MITTAL COTTEX INDIA PRIVATE LIMITED,BEAWAR vs. INCOME TAX OFFICER, BEAWAR

Rival contentions have been heard and record perused.

The facts in brief are that the assessee is engaged in manufacturing of cotton cloths. During the course of scrutiny assessment, the Assessing Officer made enquiry with regard to the purchases so made by the assessee. Out of all the parties, the Assessing Officer called information U/s 133(6) of the Act from five parties on test check basis. In case of three parties, the notices were returned back unserved. The Assessing Officer stated that it got replies by post in some cases with regard to brokerage, rebate, discount and processing expenses so incurred by the assessee. However, not satisfied with the same, the Assessing Officer rejected the books of account by invoking the provisions of Section 145(3) of the Act and made the addition of Rs. 7,76,198/- by estimating the gross profit @ 5.5.% of the turnover.

By the impugned order, the ld. CIT(A) confirmed the action of the Assessing Officer, against which the assessee is in further appeal before us.

It was argued by the ld AR of the assessee that the assessee maintained regular computerized books of account which was produced before the Assessing Officer for thorough checking, which the Assessing Officer test checked as mentioned in the assessment order itself. As per the ld AR, the Assessing Officer has rejected the books of account on the plea that there is no proper basis with the assessee for valuation of closing stock and that stock register is not maintained properly. As per the ld AR, the assessee was valuing its closing stock at cost except defective or damaged goods the method as consistently followed by it in the immediately preceding years. The ld AR also drawn our attention to the G.P. rate disclosed by the assessee during the year under consideration as well as the G.P. rate of the earlier two years which as under:

On the other hand, the ld DR has contended that the notices issued by the Assessing Officer to some of the supplies were returned unserved and the Assessing Officer found that the assessee has not maintained proper stock register. Therefore, rejection of books of account and additions so made by the Assessing Officer was justified.

We have considered the rival contentions and carefully gone through the orders of the authorities below and found that the Assessing Officer has basically rejected the books of account on the plea that the stock records are not maintained and in respect of some of the suppliers notices issued U/s 133(6) of the Act was returned unserved. As per our considered view mere rejection of books of account will not entitle the Assessing Officer to make the trading addition unless the trading results offered by the assessee during the year under consideration are not comparative as compared to the earlier years. Even after rejection of books of account, addition can be made only on the basis of material on record. In the instant case, we found that during the year under consideration, the assessee had shown G.P. rate of 5.35% on a turnover of Rs. 51.86 crores for the year under consideration as against the G.P. of 5.26% on turnover of Rs. 45.65 crores in the A.Y. 2013-14 and 3.18% on a turnover of Rs. 33.16 crores in the A.Y. 2012-13. Thus, we observe that during the year, a trading result even after substantial increase in sale is ITA 12/JP/2018_ 5 Mittal Cottex India Pvt. Ltd. Vs ITO much better than the G.P. rate of earlier two years. Accordingly, we do not find any justification for the trading addition so made by the Assessing Officer.

The assessee is also aggrieved for disallowance of expenses of Rs. 45,088/-.

In this regard we observe that the Assessing Officer has made ad hoc disallowances in respect of telephone, travelling and vehicle expenses etc. on ad hoc basis by observing that a personal element cannot be ruled out. In this regard we observe that the assessee being a corporate entity, no disallowance can be made on the ground of personal use in view of the decision of Hon’ble Gujarat High Court in the case of Sayaji Iron & Engg. Co. vs. Commissioner of Income-tax 253 ITR 749 (Gujarat).

In the result, appeal of the assessee is allowed. Order pronounced in the open court on 26th March, 2019.