2019 (11) TMI 324 - AT - Income Tax

Tribunal Upholds Rejection of Account Books, Emphasizes Compliance with Accounting Rules

The Tribunal partly allowed the appeal, upholding the rejection of books of account due to discrepancies in gross profit and undisclosed income. The ... Estimation of income - Rejection of books of accounts - Gross profits in post survey period at 12.69% - survey u/s.133A survey u/s.133A - unaccounted stock of yarn and unexplained cash deposits in bank account were detected which were accepted by the assessee as his undisclosed income - HELD THAT:- We are in agreement with CIT(A) that the rejection of books of account is justified, as in spite of specifically requirement made during the course of remand proceedings, the assessee could not produce the stock register and production register nor the assessee has able to justify the fall in GP rate in comparison to presurvey period and preceding years also. We find that the GP disclose during the post-survey period is at ₹ 30,83,474/- on sales of ₹ 3,25,72,550/- which comes to 9.46% whereas GP during a pre-survey period is 12.69% and GP for A.Y. 2007-08 is 10.09% and A.Y. 2008-09 is 10.00%. Therefore, it would be reasonable and fair and just to estimate the average GP rate from assessment year 2007-08 to pre-survey period which comes to 9.31% (10+79+10+12.69+9.46+3.65), therefore it would be met the end of justice if the GP rate is 9.35% is applied to post-survey sales amounting to ₹ 3,25,72,550/- which work out to ₹ 30,32,504/-. Therefore, the income of the assessee to this extent is sustained which inter-alia includes the returned of income of ₹ 4,20,413/- and including the disclosure made during survey. In view of this total income of the assessee determining at ₹ 30,32,504/- as against ₹ 33,65,089/- determined by the CIT(A). In view of this fact, these above grounds of appeal are partly allowed in favour of the assessee. Issues:1. Rejection of book result and addition of gross profits in post-survey period.2. Estimation of profit and addition of undisclosed income.3. Maintenance of stock and production registers.4. Compliance during remand proceedings.5. Justification of gross profit rate and rejection of books of account.Issue 1 - Rejection of Book Result and Addition of Gross Profits:The appeal was against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2009-10. The Assessing Officer (AO) observed a decrease in gross profit (GP) post-survey period compared to pre-survey period. The AO rejected the books of account under section 145(3) of the Act due to discrepancies in GP and unaccounted income disclosed during the survey. The Appellate Tribunal upheld the rejection of books, considering the failure to produce necessary registers and justify the fall in GP rate. The Tribunal estimated the average GP rate and determined the income accordingly, partly allowing the appeal in favor of the assessee.Issue 2 - Estimation of Profit and Addition of Undisclosed Income:The AO estimated the current reserve profit based on the undisclosed income admitted during the survey. The CIT(A) observed the addition was on the higher side and adjusted the GP rate for fair estimation. The Tribunal upheld a balance defense amount against the returned income, considering the adjustments made by the CIT(A) and ensuring no double additions were made.Issue 3 - Maintenance of Stock and Production Registers:During the remand proceedings, the AO pointed out the non-production of stock and production registers. The CIT(A) upheld the rejection of books due to the absence of these registers, leading to a lack of verification for consumption and production. The Tribunal agreed with the CIT(A) that the rejection was justified, as the necessary registers were not produced despite requirements during the proceedings.Issue 4 - Compliance During Remand Proceedings:The assessee complied with some defects highlighted by the AO during the remand proceedings but failed to provide essential registers. The Tribunal noted the failure to justify the fall in GP rate and production of necessary registers, supporting the rejection of books of account by the CIT(A).Issue 5 - Justification of Gross Profit Rate and Rejection of Books of Account:The Tribunal analyzed the GP rates for pre and post-survey periods, comparing them with previous assessment years. It determined a reasonable average GP rate and calculated the income accordingly, partly allowing the appeal in favor of the assessee. The Tribunal emphasized the importance of maintaining necessary registers and justifying discrepancies in GP rates to avoid rejection of books of account.In conclusion, the Tribunal partly allowed the appeal, considering the estimation of GP rates, undisclosed income, and the maintenance of essential registers as crucial factors in determining the income for the assessment year.