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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 775/JP/2017
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Jh jes’k lh0 ’kekZ] ys[kk lnL; ,oa Jh fot; iky jko] U;kf;d lnL; ds le{k BEFORE: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 775/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke M/s Saraf Seasoning Udhyog The ACIT, Vs. RIICO Industrial Area, Circle, Sardarshahar, Churu. Jhunjhunu. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFS 1613 H vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by: Shri Suresh Ojha (Adv.) jktLo dh vksj ls@ Revenue by : Shri Karni Dan (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 05/02/2019 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 13/02/2019 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 21.08.2017 of the ld. CIT (A), Jaipur for the assessment year 2010-11. The assessee has raised the following grounds as under:-
“1. That the order passed by the Commissioner of Income-Tax (Appeals)-III Jaipur is illegal and against the law.
2. That the order passed by the Commissioner of Income-tax (Appeals) is against the judicial decorum and discipline because M/s Saraf Seasoning Udhyog vs. ACIT
the judgment of Supreme Court referred in 247 CTR page 353 was not followed by the AO as well as by the CIT (A).
That the C.I.T (A) should have followed the order Hon.ble Tribunal delivered in the case of M/s. Cosmopolitan Trading Corporation reported in 14 ITD 327 Special Bench, because this order is having the character of binding nature relied by A.O. in submission.
4. That the order passed by the Commissioner of Income Tax (Appeals) , may kindly be declared against judicial decorum and judicial discipline because he fails to follow the judgment of High Court/ tribunal referred in written submission, which neither not stay nor reversed.
5. That the application of provision of section 145 (3) of the Income-tax Act sustain by the CIT (A) is illegal and against the law.
6.That the order passed by the C.I.T. (A) is illegal because the C.I.T. (A) ignored the written submission in respect of maintenance of Books of Account and Vouchers.
That the Assessing Officer utilized the case law behind the back, therefore, the utilization of the case law against the assessee is illegal and against the law.
That the C.I.T. (A) should have decided the each grounds of memo of appeal as per the judgment of Hon'ble Rajasthan High court reported in 249 ITR 323 where as ground no & not decided.
M/s Saraf Seasoning Udhyog vs. ACIT
Further the arguments were not appreciated, which should have decided as per law.
Without prejudice to above the addition made by the Assessing Officer is excessive and high.”
The assessee is a partnership firm and engaged in the business of manufacturing and sales of wooden furniture/items. The assesse filed its return of income on 30.09.2010 declaring total income of Rs. 33,82,170/-. During the year under consideration there was decline in G.P. rate in comparison to the preceding years. The assessee explained the reasons for fall in the GP rate as rise in the cost of raw material being timber. The AO noted that the assessee has not been maintaining stock register, day to day details and consumption of materials. Further, vouchers of expenses were not produced for verification, manufacturing details were also not maintained and consolidated figures of closing stock were filed but no supporting details filed for verification of correctness of the stock. The AO then proceeded to reject the books of accounts of the assessee on the basis of these defects by invoking the provisions of Section 145(3) of the Act.
Consequently, the AO estimated the income of the assessee by taking the gross profit rate at 15% as against the gross profit declared by the assessee at 14.29%. The Assessing Officer has considered the G.P. of 3 M/s Saraf Seasoning Udhyog vs. ACIT the preceding year at 16.49% and therefore, applied at 15% G.P. as reasonable and consequently the AO made an addition of Rs. 3,43,718/- . 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 filed the written submissions along with affidavit of the proprietor of the assessee. Thus, the evidentory value of the affidavit cannot denied in the absence of any cross examine by the AO. The ld. AR of the assessee has submitted that the affidavit filed by the assessee should have been accepted when the AO has not decided to cross examine the assessee. In support of his contention, he has relied upon the decision in case of Laxmi Electronic Corporation Limited vs. CIT 188 ITR 398 and submitted that when the assessee relied upon the various decisions before the ld. CIT(A) which were not considered while passing the impugned order then the order of the ld. CIT(A) is not sustainable in law. Once, the AO has not called for the cross examination of the assessee on the contents of the affidavit then the affidavit is accepted. In support of his contention, he has relied upon the decision of Hon’ble Supreme Court in case of Mehta Parik and Co.
Vs. CIT 30 ITR 181. Further, the ld. AR of the assessee has submitted 4 M/s Saraf Seasoning Udhyog vs. ACIT that the assessee has explained the reasons for the decline in the G.P. rate as increase of cost of raw material being timber. The turnover of the assessee is substantially higher than the earlier year hence, the marginal declined in the G.P. rate cannot be a reason for rejection of books of account. He has relied upon the decision of Special Bench of this Tribunal in case of ACIT vs. M/s Casmo Politian Trading Corporation 14 ITD 327 and submitted that the Special Bench has held that there are 5 ingredient of the trading account and if 4 ingredient out of 5 have been accepted then, 5th ingredient cannot be denied. The ld. AR has thus submitted that when all other ingredients being opening stock, purchase and sale are accepted the closing stock cannot be rejected by the AO. Hence, he has submitted that the AO has wrongly rejected the books of account of the assessee. The decisions of the Hon’ble Supreme Court, High Courts and Special Benche are binding upon the Assessing Officer as well as the ld. CIT(A), therefore, not following the decision is in violation of jurisdictional discipline and decorum. The ld. AR of the assessee has further submitted that the assessee has been maintaining all the vouchers of purchase and inventory of closing stock which wre produced before the AO, therefore, the rejection of books of accounts is illegal and against the law. The M/s Saraf Seasoning Udhyog vs. ACIT sales during the year has increased from 2.58 crores to 4.88 crores hence, no trading addition is called for.
On the other hand, ld. DR has submitted that the AO has given the specific reasons for rejection of books of accounts and thereafter the Assessing Officer has considered the G.P. rate declared by the assessee in the preceding year @ 16.49% and applied the G.P. at 15% for estimating the income of the assessee in the year under consideration which is reasonable and proper having regard to the past history of the GP rate declared by the assessee. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. We note that that the assessee is having grievance against the rejection of the books of accounts and consequently trading addition made by the AO. The ld. AR of the assessee has given much stress on the point that the order of the ld. CIT(A) and AO is illegal as they have not followed the decisions relied upon the assessee. Hence, it is a case of judicial indiscipline on the part of the ld. CIT(A) as well as AO. We find that this case is not involving any legal issue but it is purely factual in nature, therefore, the case law as relied upon by the assessee cannot be applied without examination of the relevant facts and 6 M/s Saraf Seasoning Udhyog vs. ACIT circumstances. There is no dispute that during the year under consideration the GP rate declared by the assessee is 14.29% in comparison to the GP for the preceding year at 16.49%. Therefore, the AO proceeded to examine the correctness of the books of accounts and found that the assessee is not maintaining the requisite record particularly stock register as well as other details of consumption of materials. The Assessing Officer has given the reasons for rejecting the books of accounts as under:-
“1. No stock register was maintained.
2. No day to day details of consumption of material are kept.
3. Vouchers of expenses were not produced for verification. 4. No manufacturing details were found to be maintained. 5. Consolidated figures of closing stock were filed but no supporting details filed to verify the correctness of figures stock shown.” We find that non maintaining stock register and day to day consumption register in case of manufacturing activity is serious lapse and defects in the books of accounts maintained by the assessee. Therefore, in view of the settled proposition of law when the closing stock cannot be properly valued in the absence of the necessary details and maintaining of stock register then, the correctness of the books results cannot be verified. 7 M/s Saraf Seasoning Udhyog vs. ACIT Hence, we find that the defects pointed out by the AO are serious in nature and sufficient for rejecting the book results by invoking the provisions of Section 145(3) of the Act. The ld. CIT(A) has considered this issue in para 4.3 is produced as under:-
“4.3 I have carefully considered the material before me. I find that AO pointed out the following defects in the books of accounts:-
1. 1. No stock register was maintained. 2. No day to day details of consumption of material are kept. 3. Vouchers of expenses were not produced for verification. 4. No manufacturing details were found to be maintained.
5. Consolidated figures of closing stock were filed but no supporting details filed to verify the correctness of figures stock shown. In absence ofsuch details and separate accounts, the results declared by the assessee cannot be treated as reliable. This fact is also supported by following decision. (a) The Hon'ble Supreme Court in the case of S.N. Samasivayam Chettair 38 ITR 579 has held that keeping of stock register is of great importance because it the means of verification of assessee's account. After taking into account will material facts, including the want of stock register it is found that proper profit is not deductible applicable of provision of section 145 is justified. (b) The Hon'ble Bombay High Court in case of Basti Ram Narayan Das Maheshwari Vs C1T, reported in 210 ITR page 438 has he that non maintenance of day to day 8 M/s Saraf Seasoning Udhyog vs. ACIT consumption register can lead to rejection of books of account according to the provisions of section 145 of the Income-tax Act. In the present case also the assessee has not maintained day to day record of consumption of material. No proper records related to sites are maintained out of which true and proper income could have deduced. Keeping in view all the facts and that no separate stock register on item wise basis has been maintained nor has day to day consumption details been maintained. In absence of such quantitative details of each items, trading results declared by the assessee are not acceptable and provision of section 145(3) are hereby invoked. The A/R of the appellant in his submission did not touch these defects pointed out by the AO in the books of accounts. Therefore considering the defect pointed out by the AO in assessment order and cited case law. I am the view that trading result shown by the appellant are not true and correct. Therefore I confirm the action of the to rejected the books of accounts by applying provision u/s 145(3) of the I.T. Act.”
Thus, the non maintenance of stock register as well as details of consumption would attract the provisions of Section 145(3) of the Act.
We further noted that the contention of the assessee before the authorities below as well as before us is only to explain the reasons for declined in the GP and nowhere disputed the defects pointed out by the AO regarding non maintenance of stock register and details of M/s Saraf Seasoning Udhyog vs. ACIT the day to day consumption in the manufacturing activity of the assessee. The affidavit as relied by the ld. AR reads as under:-
“I Brijmohan Saraf S/o Shivparsad Saraf Aged 58 Resident of Sardarsahahar declared as on oath as under:- That I am partner of M/s Saraf Seasoning Udyog and fully conversant with the business affairs as well as taxation affaris. That the purchases and sales of the firm is fully vouched and expenses are also vouched including internal vouchers so prepared. That the fall in the GP is on account of rise in raw material that is timber etc. That during the year 01.04.2009 to 31.03.2010 that is for the assessment year 2010-11 there is rise in the general price index which effected the rate of profit. What has been stated above is true to the best of my knowledge nothing has been concealed. So God may help me.” Thus, it was submitted by the assessee in the affidavit that the purchase, sale and expenses incurred by the assessee are supported by the vouchers which includes internal vouchers. Even as per the affidavit itself the assessee has accepted the vouchers are self made. Secondly the reasons for fall in the G.P. is on account rise is a raw material cost.
Therefore, no explanation was furnished by the assessee in respect of the defects pointed by the AO for rejection of books of account and M/s Saraf Seasoning Udhyog vs. ACIT particularly the non maintenance of stock register and details of day to day verification. It is pertinent to note that the affidavit of the assessee can be admitted on the facts which are known to the assessee and not the facts which are based on the books of accounts or some other record. Therefore, the contention that AO has not preferred to cross examine to the assessee on the contents of affidavit would amount to accept the same is not acceptable. As the explanation and contents of the affidavits are not with regard to the fact which are only in the knowledge of the assessee but the assessee was required the explanation the facts as recorded in the books of accounts. The another main contention of ld. AR is that the ld. CIT(A) has not followed the decision relied upon by the assessee. We have already expressed our view that this is purely matter a question of facts and not a pure question of law where the decision relied upon by the assessee can be applied blindly. Hence, we do not find any error or illegality in the impugned orders of the authorities below on the issue of rejection of books of accounts.
As regards the trading addition made by the AO by taking the G.P. @ 15% we find that the Assessing Officer has considered G.P. declared by the assessee in the preceding year at 16.49% whereas the 11 M/s Saraf Seasoning Udhyog vs. ACIT assessee has declared G.P. in the under consideration at 14.29%. The assessee has not furnished any details to show that the average of G.P. of the preceding year is less than 15% as applied by the AO. Hence, in the facts and circumstances of the case once, the books of accounts are rejected by the AO then, in our considered opinion the explanation of the assessee that the declined G.P. is due to rise in raw material would not be help the case of the assessee as the AO is duty bound to estimate the income of the assessee on the basis of some reasonable and proper criteria. The decision of the AO to estimate the income may be subjective but should be based on objective criteria in the case in hands the AO has adopted the G.P. at 15% in comparison to current year declared G.P. of the assessee at 14.29% and preceding year G.P. at 16.49%. Therefore, even the average of these two years is more than 15% and hence, the G.P. adopted at 15% is reasonable and proper. Once the books of account were rejected the only course of action as contemplated under the provisions of Section 145(3) r.w.s.
144 of the Income-tax Act is to estimate the income of the assessee on some reasonable and proper basis. Accordingly, in the facts and circumstances of the case the G.P. rate adopted by AO at 15% is very M/s Saraf Seasoning Udhyog vs. ACIT reasonable and proper hence, we do not find any error or illegality in the orders of the authorities below.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 13/02/2019
Sd/- Sd/- ¼ jes’k lh0 “kekZ ½ ¼fot; iky jko½ (Ramesh. C. Sharma) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 13/02/2019. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s Saraf Seasoning Udhyog, Churu. 2. izR;FkhZ@ The Respondent- ACIT, Circle, Jhunjhunu. 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. 775/JP/2017} vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत