ITO 2(1)(4), MUMBAI vs. GRANDIOSE JEWELLERY P. LTD, MUMBAI

आदेश / O R D E R महावीर स िंह, उपाध्यक्ष / PER MAHAVIR SINGH, VP: This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-4, Mumbai in Appeal No. CIT(A)-4/IT-108/ITO-2(1)(4)/2013-14 dated 23.12.2015. The Assessment was framed by the Income Tax Officer, Ward- 2(1)(4), Mumbai (in short ITO/ AO) for AY 2010-11 vide dated 30.03.2013, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).

(viii) The assessee was asked to furnish separate manufacturing and trading account and it was submitted by the assessee that no separate account is maintained.”

1.b.i. The learned officer grossly erred in rejecting books of accounts of your appellant.

1.b.ii. The learned officer erred in rejecting books of account since he did not show that either the books of account maintained by your appellant are incorrect or incomplete or method of accounting adopted by your appellant was such that the true profit of the assessee cannot be deduced there from.

1.b.iii. The learned officer erred in making best judgement without pointing out any specific defect or discrepancy in the books of accounts, which were duly audited by an independent Chartered Accountant. The audited accounts could not have been rejected without pointing out any specific defects or deficiencies in the books of account maintained by your appellant.

A low profit would not itself be a reason for disbelieving the accounts. He ought to have looked in to the accounts to show that there was material to conclude that there was something false in the account books, which he did not.

1.b.v The learned officer erred in rejecting the books of account on ground of low or no profits. The mere fact that net profits were low was not material, because an assessee may be incompetent or his method of business may be uneconomic.

The learned officer grossly erred in inferring that since the net profit ratio has reduced, the transaction of purchase and sales are not conducted as per normal practice. The learned officer grossly erred in ignoring that Gross margins are derived from purchase and sales and not the net 1.b.vi. The learned officer erred in rejecting the books of account for failure to maintain shape or design wise stock in the stock register ignoring the fact that the stock register was duly maintained with product, quality and quantity by your appellant from which income could be deduced.

1.b.vii The learned officer erred in passing best judgement order without pointing out any error in the profit and loss account and the audited reports.

1.c. The learned officer grossly erred in not granting proper opportunity of being heard. Thus principle of natural justice is violated. Your appellant had a right to question the correctness or relevancy of the materials on the basis of which the officer proposes to make the best judgement assessment.

1.d. The learned officer grossly erred in ignoring CBDT instruction No. 767 dated 1.e. The learned officer erred in ignoring the past assessment records of your appellant, wherein accounts maintained by your appellant were duly accepted and even gross margins of your appellant were duly accepted.”

The CIT(A) after taking two remand reports from the AO, 5. noted that the Assessing Officer has not given any factual discrepancy in the books of account and only pointed out higher turnover and low gross profit rate comparing to preceding previous years for rejection of books of account. Accordingly, CIT(A) accepted the book results and allowed the ground No. 1 of the assessee vide Para 3.8 to 3.14 as under: - “3.8 I have circumspected the facts and circumstances of the case and have carefully considered the findings of the Assessing Officer, additional evidences, remand report, counter representation of the Appellant and rejoinder of the Ld. A R I find that this is a glaring case where addition has been made on estimated N.P. @10% of turnover without any basis and that too after accepting G.P @0.34% in A.Y.2009-10, being immediate preceding 3.9. As regards, abjection against additional evidence filed under Rule 46A of the Income-tax Act, 1961 by the Assessing Officer by letter No.ITO- 2(1)(4)/Remand Report/2014-15 dated 27.08.2014, it is pertinent to mention that none of the arguments or objections of 3.11. Where the assessee maintains regular books of accounts which are duly audited and if, there is a decline in G.P. and disproportionate increase in expenses in certain heads in that by itself. would' not empowere Assessing Officer to reject the book results. This has been held in the case of Century Tiles Ltd vs. JCIT [2014] 3 ITR (Tn.) 230 (Ahmadabad ITAT) Order dated 09.06.2014.

Further It is very evident that in Para 5 of the Remand report dated 17.04.2015, Assessing Officer himself has admitted that the list contains “Companies which are Public Ltd. Companies are listed on “Stock Exchange”. It means Assessing Officer admits that other 22 companies are Public Ltd. Companies, hence, it is ridiculous to disbelieve the authenticity of the company or data. As regards, contention that these are Public Limited Companies whereas assessee is a Pvt. Ltd. Co., hence, these are not comparable is baseless because while comparing a case one has to see the business, area and the performance of the companies. It 3.13 As mentioned earlier Assessing Officer has not indicated any material on which his assessment is based, hence, 3.14 Thus, in the light of above factual as well as legal references and discussions, I have reached to the conclusion that Assessing Officer has made the addition without any evidence or material in possession whereas Appellant has demonstrated the evidences justifying the ratio of N.P. disclosed by it, hence, I find no reason or basis to sustain such huge Aggrieved, Revenue preferred the appeal before Tribunal.