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Facts
The assessee, a proprietor of Shree Jain Jewellers, engaged in trading gold, silver, and related jewelry, declared a GP rate of 0.153%. The AO estimated the GP rate at 0.5%, and the CIT(A) partly allowed the appeal, estimating the GP rate at 0.265%. The assessee's appeal challenges the CIT(A)'s confirmation of this addition.
Held
The Tribunal noted that the decline in gross profit was explained and evidenced by stock tally. Since the books of account were accepted by the AO and CIT(A), and the gross margins were explained and reconciled with the previous year, applying the previous year's GP rate of 0.265% was not justified. The Tribunal relied on various case laws supporting that a small variation in GP rate or lack of a specific register does not automatically justify rejecting books of account.
Key Issues
Whether the CIT(A) erred in confirming the gross profit addition by applying a GP rate higher than declared by the assessee without finding any discrepancy in the books of accounts.
Sections Cited
Sec. 44AB
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Income Tax Appellate Tribunal, JAIPUR BENCHES, ‘’SMC” JAIPUR
Before: Hon’ble SHRI SANDEEP GOSAINvk;dj vihy la-@ITA No. 301/JP/2024
ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 09-01-2024, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2018-19 raising therein following grounds of appeal. ‘’1. The ld.CIT(A) has erred on facts and in law in confirming the gross profit addition of Rs.11,57,522/- by applying g.p. rate of 0.265% on turnover of Rs.103,57,49,408/- as against g.p. rate of 0.153% declared by the assessee without finding any discrepancy in the books of accounts.
2 SHRI JAMBU KUMAR JAIN VS ITO, WARD 2(2), KOTA 2.1 At the outset of the hearing, the Bench noted that there is delay of 4 days in filing the appeal by the assessee for which the assessee has submitted an application for condonation of delay alongwith affidavit praying therein that his earlier counsel Shri S.K. Vijay, looking after the case was hospitalized in EHCC Hospital Jaipur from 13-02-24 to 19-02-2024 for heart surgery and was bed rest thereafter and thus the delay of 4 days took place in filing of the appeal which may kindly be condoned. 2.2 On the other hand, the ld. DR submitted that the Court may decide the issue as deem fit and proper in the case for such 4 days minor delay in filing the appeal by the assessee. 2.3 After hearing both the parties and perusing the materials available on record, the Bench noticed that the reason submitted by the assessee in his application for condonation of delay has merit and the same is condoned. 3.1 Apropos ground of appeal of the assessee, brief facts of the case are that the assessee is a proprietor of M/s Shree Jain Jewellers, engaged in the business of trading of gold, silver and related jewellery products. While passing the assessment order, the AO estimated the g.p. rate of 0.5% as against the actual g.p. rate of 0.153% for the year under consideration. 3.2 In first appeal, the ld. CIT(A) partly allowed the appeal of the assessee estimating the g.p. rate at 0.265%.
3 SHRI JAMBU KUMAR JAIN VS ITO, WARD 2(2), KOTA 3.3 Now before the Bench, the ld. AR of the assessee has challenged the order of the ld. CIT(A) and relied upon the written submission placed before the Bench. 3.4 On the contrary, the ld. DR supported the order of the lower authorities and submitted that reasonable view has already been taken by the ld. CIT(A) by estimating the g.p. rate. Thus considering the totality of the facts and circumstances of the case, the order passed by the ld. CIT(A) needs no interference at this stage. 3.5 After hearing both the parties and perusing the materials available on record, the Bench noticed that higher g.p. rate of 0.265 was earned in the previous year and according to the ld. AR of the assesee, said g.p. was earned due to earning of profit in gold trading as against GP of 0.153 in the subject assessment year as earning in profit in gold and trading declined. It was also submitted that the comparative of trading done by the assessee in Gold Bar, Gold Silver,Silver Utensils and Silver Bullion of current year with previous assessment year was submitted which has been reproduced by the ld. CIT(A) at page 8 of its order and summary of which are as under:-
All sales in cash are below Rs.2 lakhs Party wise details of major sales and purchases were furnished. The closing stock has been valued at average value of the cost price. Copy of the monthly quantity wise stock register was furnished. The Cost Value of opening stock on 01/04/2017 is higher than the Sales Price and it is the main reason in fall in profit rate. The sales are verifiable from GST return. However, copy of GST return was not furnished with the submission.
4 SHRI JAMBU KUMAR JAIN VS ITO, WARD 2(2), KOTA Apart from this, it was also submitted that during the course of assessment proceedings/ ld. CIT(A) proceedings in order to substantiate the trading margin, the assessee had also submitted the following documents.
Item Opening stock Purchases Sales Closing stock Qty Amt (Rs) Qty Amt (Rs) Qty Amt (Rs) Qty Amt (Rs) (GM) (GM) (GM) (GM) 0 0 61791 17,87,54,300 59234.61 17,15,21,362 2556.39 73,95,332 Gold Bar 2892.89 2895.63 2892.89 Gold 2326.48 67,11,448 265279 76,14,00,615 267605.17 76,90,75,806 0 0 2884.81 2870.19 2873.92 0.00 Per gram After having gone through the details and written submissions so produced by the ld. AR at the time of argument, it is clearly evident from the records that the gross margin in case of trading of gold and gold bar declined in the assessment year under consideration. The decline in gross profit is duly explained and evidenced with the stock tally. As the books of account have been accepted by the AO and the ld. CIT(A) and the gross margin earned in each year and every item traded had been duly explained and reconciled with the gross margins earned in previous assessment year. Therefore, applying a g.p. rate of 0.265% of previous assessment year to the assessment year under consideration is not justified and incorrect. The Bench has also considered the fact that prices of gold and silver changes on a daily basis and the trading of gold and silver happens as per the market prevalent price. Therefore, in these circumstances, the gross profit of previous year cannot 5 SHRI JAMBU KUMAR JAIN VS ITO, WARD 2(2), KOTA automatically be applied in the year under consideration more particularly the books of account have been accepted and the assessee has maintained proper and complete stock register and purchase registered. In this regard, the Bench rely upon the following decisions.
Malani Ramjivan Jagannath Vs. ACIT (2009) 316 ITR 120 / 207 CTR 19 (Raj.) (HC) In each trading account, only four entries were there of opening stock and purchases on debit side, sales and closing stock on credit side. The quantum and value of purchases and sales had not been in dispute in as much as they were held to be fully vouched. Value of opening stock also cannot be disputed as it came from closing stock of previous year. The inventories of closing stock were also not found to be incorrect. That is to say actual stock position was not in dispute. The previous year’s books of accounts were not found to be incorrect. In the face of these undisputed facts and circumstances, the Tribunal could not have interfered with the order of CIT (A). In doing so, it had ignored all admitted facts in the face of which there was no occasion for the AO to have resorted to estimate method. There being no dispute about the sales and purchases, non maintenance of stock register lost its significance so far as arriving at GP rate is concerned. Therefore the CIT(A) was right in his reasoning about admitted state of affairs. Resorting to estimate of GP rate was founded on no materiality. Mere deviation in GP rate cannot be a ground for rejecting books of accounts and entering realm of estimate and guesswork. Lower GP rate shown in the books of accounts during current year and fall in GP rate was justified and also admitted by the AO as well as CIT(A) as well as the Tribunal. Therefore fall in GP rate lost its significance. Having accepted the reason for fall in GP rate namely stiff competition in market and also that huge loss caused in particular transaction, neither the rejection of books of accounts was justified nor resorts to substitution of estimate GP by rule of thumb merely for making certain additions. Therefore, the findings arrived at by the Tribunals suffers from basic defect of not applying his mind to the existing material which were relevant and went to the root of the matter. When all the data and entries made in the trading account were not found to be incorrect in any manner, there could not have been any other result except what has been shown by the assessee in the books of accounts. Therefore, the order of the Tribunal cannot be sustained.
CIT Vs. Smt. Poonam Rani (2010) 326 ITR 223/ 41 DTR 194 (Del.) (HC) If the stock register was not maintained by the assessee that may put the Assessing Officer on guard against the falsity of the return made by the assessee and persuade him to carefully scrutinize the account books of the assessee. But the absence of 6 SHRI JAMBU KUMAR JAIN VS ITO, WARD 2(2), KOTA one register alone did not amount to such a material as would lead to the conclusion that the account books were incomplete or inaccurate.
Ashok Refractories Pvt. Ltd. Vs. CIT 279 ITR 457 (Cal.) (HC) It was held that where there was no finding that in the opinion of the Assessing Officer, the methods applied were such that the income could not be deduced from the books of account maintained by the assessee or that the accounts were not correct or complete, the books of account could not be rejected only in the absence of stock register or the item-wise stocks were not maintained in the stock register.
PCIT Vs. Bhawani Silicate Industries (2016) 236 Taxman 596 (Raj.) (HC) Assessee firm was carrying on business of manufacturing of edible oil and oil cake from mustard seeds and sale thereof. It maintained complete books of accounts supported by supporting materials and also maintained complete details of production of edible oil and stock register/production register in quantitative details of trading account. AO rejected books of account inter alia on ground that stock register/production register were not maintained quality wise and in absence of quality of seeds, proper /actual analysis of yield of edible oil and oil cake from mustard oil could not be ascertained. He also made certain trading addition by applying GP rate. Tribunal had found that except quality, quantity wise stock details had been maintained and no other defect was noticed by AO in quantitative details. It was held that merely because qualitative record was not maintained, books of account could not be rejected. Further, merely because there was some deficiency of quality wise record in books of accounts, it would not necessarily lead to addition in income of assessee. Shankar Export Vs. ACIT 42 DTR 441 dt. 01.06.2010 (Jpr.) In this case, assessee dealing in jewellery, diamond, precious & semi precious stones & pearls declared G.P. Rate of 17.89% as against 19.83% in the preceding year. AO rejected the books of accounts & made trading addition on the ground that assessee failed to produce 8 parties for verification for genuineness of purchases. Assessee has maintained regular books of accounts, day to day stock register, production & manufacturing records & books were audited u/s 44AB. In these facts, it was held that only on account of non verifiability of few purchases rejection of books of accounts was not justified as no other defect found by the AO in maintaining books of accounts. A small variation in G.P. Rate does not justify disturbance in the trading result & therefore addition on account of low G.P. Rate is to be deleted 7 SHRI JAMBU KUMAR JAIN VS ITO, WARD 2(2), KOTA Hence, in view of the above facts, circumstances of the case and also the case laws (supra), the Bench does not concur with the findings of the ld. CIT(A) and the G.P. Rate of 0.265% applied by him is directed to be deleted. Thus the solitary ground of the assessee is allowed. 4.0 In the result, the appeal of the assesee is allowed. Order pronounced in the open court on 28 /05/2024.