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Facts
The assessee, engaged in wholesale trading of bullion and jewellery, declared a lower GP rate in the current year compared to the previous year. The AO invoked Section 145(3) and made a trading addition based on the average GP rate of the preceding three years.
Held
The Tribunal held that the AO's invocation of Section 145(3) was not justified solely based on a decline in the GP rate, especially when the books of accounts were audited, purchases were supported by bills and paid through banking channels, and cash sales constituted a small percentage of total sales.
Key Issues
Whether the AO was justified in invoking Section 145(3) of the Income Tax Act based on a decline in the GP rate without pointing out specific defects in the books of accounts.
Sections Cited
145(3), 145, 44AB, 114B, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCH “B”, JAIPUR
Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of NFAC, Delhi dated 30.06.2025 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal: -
The Ld. CIT (A), NFAC has erred on facts and in law in not deciding the ground relating to invoking provisions of section 145(3) of IT Act.
The Ld. CIT(A), NFAC has erred on facts and in law in confirming the trading addition of Rs. 1,27,03,644/- made by the AO by applying G.P. rate of 3.76% on Sh. Pankaj Kumar Bajaj declared turnover of Rs. 45,25,24,604/- as against G.P. rate of 0.95% declared by the assessee.
3. The appellant craves to alter, amend and modify any ground of appeal
4. Necessary cost be awarded to the assessee.
2. The brief facts of the case are that the assessee is engaged in the wholesale trading of bullion and jewellery in the name and style of M/s. Bajaj & Company at Sikar filed the return of income on 04.12.2017 declaring total income of Rs. 27,46,610/-. He declared gross profit of Rs. 43,11,281/- on turnover of Rs. 45,25,24,603/- giving G.P. rate of 0.95% as compared to gross profit of Rs. 17,83,080/- on sales of Rs. 5,11,22,841/- giving G.P. rate of 3.49% in the previous year. The AO observed that assessee made substantial sales in cash which proves that assessee traded in retail also though in the audit report nature of business is stated as wholesale trading. In the sales bills only cash is written without details of buyers and thus assessee reduced the value of sale proceeds resulting into decrease of gross profit as compared to the previous years. In view of this, section 145 of the Act was invoked and by applying average G.P. rate of previous 3 years, i.e. 3.76% on the sales declared by the assessee, trading addition of Rs. 1,27,03,644/- was made.
The Ld. CIT(A), NFAC without deciding the ground raised before him relating to invocation of section 145 of the Act held that assessee failed to reconcile the purchases made during the year with respect to the closing stock shown in the books of account and provide any new corroborative documentary evidences that support the grounds taken by him. Justification for fall in G.P. & N.P. rate could not be provided. Accordingly the addition made by the AO is confirmed.
Sh. Pankaj Kumar Bajaj 4. After hearing both the sides and pursuing the material on record , we note that assessee is maintaining day to day books of accounts along with day to day stock register which are duly audited u/s. 44AB of the Act. The purchases & sales made by the assessee are duly supported by the purchase bills, sales bills and the entries recorded in the stock register. The entire payment of the purchases is made through banking channel. No specific defect is pointed out in the stock register or the purchases or the sales. The only reason to invoke section 145 is non-availability of the details of buyers of cash sales and decline in the profit rate. This cannot be a reason to invoke section 145(3) of the Act. This section can be invoked when the AO is not satisfied about the correctness or completeness of the accounts or where the method of accounting is not regularly followed or income has not been computed in accordance with income computation and disclosure standards. The AO has not disputed the fact that method of accounting is regularly followed by the assessee and income has been computed in accordance with income computation & disclosure standards. He is only disputing the correctness/completeness of accounts because of the non-availability of the details of buyers in the cash memo and decline in the profit rate ignoring the facts that (i) assessee has dealt in only three items namely gold bar, gold chain (jewellery) and silver fine. In assessment proceedings the assessee filed day to day stock register of all the items. Thus the purchase, sales and stock are reconciled. Further out of total sales of Rs. 45, 25, 24,604/-, cash sale at Rs. 2, 18, 15,644/- constitute only 4.82% of total sales. There is no requirement under the Act to mention the details of the buyers in cash sales. Even as per rule 114B of the Act, assessee is required to quote the PAN of the customer where the purchase or sale exceed Rs. 2, 00,000/- per transaction. The individual cash sale made by the assessee is less than Rs. 2, 00,000/-. In these facts, we find that there is no ground to invoke section 145(3) of the Act by the AO.
We also note that there is justifiable reason for decline in the g.p. rate considering that turnover for the year has increased by 8.85 times as compared to the last year and the reduction in the g.p. rate is mainly in gold bar which is due to price fluctuation but inspite of decline in the g.p. rate, the overall gross profit has increased from Rs. 17.83 lacs to Rs. 43.11 lacs during the year under consideration as is evident from the following table:-
Particulars A.Y. 2015-16 A.Y. 2016-17 A.Y. 2017-18 Gold Bars Sales (Rs.) 12,90,19,475 3,74,59,150 43,67,73,906 G.P. (Rs.) 15,98,896 11,39,562 28,81,824 G.P. Rate % 1.24% 3.04% 0.66% Gold Jewellery (Chain) Sales (Rs.) 1,32,56,494 1,10,63,728 1,44,73,340 G.P. (Rs.) 3,79,850 5,93,487 14,39,228 G.P. Rate % 2.87% 5.36% 9.94% Silver Fine Sales (Rs.) - 25,99,963 12,77,357 G.P.(Rs.) - 50,030 (9,771) G.P. Rate % - 1.92% (0.76%)
Further in the cash sales where the AO has doubts, the G.P. margin is better/ comparable to earlier years as is evident from the following table:-
Particulars Sales in Rs. Gross Profit (Rs.) Gross Profit (%) Gold Jewellery (Chain) 56,16,324 4,60,647 8.20% Gold Bars 1,61,16,599 4,86,920 3.03% Silver Fine 82,722 (472) (0.57%)
Considering the above factual position, only because there is decline in the profit rate, without any specific defect found in the books of accounts, the trading addition made by the AO and confirmed by NFAC is unjustified. Hence the trading addition so made is deleted.
In the result, appeal of the assessee is allowed.
The Order is pronounced in the open court on the 11th day of September 2025. Sd/- Sd/- (Dr. S. SEETHALAKSHMI) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Jaipur, िदनांक/Dated: 11/09/2025 Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. आयकर आयु� CIT 3. 4. िवभागीय �ितिनिध, आय.अपी.अिध., Sr.DR., ITAT, 5. गाड� फाइल/Guard file.