ITO, NEW DELHI vs. M/S BIRLA ELECTRICALS LTD.,, NEW DELHI

The case was fixed for hearing many times but none present on behalf of the assessee, therefore, the case has been heard ex parte qua assessee. The brief facts of the case are that the appellant filed return of income on 29.11.2006 declaring Nil income and carrying forward business loss and unabsorbed depreciating amounting to Rs. 6,73,54,090/-. Initially return was processed u/s 143(1) and later on the case was reopened by issuing notice u/s 148 of the Income Tax Act. In response, the assessee submitted that the original return filed on 29.11.2006 may be treated as return field in response to notice for reassessment proceedings. Thereafter statutory notices were issued to the assessee.

The assessee company was carrying the business of trading in home appliances during the year under consideration. Further AO on perusal of assessee’s trading, profit & loss account, calculated the cost of goods sold at Rs. 5,25,52,509/- (purchase of Rs. 2,08,53,514/- and decrease in stock Rs. 3,16,98,995/-) as against the sale thereof at Rs. 1,60,65,800/- declared by the assessee giving a GP rate of (-) 227% as against the GP rate of Rs. 48% in the assessment year 2005-06 and 26% for the assessment year 2004-05. During the course of reassessment proceedings the assessee was asked to produce the books of accounts, stock register and supporting bills and vouchers and final opportunity was given to the assessee. However, the assessee was unable to produce the requisite documents on the given date and show cause notice was also issued by the AO to explain as to why the books of accounts should not be rejected u/s 145(3) of the Income Tax Act and assessment should not be completed to the best of his knowledge i.e. u/s 144. The case was fixed for hearing on 20.12.2011. Assessee filed part details on 20.12.2011 and case was adjourned to 26.12.2011 giving final opportunity to the assessee to produce books of accounts and other pending details. On the given date on 26.11.2011 the AR of the assessee expressed his inability to produce books of accounts and other documents stating that the same had been misplaced during shifting of their office from SION Mumbai to Gurgaon. Finally the AO observed that the assessee could not produce books of accounts, registers and other supporting documents, therefore, the AO rejected the books of accounts of the assessee u/s 145(3) of the Income Tax Act and completed the assessment u/s 144 of the Income Tax Act. Ld. AO made analysis of the GP earned by the assessee from the assessment year 2004-05 to 2007-08 and calculated average GP rate as under :-

Accordingly, the AO calculated the gross profit at Rs. 57,74,048/- at the average GP rate of 36%, as indicted in the above table, thereby making total addition of Rs. 4,22,60,757/- in the trading results declared by the assessee. Feeling aggrieved from the order of the AO the assessee appealed before the Ld. CIT(A), where he submitted detailed written submissions. The assessee also challenged the validity of reopening of the case which was rejected by the Ld. CIT(A). The Ld. CIT(A), however, after considering the detailed submissions of the assessee and relying some case laws, accepted the plea of the assessee regarding wrong rejection of books of accounts made by the AO u/s 145(3) of the Income Tax Act, but sustained the addition on account of loss on revaluation of stock of Rs. 3,24,51,089/- and discount given against the previous year’s sale of Rs. 32,13,004/-. Accordingly, the ld. CIT(A) gave relief to the appellant of Rs. 65,79,300/- . Feeling aggrieved from the order of the Ld. CIT(A), the revenue is in appeal before the Income Tax Appellate Tribunal.

Ld. DR relied upon the order of the lower authorities and he submitted that the Ld. CIT(A) is not justified to accept the plea of the assessee regarding the rejection of books of accounts by the AO. Ld. CIT(A) has wrongly stated that the AO has failed to point out any defect or discrepancy in the books of accounts maintained by the assessee whereas the books of accounts were never produced before the AO and on the last date of hearing of the reassessment proceedings the AR of the assessee showed his inability to produce the books of accounts, on the pretext that the books of accounts were lost during shifting of business from SION Mumbai to Gurgaon. Ld. AO has after taking reasonable rate of gross profit for the two previous assessment years and one subsequent year of the assessee’s business rightly calculated average GP rate at 36%.

After hearing the Ld. DR we observed that the assessee had failed to produce the books of accounts for the impugned assessment year. Ld. AO gave more than sufficient opportunities for the production of books of accounts for completing the assessment. During the reassessment proceedings, considering the part reply of the assessee, the AO observed as under :-