Zamindara Timber Traders, Karnal V. ITO, Karnal

ITA 290/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86588 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 02-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 18-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR
• Assessee Lawyers: ROHIT JAIN
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: H: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER, AND SHRI GEORGE GEORGE K, JU DICIAL MEMBER ITA NO. 290/DEL/2011 ASSESSMENT YEAR 2007-08 ZAMINDARA TIMBER TRADERS VS. ITO, W ARD-1, IMAMBARA, SADAR BAZAR, KARN AL KARNAL. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ROHIT JAIN , ADVOCATE RESPONDENT BY : SHRI J.P. C HANDRAKAR, SR. DR ORDER PER S.V. MEHROTRA, ACCOUNTANT MEMBER THIS APPEAL AT THE INSTANCE OF THE ASS ESSEE IS DIRECTED AGAINST CIT(A) ORDER DATED 12.11.1010. THE RELEVANT ASSESSMENT YEA R IS 2007-08. 2. BRIEF FACTS OF THE CASE ARE THAT DURING T HE YEAR UNDER CONSIDERATION THE ASSESSEE FIRM DERIVED INCOME FROM TIMBER BUSINESS. IT HAD FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 52,745/-. THE AO REJECTED THE ASSESSEES BOOKS OF ACCOUNT AND COMPUTED THE PROFITS BY APPLYI NG THE RATE OF 4.90% ON THE ITA NO. 290/DEL/11 2 TURN OVER AND MADE AN ADDITION OF RS. 35,40,409/-. LD. CIT(A) DISMISSED THE ASSESSEES APPEAL. 3. BEING AGGRIEVED WITH THE ORDER OF THE LD. CIT (A), ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL :- 1. THAT THE CIT(A) ERRED ON FACTS AN D IN LAW IN PASSING THE IMPUGNED ORDER DATED 12.11.2010 WITHOUT AFFORDING ADEQUATE O PPORTUNITY OF BEING HEARD TO THE APPELLANT. 2. THAT THE CIT(APPEALS) ERRED ON FA CTS AND IN LAW IN UPHOLDING THE TRADING ADDITION OF RS. 35,40,41 0/- MADE BY THE ASSESSING OFFICER BY APPLYING AVERAGE GROSS PROFIT RA TE OF 4.90%. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOO KS OF ACCOUNTS OF THE APPELLANT UNDER SECTION 145(3) OF THE INCO ME TAX ACT, 1961 (THE ACT). 3.1 THAT THE CIT(APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT FAILED TO FURNISH ITEM- WISE TRADING RESULTS AND QUANTITATIVE DETAILS OF OPENING AND CLOSING ST OCK OF TIMBER WITHOUT APPRECIATING THAT HAVING REGARD TO THE NATURE OF THE BUSINESS IT WAS NOT POSSIBLE / FEASIBLE TO MAINTAIN SUCH DETAIL S. 3.2 THAT THE CIT (APPEALS) ERRED ON FACT S AND IN LAW IN HOLDING THAT THE APPELLANT DID NOT MAINTAIN PROPER BOOKS OF ACCOUNT AND THAT THE TURNOVER WAS NOT PROPERLY WORKED O UT. 4. THAT THE CIT(APPEALS) ERRED ON FACT S AND IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN ESTIMATING GROSS PROFIT RATE OF 4.90%, RELYING UPON OPERATING RESULTS OF OTHER ENTIT IES / ASSESSEES, WITHOUT (A) CONFRONTING THE APPELLANT WITH THE RELE VANT DOCUMENTS/PAPERS ON THE BASIS OF WHICH SUCH RATE WA S ARRIVED AT ; AND (B) APPRECIATING THAT THE RESULTS OF THE APPELL ANT WERE NOT COMPARABLE WITH THE SAID ENTITIES / ASSESSES. 5. THAT THE CIT(A) ERRED ON FACTS AN D IN LAW IN NOT HOLDING THAT THE APPELLANT WAS NOT ABLE TO EXPLAI N THE FALL IN GROSS PROFIT RATE. ITA NO. 290/DEL/11 3 5.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT DIRECTING THE ASSESSING OFFICER TO EXCLUDE FREI GHT EXPENSES AMOUNTING TO RS. 14,83,350/- FROM TRADING PROFITS WHILE MAKING ADDITION, IF ANY ON ACCOUNT OF ALLEGED FALL IN THE GR OSS PROFIT RATE. 6. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN CHARGING INTEREST UNDER SECTION 234B/234D OF THE ACT. 4. FIRST WE WILL CONSIDER GROUND NOS. 3 TO 3.2 RAISED BY THE ASSESSEE REGARDING REJECTION OF BOOKS OF ACCOUNT. THE AO EXAMINED THE BOOKS OF ACCOUNT AND SALE AND PURCHASE VOUCHERS AND NOTED THAT THERE WAS NO N ARRATION OF QUALITY OF TIMBER ON THE SALE VOUCHERS, WHEREAS, THE ASSESSEE HAD PURCHASED THE TIMBER AT DIFFERENT RATES ACCORDING TO QUALITY OF TIMBER. HE NOTED THAT ALMOST ALL THE PURCHASES WERE FROM SINGAPORE EXCEPT FEW LOCAL PURC HASES. HE NOTED THAT ASSESSEE SIMPLY QUOTED IMPORTED TIMBER IN THE COL UMN OF PARTICULARS OF TIMER SOLD IN-STEAD OF QUOTING THE KIND/TYPE OF TIMBER IT EM WISE ON THE SALE VOUCHERS. THE AO FURTHER OBSERVED THAT WHEN PURCHASE VOUCHERS WERE TALLIED WITH THE SALE VOUCHERS, IT WAS NOTICED THAT TRUE PICTURE OF GROSS PROFIT WAS NOT REFLECTED. HE FURTHER OBSERVED THAT NO ITEMWISE STOCK REGISTER HA D BEEN MAINTAINED BY THE ASSESSEE. THE AO EXAMINED FIVE BILL VOUCHERS FOR SA LE AND PURCHASE FOR EACH MONTH AND CONCLUDED THAT IT WAS NOT POSSIBLE TO ASC ERTAIN WHICH EXACT /KIND OF TIMBER HAD BEEN SOLD AGAINST THE DIFFERENT TYPE/KIN D OF TIMBER PURCHASED BY THE ASSESSEE AT DIFFERENT RATES. HE SHOW CAUSED THE ASS ESSEE, VIDE NOTICE DATED 27 TH NOVEMBER, 2009 WHICH HAS BEEN REPRODUCED FROM PAGE 3 TO 7 OF HIS ORDER IN WHICH HE, INTER ALIA, REQUIRED THE ASSESSEE TO PREP ARE THE ITEMWISE TRADING ITA NO. 290/DEL/11 4 ACCOUNT FOR DIFFERENT TYPE OF TIMBER REFLECTING THE OPENING STOCK AS ON 1.4.2006; ITEMWISE PURCHASES MADE DURING THE YEAR; ITEMWISE S ALE MADE DURING THE YEAR AND BALANCE ITEMWISE CLOSING STOCK AS ON 31.3.2007 AND FURTHER POINTED OUT THAT IN THE ABSENCE OF STOCK REGISTER AND PROPER RECORDI NG OF SALE-PURCHASE TRANSACTION IN THE BOOKS OF ACCOUNT THE ASSESEE WAS REQUIRED TO EXPLAIN HOW IT WOULD BE ABLE TO AUTHENTICATE THE TRADING RESULTS FROM THE BOOKS OF ACCOUNT SO MAINTAINED, WHICH WERE DEFECTIVE. HE SHOW CAUSED AS TO WHY THESE BOOKS OF ACCOUNT MAY NOT BE REJECTED AS THESE WERE NOT REFLE CTING THE PROPER TRADING RESULTS AND ALSO REQUIRED THE ASSESSEE TO EXPLAIN W HY THE GROSS PROFIT RATE 4.90% I.E ON AVERAGE BASIS SHOULD NOT BE APPLIED. THE A VERAGE GROSS PROFIT RATE WAS WORKED OUT ON THE BASIS OF GP RATE WHICH WAS PREVAI LING IN THE LINE OF BUSINESS AND ADOPTED BY THE DIFFERENT PARTIES FOR THE DIFFER ENT ASSTT. YEARS OF SIMILAR NATURE OF BUSINESS OF TIMBER FOR THE LAST FOUR YEAR S WHICH WERE AS UNDER :- NAME OF ASSESSEE ASSTT. YEAR % GROSS PROFIT JAI PARKASH M/S. NARWANA TIMBER STORE, KARNAL 2004- 05 6.00% JAI PARKASH M/S. NARWANA TIMBER STORE, KARNAL 2005- 06 4.34% NEERAJ JAIN PROP. JAGDAMA TIMBER STORE, KARNAL 2006 -07 5.66% SAT PAUL & SONS, M/S. KAITHAL TIMBER STORE, KARNAL 2007-08 3.53% TOTAL 19.53% AVERAGE RATE 19.53/4= 4.90% 5. THE ASSESEE IN ITS REPLY INTER ALIA SUBMITTE D AS UNDER :- ITA NO. 290/DEL/11 5 3. THE ASSESSEE IS IN THE BUSINESS OF IMPORT AND WHOLESALE TRADING OF TIMBER WHICH IS BEING IMPORTED FROM MALAYSIA TO IND IA AND THE PORT FOR DESTINATION IS KANDLA (GUJRAT). THE STOCKS HAVING B EEN RECEIVED ARE CUT AND PROCESSED (CHIRAI) INTO VARIOUS SIZES AND SHAPE S WHICH ARE THE SOLD ON WHOLE SALE BASIS FROM GANDHIDHAM (GUJRAT) ITSELF. THE PART OF THE STOCK IS TRANSFERRED TO KARNAL BEING THE STOCK TRANSFER F ROM WHERE THE SAID SALES ARE BEING CONDUCTED. -- - - - - - - - - - - - - - - - - - - -- - - - - -- - - - - - - - - - - - - - - - - - 5. THE VAT RETURN FILED BY THE ASSESEE GOING TO SH OW THE COMPLETE RECONCILIATION THE TRANSACTIONS BEING THE RECORDS O F STATUTORY AUTHORITY GIVE THE DETERMINATION OF THE CITUS OF SALE AND THE PART Y THEREOF ALONGWITH THE TAX SO CHARGED AND LEVIED. 6. THE REPLY HAS BEEN REPRODUCED AT PAGE 8 AND 9 OF THE ASSTT. ORDER. THE AO OBSERVED THAT THE REPLY RECEIVED FROM THE ASSESSEE WAS NOT IN ACCORDANCE WITH THE QUERIES SPECIFICALLY MADE WITH REGARD TO THE PU RCHASES OF DIFFERENT TYPE OF TIMBER AS REFLECTED IN THE TABLE GIVEN IN THE SHOW CAUSE NOTICE DATED 27.11.2009 UNDER WHICH IT WAS REQUESTED TO SPECIFY THE NAME AN D ADDRESS OF THE CUSTOMER TO WHOM THE ASSESSEE HAD SOLD THE PARTICULAR TYPE O F TIMBER ALONGWITH THE ITEM WISE SPECIFICATION OF QUALITY / KIND OF TIMBER. TH E AO HAS DEMONSTRATED THAT IN THE ABSENCE OF EVIDENCE TO TALLY THE PURCHASE WITH SALES QUANTITY WISE , QUALITY WISE AND SALE WISE, THE TRUE AND CORRECT PICTURE OF PROFIT EARNED BY THE ASSESSEE COULD NOT BE DETERMINED. HE FURTHER POINTED OUT THA T ASSESSEE WAS NOT MAINTAINING STOCK REGISTER ITEMWISE WHICH IS ALSO A PART AND PARCEL OF THE BOOKS OF ACCOUNT AND PLAY A MAJOR ROLE IN DEDUCING THE TR UE AND CORRECT PICTURE OF THE GROSS PROFIT. HE FURTHER POINTED OUT THAT THERE WA S NO EVIDENCE OF RECORD AND DOCUMENT TO VERIFY THE BASIS OF THE VALUATION OF TH E CLOSING STOCK SHOWN BY THE ASSESSEE. HE REFERRED TO SECTION 44AA AS PER WHICH ASSESSEE IS REQUIRED TO KEEP ITA NO. 290/DEL/11 6 AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUME NTS AS MAY ENABLE THE AO TO COMPUTE TOTAL INCOME IN ACCORDANCE WITH THE PROV ISIONS OF THE ACT. HE OBSERVED THAT SINCE ASSESSEE HAS NOT PRODUCED THE ITEM WISE INVENTORY OF OPENING STOCK AS WELL AS ITEM WISE INVENTORY OF CLO SING STOCK, THEREFORE, ASSESSEE HAD CONTRAVENED THE PROVISIONS OF SECTION 44AA. HE OBSERVED THAT IN THE ABSENCE OF THESE INVENTORIES, THE BOOKS OF ACCOUNT OF THE ASSESSEE CANNOT BE TREATED AS RELIABLE. ACCORDINGLY HE REJECTED THE SA ME . IN SUPPORT OF HIS CONCLUSION HE RELIED ON THE DECISIONS I.E. CIT VS. MCMILLAN & CO. (1958) 33 ITR 182 (SC), S.N. NAMASIVAYAM CHETTIAR V. CIT (1960) 38 ITR 579 (SC) WHEREIN HONBLE SUPREME COURT HAS HELD THAT KEEPING OF A ST OCK REGISTER IS OF GREAT IMPORTANCE BECAUSE THAT IS A MEANS OF VERIFYING THE ASSESSEES ACCOUNTS BY HAVING A QUANTITATIVE TALLY; IF AFTER TAKING INTO A CCOUNT ALL THE MATERIALS INCLUDING THE WANT OF A STOCK REGISTER, IT IS FOUND THAT FROM THE METHOD OF ACCOUNTING THE CORRECT PROFITS OF THE BUSINESS ARE NOT DEDUCTIBLE, THE OPERATION OF SECTION 145 (3) OF THE ACT WOULD BE ATTRACTED. M/S. KACHHWALA, GEMS JAIPUR VS. JOINT COMM ISSIONER OF INCOME-TAX, JAIPUR REPORTED IN 2006 TIOL-181-SC-IT APPEAL (CIVI L) 5809 OF 2006 7. LD. CIT(A) DISMISSED THE ASSESEEES APPEAL INTERALIA OBSERVING AS UNDER :- 1.08. FURTHER TO APPRECIATE THE ISSUE, THE FACTS IN BRIEF ARE THAT THE APPELLANT IS ENGAGED IN THE TRADING OF TIMBER. THE TIMBER WAS IMPORTED FIRM ABROAD. THE RATES OF PURCHASE VARIED FROM QUAL ITY TO QUALITY WHICH WAS SPECIFIED ON THE PURCHASE BILLS ITSELF. THE QU ALITY OF TIMBER WAS, HOWEVER, NOT SPECIFIED ON THE SALE BILLS THOUGH SA LE PRICES VARIED FROM 950 PER CBM TO RS. 10,887/- PER CBM. IN VIEW OF THI S FACT, NEITHER QUANTITATIVE TALLY OF PURCHASE/SALE OF GOODS NOR CO RRECT VALUATION OF ITA NO. 290/DEL/11 7 CLOSING STOCK COULD BE VERIFIED. THERE IS HARDLY AN Y NEED TO EMPHASIZE THAT CORRECT VALUATION OF CLOSING STOCK IS VERY IMP ORTANT TO WORK OUT THE CORRECT TRADING RESULTS. NO STOCK REGISTER HAS BEEN MAINTAINED BY THE ASSESEE AS HAS BEEN SPECIFIED IN COMMENTS IN COL. 2 8(A) OF THE TAX AUDIT REPORT OF THE AUDITORS. FURTHER, IN THE TAX AUDIT R EPORT, METHOD OF VALUATION OF CLOSING STOCK HAS BEEN SPECIFIED AS CO ST OR NET REALIZABLE VALUE WHICH EVER IS LESS, WHICH IS NOT POSSIBLE TO ASCERTAIN FOR WANT OF MAINTENANCE OF QUALITY WISE/ITEM WISE STOCK REGISTE R. AS DISCUSSED ABOVE, THAT THE AO ASKED THE APPELLANT DURING ASSESSMENT P ROCEEDINGS TO FILE ITEM WISE/QUALITY WISE TRADING ACCOUNT OF THE TIMBE R DEALT WITH AND ALSO OF THE SEPARATE TRADING ACCOUNT OF THE HIGH SEA SALES, WHICH WERE NOT FILED. 1.09 IN VIEW OF THE FACTS DISCUSSED ABOVE, IT IS HELD THAT TRADING RESULTS DECLARED BY THE APPELLANT ARE NOT VERIFIABLE AND HE NCE REJECTION THEREOF BY THE AO IS HEREBY CONFIRMED. THE AO FURTHER ESTIMATE D THE GP @ 4.9% ON THE BASIS OF AVERAGE GP DECLARED BY THREE FIRMS WHI CH WAS SPECIFIED IN THE ORDER BY THE AO. SINCE NO SUBMISSION HAS BEEN MADE BY THE APPELLANT IN THIS REGARD, NO INTERFERENCE IS CALLED FOR IN THE O RDER OF THE AO AND THE ADDITION MADE BY HIM ON THIS ACCOUNT IS HEREBY CONF IRMED. 8. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT KEEPING IN VIEW THE NATURE OF ASSESSEES BUSINESS, IT WAS IMPRACTICAL TO MAINTAIN THE QUANTITATIVE DETAILS. HE POINTED OUT THAT IMPORTED STOCK ARE CUT AND PROCESS ED INTO VARIOUS SIZES AND SHAPES AND, THEREFORE, IT IS NOT POSSIBLE TO MAINTA IN THE STOCK REGISTER. HE REFERRED TO PAGE 8 AND 9 WHEREIN ASSESSEES REPLY I S CONTAINED. LD. COUNSEL FOR THE ASSESSEE FURTHER REFERRED TO PAGE 32 OF THE PAP ER BOOK WHEREIN THE LEGAL PROPOSITION IN REGARD TO REJECTION OF BOOKS OF ACCO UNT ON THE GROUNDS OF NON MAINTENANCE OF STOCK REGISTER IS CONTAINED. HE CONT ENDED AND POINTED OUT THAT IN THE CASE OF CIT VS. JAS JACK ELEGANCE EXPORTS : 324 ITR 95 (DELHI), THE TRIBUNAL HAS OBSERVED THAT NONE OF THE PROVISIONS OF THE AC T OR IN THE RULE REQUIRED THE ASSESSEE TO MAINTAIN A STOCK REGISTER. HE ALSO RE LIED THE DECISIONS OF CIT VS. ITA NO. 290/DEL/11 8 JACKSONS HOUSE : 198 TAXMAN 385 (DEL), CIT V. SHERE PUNJAB SILK STORES 1981 TAX 63 (1)(DEL), VEERIAH REDDIAR V. CIT : 38 ITR 15 2 (KER.), BHAGWATI EMPORIUM V. ITO : (1995) 80 TAXMAN 227 (AHD.), KABIR LEATHER S V. ADDL. CIT : (2009) 27 SOT 498 (DELHI), CIT V. POONAM RANI : 326 ITR 223 ( DEL.), ASOKE REFRACTORIES (P) LIMITED : 279 ITR 457 (CAL.), PANDIT BROS V. CI T 26 ITR 159 (P & H), M. DURAI RAJ V. CIT, ERNAKULAM 83 ITR 484 (KER.), JHANDU MAL TARA CHAND RICE RILLS V. CIT (1969) 73 ITR 192 (P & H), AXIA ENGG. CO. V. IT O : 56 ITD 335 (CHD), GANESH FOUNDRY V. ITO (2000) 67 TTJ (JD) 434, ITO V . OSWAL EMPORIUM (1989) 30 ITD 241 (DEL), DELHI SECURITIES PRINTERS V. DCIT : 2007 15 SOT 353 (DEL.). 9. IN THE ALTERNATIVE LD. COUNSEL SUBMITTED T HAT THE NET PROFIT RATE HAS BEEN DETERMINED AT A VERY HIGH RATE AND THE SAME SHOULD BE REDUCED. IN THIS REGARD LD. COUNSEL RELIED ON THE TRIBUNALS DECISIONS IN T HE CASE SURESH JINDAL PROP. VS. ITO IN ITA NO. 3590/DEL/2011 AND INCOME TAX OFFICER VS. SURESH JINDAL PROP. IN ITA NO. 3542/DEL/2011. LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW . 10. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIO NS AND GONE THROUGH THE RECORD CAREFULLY. THE MODUS OPERANDI OF ASSESSEES BUSINESS IS THAT IT IMPORTS THE TIMBER FROM SINGAPORE AND OTHER FOREIGN COUNTRIES T O INDIA AND THE PORT OF DESTINATION IS KANDLA (GUJRAT). AFTER RECEIVING THE LOGS IN GANDHIDHAM, THE ASSESSEE GET IT SAWN AT SAW MILL INTO DIFFERENT SIZ ES AND IN DIFFERENT ITEMS. THE ASSESSEE DEALT IN ROUGH WOOD. THE AO HAS RECORDED T HE FINDING THAT PURCHASE VOUCHERS REVEALED THAT THE ASSESSEE HAD PURCHASED T HE DIFFERENT TYPES OF TIMBER ITA NO. 290/DEL/11 9 FOR DIFFERENT RATES ACCORDING TO THE QUALITY OF TH E IMPORTED TIMBER. THEREFORE, WHEN PURCHASES WERE CLEARLY IDENTIFIABLE, WE DO NOT FIND ANY IMPRACTIBILITY AS PLEADED, REGARDING MAINTAINING OF THE STOCK REGISTE R OF TIMBER QUALITYWISE WITH SPECIFICATIONS WHICH DETAILS WERE AVAILABLE IN PURC HASE INVOICES. THIS TIMBER WAS CUT INTO WITH DIFFERENT SIZES WHICH WERE ALSO AS PE R THE SPECIFICATIONS AND, THEREFORE, THERE WAS NO IMPRACTIBILITY FOR MAINTAIN THE STOCK REGISTER OF THE CUT TIMBER ALSO. WHEN THE TIMBER WAS SOLD THEN ALSO IT IS ALWAYS SOLD AS PER THE QUALITY AND, THEREFORE, THERE CANNOT BE ANY DIFFICU LTY IN LINKING THE PURCHASE AND SALES OF TIMBER. AS PER THE TAX AUDIT REPORT THE A UDITORS ARE REQUIRED TO CERTIFY THE QUANTITATIVE DETAILS AND IN THE ABSENCE OF THE SAME A QUALIFICATION IS REQUIRED IN THE TAX AUDIT REPORT. THIS CLEARLY SHOW S THE IMPORTANCE OF STOCK REGISTER TO BE MAINTAINED BY THE ASSESSEE. THE ASSE SSEE HAS MERELY MADE A BALD SUBMISSION THAT IT WAS IMPRACTICAL TO MAINTAIN THE STOCK REGISTER BUT, AS DEMONSTRATED EARLIER, WE DO NOT FIND ANY IMPRACTABI LITY ON THE PART OF THE ASSESEE TO MAINTAIN THE STOCK REGISTER. SECTION 14 5 DEALS WITH THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. AS PER SUB SEC TION 3 OF SECTION 145, IF THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS AND COMPL ETENESS OF THE ACCOUNTS OF THE ASSESSEE THEN IT CAN MAKE THE ASSESSMENT IN THE MANNER PROVIDED U/S 144. SECTION 44AA REQUIRES A PERSON, INTERALIA, CARRYING ON BUSINESS TO MAINTAIN THE BOOKS OF ACCOUNT AS NOTIFIED BY THE BOARD AS PER SU B SECTION 2. THE WHOLE OBJECT OF THESE SECTIONS IS TO ENABLE THE AO TO DED UCE TRUE AND CORRECT PROFITS OF ASSESSEES BUSINESS. MAINTENANCE OF STOCK REGISTER MAINLY ASSUMES SIGNIFICANCE ITA NO. 290/DEL/11 10 FOR THIS REASON ONLY. LD. COUNSEL HAS RELIED ON VAR IOUS CASE LAWS TO SUBMIT THAT MAINTENANCE OF STOCK REGISTER IS NOT PART OF MAINTE NANCE OF BOOKS OF ACCOUNT. IN OUR OPINION, THIS SUBMISSION HAS TO BE CONSIDERED I N THE LIGHT OF THE FACTS OBTAINING IN THE RESPECTIVE CASES RELIED UPON BY TH E LD. COUNSEL. IN ALL THESE CASES A FINDING WAS RECORDED THAT IT WAS IMPRACTICA BLE, KEEPING IN VIEW THE NATURE OF BUSINESS, TO MAINTAIN THE STOCK REGISTER. WE MAY REFER TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF JAS JACK ELEGANCE EXPORTS (SUPRA). IN THIS CASE ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF READYMADE GARMENTS. HONBLE HIGH COURT UP HELD THE FINDINGS OF TRIBUNAL AND CIT(A) IN OBSERVING THAT MAINTAINING O F STOCK REGISTER WAS NOT FEASIBLE CONSIDERING THE NATURE OF THE BUSINESS BEI NG RUN BY THE ASSESEEE, ENGAGED IN THE BUSINESS OF MANUFACTURING READYMADE GARMENTS BY PURCHASING FABRIC WHICH WAS THEN SUBJECTED TO EMBROIDERY, DYIN G AND FINISHING AND THE CONVERTED INTO READYMADE GARMENTS BY STITCHING. WE DO NOT FIND ANY SUCH IMPRACTIBILITY. IT IS PERTINENT TO NOTE THAT AO HA S NOT REJECTED THE BOOKS SOLELY ON ACCOUNT OF NON MAINTENANCE OF STOCK REGISTER BUT AL SO BECAUSE THE AO WAS NOT SATISFIED ABOUT THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE ALSO BECAUSE OF THE RELEVANT DETAILS NOT BEING MENT IONED IN THE SALES INVOICES THOUGH IN THE PURCHASE INVOICES ALL SUCH DETAILS WE RE AVAILABLE. THEREFORE, THE AO RIGHTLY REJECTED THE ASSESEES BOOKS OF ACCOUNT. THE AOS FINDING REGARDING INCORRECTNESS OR INCOMPLETENESS OF THE ACCOUNTS IS TO BE EXAMINED CONSIDERING THE VARIOUS FACTORS OBTAINING IN A PARTICULAR CASE KEEPING IN VIEW THE NATURE OF ITA NO. 290/DEL/11 11 THE ASSESSES BUSINESS. HOWEVER, THE BROAD PRINCIP LE IS THAT IF IT IS IMPOSSIBLE OR INFEASIBLE TO MAINTAIN THE STOCK REGISTER, KEEPING IN VIEW THE NATURE OF ASSESSEES BUSINESS, THEN THE MAINTENANCE OF STOCK REGISTER CA N BE DISPENSED WITH ELSE NOT. WE, THEREFORE, REJECT THE GROUND NO. 3 TO 3.2 RAISE D BY THE ASSESSEE. 11. AS FAR AS GROUND NO. 1 IS CONCERNED NO ARGU MENTS WERE ADVANCED IN THE COURSE OF HEARING. THE SAME IS DISMISSED. 12. GROUND NO. 2, 4, 5 PRIMARILY ASSAIL THE FIN DING OF THE AO IN APPLYING THE RATE OF 4.90%. IN THE YEAR UNDER CONSIDERATION THE G P RATE WAS 1.97% AS COMPARED TO 2.8% FOR ASSTT. YEAR 2006-07. THE ASSESS EES CONTENTION IS THAT SLIGHT DECLINE IN GP MARGIN IN THE ASSTT. YEAR UNDE R CONSIDERATION WAS ON ACCOUNT OF INCREASED COST OF FREIGHT INCURRED BY THE ASSESS EE ON TRANSFER OF GOODS FROM BRANCH OFFICE IN GANDHIDHAM TO HEAD OFFICE AMOUNTIN G TO RS. 14,83,350/-. THE SUBMISSION OF LD. COUNSEL IS THAT THIS AMOUNT WAS N OT A DIRECT EXPENDITURE INCURRED IN RELATION TO PURCHASE OF GOODS BUT WAS E RRONEOUSLY DEBITED TO TRADING ACCOUNT WHICH IN TURN RESULTED IN DECLINE IN THE GR OSS PROFIT MARGIN OF THE ASSESSEE. HE POINTED OUT THAT ON EXCLUDING THIS FRE IGHT-OUT COST FROM THE TRADING ACCOUNT OF THE ASSESSEE, THE RE-CASTED GROSS PROFIT RATES WORKS OUT TO 3.21%. LD. COUNSEL FURTHER POINTED OUT IN ASSTT. YEAR 2008-09 THE GP RATE DECLARED BY THE ASSESSEE WAS 2.43% WHICH WAS ACCEPTED U/S 143(3) O F THE ACT. FURTHER IN ASTTT. YEAR 2009-10 THE GP RATE DECLARED WAS 2.76%. THE AO MADE ADDITION OF RS. 6 LACS AND THUS THE GP RATE WORKS OUT TO 3 %. HE POINTED OUT THAT ASSESSEE ITA NO. 290/DEL/11 12 HAS NOT CHALLENGED THIS ORDER. LD. COUNSEL SUBMITTE D THAT CONSIDERING THE GP RATE FROM ASTT. YEAR 2006-07 TO 2009-10, THE AVERAGE GRO SS PROFIT IS 2.57% LD. COUNSEL RELIED ON FOLLOWING DECISIONS :- A) SHRI NEERAJ JAIN VS. ITO ITA NO. 289/DEL/2011 B) SHARDA TIMBER STORE VS. ITO ITA NOS. 5717, 5662, 5714 & 5933 OF 2010 13. HAVING HEARD BOTH THE PARTIES WE FIND THAT T RIBUNAL IN THE CASE OF SURESH JINDAL PROP. , AFTER CONSIDERING VARIOUS DECISIONS OF TRIBUNAL, HAS OBSERVED IN PARA 4 TO 4.4 AS UNDER :- 4. LD. COUNSEL POINTED OUT THAT IN THESE TWO CASES EXACTLY ON THE SAME FACTS, USING THE SAME COMPARABLES FOR THE SAME ASSESSMENT YEAR, IN THE CASE OF INDIVIDUAL, ENGAGED IN THE SAME NATU RE OF BUSINESS, THE ADDITIONS WERE MADE ON WHICH PARTIAL RELIEF WAS GIV EN BY THE CIT(A), SUSTAINING THE G.P. RATE OF 4%. IN THE CASE OF SHRI KRISHAN KUMAR (SUPRA), THE ITAT IN PARAS 8 TO 11 OF ITS ORDER HA S OBSERVED AS UNDER: 8. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFO RE US. THE ASSESSING OFFICER HAS GIVEN FOUR COMPARABL E CASES ON PAGE 6 OF THE ASSESSMENT ORDER. FOR READY REFERENCE, THE SAME IS REPRODUCED BELOW:- NAME OF ASSESSEE ASSTT. YEAR % GROSS PROFIT JAI PARKASH M/S NARWANA TIMBER STORE, 2004- 05 6.00% ITA NO. 290/DEL/11 13 KARNAL JAI PARKASH M/S NARWANA TIMBER STORE, KARNAL 2005- 06 4.34% NEERAJ JAIN PROP. JAGDAMA TIMBER STORE, KARNAL 2006- 07 5.66% SAT PAUL & SONS, M/S KAITHAL TIMBER STORE, KARNAL 2007- 08 3.53% TOTAL 19.53% AVERAGE RATE 19.53/4 = 4.90% 9. AT PAGE 7 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS GIVEN THE COMPARATIVE POSITION OF SALE AND GROS S PROFIT IN THE CASE OF THE ASSESSEE. THE SAME IS ALSO REPRODUCED HEREIN BELOW FOR READY REFERENCE:- PARTIC ULARS/ AY 2005 -06 2006 -07 2007 -08 SALES 7319 4816 .00 5887 1050 .00 8400 9166 .00 GP 1737 528. 00 1560 090. 00 3049 494. 00 NP 2322 04.2 9 2397 71.8 2 3672 38.4 0 GP RATIO 2.37 % 2.65 % 3.63 % 10. THE ASSESSMENT YEAR UNDER APPEAL IS 2007-08. T HE COMPARABLE CASES OF OTHER ASSESSEES ARE FOR AY 2004 -05 TO 2007- 08. IF WE TAKE THE COMPARABLE CASES OF AY 2007-08, THEN WE FIND THAT THE GP RATE FOR THE COMPARABLE CASES QUOTED BY THE ASSESSING OFFICER HIMSELF IS 3.53% WHEREAS IN THE C ASE OF THE ASSESSEE, THE GP RATE IS 3.63%. IF WE COMPARE THE TRADING RESULT OF THE YEAR UNDER CONSIDERATION AS COMPARED TO EARL IER YEAR IN ASSESSEES OWN CASE, WE FIND THAT IN AY 2006-07, TH E GP RATE WAS 2.65% WHICH IS ACCEPTED BY THE REVENUE IN THE ORDER PASSED UNDER SECTION 143(3) WHEREIN THE ASSESSING OFFICER HELD AS UNDER:- ITA NO. 290/DEL/11 14 PURCHASES AND SALES SHOWN HAVE BEEN VERIFIED FROM THE BOOKS OF ACCOUNT. DURING THE COURSE OF ASSTT. PROCEEDINGS I T WAS NOTICED THAT THE ASSESSEE HAD SHOWN GROSS TURNOVER OF RS.58 871050/- AND G.P. OF RS.1560090/- AND G.P. RATE OF 2.65% AGAINST GROSS TURNOVER OF RS.73194816/-, G.P. OF RS.1737528/- AND G.P. RATE OF 2.37% OF IMMEDIATELY PRECEDING YEAR. THE G.P. RATE IS ON HIGHER SIDE, WHEREAS GROSS PROFIT RATE IN THIS LINE OF TRA DE SHOWN 2.85% IN THE CASE OF M/S JANTA TIMBER STORE, TIMBER MARKE T, KARNAL. 11. FROM THE ABOVE, IT IS EVIDENT THAT THE ASSESSIN G OFFICER HIMSELF CONSIDERED THE GP RATE OF 2.65% IN AY 2006- 07 TO BE REASONABLE. IN AY 2005-06, IN ASSESSEES OWN CASE, THE GP RATE OF 2.37% WAS ACCEPTED BY THE REVENUE. IN VIEW OF T HE TOTALITY OF ABOVE FACTS, WE DO NOT FIND ANY JUSTIFICATION FOR A PPLICABILITY OF GP RATE OF 4.90%. THE GROSS PROFIT RATE DISCLOSED BY THE ASSESSEE AT 3.63% IS BETTER AS COMPARED TO EARLIER TWO YEARS OF ASSESSEES CASE AND ALSO BETTER THAN THE COMPARABLE CASE OF SA T PAUL & SONS QUOTED BY THE ASSESSING OFFICER FOR AY 2007-08 . IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION FOR SUS TAINING THE PART OF THE TRADING ADDITION BY APPLYING GP RATE OF 4%. THE SAME IS DELETED. 4.1. IN THE CASE OF JAI PARKASH (SUPRA), THE ITAT IN PARA 5 OF ITS ORDER HAS OBSERVED AS UNDER: 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW THE JUDGMENT OF COORDINATE BENCH IN THE CASE OF KRISHAN KUMAR (SUPRA) IN WHICH ASSESSEES OWN CASE HAS BEEN CONSIDERED AS COMPARABLE AND HOLDING THAT THOUGHT AVERAGE RATE OF G.P. IN THE CASE OF ASSESSEE BEING 4.9% STILL, THE G.P. RATE OF 3.61% EARNED IN THE CASE OF KRISHAN KUMAR I S JUSTIFIABLE. THE RATIO OF THE JUDGMENT ON THE FACTS IS APPLICABLE AND PROPOSITION THAT ASSESSEES G.P. MA Y VARY YEAR TO YEAR AND BOOKS OF ACCOUNT SHOULD NOT HAVE BEEN REJECTED ON HYPOTHECATED GROUNDS IS ALSO APPLICABLE. IT HAS NOT BEEN DISPUTED THAT NO OTHER DEFECTS WERE FOUND IN ASSESSEES BOOKS EXCEPT A.OS EXPECTATION OF A PARTICULAR WAY OF IDENTIFICATION O F CUT TIMBER WITH THE INDIVIDUAL PURCHASE WHICH IN OUR CONSIDERED VIEW IS RATHER DIFFICULT TO MAINTAIN. IN THE ITA NO. 290/DEL/11 15 CIRCUMSTANCES, WE UPHOLD THE G.P. RATE DECLARED BY THE ASSESSEE. 4.2. RELYING ON THE ABOVE TWO DECISIONS, THE CONTEN TION IS THAT SINCE THE G.P. RATE DECLARED BY THE ASSESSEE FOR SAME YEA R IS BETTER THAN EARLIER, THE SAME SHOULD BE ACCEPTED. 4.3. HOWEVER, THE CONTENTION OF THE DEPARTMENT IS T HAT IN SIMILAR LINE OF BUSINESS, THE G.P. RATE, AS ACCEPTED BY TH E TRIBUNAL, IS IN THE RANGE OF 3.61% TO 3.63% AND, THEREFORE, THE SAME SH OULD BE ACCEPTED. WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE LD. DR ON THIS COUNT BECAUSE WHEN G.P. RATE IS APPLIED FOR SIMILAR LINE OF BUSINESS, THEN FOR SAME ASSESSMENT YEAR THERE COULD NOT BE ANY WIDE VA RIATION IN THE G.P. RATE. MERELY BECAUSE ASSESSEE HAS SHOWN BETTER RESULT FOR THE CURRENT YEAR CANNOT BE THE SOLE CRITERIA AND DUE RE GARD HAS TO BE GIVEN TO THE G.P. RATE ADOPTED IN SAME LINE OF BUSI NESS FOR SAME ASSESSMENT YEAR. THE G.P. RATE IN THE CASE OF SAT P AUL & SONS (SUPRA) HAS BEEN TAKEN AT 3.53%. THE AO HAS CONSIDERED THE CASE OF SAT PAUL & SONS AS ONE OF THE COMPARABLE CASES AND WE FIND T HAT IN THE SIMILAR LINE OF BUSINESS THE G.P. RATE ACCEPTED BY THE TRIB UNAL IN THE CASE OF KRISHAN KUMAR IS 3.61% AND IN THE CASE OF JAI PARKA SH 3.63%. THEREFORE, CONSIDERING ALL COMPARABLE CASES, WE AR E OF THE OPINION THAT IT WOULD SERVE THE INTEREST OF JUSTICE IF THE G.P. RATE OF 3.53% IS ADOPTED IN THE CASE OF THE ASSESSEE AS WAS IN THE C ASE OF SAT PAUL & SONS. WE ORDER ACCORDINGLY. ITA NO. 290/DEL/11 16 4.4. IN THE RESULT, BOTH THE APPEALS, FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE PARTLY ALLOWED. WE FIND THAT AO HAS TAKEN THE SAME COMPARAB LES INTO CONSIDERATION WHICH HAS BEEN REPRODUCED EARLIER. THUS, THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THAT OBTAINING IN SURESH JINDALS CASE. THEREFORE, CONSIDERING THE ENTIRE CONSPECTUS OF THE CASE INCLUDING THE COMPARABLES CA SES RELIED UPON BY THE ASSESSEE AS WELL AS THE DECISIONS OF TRIBUNAL IN TH E CASE OF SURESH JINDAL PROP. (SUPRA), WE ARE OF THE OPINION THAT IT WOULD SERVE THE INTEREST OF JUSTICE IF THE GP RATE OF THE ASSESEE IS TAKEN AT 3.53% AS WAS IN THE CASE OF SURESH JINDAL PROP. WE ORDER ACCORDINGLY. IN THE RESULT, ASSESEEES APPEAL IS PARTLY A LLOWED. THIS DECISION WAS PRONOUNCED IN THE OPEN COU RT ON 9 TH JANUARY, 2015. SD/- SD/- (GEORGE GEORGE K) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE JANUARY, 2015 VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR, ITAT