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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 48/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 48/JP/2018 fu/kZkj.k o"kZ@Assessment Year : 2013-14 cuke Shri Ram Gopal Soni The ACIT, Prop. Bhagwati Jewellers Vs. Circle, 201, Opp. Kamla Nehru School, Sikar. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADTPS 9174 K vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Vijay Goyal (C.A.) jktLo dh vksj ls@ Revenue by : Shri K.C. Meena (ACIT) lquokbZ dh rkjh[k@ Date of Hearing :26/03/2019 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 10/04/2019 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 02.11.2017 of the ld. CIT (A), Jaipur for the assessment year 2013-14. The assessee has raised the following grounds:- “
1. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in confirming the rejection of books of account made by ld. AO.
2. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in confirming the trading addition of Rs. Shri Ram Gopal Soni Vs. ACIT
40,86455/- made by ld. AO by estimating the gross profit by applying UP rate of 0.24% as against 0.11% declared by assessee on the declared turnover of the assessee. 3. The assessee prays for leave to add, to amend, to delete, or modify the all or any grounds of appeal on or before the hearing of appeal.”
2. Ground no. 1 is regarding rejection of books of accounts by invoking the provisions of Section 145(3) of the IT Act. The assessee is a trader of gold and silver bars/bullions. The assessee e-filed his return of income 29.09.2013 declaring total income of Rs. 23,28,020/-. During the scrutiny assessment the AO observed that most of the sales were made in cash for which not proper record of the buyers have been maintained. Accordingly, the AO issued a show cause notice vide letter dated 29.01.2016 and asked the assessee to explain the declined GP rate during the year under consideration and further to furnish complete vouchers of expenses and in the absence of the same as to why the books of accounts should not be rejected by invoking the provisions of Section 145(3) of the Act. The assessee filed the reply and objected to the rejection of books of accounts. The AO did not accept the reply of the assessee and held that it is a fit case for invoking the provisions of Section 145(3) of the Act. Accordingly, the books of accounts of the assessee were rejected and income of the assessee was Shri Ram Gopal Soni Vs. ACIT estimated on the basis of GP Rate 0.24% as against declared GP rate 0.11%. The assessee challenged the action of the AO before the ld. CIT(A) but could not succeed.
3. Before us, the ld. AR of the assessee has submitted that the assessee maintained complete books of account-cash book, ledger, journal, purchases and sales register. The assessee has also produced bank accounts and day to day stock register with supporting vouchers duly audited by the Auditor. All the purchases and sales are completely vouched and supported by day to day stock details which were produced from time to time during the course of assessment proceedings. The AO duly inspected and verified all these details on test check basis and no defect or discrepancy was pointed out. The opening stock, purchases and closing stock as declared by the assessee were accepted by the AO as correct. Therefore, the assessee produced all the relevant details and documents with complete books of accounts for the examination and verification of the AO. The assessee also explained the reasons for decline in GP rate due to near about 500% increased in the turnover during the year under consideration and further due to a very high variation in the price of gold and silver during the year. The AO without pointing out any specific defects in the books of accounts has Shri Ram Gopal Soni Vs. ACIT rejected only on presumption and general objections. The ld. AR has further contended that books of accounts cannot be rejected on the ground of cash sales more so when the quantity of sales are available in stock register and value of the goods sold is verifiable from market quotation. The assessee has sold goods on credit and as well on cash, a complete record of the customers is maintained in respect of the goods were sold on credit basis but for the goods sold to customer on cash, there is no need to maintained the name, address and PAN number of the customers. This is practice is followed to avoid unnecessary labour as well as maintaining of record. Even otherwise as per Rules 114B of the Income Tax Rules quoting of PAN in relation to sale or purchase of goods or services where the transaction amount is exceeding to Rs. 2,00,000/-. The assessee has not violated the said rules and therefore, this cannot be a reason for rejection of books of account. The ld. AR has further submitted that the AO has also given a reason for non verifiable expenses whereas the assessee has not debited any expenditure in the trading account except the purchases which were fully verifiable. Therefore, the reasons assigned by the AO for rejection of books of accounts are contrary to the record. The purchases made during the year are entered in the inward of the stock registered and Shri Ram Gopal Soni Vs. ACIT the sale made by the assessee are mentioned in the outward column of the stock register and the remaining balance after considering the opening stock is stock in hand. Therefore, there is a complete reconciliation of the entries in the stock register and the observation of the AO is contrary to the record. The assessee has furnished the details of suppliers from whom purchases were made along with copy of accounts as well as confirmations in respect of credit sales were also produced before the AO. Thus, the ld. AR has submitted that the assessee has produced all the requisite details, documents, supporting evidence, books of accounts and stock register to show that all the transactions of sales and closing stock are fully verifiable. The assessee is following proper method of accounting is maintaining the books of accounts regularly which are audited therefore, in the absence of any specific defects the general observation of the AO cannot be a reason for rejection of books of account. In support of his contention, he has relied upon the decision in case of Malani Ramjivan jagannath vs. ACIT 316 ITR 120 (Raj.) as well as decision of Hon’ble Delhi High Court dated 07.05.2010 in case CIT vs. Smt. Poonam Rani in and submitted that the decline in the GP rate for the year under Shri Ram Gopal Soni Vs. ACIT consideration cannot be a reasons for rejection of books of accounts to hold that the books are not correct.
On the other hand, the ld. DR has submitted that the Assessing Officer has given a specific finding that the assessee is unable to reconcile the quantities handled as between purchase and sales because no quantitative accounts are maintained. Therefore, the accounts are to be taken as unproved so that the income returned may be rejected and income be estimated based on the reasonable criteria being the average of GP declared in past. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. The Assessing Officer after observing that the assessee has made cash sales and complete details of the purchasers were not maintained by the assessee has issued a show cause notice in para 3.1 as under:-
“3.1 Vide this office letter dated 29/01/2016, the assessee was asked to show cause as under:- “On examination of books of accounts submitted during the course of assessment proceedings it is noticed that on gross turnover/sale of Rs. 3,34,82,56,893/-, gross profit has been declared at Rs. 39,49,362/- this give G.P. rate of 0.11% as against 0.37% declared in the immediately preceding assessment year. Further it is notices that most of the sales have been made in cash and you have not furnished complete vouchers of 6 Shri Ram Gopal Soni Vs. ACIT expenses therefore the profit depending on books of accounts cannot be deductible and also not giving true and correct figures of trading results and therefore show cause as to why books of accounts may not be rejected by invoking provisions of Section 145(3) of the Act.”
In reply to the said show cause notice the assessee made the submissions which were reproduced by the AO in para 3.2 of the assessment order as under:-
“3.2 In reply to above query the assessee has filed written submissions stating therein that:- “1.(i) Assessee maintained complete books of accounts----- which are duly audited. (ii)Purchases are completely vouched. Details of suppliers from whom purchases were made with duly confirmed copy of accounts (major accounts) were submitted during course of assessment proceedings. (iii) Sales are Completely vouched. Confirmations of accounts of some of the purchasers and some cash sales bills were submitted during the course of assessment proceedings. (iv) Details of monthly purchases, sales and closing stock in quantity and value were submitted during the course of assessment proceedings. (v) Only for the reasons that G.P. rate is low from earlier year books cannot be rejected. (vi) There is no expensed in trading account except purchases which are fully verifiable. All the books of accounts purchases and sales vouchers were produced from time to time which were examined and verified. No specific defect as to the trading results was noticed/pointed out. Hence books of accounts are not liable to be rejected.
Shri Ram Gopal Soni Vs. ACIT
Reasons for low G.P. were earlier submitted during the course of assessment proceedings may kindly be consider.
Assessee achieved total turnover 3348256893 on opening capital rs.2432900/- and bank OD limit of Rs.8000000/- without payment of interest other than on bank OD account. Money circulation is important part of business without early payment of sales consideration--------- 4. Books of accounts are maintained in regularly employed method of accounting in a way that A.O. can deduce true and correct income. Such books cannot be rejected on presumptions-history of past years is to be considered. As held in M/s THE GANPATI GEMS AND APRT Vs ACIT, ITAT Jaipur bench Jaipur (2014) TW. Volume 51 part-V page 300. In assessment year 201-12 on total sales Rs.564274514/- G.P. rate declared was 0.28% which was accepted in assessment under section 143(3). In assessment of assessment year 2012-13 trading results were accepted in assessment u/s 143(3). 5. Even after applying the provisions of section 145, trading additions made can be deleted in its entirety —as held in CIT Vs GOTAN LIME KHANIJ UDHYOG-RAJ.H.C. (2001)T W. Volume XXVI page 205. 6. Rejection of books of account-estimation of profit-substantial increase in turnover fall in GP rate-whether AO justified in applying a higher GP, ignoring that, there has been substantial increase in sale- Held- No- ITAT, JAIPUR BENCH JAIPUR CLARITY GOLD(P) LTD Vs THE ACIT, T.W. 2014 Volume 52 page 23. 7. Complete vouchers of expenses debited in profit & loss a/c were produced during the course of hearing in which some vouchers were self-made.”
Thus, in the show cause notice, the AO has pointed out mainly two things, one is decline in the GP rate during the year under consideration and second the sales have been made in cash and assessee has not 8 Shri Ram Gopal Soni Vs. ACIT furnished complete vouchers of expenses. As regards the decline in the GP rate the same cannot be a reason for rejection of books of accounts though it can be a reason for verification of the books of accounts to find out any discrepancy or abnormality attributing to the lower GP rate declared by the assessee for the year under consideration.
As regards the sales made in cash and not furnishing of the complete vouchers of expenses, the assessee in its reply has submitted that it maintained complete books of accounts duly audited. The Purchase are completely vouched and details of suppliers from whom purchases were made duly confirmed. The details of monthly purchases and sales and closing stock in quantity and value were submitted during the course of the assessment proceedings. The assessee also pointed out that there is no expenses debited in the trading account except purchase which are fully verifiable. We find from the record that the assessee produced daily stock of goods as well as monthly stock summery of purchase register, sales register before the AO. Once, the daily as well as monthly summary of purchase and sale of stock were produced before the AO then, the assessee being a trader in bullion is not accepted to give more details and maintain some other record. It is pertinent to note that the Assessing Officer has not pointed out that Shri Ram Gopal Soni Vs. ACIT either the purchases were inflated or the sales were suppressed by the assessee rather the rate of bullion is verifiable from independent source as per market quoted rates and therefore, there is no scope of any inflation of purchase or suppression of sales in respect of trading in bullion. Further, the AO has not pointed out any discrepancy in the daily stock of goods as well as monthly stock summery, purchase and sales register produced by the assessee. From these record and accounts all the transactions of purchases and sales are verifiable and therefore, the reasons cited that full purchases of the cash sales assigned by the AO for rejection of books of account with PAN number are not maintained by the assessee is not sustainable due to the reasons that there is no provision requiring the assessee to take a PAN number and full details of the purchaser in respect of trading activity when individual sale is not exceeding the specified amount as per Rules 114B of the Income Tax Rules. Even otherwise when the assessee has produced the entire record including the confirmation of purchase and complete record of the sales with vouchers then the business activity of the assessee being trading in bullion and the rate of any point of time of purchase and sale are independently verifiable from the market rates then this cannot be a reason for rejection of books of account. As regards the non furnishing Shri Ram Gopal Soni Vs. ACIT of vouchers to verify the expenses it is pertinent to note that the assessee has not debited any expenditure in the trading account which is relevant for the purpose of verification of the books for invoking the provisions of Section 145(3) of the Act and consequently the income of the assessee was to be estimated by applying the GP rate. Thus, the reasons cited by the AO are not based on the specific defects or discrepancy in the books of accounts but these are only general observation and presumption/ surmises. The Hon’ble Jurisdictional High Court in case of Malani Ramjivan Jagannath vs. ACIT (supra) has held in para 10 and 11 as under:- “10. In the face of these undisputed facts and circumstances, the Tribunal in our opinion could not have interfered with the order of CIT(A). In doing so, it had ignored all admitted facts noticed by us above, in the face of which there was no occasion for the Assessing Officer to have resorted to estimate method. The GP is primarily result of excess of sales over purchases, opening stock, closing stock, the unsold stock at two terminals is only balancing factor. Admittedly out of this four components of trading result, there could not have been any ground for the Revenue to arrive at different result. So far as closing stock is concerned, inventories of existing stock were not found to be incorrect by the Assessing Officer i.e. that position of stock as shown in the account books was not incorrect. There being no dispute about the sales and purchases, non-maintenance of stock register lost its significance so far as arriving at GP is concerned. Therefore, the CIT(A) was right in his reasoning about admitted state of affairs. Resorting to estimate of GP rate was founded on no 11 Shri Ram Gopal Soni Vs. ACIT material. It was merely a case of making certain additions on the basis of certain defects pointed out by the Assessing Officer and which he has shown in different account by giving margin of unvouched expenses. He has disallowed certain expenses.
The Tribunal committed basic error in not appreciating the reasoning given, by the CIT(A). It is trite to say that in the facts and circumstances of present case, account books are maintained as they were ordinarily maintained years after years and which were found to yield a fair result. Mere deviation in GP rate cannot be a ground for rejecting books of account, and entering realm of estimate and guesswork. Lower GP rate shown in the books of account during current year and fall in GP rate was justified and also admitted by the Assessing Officer as well as CIT(A) as well as the Tribunal. Therefore, fall in GP rate lost its significance. Having accepted the reason for fall in GP rate, namely, stiff competition in market and also that huge loss caused in particular transaction, neither the rejection of books of account was justified nor resort to substitution of estimated GP by rule of thumb merely for making certain additions. We are, therefore, of the opinion that the findings arrived at by the Tribunal suffers from basic defect of not applying its mind to the existing material which were relevant and went to the root of the matter. When all the data and entries made in the trading account were not found to be incorrect in any manner, there could not have been any other result except what has been shown by the assessee in the books of account. We are, therefore, unable to sustain the order of the Tribunal.” Thus, the decline in the GP rate cannot be a ground for rejection of books of accounts. In the case in hand, there is no dispute that there is manifold increase in the turnover of the assessee in comparison to the preceding years which is about 5 times more than the earlier years. Shri Ram Gopal Soni Vs. ACIT Therefore, a reasonable declined is a normal feature and outcome of the manifold increase in the turnover. The Hon’ble Delhi High Court in case of CIT vs. Smt. Poonam Rani (supra) has also held that in the absence of finding towards falsehood of books of account or any specific defects and discrepancy in the account books maintained by the assessee which were duly audited U/s 44AB of the Central Excise Act there was no reasons for the AO to treat the accounts of the assessee as defective or incomplete. Thus when the assessee maintained the account according to the method regularly employed by him and there is no finding that the purchases have been inflated or sales have been suppressed or any transaction is not recorded in the accounts, the rejection of books of account by the AO based on general observation is not valid. Accordingly, we set aside the orders of the authorities below rejecting the books of accounts of the assessee. This issue is decided in favour of the assessee and against the Revenue.
Ground no. 2 is regarding the addition made by the AO by applying GP rate 0.24%. Since the rejection of books of account has been set aside by us, therefore trading addition on estimated gross profit is consequential to ground no. 1 and accordingly trading addition made by the AO is deleted. Shri Ram Gopal Soni Vs. ACIT In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 10/04/2019. Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vikram Singh Yadav) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 10/04/2019. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The M/s Shri Ram Gopal Soni, Jaipur. 2. izR;FkhZ@ The Respondent- ACIT, Circle, Sikar. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 48/JP/2018} vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत