2021 (1) TMI 904 - AT - Income Tax

Assessee's Appeal Upheld, Revenue's Discrepancies Dismissed

The Income Tax Officer – 18 (2) (4), Mumbai Versus Smt. Naina Vijay Jain Prop. Of M/s. Aayush Overseas, Mumbai

The Income Tax Officer – 18 (2) (4), Mumbai Versus Smt. Naina Vijay Jain Prop. Of M/s. Aayush Overseas, Mumbai - TMI Issues Involved:1. Alleged inflation of opening stock by the assessee.2. Typographical errors in financial statements.3. Discrepancies in the quantity and value of stocks.4. Rejection of books of accounts under section 145(3) of the Income Tax Act.5. Estimation of gross profit by the Assessing Officer (AO).Detailed Analysis:1. Alleged Inflation of Opening Stock:The AO asserted that the assessee inflated the opening stock for the assessment year (A.Y.) 2012-13 by Rs. 1,91,86,326 to deflate the profit. However, the assessee contended that there was no discrepancy in the valuation of closing stock as on 31/03/2011 and the opening stock as on 01/04/2011. The discrepancy was only in the quantity details in the tax audit report for A.Y. 2011-12, not in the values. The CIT(A) agreed with the assessee, noting that the AO did not change the closing stock figure for the earlier year or the subsequent year, indicating the addition was based on unfounded beliefs.2. Typographical Errors in Financial Statements:The AO identified typographical errors in the financial statements, such as the export sales being reported under local sales and incorrect bank balances between Dena Bank and Bank of India. The assessee clarified these as genuine typographical mistakes without any impact on the profit and loss account or the computation of income. The CIT(A) found these explanations satisfactory, noting that the books of account were duly audited and such errors did not warrant the rejection of the books.3. Discrepancies in Quantity and Value of Stocks:The AO observed discrepancies in the quantity chart of closing stock on 31/03/2011 and the opening stock on 01/04/2011. The assessee admitted to errors in the quantity figures in the tax audit report for A.Y. 2011-12 but maintained that the valuation was correct. The CIT(A) accepted this explanation, emphasizing that the AO did not point out any substantial defect in the books of account.4. Rejection of Books of Accounts Under Section 145(3):The AO rejected the books of accounts under section 145(3) of the Income Tax Act, citing various discrepancies. The CIT(A) disagreed, stating that the discrepancies were mere typographical errors and did not affect the accuracy of the books. The CIT(A) noted that the AO did not provide concrete reasons or point out substantial defects in the books to justify their rejection.5. Estimation of Gross Profit by the AO:The AO estimated the gross profit at 4% of the turnover, resulting in an addition of Rs. 1,91,86,326. The AO did not consider the export benefits of Rs. 2,47,68,736 in the recasted trading account, which led to an incorrect gross loss calculation. The CIT(A) found that the assessee had actually earned a gross profit of 2.92% during the year, consistent with the previous year's gross profit of 3.02%. The CIT(A) concluded that the AO's estimation was not justified and allowed the appeal of the assessee.Conclusion:The CIT(A) allowed the appeal of the assessee, finding that the discrepancies pointed out by the AO were typographical errors without any impact on the profit and loss account or the computation of income. The rejection of the books of accounts under section 145(3) and the estimation of gross profit by the AO were not justified. The appeal of the revenue was dismissed, and the CIT(A)'s decision to grant relief to the assessee was upheld.