SHRI MAHAVEER PRASAD RATHI,KEKRI vs. INCOME TAX OFFICER, WARD-2-3, AJMER

In Ground No. 1, the assessee has challenged the action of ld. CIT(A) in upholding the rejection of books of accounts u/s 145(3) of the Act. Ground Nos. 2 and 3 relates to sustaining of trading addition of Rs. 2,94,208/-.

In this regard, the ld. AR submitted that the assessee is engaged in the business of purchase and sale of food grain/agriculture produce and also acted as a commission agent. The assessee has maintained complete books of account consisting of cash book, ledger and journal. All the purchases and sales are fully vouched. All the expenses were fully supported by vouchers. The Shri Mahaveer Prasad Rathi, Kekri Vs. ITO, Ward 2(3), Ajmer accounts are audited and duly produced before the Assessing Officer. It was submitted that the Assessing Officer rejected the books of accounts u/s 145(3) only for the reason that there is a fall in GP rate as compared to the previous year and secondly, on account of absence of Quality Register. It was submitted that fall in G.P rate or for that matter, the absence of a qualitative details alone cannot be made a basis of rejection of the books of account. In support, the reliance was placed on the decision in case of Pr. CIT vs. Bhawani Silicate Industries (2016) 236 Taxman 596 (Raj) and CIT vs. Poonam Rani (2010) 326 ITR 223 (Del). It was further submitted that even on merits, where the books of accounts have been rejected, the Assessing Officer has to make a fair estimation of GP rate in the hands of the assessee. It was submitted that as against GP rate of 2.28% declared by the assessee, the Assessing Officer has applied GP rate of 2.75% without any basis. It was submitted that the Assessing Officer has accepted GP rate as low as 0.49% for A.Y 2014-15. It was submitted that the assessee has duly submitted the reasons for the fall in the G.P rate during the year as there is increase in the purchases prices and due to teji in the mandi, the G.P. rates fluctuated during the year. Further, it was submitted that if the average GP rate of 3 years is considered, the same comes to 2.52% as against G.P rate of 2.75% applied by the AO. It was accordingly submitted that trading addition so made be deleted.

Per contra, the ld. DR referred to the order of the Assessing Officer and submitted that ample opportunities were provided to the assessee to produce books of accounts and other relevant documents for physical verification during the course of assessment proceedings. It was submitted that the assessee attended and produced books of accounts but did not produce purchase/sale bills and quality wise stock register. It was essential to examine the quality wise register as there was wide fluctuation in the purchase price of certain commodities during the year. However, the assessee failed to produce the 2 Shri Mahaveer Prasad Rathi, Kekri Vs. ITO, Ward 2(3), Ajmer quality wise stock register during the course of assessment proceedings and in absence of which, the true and correct profits cannot be ascertained and therefore, the trading results as declared by the assessee were not found acceptable and the books of accounts were rejected invoking the provisions of section 145(3) of the Act. It was further submitted that given the discrepancy in the books of accounts, the Assessing Officer has made a fair and reasonable estimation of G.P. rate of 2.75% as against declared G.P rate of 2.28%. It was accordingly submitted that there is no infirmity in the findings of the Assessing Officer and which has been rightly confirmed by the ld. CIT(A) and which may be affirmed.

We have heard the rival contentions and perused the material available on record. The assessee is engaged in the business of purchase and sale of food grain/agriculture produce and also acted as a commission agent. During the course of assessment proceedings, the Assessing officer observing that there is a fall in the gross profit rate as compared to the previous year called for the books of accounts for further verification and on examination of sample purchase bills submitted by the assessee, observed that there is wide variation in purchase price of Jeera which varies from Rs 7500/- per quintal to Rs 14,150/- per quintal, a fact not disputed by the assessee and therefore, to determine the correct gross profit rate sought to verify the quality wise stock register which the assessee failed to produce. We therefore find that in the facts of the present case, where there is wide fluctuation in the purchase price of the commodity which is likely to have effect on the sale price of such commodity as well, the maintenance of quality wise stock register giving details of the respective commodities in terms of quantity and price quality wise both in respect of purchases and sales are essential to ascertain the gross profit rate. We have also gone through the decisions cited by the ld AR at the Bar and find that the same are distinguishable rendered in the peculiar facts and 3 Shri Mahaveer Prasad Rathi, Kekri Vs. ITO, Ward 2(3), Ajmer circumstances of the respective cases and therefore, doesn’t support the case of the assessee. Therefore, we find that in the facts and circumstances of the present case, in absence of such quality wise details being maintained and produced for verification, the action of the Assessing officer in rejecting the books of accounts u/s 145(3) cannot be faulted and the same is hereby upheld.

Once the books of accounts have been rejected, the Assessing Officer is required to make the assessment on the basis of his best judgment and a fair estimate of income has to be made instead of resorting to making the addition to the book results which already stand rejected or any alteration in the book results. The Assessing officer while exercising his jurisdiction cannot act arbitrarily or capriciously. The assessment must proceed on judicial considerations in light of relevant material available on record. In other words, in any case of best judgment, though the element of guess work is involved, however the guess work should have nexus with the material on record and discretion must not be exercised arbitrarily or capriciously. For the purposes of making the best judgment assessment, past history of the assessee has been held as reliable and reasonable basis for estimation of profits. In the instant case, the average GP of past three years comes to 2.52% which we find a reliable and reasonable basis to estimate the GP for the current year. We therefore direct the AO to apply GP rate of 2.52% for the year under consideration as against G.P rate of 2.28% declared by the assessee. The grounds of appeal are disposed off accordingly.