PIONEER SUITINGS PVT. LTD,ALWAR vs. ITO, JAIPUR
In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal upheld the rejection of the assessee's books of account under Section 145(3) due to similar defects as in a prior assessment year and the unsubstantiated fall in gross profit rate. The addition made by the AO was also confirmed as reasonable.
What were the facts?
The assessee's books of account were rejected by the AO and confirmed by the CIT(A) due to the non-maintenance of a stock register and a significant fall in the gross profit rate. An addition of Rs. 5.00 lacs was made on account of trading results.
What were the issues?
Whether the rejection of books of account under Section 145(3) was justified and whether the addition to income based on estimated profits was correct.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES (SMC
Before: SHRI BHAGCHANDvk;dj vihy la-@ITA No. 836/JP/2016
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh HkkxpUn] ys[kk lnL; ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA No. 836/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke M/s. Pioneer Suitings (P) Ltd. The ITO Vs. Behind 9, Manu Marg Ward- 6(1) Kabir Colony, Alwar Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACP 8424 C vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by: Shri Manish Jain, CA jktLo dh vksj ls@ Revenue by: Smt. Poonam Rai, DCIT- DR lquokbZ dh rkjh[k@ Date of Hearing : 17/02/2017 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 21/02/2017 vkns'k@ ORDER PER BHAGCHAND, AM The assessee has filed an appeal against the order of the ld. CIT(A)5, Jaipur dated 11-07-2016 for the assessment year 2010-11 raising following grounds of appeal. ‘’1. That the ld. CIT(A) has erred on the facts and the law in invoking provisions of Section 145(3) and rejecting books of account regular / audited.
That the ld. CIT(A) has erred on the facts and the law in confirming the addition to the extent of Rs. 5.00 lacs on account of trading results.
2 ITA No.836/JP/2016 M/s. Pioneer Suitings (P) Ltd. vs. ITO, Ward- 6(1), Jaipur 2.1 Apropos Ground No. 1 and 2 of the assessee, the facts as emerges
from the order of the ld. CIT(A) is as under:-
‘’2.3 I have considered the facts of the case, the assessment order and submissions of the appellant. While rejecting the books of account u/s 145(3), the AO has noted that the break-up and other details of closing stock were not maintained by the assessee , which amounts to non- maintenance of stock register. The AO has also stated that on similar facts in A.Y. 2006-07, wherein defects were noted in valuation of closing stock coupled with decline in gross profit rate, the books of account were rejected. The rejection of books of account was confirmed by the CIT(A) as well as ITAT. The relevant extract of the order of the Hon'ble ITAT Jaipur Bench in ITA No. 171/JP/2013 for A.Y. 2006-07 dated 8-05-2013 is quoted therein.
2.4 The rejection of books of account was upheld in A.Y. 2006-07 due to the incorrectness and incompleteness of accounts since the assessee did not get the valuation of closing stock verified with reference to books of account and vouchers etc. It was held that such a defect coupled with fall in gross profit rate merits rejection of books of account. In the appellate proceedings for this year, the appellant was asked to produce detailed break up of closing stock. It was observed that no such detailed inventory has been maintained and also no stock register is maintained. Added to this, there is a considerable fall in gross profit rate this year, which is not properly explained with documentary evidence. Only general reasons have been cited and the same have not been substantiated. Therefore, essentially the defects noted this year are the same as in A.Y. 2006-07 wherein rejection of books of account was sustained. The facts being similar this year, the rejection of books of account u/s 145(3) is upheld.
2.5 The next question relates to the estimation of profits. It is seen that the gross profit rate in A.Y. 2008-09 was 11.14% and in A.Y. 2009-10 it was 9.47%. In comparison, the gross profit rate this year has fallen to
3 ITA No.836/JP/2016 M/s. Pioneer Suitings (P) Ltd. vs. ITO, Ward- 6(1), Jaipur 7.62%. The reasons cited for fall in gross profit rate are mainly on account of increase in sales and increase in raw material and other expenses whereas the sale price did not commensurately. The reasons cited are general and not substantiated with proper evidences. As far as sales are concerned, the growth this year is only around 14% as compared to the preceding year. Moreover, gross profit rate does not necessarily fall in increased sales, unless there are valid reasons for the same. Thus the reasons cited for all in gross profit rate are unacceptable being unsubstantiated. In order to estimate the profits, the best guide is the assessee's own profitability in the immediately preceding years as held by the Hon'ble Jurisdictional High Court in several cases. The AO has adopted this very yardstick in estimating the profit this year. The average gross profit rate of preceding two years comes to 10.3% whereas gross profit rate in the immediately preceding year was 9.47%. Even if the gross profit rate of immediately preceding year is adopted, it will result in an addition of Rs. 21,09,000/-. In comparison, the AO has made an addition of Rs. 5,00,000/- which seems very reasonable in the facts of the case. Accordingly, the method and quantum of profit estimation deployed by the AO is upheld. These grounds are therefore, dismissed.’’
2.2 During the course of hearing, the ld. AR of the assessee opposed
the invocation of provision of Section 145(3) of the Act as to rejection of
books of account and also confirmation of addition of Rs. 5.00 lacs by
the lower authorities. The ld. AR of the assessee filed the written
submission which has been taken into consideration.
2.3 On the other, hand, the ld. DR relied on the orders of the authorities
below.
4 ITA No.836/JP/2016 M/s. Pioneer Suitings (P) Ltd. vs. ITO, Ward- 6(1), Jaipur 2.4 I have heard the rival contentions and perused the materials
available on record. Brief facts of the case are that the assessee is a
company which is engaged in the business of manufacturing and trading
of cotton suitings and shirtings fabrics. The factory is located at Tijara
Road, Alwar. During the year under consideration, the assessee has
shown the turnover of Rs. 1140.13 lacs and gross profit of Rs. 86.83 lacs
giving gross profit rate of 07.62%. The corresponding figures for
preceding years for turnover, gross profit and gross profit rate of the
assessee company are as under:-
A.Y. Sales (Rs. in lacs) G.P. (Rs. in lacs) G.P. rate (%age) 2008-09 799.80 89.10 11.14 2009-10 1035.36 98.09 09.47 2010-11 1140.13 86.83 07.62
As regards the invocation of provisions of Section 145(3) as to rejection
of books of account, it is noted that no such detailed inventory as well
stock register was maintained by the assessee before the lower authorities
and the assessee did not get the valuation of the closing stock verified
with reference to the books of account and vouchers etc. Therefore, the
authorities below have rightly invoked the provisions of section 145(3) of
the Act as to rejection of books of account. Taking into consideration the
orders of the lower authorities, I concur with the views of the ld. CIT(A)
on the issue of rejection of books of account of the assessee. As regards
5 ITA No.836/JP/2016 M/s. Pioneer Suitings (P) Ltd. vs. ITO, Ward- 6(1), Jaipur the issue of confirming the addition of Rs. 5.00 lacs by the authorities below, the ld. CIT(A) has given a detailed finding taking into consideration the gross profit rate of the assessee for the last three years. Even if the gross profit of immediate preceding year is adopted then also the addition works out much more than Rs. 5.00 lacs. Therefore, the order of the ld. CIT(A) does not require any interference on this issue. The order of the ld. CIT(A) is well reasoned one. Thus I find no reason to interfere with the order of ld. CIT(A) on the issue of confirming the addition of Rs. 5.00 lacs. Resultantly, the order of the ld. CIT(A) is confirmed the ground nos. 1 and 2 raised by the assessee are dismissed. 3.0 In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 21 /02/2017. Sd/- ¼HkkxpUn½ (Bhagchand) ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 21 /02/ 2017 *Mishra आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s. Pioneer Suitings (P) Ltd., Alwar izR;FkhZ@ The Respondent- The ITO, Ward- 6(1), Jaipur 2. 3. vk;dj vk;qDr¼vihy½@ CIT(A). vk;dj vk;qDr@ CIT, 4. 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZ QkbZy@ Guard File (ITA No. 836/JP/2016) 6. vkns'kkuqlkj@ By order, सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत
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