DCIT, Circle-1(1)(1), Ahmedabad V. B.G.A. Tradelink Pvt. Ltd., Ahmedabad

ITA 743/AHD/2018

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A)-1, Ahmedabad, which had allowed the appeal of M/S B.G.A. Tradelink Pvt. Ltd., the respondent. The primary issue was the rejection of the assessee's books of accounts under section 145(3) of the Income Tax Act by the assessing officer, which led to the disallowance of a normal business loss of Rs.2,63,03,933. The assessing officer had rejected the books on the grounds of non-maintenance of quantitative details of stock, despite the auditor's report and the detailed records provided by the assessee. The CIT(Appeals) found that the assessing officer's rejection was not justified as the assessee had maintained proper records and the auditor had not stated that the quantitative details were not maintained, but rather that it was not possible to provide such details due to the nature and variety of the items dealt with.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131419 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-06-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 22-03-2018
• Other Referred Cases: Jaytick Intermediates (P) Ltd. v/s ACIT [2016] 73 taxmann.com 195, CIT v/s Symphony Comfort Systems Ltd. [2013] 35 taxmann.com 533/216 Taxman 225 (Guj.) (Mag.), CIT v/s Smt. Poonam Rani [2010] 192 Taxman 167/326 ITR 223, Swapna Rani Sarkar v/s CIT [2010] 320 ITR 70
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 195; 250; 192; 73; 145(3)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Th e DCIT, Circle-1 (1 )(1), Ah medabad (Appellant) Vs M/S B. G. A. Tradelink Pvt. Ltd. D/38-Arya man Bunglow, Op p. Anand Nik etan S chool, Shilaj Railway Cro ssing, Ah med abad-3800 58 PAN: AAD CB641 0H (Resp ondent) Asses see b y : Shri Tushar Hema ni, Sr. A.R. & Shri Parimalsinh B. Pa rmar, A. R. Revenue by : Shri Bhola ram Dev ashi, Sr. D. R. Date of hearing : 13-06 -2 023 Date of pronouncement : 14-07 -2 023 आदेश /ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the Revenue against the order of the ld. Commissioner of Income Tax, CIT(A)-1, Ahmedabad, in proceeding u/s. 250 vide order dated 21/09/2017 passed for the assessment year 2013-14. ITA No. 743/Ahd/2018 Assessment Year 2013-14 I.T.A No. 743/Ahd/2018 A.Y. 2013-14 Page No. DCIT vs. BGA Tradelink Pvt. Ltd. 2 2. The Department has raised the following grounds of appeal: “(1) That the ld.CIT(A) has erred in law and on facts in deleting the disallowance of loss in trading account of Rs.2,63,03,933/- and rejection of Books under section 145(3) of the Act. (2) The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary.” 3. At the outset, we observe that the appeal filed by the Department is time- barred by 98 days. The Department has filed application for condonation of delay stating that during the period when the appeal was getting time-barred, the assessing officer was engaged in time barring assessment work. Further, the case records of the assessee company got misplaced with the case records of other time barring files. Further, the concerned assessing officer was nominated for midcareer training program at IIPA, New Delhi and resumed office after the due date of filing of appeal. Accordingly, it is for the aforesaid bona fide reasons that the appeal could not be filed within time. In response, the counsel for the assessee has also not objected to the delay in filing of the present appeal being condoned. In the result, looking into the facts of the instant case, we are hereby condoning the delay of 98 days in filing of the present appeal. 4. The brief facts of the case are the assessee is a trader in commodities like guar gum, gold, silver, soya bean etc. both on delivery basis as well as on derivative segment basis, at various recognised commodities exchanges. During the year under consideration, the assessee had shown gross revenue (turnover) of 40, 10,49,982/- from the above mentioned activities. Out of the said revenue, the assessee had earned speculative profit of 31,88,55,489/ - which was treated as speculation income and the assessee also incurred a normal business loss of 2, 63,03,933/- in the business of trading of commodities on a I.T.A No. 743/Ahd/2018 A.Y. 2013-14 Page No. DCIT vs. BGA Tradelink Pvt. Ltd. 3 delivery basis. During the course of assessment, the assessing officer completed the assessment by rejecting the books of accounts of the assessee under section 145(3) of the Act and thereafter disentitling the assessee of the normal business loss of 2, 63,03,933/ - incurred by the assessee, in the business of trading of commodities on a delivery basis, mainly on the ground that the assessee had not maintained quantitative details of stock. The books were rejected by the assessing officer primarily on the contention that “stock register” was not maintained, and even the auditor had reported in clause 28(a) of the Tax Audit Report that “no quantity details have been maintained due to multiplicity and variety of items dealt with”. 5. In appeal, Ld. CIT(Appeals) allowed the appeal of the assessee, with the following observations: “2.5 On careful consideration of entire facts, it is observed that appellant is carrying out mainly two types of transactions i.e. derivative transactions and trading transactions for which separate profit & loss account are submitted. It is observed that books of account are audited by independent chartered accountant and have clearly mentioned that proper books of accounts are maintained. It is observed that during the year appellant has carried out trading transactions in four commodities and number of purchase and sale transactions is very insignificant considering huge volume in other segment being derivative segment. During the course of assessment proceedings, appellant has given complete details of purchase value, purchase quantity, sale value, sale quantity, name of the persons from whom goods are purchased and to whom goods are sold, details of both opening and closing stock and A.O. has not found any discrepancy in such details. The entire payment towards purchase of commodity is thorough banking channels and sale proceeds are duly recorded in books of account which is not disputed by A.O.. The A.O. has not brought anything on record which can prove that appellant has made unexplained purchases or purchase and sale are not recorded in books of account which means that A. O. accepted purchase, sale and stock shown in books of account. It is observed that tax auditor I.T.A No. 743/Ahd/2018 A.Y. 2013-14 Page No. DCIT vs. BGA Tradelink Pvt. Ltd. 4 in his report has stated that "Due to the nature of the activity and multiplicity and variety of the items dealt in by the assessee it is not possible to give quantitative details," and such information may have been given due to the view that details are required to be given for trading as well as huge derivative segments. In his report, he has not mentioned that appellant has not maintained quantitative details of stock, 1-e.stockjregister. The appellant has submitted stock register in assessment proceeding and summary of such stock register has been duly scanned by A.O. in which A.O. has not found any discrepancy hence A.O. has no reason for rejecting books of accounts partially u/s 145(3) of the Act as he is accepting book results shown for derivative segment. When A.O. founds purchase, sale and stock shown in books of account as correct and appropriate, there is no reason with A.O. for not believing the loss incurred by appellant more particularly when he has not disputed purchase rate or sale rate of commodities. It is also observed that Hon'ble Gujarat High court in the case of Jaytick Intermediates (P) Ltd. v/s ACIT [2016] 73 taxmann.com 195 has held that "Non-maintaining of day-to-day stock register is not a ground to reject books of account". Similar view is also given by Hon'ble Gujarat High court in the case of CIT v/s Symphony Comfort Systems Ltd. [2013] 35 taxmann.com 533/216 Taxman 225 (Guj.) (Mag.). Hon'ble Delhi High court in the case of CIT v/s Smt. Poonam Rani [2010] 192 Taxman 167/326 ITR 223 held that if stock register is not maintained by the assessee that may put the Assessing Officer on guard against the falsity of the return made by the assessee and persuade him to carefully scrutinize the account books of the assessee. But the absence of one register alone does not amount to such a material as would lead to the conclusion that the account books were incomplete or inaccurate. The Hon'ble Gauhati High court in the case of Swapna Rani Sarkar v/s CIT [2010] 320 ITR 70 has held that "No law is laid down that if in a given case the stock register is not maintained the only consequence thereof should be rejection of the books of account of the assessee. Therefore, the Assessing Officer was wrong in rejecting the books of account of the assessee". Thus, A.O. was not justified in rejecting books of account only on the remark of tax auditor as stated supra when he is accepting all the other details mentioned in Profit & loss account. It is pertinent to note that even A.O. has not rejected books of account entirely but only rejected books of account partially for trading transactions which is incorrect as per provisions of section 145(3) of the Act. I.T.A No. 743/Ahd/2018 A.Y. 2013-14 Page No. DCIT vs. BGA Tradelink Pvt. Ltd. 5 It is also observed that appellant has shown turnover of Rs.8.21 crores in trading activity and has earned gross profit of Rs.0.65 crore which is even not disputed by A.O.. The appellant has claimed entire administrative and other expenditure which are not disputed by A.O. in assessment order as part of trading activity and due to such, there is net loss of Rs.2.63 crores. The appellant is correct in stating that if all the administrative and other expenditure are allocated between two types of transactions i.e. derivative segments and trading segment, there would have been net profit even in trading transactions. As appellant has incurred net loss in such trading transactions, A.O. was not correct in rejecting in books of account u/s145(3)of the Act and making disallowance of such loss without bringing any corroborative evidences to prove that appellant has shown bogus loss or has incurred loss to reduce taxable income by adopting tax evasion method. Considering the facts discussed herein above and relying upon decisions referred supra, it is held that A.O. was not justified in rejecting books of account u/s 145(3) of the Act and making disallowance of loss of Rs.2,63,03,933/-. Thus, this ground of appeal is allowed.” 6. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals). Before us, DR primarily relied on the observations made by the assessing officer in the assessment order. In response, the counsel for the assessee primarily reiterated the arguments taken before Ld. CIT(Appeals) and on the observations made by him in the appellate order. The counsel for the assessee submitted that in the instant facts, the assessing officer has taken an incorrect interpretation of clause 28(a) of the Tax Audit Report, which stated “due to the nature of activity and multiplicity and variety of the items dealt by the assessee, it is not possible to give quantitative details ”. The counsel for the assessee submitted that the auditor never stated that quantitative details “are not maintained by the assessee” and has merely stated that “it is not possible for the Auditor to give such quantitative details”. Secondly, the counsel for the assessee submitted that the assessee vide letter dated 08-12-2015 had furnished I.T.A No. 743/Ahd/2018 A.Y. 2013-14 Page No. DCIT vs. BGA Tradelink Pvt. Ltd. 6 purchase and sales register, party -wise details of sales and party wise details of purchases above 5 lakhs (at pages 93-99 of paper book). Further, the assessee vide letter dated 11-02-2016 had also produced stock registers for verification (pages 83-84 of the paper book). Accordingly, the following documentary evidences were placed on record i.e. sales register (pages 100-103 of paper book), purchase register (pages 109-111 of paper book) and stock register (pages 117-120 of paper book). Further, the Ld. Assessing Officer has not pointed out any defects in the books of accounts maintained by the assessee. Additionally, the assessing Officer has not brought on record anything to demonstrate that assessee has made purchases and sales outside the books of accounts. Accordingly, the AO was not justified in rejecting the books of accounts and in disallowing the loss incurred by the assessee in the trading business on a delivery basis. Further, it was submitted that there is a well- established judicial principle that non-maintenance of day-to-day stock register cannot be a ground rejection of books of accounts under section 145(3) of the Act (CIT v. Poonam Rai 326 ITR 223 (Delhi)). It was further submitted by the counsel for the assessee that once books of accounts were rejected by the assessing officer under section 145(3) of the Act, the returned income of 26,15,33,540/- cannot be taken into account by the assessing officer while determining the assessed income. Therefore, once books of accounts and rejected, no part of “books of accounts/returned income” could have been taken into account for determining the “assessed income”. 7. We have heard the rival contentions and perused the material on record. On going to the facts of the case, the arguments placed on record and the observations made by Ld. CIT(Appeals) in the appellate order, we are of the considered view that in the instant facts, Ld. CIT(Appeals) has not erred in I.T.A No. 743/Ahd/2018 A.Y. 2013-14 Page No. DCIT vs. BGA Tradelink Pvt. Ltd. 7 facts and in law in allowing the appeal of the assessee. In the instant facts, admittedly details regarding purchases and sales made by the assessee and stock register were produced before the assessing officer, for carrying out the necessary verification. Further, it is observed that the assessing officer has given a different interpretation to the tax audit report, which ostensibly was not intended by the tax auditors, as is evident from the language of clause 28(a) of such report. Further, the assessing officer has not alleged that any sales or purchases were made by the assessee outside the books of accounts. Accordingly, looking into the facts of the instant case, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in holding that the assessing officer is not justified in rejecting the books of accounts under section 145(3) of the Act and making disallowance of loss of 2,63,03,933/-. 8. In the result, the appeal of the Department is dismissed. Order pronounced in the open court on 14-07-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 14/07/2023 TRUE COPY आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद