Shri Neeraj Jain, Karnal V. ITO, Karnal

ITA 289/DEL/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7856 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 24-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 18-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Assessee Lawyers: ROHIT JAIN; JANPRIYA
• Keywords: Rejection of books of accounts
• Section: 144

Judgement Text

ITA NO. 289/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 289/DEL/2011 A.Y. : 2007-08 SH. NEERAJ JAIN, PROP. M/S JAGDAMBA TIMBER STORE, TIMBER MARKET, KARNAL (PAN : ABIPJ4234G) VS. INCOME TAX OFFICER, WARD-I, KARNAL (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. ROHIT JAIN, ADV. & JANPRIYA, CA DEPARTMENT BY : SH. R.S. NEGI, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), KARNAL DA TED 12.11.2010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED IN THE APPEAL READ AS UNDER:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN UPHOLDING THE TRADING ADDITION OF ` 24,36,039/- MADE BY THE ASSESSING OFFICER BY APPLYING AVERAGE GROSS PROFIT RATE OF 4.90%. ITA NO. 289/DEL/2011 2 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION O F THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUN TS OF THE APPELLANT UNDER SECTION 145(3) OF THE ACT, 1961 . 2.1 THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPEL LANT FAILED TO FURNISH ITEM-WISE TRADING RESULTS AND QUANTITATIVE DETAILS OF OPENING AND CLOSING STOCK O F TIMBER WITHOUT APPRECIATING THAT HAVING REGARD TO TH E NATURE OF THE BUSINESS IT WAS NOT POSSIBLE / FEASI BLE TO MAINTAIN SUCH DETAILS. 2.2 THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPEL LANT DID NOT MAINTAIN PROPER BOOKS OF ACCOUNT AND THAT T HE TURNOVER WAS NOT PROPERLY WORKED OUT. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION O F THE ASSESSING OFFICER IN ESTIMATING GROSS PROFIT RATE O F 4.90%, RELYING UPON OPERATING RESULTS OF OTHER ENTI TIES/ ASSESSEES, WITHOUT (A) CONFRONTING THE APPELLANT W ITH ITA NO. 289/DEL/2011 3 THE RELEVANT DOCUMENTS/ PAPERS ON THE BASIS OF WHICH SUCH RATE WAS ARRIVED AT; AND (B) APPRECIATING THAT THE RESULTS OF THE APPELLANT WERE NOT COMPARABLE WITH TH E SAID ENTITIES/ ASSESSES. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT HOLDING THAT THE APPELLANT WAS NOT ABLE TO EXPLAIN THE FALL IN GROSS PROFIT RATE. 4.1 THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT DIRECTING THE ASSE SSING OFFICER TO CONSIDER GAINS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AMOUNTING TO ` 11,16,743/- AS PART OF THE TRADING RESULT FOR THE PURPOSE OF COMPUTATION OF GROSS PROFIT RATE, COMPARISON OF TRADI NG RESULTS. 5. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN CHARGING INTEREST UNDER SECTIONS 234B/234D OF THE ACT. ITA NO. 289/DEL/2011 4 THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY FROM THE AFORESAID GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 3. IN THIS CASE THE FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE TRADING OF TIMBER. ALMOST ALL THE PURCHASES ARE MADE F ROM MALAYSIA. THE PURCHASE OF TIMBER IS OF DIFFERENT QUALITY WHICH HAS BEEN SPECIFIED ON THE PURCHASE BILL AND RATES VARY FROM QUALITY TO QUALITY. THE DETAILS OF QUALITY OF TIMBER HAS, HOWEVER, NOT BEEN MENTIONE D IN THE SALE BILLS THOUGH THERE IS SUBSTANTIAL DIFFERENCE IN THE SALE PRICES. IN THE SALE BILLS, IN THE COLUMN OF PARTICULARS 'IMPORTED TIMBER SAWN SIZES' HAS BEEN SPECIFIED. IN VIEW OF THESE FACTS, THE AO NOTE D THAT FOR WANT OF DESCRIPTION /QUALITY OF TIMBER ON THE SALE BILLS IT IS NOT POSSIBLE TO CO- RELATE THE PURCHASE OF TIMBER WITH THE SALE AND TO A SCERTAIN THE GP EARNED THEREON AND IN TURN CORRECTNESS OF TRADING R ESULTS. THESE FACTS WERE CONFRONTED BY THE AO TO THE ASSESSEE AS PER SH OW CAUSE NOTICE DATED 27.11.2009, WHICH IS REPRODUCED BY THE ASSESS ING OFFICER FROM PAGE NO. 3-7 OF THE ASSESSMENT ORDER. DETAILS OF SOME OF THE PURCHASE BILLS AND OF SALE BILLS WERE SPECIFIED IN THE SHOW CAUSE NOTICE AS PER WHICH PURCHASE PRICES VARY FROM US $125 PER UNIT TO US $305 PER UNIT AND THE SALE RATE VARIES FROM ` 4500 PER UNIT TO ` 11,000, ` 11500, ` 12,200 AND TO ` 12,700/- PER UNIT. THE AO AS PER TH IS SHOW CAUSE NOTICE ITA NO. 289/DEL/2011 5 ASKED THE ASSESSEE TO FILE, INTER ALIA, TRADING A/C FOR DIFFERENT TYPE OF TIMBER REFLECTING THE QUALITY WISE OPENING STOCK AS ON 1.4.2006, QUALITY WISE PURCHASES AND SALES MADE DURING THE YEAR AND QU ALITY WISE CLOSING STOCK AS ON 31.2.2007, FAILING WHICH THE AO PROPOSED TO REJECT THE TRADING RESULTS AND TO ESTIMATE THE GP @4.9% ON THE BASIS OF AVERAGE GP WORKED OUT OF THE 3 CONCERNS WHICH ARE I N THE THE SIMILAR NATURE OF BUSINESS. THE ASSESSEE FILED REPLY ON 8 .12.2009 BUT DID NOT ADDRESS THE ISSUES RAISED BY THE AO THAT FOR WANT O F QUALITY / DESCRIPTION OF THE TIMBER ON THE SALE BILLS, CORRECT NESS OF THE TRADING RESULTS COULD NOT BE VERIFIED. THE AO ALSO NOTED TH AT COMPLETE INFORMATION CALLED FOR WAS NOT FURNISHED. 3.1 ASSESSING OFFICER FURTHER REFERRED THE PROVISI ONS OF SECTION 44A OF THE ACT AND HELD THAT THE ASSESSEE HAS NOT MAINT AINED THE PROPER BOOKS OF ACCOUNTS TO ENABLE HIM TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND HEN CE, REJECTED THE TRADING RESULTS OF THE ASSESSEE. ASSESSING OFFICE R CONCLUDED THAT IN VIEW OF THE DIFFICULTIES BOOKS OF ACCOUNTS AND AL SO IN THE ABSENCE OF NON-MAINTENANCE OF ITEM WISE STOCK REGISTER AND NOT MAINTAINING THE ITEM WISE INVENTORY OF OPENING AND CLOSING STOCK TH E BOOKS OF ACCOUNTS SO MAINTAINED BY THE ASSESSEE WHICH ARE NOT REFLECTI NG THE PROPER TRADING RESULTS, DESERVE TO BE REJECTED UNDER THE PROVISIONS OF SECTION ITA NO. 289/DEL/2011 6 145(3) OF THE IT ACT, 1961. HENCE, ASSESSING OFF ICER HELD THAT THE BOOKS OF ACCOUNTS SO, MAINTAINED BY THE ASSESSEE ARE HEREBY REJECTED. ASSESSING OFFICER PROCEEDED TO ESTIMATE THE GP @ 4. 90% ON THE BASIS OF AVERAGE GP OF THE THREE CONCERNS WHICH THE ASSESS ING OFFICER HAS FOUND TO BE SIMILAR IN NATURE. THUS, ADDITION OF ` 24,36,039/- WAS MADE. 4. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ASSESSEES SUBMISSIONS WERE AS UNDER:- I) THAT IT HAD HEAD OFFICE AT KARNAL AND BRANCH OFF ICE AT GANDHI DHAM (GUJARAT) WHERE IMPORTED TIMBER WAS BEING UNLOAD ED FROM THE PORT FOR ONWARD TREATMENT. SOME PORTION OF THE GOOD S WERE BEING SOLD AS HIGH SEA SALES, I.E., SALES EFFECTIVE BEFORE UNL OADING AT THE PORT AND WHICH CARRIED PROFIT MARGIN HARDLY 1-2% AND THE BALA NCE GOODS WERE TAKEN TO BRANCH OFFICE' IN LOGS OF DIFFERENT SIZES AND CONVERTED IN TO SALE ABLE SIZES AFTER EMPLOYING MANUFACTURING PROCES S BY INVOLVING LABOUR ELEMENT, ELECTRICITY, SAWING CHARGES, LOADIN G AND UNLOADING EXPENSES ETC.; (II) THAT THE AO, AFTER EXAMINING THE DETAILS W.R.T THE BOOKS OF ACCOUNTS, DID NEVER COMMUNICATED ANY DEFECT EXCEPT THAT IN THE ABSENCE OF MAINTENANCE OF STOCK REGISTER, IT IS NOT POSSIBLE TO ASCERTAIN CORRECT PROFITS FROM THE BUSINESS AND, IN THE ABSENCE OF ME NTION OF SPECIFIC QUALITY OF TIMBER OF SALE, THE VERIFICATION PART WAS NOT PRACTICABLE AND AS SUCH, HE REJECTED BOOKS OF ACCOUNTS; ITA NO. 289/DEL/2011 7 (III) THAT THE TURNOVER HAS INCREASED IN THE YEAR U NDER CONSIDERATION TO RS.10,05,26,659/- AS AGAINST RS.6,31,66,074/- IN T HE LAST YEAR WHICH COULD BE POSSIBLE ON ACCOUNT OF CUT SHORT IN THE GP ; (IV) THAT HIGH SEA SALES IN THE YEAR UNDER CONSIDER ATION WERE TO THE TUNE OF RS.30,43,329/- AS AGAINST RS. 1,26,23,057/- IN THE IMMEDIATE PRECEDING YEAR, RESULTING IN REDUCTION IN OVER ALL GP IN COMPARISON TO IMMEDIATE PRECEDING YEAR. (V) THAT IN VIEW OF THE FACT THAT THE PURCHASE OF T IMBER ARE FROM FOREIGN COUNTRIES, THE SALE PROCEEDS HAS TO PAY IN FOREIGN CURRENCY EQUIVALENT TO VALUE IN INDIAN RUPEE. THERE HAS BEEN RATE DIFFE RENCE DUE TO FLUCTUATION IN CURRENCY AMOUNTING TO RS. 11,16,743/- WHICH WAS DIRECTLY RELATED TO PURCHASE ITSELF AND RESULTED IN REDUCTIO N IN THE COST OF PURCHASES, WHICH THE APPELLANT UNDER WRONG NOTION O F ACCOUNTANCY CREDITED IN THE P & L ACCOUNT INSTEAD OF TRADING AC COUNT. AFTER TAKING THE SAME IN THE TRADING ACCOUNT, THE TRADING RESULTS WORKS OUT TO 3.59% AS AGAINST 2.58% ALREADY DECLARED. THIS ASPECT OF THE MATTER WERE IGNORED PROPER CONSIDERATION BY THE ASSESSING OFFIC ER IN ASSESSMENT AND AGAIN IN THE REPORT SUBMITTED IN APPEAL PROCEEDI NGS; VI) THAT THE STOCK LEFT HAS TO BE VALUED AT COST OR MARKET VALUE, WHICHEVER IS LOWER. AO'S ACTION IN NOT GIVING BENEF IT OF RATE CURRENCY FLUCTUATION HAS TENTAMOUNTED TO PAY TAX ON THE RATE FLUCTUATION AMOUNT EVEN NOT SOLD TILL THE END OF THE YEAR AND WA S LYING IN STOCK; VII) THAT THE AO'S ACTION OF ADOPTING GP @ 4.9% ON T HE BASIS OF RESULTS OF SOME OTHER FIRMS, THE RELEVANT DATAS OF THOSE FIRM S WERE, HOWEVER, NOT SUPPLIED, IS NOT CORRECT; ITA NO. 289/DEL/2011 8 VIII) THAT MAINTENANCE OF STOCK REGISTER WAS NOT FE ASIBLE IN THE TRADE CARRIED BY THE APPELLANT ON ACCOUNT OF THE FACT THA T PURCHASES WERE BEEN MADE IN LOGS OF DIFFERENT SIZES AND FINAL PRODU CTS WERE BEING SOLD AFTER CONVERTING INTO SMALL PIECES OF DIFFERENT SIZE S AND IT WAS NOT FEASIBLE TO IDENTIFY THE WOODEN LOG IN THE FINAL SH APE; IX) THAT THE RATE CHARGED FROM THE CUSTOMERS ARE AS PER QUALITY AND OF THE GOODS AS PER EXPERTISE OF THE SALESMAN, THE QUANTITY OF THE GOODS SOLD AND TIME LEG OF THE RECEIPTS OF THE SALE CONSIDERATION; X) THAT EVERY BUSINESSMAN CAN NOT EARN MAXIMUM PRO FITS ACCORDING TO HIS OWN CHOICE AND FURTHER THE AO ESTIMATED GP IN OTHER CASES LOWER THAN THE GP APPLIED IN ITS. CASE AND FINALLY SUBMITT ED AS UNDER; 'IN THE ENTIRETY OF THE FACTS & CIRCUMSTANCES PREVAI LING AT THE TIME WHEN PURCHASES & SALES WERE EFFECTED, ASSESSMENTS WERE DONE AND APPELLATE PROCEEDINGS OVE R-ALL CONDUCT OF THE AFFAIRS WILL ENSURE THAT BOOKS OF A CCOUNT OF THE APPELLANT HAVE WRONGLY BEEN REJECTED AS THE BOOK S OF ACCOUNT MAINTAINED FOR THE YEAR UNDER CONSIDERATION AND IN THE PRECEDING YEAR WERE IN ALIKE MANNER AS THE MAINTENANCE OF STOCK REGISTER WAS NOT POSSIBLE. NO D OUBT MAINTENANCE OF STOCK REGISTER IS A RELEVANT FACTOR F OR PURPOSES OF INVOKING THE PROVISIONS OF SECTION 145, BUT WHERE RESULTS ARE PROGRESSIVE AND BETTER (IN THE LI GHT OF SALE OF GOODS AT HIGH SEAS, THE EXPORT SALES & LOCAL SAL ES ETC.) ITA NO. 289/DEL/2011 9 AND MORE PARTICULARLY THE A.O. DID NOT POINT OUT AN Y DEFECT IN THE TALLY OF OPENING STOCK/CLOSING STOCK AND/OR UNDER- STATEMENT OF SELLING PRICE IN RESPECT OF SALE INVOI CES CALLED BY HIM, THEN ACCOUNTS COULD NOT HAVE BEEN DISTURBED. ' 4.1 CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSEE IS ENGAGED I N THE TRADING OF TIMBER DURING THE YEAR UNDER CONSIDERATION. THE TI MBER WAS IMPORTED FORM MALAYSIA. THE RATES VARIED FROM QUALITY TO QUA LITY WHICH WAS SPECIFIED ON THE PURCHASE BILLS ITSELF. THE QUALITY OF TIMBER WAS, HOWEVER, NOT SPECIFIED ON THE SALE BILLS THOUGH SAL E PRICES VARIED FROM ` 4500 PER UNIT TO ` 11,000, ` 11500, ` 12,200 TO ` 12,700 PER UNIT. IN VIEW OF THESE CIRCUMSTANCES, LD. COMMISSIONER OF INC OME TAX (APPEALS) HELD THAT NEITHER QUANTITATIVE TALLY OF T HE PURCHASE/SALE OF GOODS NOR CORRECT VALUATION OF CLOSING STOCK COULD BE VERIFIED. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVE D THAT NO STOCK REGISTER HAS BEEN MAINTAINED BY THE ASSESSEE. FURTH ER IN THE TAX AUDIT REPORT METHOD OF VALUATION OF CLOSING STOCK HA S BEEN SPECIFIED TO BE COST OR NET REALIZABLE VALUE WHICHEVER IS LES S, WHICH IS NOT POSSIBLE TO ASCERTAIN FOR WANT OF MAINTENANCE OF QU ALITY WISE / ITEM WISE STOCK REGISTER. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER NOTED THAT ASSESSEE WAS ASKED BY THE ASSESSING OF FICER DURING THE ITA NO. 289/DEL/2011 10 ASSESSMENT PROCEEDINGS TO FILE THE ITEM WISE / QUAL ITY WISE TRADING ACCOUNT OF THE TIMBER DEALT WITH AND ALSO OF THE SE PARATE TRADING ACCOUNT OF THE HIGH SEA SALES CLAIMED TO BE MADE, WH ICH WERE NOT FILED. LD. COMMISSIONER OF INCOME TAX (APPEALS) FUR THER NOTED THAT ASSESSEE HAS CLAIMED THAT MAINTENANCE OF STOCK REGIST ER IS NOT FEASIBLE. LD. COMMISSIONER OF INCOME TAX (APPEALS) F URTHER OBSERVED THAT THIS PLEA OF THE ASSESSEE IS NOT TENABLE. 4.2 LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT ASSESSEE HAS TAKEN A PLEA THAT EXCHANGE FLUCTUA TION BENEFIT SHOULD BE CONSIDERED IN THE TRADING ACCOUNT INSTEAD OF P& L ACCOUNT. THE REASONS THEREOF CLAIMED TO BE IGNORANCE OF LEGAL F LOW AND ACCOUNTING PRINCIPLES. LD. COMMISSIONER OF INCOME TAX (APPEA LS) FURTHER FOUND THAT THIS PLEA OF THE ASSESSEE WAS NOT TENABLE. LD . COMMISSIONER OF INCOME TAX (APPEALS) CONCLUDED AS UNDER:- IN VIEW OF THE FACTS DISCUSSED ABOVE, IT IS HELD T HAT TRADING RESULTS DECLARED BY THE APPELLANT ARE NOT VERIFIA BLE AND HENCE REJECTION THEREOF BY THE ASSESSING OFFICER, I S, HEREBY, CONFIRMED. THE ASSESSING OFFICER FURTHER ESTIMATE D THE GP @ 4.9% ON THE BASIS OF AVERAGE GP DECLARED BY 3 FI RMS IN THE SAME LINE OF BUSINESS. THE APPELLANT CHALLE NGED THE SAME ON THE GROUND THAT BASIC FACTS AND DATAS OF TH ESE ITA NO. 289/DEL/2011 11 CONCERNS WERE NOT PROVIDED TO THEM. AS DISCUSSED ABO VE, QUALITY OF DESCRIPTION OF WOOD HAS NOT BEEN MENTION ED ON THE SALE BILLS AND HENCE, GROSS PROFIT CAN NOT BE A SCERTAINED BY CORRELATING THE SAME WITH THE PURCHASE BILLS. IN ANY CASE, THE APPELLANT DECLARED GP @5.66% IN THE LAST YEAR AS AGAINST 2.48% IN THE YEAR UNDER CONSIDERATION AND H ENCE THE GP RATE APPLIED BY THE AO IS HELD TO BE REASONAB LE. THE ADDITION MADE BY THE AO ON THIS ACCOUNT IS, THEREFOR E, CONFIRMED. GROUNDS OF APPEAL NO. 2 TO 4 ARE AS SUCH REJECTED. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. THE ASSESSEE IN THE SUBMISSIONS HAS MENTIONED THAT THE THRUST OF THE IMPU GNED ASSESSMENT ORDER HAS BEEN THAT THE ASSESSEE HAS F AILED TO PRODUCE THE STOCK REGISTER OR SUPPLY QUANTITATIVE DETAILS O F TIMBER SOLD. IN LIGHT OF THE AFORESAID FAILURE, THE ASSESSING OFFI CER, RESORTED TO THE PROVISIONS OF SECTION 145(3) READ WITH SECTION 144 OF THE ACT AND PROCEEDED TO ASSESS THE TAXABLE INCOME OF THE ASSES SEE AT AN ADHOC RATE OF 4.9% OF THE TURNOVER OF THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. IN THIS REGARD, ASSESSEE SUBMITTED THAT MERE ABSENCE ITA NO. 289/DEL/2011 12 OF A STOCK REGISTER CANNOT, PER SE, BE BASIS FOR FR AMING ASSESSMENT UNDER SECTION 144/145 OF THE ACT. THIS WOULD BE PARTICULARLY SO WHEN THE APPELLANT EXPLAINED THAT PREPARATION / MAINTEN ANCE OF QUANTITATIVE DETAILS OF CONSUMPTION IS NOT PRACTICALLY FEASIBLE. FOR THIS PROPOSITION, THE ASSESSEE HAS RELIED UPON THE DECISION OF THE JU RISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF C.I.T. VS. SHERE PUNJA B SILK STORES 1981 TAX 63(1); VEERIAH REDDIAR VS. C.I.T. : 38 ITR 52 (KER.); ASHOKE REFRACTORIES (P) LIMITED : 279 ITR 457 (CAL.); BHAGWA TI EMPORIUM VS. ITO (1995) 80 TAXMAN 227 (AHD.); KABIR LEATHERS VS. ADDL. C.I.T. 27 SOT 498 (DELHI); C.I.T. VS. JAS JACK ELEGANCE EXPO RTS 324 ITR 95; C.I.T. VS. JACKSONS HOUSE : 198 TAXMAN 385. 6.1 IN LIGHT OF THE AFORESAID CASE LAWS, ASSESSE E SUBMITTED THAT THE AFORESAID DECISIONS ARE SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. AS EXPLAINED ABOVE IN THE TIMBER TRADING ACTIVITY OF THE ASSESSEE RAW TIMBER IS PURCHASED / IMPORTED AND IS T HEREAFTER, SAWED AND SOLD IN WHOLESALE / RETAIL BASIS. IT WAS T HEREFORE, NOT PRACTICALLY FEASIBLE TO MAINTAIN ITEM-WISE STOCK REGISTER OF EAC H AND EVERY TYPE OF TIMBER. IT HAS FURTHER BEEN SUBMITTED THAT THE ASS ESSING OFFICER FAILED TO APPRECIATE THAT NATURE OF BUSINESS WAS SU CH THAT IT WAS NOT PRACTICALLY FEASIBLE FOR THE ASSESSEE TO MAINTAIN S TOCK REGISTER CONTAINING QUANTITATIVE ITEM WISE TALLY OF THE TIMBER . IN SUCH ITA NO. 289/DEL/2011 13 CIRCUMSTANCES, IT HAS BEEN SUBMITTED THAT MERE NON-MA INTENANCE OF STOCK REGISTER CANNOT BE THE SOLE BASIS FOR REJECTI NG THE BOOKS RESULTS AND ESTIMATING THE PROFITS. IT HAS FURTHER BEEN SUBMITTED THAT ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT WH EN THE BOOKS OF ACCOUNTS WERE DULY AUDITED, IT WAS PRESUMED THAT BOO KS OF ACCOUNTS AND METHOD OF ACCOUNTING ARE IN ORDER, AND, THEREFO RE, IN ORDER TO DISPLACE THAT PRESUMPTION, IT IS FOR THE ASSESSING O FFICER TO ESTABLISH, BY COGENT EVIDENCE, THAT THE BOOKS OF THE ASSESSEE ARE INDEED NOT CORRECT OR COMPLETE OR THE METHOD OF ACCOUNTING IS T HEREFORE NOT IN ORDER. 6.2 IT HAS FURTHER BEEN SUBMITTED THAT THERE IS NO ALLEGATION BY THE ASSESSING OFFICER THAT THERE HAS BEEN ANY PILFERA GE OR SALE OUTSIDE THE BOOKS OF ACCOUNTS. IT HAS BEEN FURTHER BEEN SUBMITTED THAT ON PERUSAL OF THE ASSESSMENT ORDER, IT WILL BE APPREC IATED THAT THERE IS NO ALLEGATION BY THE ASSESSING OFFICER THAT THERE H AS BEEN NO SUPPRESSION OF SALES, PILFERAGE OF STOCK, ETC. THE ONLY BASIS ON WHICH THE ASSESSING OFFICER HAS PROCEEDED TO REJECT THE BOOK RESULTS IS THE NON-MAINTENANCE AND FURNISHING OF ITEM-WISE DETAILS OF STOCK, DUE TO WHICH THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNTS. IT HAS BEEN SUBMITTED THAT IN THE ABSENCE OF ANY ALLEGA TION OF SUPPRESSION OF SALES / SALES OUTSIDE BOOKS, NO ADDI TION WAS WARRANTED TO THE TRADING RESULTS OF THE ASSESSEE. FURTHER, THE ASSESSEE HAS PLACED RELIANCE ON CATENA OF CASE LAWS, FOR THE PRO POSITION THAT MERELY ON ACCOUNT OF FALL IN THE GP RATE, THE BOOKS OF ACCOUNTS COULD NOT BE REJECTED AND COULD NOT BE BASIS FOR MAKING AR BITRARY ADDITION ON ITA NO. 289/DEL/2011 14 ACCOUNT OF FALL IN THE GP RATE. IN THESE DECISIO NS, IT WAS OBSERVED THAT GROSS PROFIT RATE OF BUSINESS CANNOT REMAIN STATIC FROM YEAR TO YEAR AND IS LIKELY TO VARY BASED ON THE PREVAILING FACTS AND CIRCUMSTANCES. IN VIEW OF THE AFORESAID, IT HAS BEEN SUBMITTED THAT T HE ASSESSING OFFICER ERRED IN ESTIMATING THE PROFITS OF THE ASSESSEE ON AN ADHOC BASIS ON THE GROUND THAT THERE WAS FALL IN THE GROSS PROFIT AS COMPARED TO PROFITS AS SHOWN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEA R. 6.3 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 6.4 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT ASSESSEE IS IN TIMBER TRADING ACTIVITY. THE ACTIVITY INVOLVES PURCHASE / IMPORT OF RAW TIMBER, W HICH IS THEREAFTER SAWED AND SOLD IN WHOLESALE / RETAIL BASIS. IN T HIS CONNECTION THERE IS CONSIDERABLE COGENCY IN ASSESSEES SUBMISSION THAT IT IS NOT PRACTICALLY FEASIBLE TO MAINTAIN ITEM-WISE STOCK RECORD OF EACH AND EVERY TYPE OF TIMBER. WE FURTHER NOTE THAT THERE IS NO ALLEGATION BY THE AO THAT THERE HAS BEEN ANY PILFERAGE OR SALE OUTSIDE THE BO OKS OF ACCOUNT. THUS THERE IS NO CASE OF SUPPRESSION OF SALES. MO REOVER, ASSESSEES BOOKS OF ACCOUNTS WERE DULY AUDITED, WHICH SIGNIFIE S THAT BOOKS OF ACCOUNTS AND METHOD OF ACCOUNTANCY ARE IN ORDER. MOREOVER, IN THE CASE OF LAWS CITED BY THE LD. COUNSEL OF THE ASSESS EE IT HAS BEEN EXPOUNDED THAT MERE FALL IN G.P. AND ABSENCE OF STO CK REGISTER CANNOT BE A REASON TO REJECT THE BOOKS OF ACCOUNTS. 6.5 FURTHERMORE, IT IS ASSESSEES PLEA THAT FLUCTUAT ION IN FOREIGN CURRENCY AMOUNTING TO ` 11,16,743/- IS DIRECTLY R ELATED TO PURCHASE ITSELF AND RESULTED IN REDUCTION IN THE COST OF PUR CHASE. BUT THE ASSESSEE UNDER WRONG NOTION OF ACCOUNTANCY CREDITE D IT IN P&L A/C ITA NO. 289/DEL/2011 15 INSTEAD OF TRADING ACCOUNT. AFTER TAKING INTO ACC OUNT THE SAME IN TRADING ACCOUNT, THE TRADING RESULT WORKS OUT TO 3 .59% AS AGAINST 2.5% ALREADY DECLARED. 6.6 IN THE LIGHT OF AFORESAID DISCUSSION AND PRECED ENTS, WE HOLD THAT THERE WERE NO COGENT REASONS FOR REJECTION OF THE A SSESSEES BOOKS, AND ESTIMATION OF GP RATE. THE DETAILS SOUGHT BY T HE AO WERE NOT PRACTICALLY FEASIBLE TO BE MAINTAINED. HENCE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/6/2012. SD/- SD/- [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 15/6/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY COPY COPY COPY FORWARDED TO: FORWARDED TO: FORWARDED TO: FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES