SHRI SUNIL AGRAWAL,DHAR vs. THE ITO, DHAR

PER KUL BHARAT, J.M. : Appeal by the assessee is directed against the order of

Ld. CIT(A)-I, Indore, dated 22.12.2016.

assessee stated that only effective ground in this appeal

may be treated in respect of the addition sustained by

estimating the profit.

assessee was picked up for scrutiny assessment and the

assessment u/s 143(3) of the Income-tax Act, 1961( herein

after referred to as the ‘Act’) for assessment year 2013-14

was framed u/s 143(3) vide order dated. 27.1.2016. While

framing the assessment, the AO rejected the books of

account of the assessee and estimated the gross profit,

thereby he made addition of Rs. 16,89,722/-. On appeal to

-: 3 :- Sunil Agrawal, Dhamnod. the Ld. CIT(A), this addition was reduced to Rs. 8,33,339/-.

Now the assessee is in further appeal before this Tribunal.

authorities below have failed to appreciate the fact that the

turnover of the assessee increased and the nature of

business is such that it is not possible to maintain stock

register. He submitted that the AO has mainly rejected

books of account on the basis that no stock register was

maintained. He submitted that the rate applied by the Ld.

CIT(A) is on a higher side.

submissions.

material available on record. We find that the Ld. CIT(A) in

para 4.1 has decided the issue as under :- “4.1 Addition on account of rejection of books of accounts and estimation of gross

-: 4 :- Sunil Agrawal, Dhamnod. profit Rs.1689722/ - : The addition has been made as the appellant failed to reconcile the difference in sale/purchase figures as stated in the assessment order and did not give a satisfactory reason for fall in the gross profit percentage. During the appellate proceedings the appellant has explained that the fall in GP is on account of the cut throat competition which led to sale at smaller margins of profit. Also appellant has relied on the sales tax/VAT orders to reconcile the figures of sale. The perusal of the reconciliation shows that the exact matching of figures is not arrived at. The sale is worked out at Rs. 129098290/- as per the VAT order filed by the appellant while the AO has given the figures of sale at Rs. 129242150/-. It is also an admitted fact that

-: 5 :- Sunil Agrawal, Dhamnod. the appellant has not maintained any details of stock in terms of quantity and no inventory has been placed on record on the ground that the items traded were numerous. The stock valuation of the appellant is therefore not subject to verification. From the above discussion, it is evident that no stock records were maintained by the appellant and there was discrepancy in the figures of sale/purchase, thus the books of accounts were not reliable. The Hon'ble Supreme Court in the case of Kachwala Gems vs. JCIT, Jaipur, 288 ITR 10 (SC) has in such a situation held that rejection of books of accounts and estimation of profit has to be upheld. In the light of the above the rejection of books of accounts and estimation of profits by the AO is

-: 6 :- Sunil Agrawal, Dhamnod. found to be justified. However, it is to be noted that AO has not considered the fact that for the year under consideration the turnover has increased from Rs.66752802/- to Rs.128987987/-, which is almost double the turnover of last year. Such increase may lead to fall in the margin. Considering the above facts and the fact noted in the assessment order that profit for the preceding year was at 2.65 %, it would be appropriate to estimate the gross profit for the year at the average of gross profit for the year under consideration i.e. 1.34% and the profit shown in the preceding year at 2.65 % which works out to 1.99 % i.e. 2 %. The profit is therefore estimated at 2% of turnover shown of Rs.129242150/-, which works out to Rs.2584843/-. As the appellant

-: 7 :- Sunil Agrawal, Dhamnod. has already shown profit of RS.1728460/- the addition is restricted to Rs.856383/- (Rs.2584843/- (-) Rs.1728460/-). The addition of RS.1689722/- is therefore restricted to Rs.856383/- and the appellant gets relief of Rs.833339/-. This ground of the appellant is therefore Partly Allowed. Rs. 8,33,339/- deleted” 7. We find that the authorities below have not given a finding as to why the profit is estimated at 2% of the turnover. It is also not placed on record the rate declared by the assessee in the preceding year. Under these facts, we deem it proper and in the interest of justice, sustain the addition of Rs. 5 lakhs in lump sum, to serve the interest of justice. Ground of the assessee is partly allowed.

-: 8 :- Sunil Agrawal, Dhamnod. 8. In the result, the appeal of the assessee is partly allowed. The order pronounced in the open court on 29.06.2018.

Sd/- Sd/- (मनीष बोरड) (कुल भारत) लेखा सद�य �या�यक सद�य (KUL BHARAT) (MANISH BORAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore; �दनांक Dated : 29/06/2018 CPU*/SPS Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order

Private Secretary/DDO, Indore