So far as the estimation of the GP is concerned as decided in the assessment year 2005-06 @ 8% is against 14.79% of the profit after rejecting the books of the assessee whereas for the year under consideration the ld. CIT(A) erred in estimating the same rate of 8% while deciding the appeal in this case as against the estimate @ 21.96 %, which is based on the reasoning recorded in the order of the assessment. This difference ought to have been considered while passing the judgement in the year under consideration. Based on these arguments the ld. DR supported the order of the Assessing Officer so far as the grounds Nos. 1 and 2 raised by the Revenue. 10 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. 8.1 As regards ground No. 3, the ld. DR appearing on behalf of the Revenue stated that on this issue of the payment of salary of the assessee in the subsequent year the Assessing Officer was not confronted and therefore the finding of the ld. CIT(A) admitting the evidence so submitted before the ld. CIT(A) while granting the relief to the assessee for an amount of Rs. 196.84 lacs from the total addition of Rs. 3,73,83,000/- and therefore the ld. DR vehemently argued that this issue may be set aside to the file of the Assessing Officer based on the said arguments the ld. DR supported the order of the AO. 9. Per contra, the ld. AR of the assessee submitted that in the past year the profit was higher on account of various reasons, the main reason of fall in the GP for the year under consideration i.e. assessment year 2007-08 was due to the valuation of closing stock at net realizable value for the first time, due to which the gross profit has been impacted by nearly Rs. 103 lacs and if the stock was continued to value at cost than the GP for the year under consideration would have been at 11.31% and the remaining impact is on account of the sale of old and spoiled stock disclosed at the sales price as has been submitted during assessment proceedings which has not been considered by the ld. AO. The ld. CIT(A) after considering the totality 11 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. of the facts considered the rejection of the books of accounts and confirmed the profit @ 8% which is fair and reasonable and in support of this contention ld. AR of the assessee relied on the decision in assessee’s own case for the assessment year 2005-06 for which the Revenue has not objected the estimation of the said profit and accepted the same and therefore he supported that the findings of the ld. CIT(A). So far as the amount deleting the liability to the extent of salary payable to Rs. 196.84, the ld. AR of the assessee also submitted that the salary neither comes under the provisions of Section 43B of the Act nor the salary is paid in the year under consideration. Therefore, disallowance even though on merits cannot be sustained. Since the salary paid by the assessee in subsequent year is not disputed even on merits that the liability is not of the year under consideration and does not cover within deemed income and can be considered for the disallowance as per law. Though the ld. CIT(A) has deleted the addition on merits considering the same as paid. In addition to the above oral submission the ld. AR of the assessee relied upon the following written submission: “Brief facts of the case: Brief facts are that the assessee company is a Rajasthan State Government undertaking incorporated in the year 1984 and currently engaged in the trading of cotton, woolen, synthetic made ups and fabrics etc. to promote the same artisans. The 12 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. return of income was filed declaring loss of Rs. 2,27,06,090/- which has been assessed u/s 143(3) by the Ld. AO at a total loss of Rs. 17,81,177/- by making following additions : Addition on account of gross profit Rs. 1,94,37,117/- Addition on account of unverifiable liabilities Rs. 3,73,83,000/- Addition on account of prior period expenses Rs. 50,236/- Aggrieved by the order of Ld. AO, assessee filed first appeal before Ld. CIT(A), Jaipur which was transferred and decided by National Faceless Appeal Centre (NFAC) and vide order dated 08.04.2022 passed by Ld. CIT(A) at NFAC, appeal of the assessee was partly allowed and additions made on account of gross profit of Rs. 1,94,37,117 were reduced to Rs. 68,64,308/- thereby allowing relief of Rs. 1,25,72,809/- and further relief of Rs. 1,96,84,000/- was allowed out of total additions made of Rs. 3,73,83,000/- on account of unverifiable liabilities. The department has filed the present appeal before your honors against the order so passed by CIT(A), NFAC and wherein relief so allowed to the assessee company is challenged. Our humble submission with regard to these grounds of appeal taken by the department is as under- Ground No. 1 & 2 of Department’s appeal In these grounds of appeal the department has challenged the action of Ld. CIT(A) in modifying the additions of Rs. 1,94,37,117/- made by the Ld. AO to Rs. 68,64,608/- thereby giving relief of Rs. 1,25,72,809/- to the assessee by estimating the GP rate @ 8% as against 21.96% applied by Ld. AO after invoking provision of section 145(3) of the Act. Since, the issue involved is common, thus a common submissions is made for both these grounds. Brief facts are that the appellant company is a fully owned Government of Rajasthan undertaking and maintained its books of accounts required as per law such as cash book, ledger, Journal, Salary register, Sale register, purchase register, stock register and expenses vouchers at head office level and maintained cash book, bank book and stock register at its units. Books of accounts were duly audited by the auditors appointed by the Government and no mistake whatsoever with regard to the financial results declared by the assessee were found by the auditors except certain deficiencies in their reports. In the audit report column no 28(a) the auditors reported that proper stock register was not maintained and hence the figures of stock was not furnished. Further, in the notes of accounts for significant accounting policies, it was mentioned that physical verification reports for stock of yarn with the weavers and yarn with depots 13 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. have not been received from most of the depots and unit in-charges and therefore, impact of shortage and misappropriation could not be ascertained. The Auditor also certified that copies of stock statement filed with the banks were not produced to the Auditors and further unutilized grants shown and sundry creditors remained unverified in the absence of adequate details. The AO therefore contended that the above discrepancies show that the books result were not reliable. The assessee Company was requested to reconcile the issues mentioned in the Audit Report. In response, the assessee company filed its submission before the Ld. AO stating that “it is also noted that valuation of stock till 2005-06 was done at cost, and total valuation of stock was Rs. 178 lacs. The major portion of stock was in non-salable condition. In order to show the true and fair value of stock , during the year under consideration valuation of stock was carried out at net realizable value and such stock which was non-salable was not included in the value of inventory. Hence value of stock comes to Rs. 75.00 lacs only and the same has reduced the amount of gross profit by nearly Rs. 103 lacs. However, Ld. AO had rejected the books results by invoking the provisions of section 145(3) of the Income Tax Act, 1961 and applied GP rate of 21.96% i.e. the GP declared on total sale of Rs.7,01,82,437/- in immediately preceding assessment year i.e. in AY 2006-07 and thereby made total additions of Rs. 1,94,37,117/-. It is pertinent to mention here that the position of the GP rate of the assessee as per the past history is as under- A.Y. Turnover GP rate as per Books GP rate as per AO GP rate as per CIT(A) GP rate as per ITAT 2004-05 5,88,24,237.22 14.79% Lump sum additions of Rs. 40 lacs made Lump sum additions deleted Order of Ld. CIT(A) Upheld 2005-06 3,24,43,213.61 7.31% 14.7% 8% after invoking provision of section 145(3) NA 2006-07 7,01,82,437.65 21.96% No Assessment NA NA 2007-08 8,58,03,846.00 -(0.69)% 21.96% 8% after invoking provision of section 145(3) The main reason of fall in GP for the year under consideration i.e. AY 2007-08 was due to the valuation of closing stock at net realizable value for the first time, due to which the gross profit has been impacted by nearly Rs. 103 lacs and if the stock was continued to value at cost than the GP for the year under consideration would have been at 11.31% and the remaining impact is on account of the sale of old and spoiled stock at 14 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. discounted sales price as has been submitted during the course of assessment proceedings. It is also relevant to state that neither the ld. AO nor the ld. CIT(A) has doubted the sales of old and spoiled stock sold at the lower/ discounted price. These facts were duly explained before Ld. CIT(A) during the course of first appellate proceedings and it was stated that the valuation of stock till FY 2005-06 was carried out at cost, and total valuation of stock was worked out at Rs. 178 Lacs which is unrealistic looking to the fact that major portion of stock available at various units was old and spoiled stock which was leftover even after the discount offers were made and thus was not in saleable condition. Accordingly the same was valued at net realizable value whci h has resulted into the sharp decline in gross profit. Further as submitted above, the other reason of fall in G.P. as compared to previous year is due to reason that majority of the sales includes the sale of goods out of old and spoiled and sold stock which was sold at lower rate for which Management issued special scheme time to time. At this juncture kind attention o fhte hon’ble bench is invited to the past history of the assessee where in previous assessment years i.e in AYrs 2004-05, 2003-04, 2002-03 trading additions were made by invoking the provisions of section 145(3), which were deleted by the ld. CIT(Appeals) and such action of ld. CIT(A) were also confirmed by the Hon’ble ITAT (APB 50-57) in assessee’s own cases. Ld. CIT(A) while deciding the appeal fo the year under appeal has though confirm the rejection of books of accounts of the assessee by applying provision of section 145(3) of the It Act, 1961 it is further observed that once books of accounts are rejected than the best course of action is to look into the past assessment history of the assessee and accordingly, while deciding the issue of estimation of income, Ld. CIT(A) has followed the past case history of the appellant and applied the GP rate of 8% by observing as under- 6.3.1 I find from the order of the Hon’ble ITAT Jaipur Bench B, Jaipur in ITA No. 565, 566 and 567/JP/2010 for AYs 2002-03, 2003-04 and 2004-05 that the Hon’ble ITAT vide para 9 of the said order had dismissed the appeal of the Department against the order of the Ld. CIT(A) who had allowed the appellant’s appeal contending that “the rejection of the books of accounts by the AO and estimation loss by the AO at a lesser figure than claimed by the assessee is not justified” (refer to para 5 of ITAT’s Order). 6.3.2 I further find from the appellate order passed by the Commissioner of Income Tax (Appeal)-2, Jaipur vide Appeal No. 353/07-08 dated 01/09/2019 for AY 2005- 06 in the case of the appellant Company that the similar issue has been dealt with relating to invoking of provisions of section 145(3) of the Act wherein the AO had applied a GP rate of 14.7% on the estimated turnover of Rs.3,50,75,000/-, as 15 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. against the disclosed turnover of Rs. 3,24,43,213/- thereby making addition of Rs.27,82,670/-. The Ld. CIT(A) in the said order vide para 1.3 had held as below:- “1.3 I have considered facts of the case and arguments taken by Sh. Agarwal quite carefully. It is clear from the audit report that the appellant did not maintain quantitative details, no physical verification of inventory was carried out, thrift funds remained unreconciled and stock of yarn with weavers also remained unverifiable. Sh. Agarwal could not explain the aforesaid deficiencies and following the ITAT Jaipur bench decision on the issue of non maintenance of proper stock record and verifiable stock inventory in my considered view the assessing officer was justified in rejecting books of accounts by invoking provisions of S. 145(3) of I.T. Act. However, considering the fact that there were discounted sales during the year approved by Managing Director because of available old stock in my considered view it shall be justifiable to adopt 8% GP rate on disclosed turnover of Rs. 3,24,43,213/- as compared to last year GP rate of 14.79%. On this basis GP for the year is worked out at Rs. 25,95,457/- as against such disclosed GP of Rs. 23,73,355/- and in this process a trading addition of Rs. 2,22,102/- is hereby confirmed by allowing relief of Rs. 25,60,568/-.” 6.3.3 Considering the facts of the case in totality, ----------- Respectfully concurring with the view of my brother colleague taken for AY 2005-06 in this regard in the appellate order as quoted above, I hold that the AO was justified in rejecting the book result /books of accounts of the appellant Company for this year under consideration. However, considering the facts of the case of the appellant and further that there would not have been much variation about the GP rate of 8% adopted by the CIT(A)-2, Jaipur for AY 2005-06 with those of the business activities of the appellant’s Company for AY 2007-08 i.e. during this relevant assessment year, as the appellant Company could not furnish any such details and evidences with facts and figures so as to differentiate with the business activity / trading income in this year under consideration than in the said year. I therefore consider it justified to adopt the GP rate for this year at 8% on the total turnover. The AO is directed to re-compute the profit from the sale of goods for the purpose of trading addition @8% of total turnover during this year under consideration and re- compute the total income accordingly. 16 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. From the perusal of above paras it is quite clear that Ld. CIT(A) has given a detailed reasoning while finally adopting the GP rate @ 8% for the year under consideration after applying the provision of section 145(3) and the same is in consonance with the decisions of the Ld. CIT(A) and hon’ble ITAT in earlier assessment years in the case of assessee itself, which are not only binding but also accepted by the departmental authorities and since there is no change in the facts and circumstances of the case with that of previous years nor anything extra has been brought on record by the Ld. AO to justify the applicability of GP rate of 21.96% as applied in the assessment order passed, it is therefore humbly requested that the order passed by Ld. CIT(A) deserves to be upheld and no variation be made in the GP rate of 8% finally applied by Ld. CIT(A). Ground No. 3 of Department’s appeal: In these grounds of appeal the department has challenged the action of Ld. CIT(A) in deleting the additions of Rs. 196.84 lacs out of total additions of Rs. 373.83 lacs made by the Ld. AO on account of Unverifiable liabilities. Brief facts are that auditor made a remark in their audit report that “Correctness and genuineness of following items remain unverified in absence of adequate details & documents (APB 3): a) Sundry Debtors of Rs. 24.29 lacs b) Sundry Debtors with units S.R/Depot Rs. 37.35 lacs c) Sundry Creditors of Rs. 28.67 lacs d) Salary Payable of Rs. 196.84 lacs e) Security & Earnest Money received Rs. 39.05 lacs f) Unutilised Grant Rs. 109.27 lacs Total Rs. 435.47 lacs The Ld. AO has made addition of Rs. 373.83 lacs on account of above c) to f) on the basis of auditor’s remarks. In this regard it was submitted by the assessee that these balances are old outstanding balances which are carried forwarded from previous years with slight changes in balance from year to year. In this regard attention of the hon’ble bench is invited to the auditor remarks in the auditors report for preceding assessment years where at APB 4 for year ended on 31.03.2007, APB 26 for year ended on 31.03.2005, APB 40 for year ended on 31.03.2006 the same figure with slight changes are appearing which clearly establish the contention of the assessee that the same is not a fresh liability but was carried over from earlier years. The assessment order was framed on the basis of qualifications appearing in the audit report and such qualifications are being repeated by auditors year to year, but the auditors have not given any specific comments regarding there non payability. Further during the course of hearing before Ld. CIT(A) assessee company vide submission dated 17.11.2011 and 17 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. 25.04.2014 submitted the current position of the liabilities at that time and the same is discussed by the Ld. CIT(A) at para no 7.1.1 page no 11 of his order and on the basis of documentary details so filed by the assessee company Ld. CIT(A) has deleted the addition of Rs. 196.84 lacs on account of salary payable by observing as under- 7.2.1 Having said so, I find that the appellant had given an explanation regarding salary payable of Rs. 196.84 lacs which included in the liabilities of Rs. 3,73,83,000/- inter-alia contending that the old outstanding in salary payable account had been settled fully by the Company in different years out of inflow of Company and onetime grant of Rs.1.00 crore from Government of Rajasthan, thereby attaching supporting details. Therefore, I am of the opinion that the said amount of Rs. 196.84 lacs being settled fully, the same could not be added to the total income on account of liabilities. The AO is directed to delete the said amount of Rs. 196.84 lacs from the total addition of Rs.3,73,83,000/-. It is thus submitted that additions of Rs. 196.84 lacs as deleted by the Ld. CIT(A) are based on the documentary evidences provided by the assessee company during the course of first appellate proceedings and only after verification of the details so filed regarding payment of outstanding salary dues, the relief has been allowed by the Ld. CIT(A) and further since it was not the credit appearing in the books of account for the first year the same cannot be disallowed in the year under appeal, It is therefore humbly prayed that the order passed by Ld. CIT(A) by deleting the additions made of Rs. 196.84 lacs deserves to be upheld.” 10. We have heard the rival contentions and perused the material placed on record. As regard the estimation of GP @ 8% sustained by the ld. CIT(A) it is not disputed that on the similar facts in the assessment year 2005-06, the ld. CIT(A) has estimated the profit @ 8% as against 14.7% disclosed by the assessee. The revenue has accepted this decision has not challenged the estimation of profit. The Bench also noted and in the assessment year 2006-07 GP disclosed comet to 21.96% and the ld. CIT(A) has considered this GP as in the year under consideration the 18 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. assessee has declared loss and the books were rejected on account of various defects found in the books. The bench noted the explanations furnished by the ld. AR of the assessee the reasons for declaring the loss on account of the fact that the valuation of stock till 2005-06 was done at cost and total valuation of stock was Rs. 178 lacs. The major portion of the stock was in non salable condition and in order to show true and fair value of stock the valuation of the stock for the year under consideration changed to net realizable value and this has resulted to the value of stock at Rs. 75 lac only. This change has resulted the loss of Rs. 103 lacs. Thus, the main reason for fall in GP was due to the change in the valuation of stock and if that valuation method continued the profit would be 11.31 % and the balance impact is on account of the sale of old and spoiled stock at the discounted price. This information was placed on record during the assessment proceeding and the revenue did not dispute this fact. Thus, the impact in the GP on account of change in valuation method and disposal of stock at reduced price has resulted the GP and based on these set of fact the estimation of the GP in the year under consideration @ 8 % as against the GP of 14.7 % accepted by the revenue in the year 2005-06 we do not find any infirmity in estimating the GP in the year consideration @ 8 % and since the revenue has accepted the GP in the assessment year 2005-06 we 19 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. do not find any fault in the order of the ld. CIT(A). Based on these facts ground no 1 & 2 raised by the revenue stands dismissed. 10.1 So far as regard ground 3 of the Revenue’s appeal we are of the view that the ld. AR of the assessee in his submission submitted that the assessee is wholly state owned enterprise and even thought the sundry debtor was considered as unverifiable liability but has not challenged the finding of the ld. CIT(A). As regards the relief of salary payable granted by the ld. CIT(A) the bench noted the arguments of the ld. AR of the assessee on three folds first that the salary is not liability for the year under consideration, second the amount payable on account of salary does not come for the disallowance as prescribed u/s 43B of the Act and third the fact that the assessee has paid the liability in the subsequent year as categorically finding has been recorded in the order of the ld. CIT(A). Since, we find force in the arguments of the ld. AR of the assessee and we are of the considered view that the findings of the ld. CIT(A) while deleting the addition of Rs. 196.84 lacs is based on the set of facts placed before him and considering the arguments of the ld. AR of the assessee that the salary is of not for the year under consideration and does not come under the provisions of Section 43B of the Act, the payable amount also cannot be 20 ITA No. 253/JPR/2022 ACIT vs. M/s Rajasthan State Handloom Development corporation Ltd. added further once the profit is estimated. Therefore, based on these observations we do not find any fault in the finding recorded by the ld. CIT(A) and therefore the ground no. 3 raised revenue also dismissed based on these observations. In the result, appeal of the Revenue is dismissed. Order pronounced in the open court on 28/06/2023. Sd/- Sd/- ¼Mk0 ,l- lhrky{eh ½ ¼jkBksM deys'k t;UrHkkbZ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28/06/2023 *Ganesh Kumar, PS vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- ACIT, Circle-6, Jaipur. 2. izR;FkhZ@ The Respondent- M/s Rajasthan State Handloom Development Corporation Limited, Jaipur. 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 253/JPR/2022) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar