Manju Devi Goyal , Jaipur vs Department Of Income Tax
- CitationITA No. 954/JP/2011
Ratio decidendi
The rule this decision rests on
The Tribunal's reasoning rests on the following propositions, each drawn from the judgment's own analysis: Rejection of books of account under section 145(3) of the Income Tax Act, 1961 is not justified merely because the Assessing Officer identifies routine or minor defects, such as a deficient stock register, a few errors in the accounts, or the absence of some vouchers, where those defects do not show that the books fail to reflect the true profit and gain of the business; the defects relied on must be such that the accounts are genuinely unreliable or incomplete. A decline in gross profit rate is not, by itself, a sufficient basis for rejecting the books and estimating profit, particularly where the preceding year was not a normal year (being the first year of business and covering only part of a period) and the turnover has grown substantially, rendering the earlier gross profit rate non-comparable. Where the Assessing Officer's rejection of the books and resulting trading addition are not sustained on these grounds, the addition falls and the first appellate authority's deletion of it is to be confirmed; the Revenue, having not controverted the appellate findings, cannot displace them.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM
vk;dj vihy la-@ITA No. 954/JP/2011 fu/kZkj.k o"kZ@Assessment Year : 2008-09
The I.T.O. cuke Mrs. Manju Devi Goyal, Prop. Ward 7(2), Jaipur Vs. M/s B.H. Industries, Tonk, 60, Ram Dwara Colony, Sanganer, district- Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABLPG 5713 G vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph. fu/kZkfjrh dh vksj ls@ Assessee by : Shri K.L. Moolchandani
lquokbZ dh rkjh[k@ Date of Hearing : 19/11/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 09/01/2015
vkns'k@ ORDER
PER: T.R. MEENA, A.M.
This is an appeal filed by the department against the order dated
03/08/2011 passed by the learned CIT(A)-III, Jaipur for A.Y. 2008-09.
The effective grounds of appeal are as under:-
"On the facts and in the circumstances of the case, the learned CIT(A) has erred in:
(i) In the facts and circumstances of the assessee, the CIT(A) has passed a perverse order by deleting the
2 ITA 954/JP/2011_ ITO Vs Smt. Manju Devi
addition of Rs. 34,46,188/- by holding that the rejection of books of accounts U/s 145(3), was not fair and just, even when profits could not be deducted correctly from the accounts, defects in which were indicated by the A.O.
(ii) The CIT(A)'s order is perverse in accepting the contentions that the G.P. rate in the current year.
(iii) The CIT(A)'s order is perverse, in holding that the facts and circumstances in the case of the assessee, were covered by the ratio of the decisions of the Courts."
2. The assessee was engaged in the business of manufacturing of
edible oil and oil cake from mustard seeds. She filed her return on
26/09/2008 for A.Y. 2008-09 at Rs. 1,77,750/-.This case was scrutinized
U/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as the
Act). During the year under consideration, the assessee had declared
gross profit at Rs. 37,00,329/- on total sale of Rs. 9,09,21,461/-, which
gives a G.P. rate of 4.07%. The learned Assessing Officer compared
the G.P. with immediate preceding year, which was 11.65% on total
turnover of Rs. 18,47,468/-. The Assessing Officer gave reasonable
opportunity of being heard on decline of G.P. compared to preceding
year and asked to produce complete books of account for verification.
He found that the stock register had not maintained in term of quality
wise, did not contain day to day detail of shortage. The static yield of oil 3 ITA 954/JP/2011_ ITO Vs Smt. Manju Devi
was lower than the last year and defective closing stock of raw material
as well as item produced, therefore, he rejected the book result U/s
145(3) of the Act. He again gave show cause notice to the assessee on
these defects pointed out in earlier para. After considering the
assessee's reply and various case laws discussed by the Assessing
Officer on page 5, it has been held that books of account maintained by
the assessee did not reflect complete and correct profit and gain of
assessee's business. He estimated the G.P. @ 7.86% (average of G.P.
shown by the assessee in this year and previous year), which was
resulted in trading addition of Rs. 34,46,188/-.
3. Being aggrieved by the order of the Assessing Officer, the
assessee carried the matter before the learned CIT(A), who had allowed
the appeal by observing as under:-
"2.3 I have carefully examined the observations of the A.O. and the counter submissions made by the learned A.R., viz. the issue under consideration. It is a matter of facts that the A.O. had pointed out that certain defects in respect of maintenance of books of accounts and other related incriminating aspects also. However, in in-depth analysis of such observations does not suggest that those aspects are of superficial and insignificant in nature. Similarly the A.O. has rejected the books of account on the grounds that the
4 ITA 954/JP/2011_ ITO Vs Smt. Manju Devi
G.P. has decreased from 11.65% to 4.07% in the current year. However, he failed to appreciate the significant and vital aspect that the previous year was not a normal year, being the first year of business and also involved only part of such period. Moreover, the turnover in the current year has risen to 9.09 crores in compare to 18.47 lacs of the previous year. Accordingly, the G.P. of previous year is not comparable for the above reasons, specially, in view of the fact that the turnover of the appellant has increased, more than 50 times, from the previous year. Accordingly, the issue of fall in the G.P., as pointed out by the A.O. has become irrelevant and insignificant, under the given circumstances. Moreover, it seems that the A.O. has also given undue importance to the issues like improper stock register and static yield ratio of the appellant, without pointing out any serious defects therein, whereas such issues/aspects have been found reasonably explained by the learned A.R., as discussed hereinabove. In a similar circumstances, the Hon'ble Jaipur ITAT, in the case of Uttam Chuna Pathar Udhyog (64 ITD 460), Delhi High Court in the case of Smt. Poonam Rani (324 ITR 223), has held that simply routine observations toward books of account like, having few errors in accounts, non maintenance of proper stock register, lack of some vouchers etc., do not necessarily rendered the accounts unreliable U/s 145 of I.T. Act. The onus is on the 5 ITA 954/JP/2011_ ITO Vs Smt. Manju Devi
department to prove that accounts are really defective or incomplete to invoke such harsh measures. Moreover, in another case, i.e. M/s Gotan Lime Khaniz Udyog (256 ITR
243), the Hon'ble Rajasthan High Court has also viewed that the rejection of books of accounts U/s 145(3) does not always lead to an addition in every such circumstances.
Moreover, I find force in the submission of the learned AR that if the trading account of previous year is properly reconstructed by debiting the electric expense thereto, the relevant G.P. would have lower by 5% and become more or less comparable with the G.P. of current year.
In the light of the above facts and circumstances, it is felt that the appellant's case is fairly covered by the ratios upheld by the Courts, as discussed above. Moreover, in view of the details submissions and explanations offered by the learned A.R. viz., the adverse findings of the A.O. regarding the books of account etc., I am of considered view that the A.O. was not justified invoking the provisions of Section 145(3) of the Act. Similarly for the reasons and justifications, discussed hereinabove, regarding the non comparability of G.P. ratio of previous year with the current year, it also held that the A.O. has not made out a proper case for making an addition of Rs. 34,36,188/- U/s 145(3) 6 ITA 954/JP/2011_ ITO Vs Smt. Manju Devi
of the Act in the instance case; therefore, the same stands deleted. Consequently, this ground is allowed."
4. Now the Revenue is in appeal before us. The learned Sr. D.R.
supported the order of the Assessing Officer and at the outset, the
learned A.R. for the assessee argued that the learned CIT(A) had
deleted the trading addition having considered the various contentions
of the appellant including wrong finding of the learned Assessing Officer
regarding non-maintenance of stock register etc. as reproduced at page
No. 3 in the appellate order. The conclusion so arrived has been
specifically recorded in para 2.3 of his order and reiterated the
arguments raised before the learned CIT(A) and vehemently supported
the finding of the learned CIT(A). He further argued as under:
(i) No rejection of books should be made unless specific defect
in the accounts are pointed out by A.O. or any evidence is
brought in record to record production or sales. (Shri Hari
Industries Vs. Addl. CIT, Range, Bharatpur) Tax World Vol. 47,
page 06, June, 2012 (Page 241).
(ii) It is unlawful on the part of the A.O. to make trading
addition after invoking section 145(3) simply for not maintaining
stock register when books of accounts are complete and correct.
7 ITA 954/JP/2011_ ITO Vs Smt. Manju Devi
(Rawat Industries Vs. ITO ward 4(2), Jaipur (Tax World Vol-48,
pare 01, July, 2012 Page 21).
(iii) Books cannot be rejected on account of lowering of G.P.
rate. No addition could be made where no material found simply
on account of fall in G.P. rate (Late Shri Bherulal Luhar, Rajsamad
Vs. DCIT (CC), Udaipur- ITAT Jodhpur Bench, Jodhpur (Tax
World Vol. 48, part-02, August, 2012 Page 28).
The learned CIT(A)'s finding also supporting the assessee's case that in
previous year, trading account is properly reconstructed by debiting the
electric expenses thereto. The relevant G.P. therein lower by 5% and
become more or less comparable with the G.P. of current year.
Therefore, he prayed to confirm the order of the learned CIT(A).
5. We have heard the rival contentions of both the parties and
perused the material on record. Whatever defects pointed out by the
learned Assessing Officer are not sufficient to reject the book result U/s
145(3) of the Act. The learned DR has not controverted the finding
given by the learned CIT(A). The learned CIT(A)'s order is just and fair
and delivered after considering all the facts and circumstances of the
case and legal proposition considered by the learned Assessing Officer 8 ITA 954/JP/2011_ ITO Vs Smt. Manju Devi
as well as the CIT(A). Therefore, we confirm the order of the learned
CIT(A).
6. In the result, the revenue's appeal is dismissed.
Order pronounced in the open court on 09/01/2015.
Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur fnukad@Dated 09/01/2015
*Ranjan
vkns'k dh izfrfyfi vxzsf'kr@Copy of the Order forwarded to:
1. vihykFkhZ@The Appellant- The ITO, Ward 7(2), Jaipur.
2. izR;FkhZ@ The Respondent- Mrs. Manju Devi, Jaipur.
3. vk;dj vk;qDr¼vihy½@The CIT(A)-III, Jaipur
4. vk;dj vk;qDr@ CIT, Jaipur
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 954/JP/2011).
vkns'kkuqlkj@ By order,
lgk;d iathdkj@Asst. Registrar
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