PRAKASH SHRIMALI V. ASSISTANT COMMISSIONER OF INCOME TAX

ITA/146/2018

AI Insights

The case involves Shri Prakash Shrimali, the proprietor of Hi-Tech Earth Movers, who appealed against the decision of the Assistant Commissioner of Income Tax, Circle-1, Udaipur, regarding the rejection of his books of account and the imposition of a Gross Profit Rate at 1.03%. The primary legal question was whether the rejection of the books of account and the subsequent imposition of the gross profit rate based on previous assessment years was justified. The ITAT had earlier upheld the rejection of the books due to discrepancies and lack of maintenance of a stock register, despite the statutory auditor's certification. The High Court dismissed the appeal, agreeing with the ITAT's findings and rejecting the assessee's claim of denial of opportunity to appear before the ITAT.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 764095 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 11-07-2019
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: G S CHOUHAN
• Assessee Lawyers: NEERAJ JAIN
• Keywords: Assessment; Gross Profit Rate; Income tax appeal; Non-maintenance of stock register; Rejection of Books of Account
• Section: 142(1); 143(2); 44AB; 145(3)

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR D.B. Income Tax Appeal No. 146/2018 Shri Prakash Shrimali S/o Late Shri Shiv Shankar, Aged About 67 Years, Proprietor - Hi-Tech Earth Movers, 6-Municipal Colony, Shivaji Nagar, Udaipur (Raj.) 313001 (Pan No. ADSPS139F) ----Appellant Versus Assistant Commissioner of Income Tax, Circle-1, Udaipur (Raj.) ----Respondent For Appellant(s) : Mr. Neeraj Kumar Jain For Respondent(s) : Mr. G.S. Chouhan HON'BLE THE CHIEF JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE DINESH MEHTA Judgment 11/07/2019 1. The question of law sought to be urged by the assessee/appellant is whether the rejection of its books of account and imposition of Gross Profit Rate at 1.03% (with the corresponding Gross Profit Margin of 7.98%) based upon the previous assessment years returned and accepted rate, is justified. 2. The facts are that the assessee carries on business as a dealer of Tata Motors; it also carries on after sale service of heavy equipment and machinery. The record would show that the Assessing Officer sent several notices (12) under Section 143 (2) and 142 (1) of the Income Tax Act, which were not complied with. Eventually, based upon the materials before him, the AO rejected the books of accounts. While doing so, the AO noticed that the (2 of 4) [ITA-146/2018] statutory auditors certificate under Section 44AB had certified that the documents and the books were in order and had been properly audited. Yet, it was noticed that the assessee had not maintained Stock Register. The AO, therefore, proceeded to verify the material that was on record - including ledger and other books and found various discrepancies. As a consequence, the books of accounts were rejected and applying the pattern of previous return years, which were accepted by the Revenue, the Gross Profit Margin and profit rate were imposed for calculating the tax liability; the assessment was completed of ₹1,32,74503/-. 3. The assessee carried this order in appeal; the CIT (Appeals), exhaustively listed the grounds of appeal i.e. the grievances lodged and then concluded in favour of the assessee in the following terms :- “3.3 I have considered the submissions of the appellant as well as the findings of the A.O., given in the assessment order. It appears that the defects pointed out in the books of account i.e. difference in sale amounts declared in the sale account and journal, difference in the sale promotion expenses and discount etc. have been reconciled by the appellant during the assessment proceedings itself as no additions on this account have been made in the total income of the appellant. Further, it is also not a case of the A.O. that the expenses claimed by the appellant in the profit and loss account are not supported by proper vouchers and some of the expenses were not subject to verification. The books of account maintained by the appellant were audited U/s.44B of the Act and the statutory auditor have not pointed out any specific defects in maintaining the books of account. As regards the non maintenance of stock register and quantitative tally, it is seen that the appellant deals in spare part of machinery the volume of which is numerous and it is not a case of the A.O. that the valuation of closing stock made by the appellant is not in accordance with the method provided under the law. Mere non maintenance of stock register cannot be made a basis for rejection of books of account because before invoking the provisions of section 145(3) of the I.T. Act the A.O. is bound to prove that the books of account maintained by the appellant is not reflecting the correct income and therefore it is not possible to assess the correct income of the appellant. In view of above discussions and the defects pointed out by the A.O. have been reconciled by the appellant and the same has been accepted by the A.O., there is no reason for invoking the provisions of section 145(3) of the I.T. Act and therefore the (3 of 4) [ITA-146/2018] rejection of books of account u/s.145(3) of the I.T. Act in the case of the appellant is held to be unjustified. 4. The ITAT – which was approached by the Revenue, considered the entire record and noticed that the books of accounts in this case were not reliable. The assessee’s returns had relied upon the books of accounts to declare the net profit margin at 0.52% - with the corresponding gross profit margin of 3.50%. Furthermore, it is evident that as against the turn over reported for the concerned assessment year i.e. AY 2009-10, which were ₹30,54,48,903/-, and the gross profit declared was ₹1,06,76,006/-. However, for the previous year, the turn over for the same business was ₹14,31,22,117/- and the gross profit shown was ₹1,14,24,580/-. Facially, therefore, there was a steep down turn in the declared gross profit margin; the net profit increased only by rupees one lac or as against, the turn over increased by more than 100%. This clearly seems to have alerted the AO to examine the record and based upon his assessment of the ledger and other documents available on record rejected the books of accounts. 5. All that the ITAT did in this case was to correct the error evident on the face of the record, in the Revenue’s appeal, evident in CIT (A) order. The Court is also satisfied that the main ground of the assessee of denial of opportunity to appear before the ITAT, is unpersuasive and cannot be accepted. A notice of hearing clearly was served on 24.07.2013; the hearing was to take place on 02.09.2013. There is no document relied upon by the assessee to show that he was incapacitated; he was prevented from instructing his counsel to appear before the ITAT on the date of hearing fixed for that purpose on which he was aware. For these reasons, the ground of denial of opportunity is also unsubstantiated. (4 of 4) [ITA-146/2018] 6. For the foregoing reasons, the Court is of the opinion that the ITAT’s findings are pure findings of fact and do not call for any interference. No substantial question of law arises in this appeal. 7. The appeal is accordingly dismissed. (DINESH MEHTA),J (S. RAVINDRA BHAT),CJ 3-ArunV/- "