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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI B.R. BASKARAN, AM & SHRI AMARJIT SINGH, JM
The aforesaid appeals have been filed by the Revenue as well as by the assessee against order dated 17.08.2011, passed by the learned Commissioner of Income Tax (Appeals)-26, Mumbai [hereinafter referred to as the learned “CIT(A)”] for the assessment year 2007-08. Since the issue in both the appeals are same therefore, appeal being taken up together for adjudication for the sake of convenience.
The issue which has been raised by the revenue is hereby mentioned below:-
1 " On the facts and in the circumstances of the case and law, the Ld. CIT(A) has erred in holding that books of accounts are not deserved to be rejected on the reasoning given by the AO." 2 "On the facts and in the circumstances of the case and law, the Ld. CIT(A) has erred in directing the AO to restrict the addition on account of Extra Profit to Rs. 7,11,826/ - as against Rs.28,06,602/- worked out by the AO." The objection which has been raised by the assessee is also hereby mentioned below:
The Learned Commissioner of Income-tax (A) erred in confirming addition of Rs.6,49,552/- by estimating net profit of the appellant at 14.50% as against 10.66% disclosed as per the regular and audited books of account on the ground of low profit without appreciating that no defects or discrepancies were noticed in the regular books of account and hence, the addition made of Rs.6,49,552/- by estimating net profit is without any justification and may be deleted.
2. The Ld. CIT(A) failed to appreciate that once the books of account is accepted as proper and the rejected of the same by AO is held to be not proper, merely on the ground of low net profit even though GP for the year is higher in comparison to earlier years, and more particularly considering the fact that most of the sales of medicines is made to Government Dispensaries and this being the year of closure of business, addition could not be made by estimating net profit and hence, the &Co 24/M/13 A.Y. 2007-08 addition made of Rs.6,49,552/- is without any justification and liable to be deleted.
The other point raised by the departmental representative is that the cross objection filed by the assessee is time barred by 156 days. The assessee filed an application along with an affidavit stating that the assessee closed the business in the year 2008-09 and there was no business activity and no staff was employed. The partner Sh. Pushpak N. Jain along with his C.A. Sh. Ashish J. Jain has to appear before Tribunal on 14.01.2013 and no advice was given for filing of cross objection. However, subsequently, Sh. R.G.Tralshawala, C.A. advised to file cross objection, hence the cross objection has been filed after the expiry of 156 days. In view of the reasons recorded above as well as considering the fact that the main appeal filed by the revenue is yet to be decided, therefore, we are of the view that there are sufficient and reasonable ground for the on record to condone delay in filing the cross objection, hence application for condonation of delay is filed is hereby allowed.
The facts of the case are that the assessee was the dealer in pharmaceuticals and filed his e-return on 31.10.2007 declaring total income to the tune of Rs.4,02,466/-. The case was selected for scrutiny and accordingly a notice u/s.143(2) of the Income Tax Act, 1961( in short “the Act”) was issued on 22.09.2008 and the notice was duly served upon the assessee. The A.O. rejected the entire books of account of the assessee company on the ground of non- maintaining of stock register. Consequently, A.O. added the extra profit to the tune of Rs.28,06,602/- in the income of the assessee.
Feeling aggrieved, the assessee filed appeal before the learned CIT(A) and the learned CIT(A) restricted the profit to Rs.7,11,826/- against an amount of Rs.28,06,602/- worked out by the A.O. The extra profit which has been assessed by the learned CIT(A), was on an average basis of the profit of last two years &Co 24/M/13 A.Y. 2007-08 i.e.(13.40 + 15.63)/2 =14.5%. So, the revenue felt the order as improper, hence, the present appeal has been filed, while contrary to it the assessee has also filed the cross objection by taking the plea that the extra profit was not required to be assessed on average basis of the profit of last two years.
We have heard the arguments advanced by the learned representatives of the parties. It is the admitted case of the assessee that the books of account were properly maintained. The A.O. rejected the claim of the assessee on the ground that day to day stock register was not maintained, therefore, added income to the tune of Rs.28,06,602/- on account of extra sales. Admittedly, the reasons given by the A.O. while rejecting the entire books of account does not seems sufficient because rejecting of the claim of entire books of account on account of non- maintenance of stock register does not seems justifiable. The A.O. did not raise any question about the purchases, sale or expenses. It came to notice that the assessee has put the fact before the A.O. The claim of the assessee with regard to the books of account has been rejected without conducting the proper enquiry. Rejecting the account books without any cogent and convincing reason does not seem proper. With regard to the whole-sale supplier rate may be with the quantity of supply as well as other related facts such as market fluctuations and the same cannot be assessed as concern on the basis of assumption.
No doubt, the learned CIT(A) has rightly deleted the extra profit but at the same time the learned CIT(A) has calculated the net profit on the basis of profit declared in the preceding years i.e. 2005-06 & 2006-07. The net profit for the year 2005-06 of the assessee was 13.40% and for the year of 2006-07 15.63%, therefore, the net profit was fixed on the basis of average i.e. 14.5%. Apparently, the profit is not required to be assessed on the basis of assumption and presumption. However, the learned CIT(A) has given justification for estimating &Co 24/M/13 A.Y. 2007-08 profit, since the explanation given by assessee for lower G.P. was not convincing and vague. Accordingly, we confirm his order.
In the result, the appeal of the revenue and cross objection of the assessee are dismissed.