2023 (1) TMI 34 - AT - Income Tax

Tribunal adjusts income based on GP rate, upholds rejection of books due to lack of stock register.

The Tribunal partly allowed the Assessee's appeal, directing the AO to apply a GP rate of 2.5% on sales. The rejection of the books of account was upheld ... GP estimation - rejection of books of account - no stock register, goods inward register, goods outward register is being maintained by the Assessee on regular basis - HELD THAT:- We fail to understand, once the Assessee having stock of raw-material then how the stock register of manufactured goods is not necessary. Further, the Assessee tried to shift the onus upon the Supervisor, whereas it is a fact that Supervisor is working for the benefit of the Assessee firm only and, therefore, the Assessee is not justified in not maintaining the stock register of the finished items/ gold jewellery. Assessee also failed to controvert the findings of both the authorities below with regard conclusion drawn and rejection of its books of account on the pretext that Assessee would have sale transactions over crores of rupees with parties in International market without a single record of orders placed, the terms and conditions of payment, date of delivery and rate of such sale/purchase. Books of account are neither complete nor reliable since no stock register, goods inward register, goods outward register is being maintained by the Assessee on regular basis. Hence, we are inclined not to interfere in the rejection of books of account. Coming to the application of GP rate @ 3% on sales by the Assessing Officer and affirmation thereof by the learned Commissioner, we observe that the AO has taken into consideration the prevailing GP rate amongst similar jewellery exporters who have declared GP rate @ 4-8% in the vicinity and, therefore, application of GP rate @ 3% on sales as reasonable and appropriate. AO has no where mentioned details of similar jewellery exporters and has remarked qua the prevailing GP rate in general and, therefore, the same is un-sustainable. Considering the peculiar facts and circumstances of the case and past history of the GP and NP declared by the Assessee, in our considered view, as agreed the parties too, justice would be met by directing the AO to apply the GP rate @ 2.5% as declared by the Assessee in immediately preceding assessment year, as justified and reasonable, hence order accordingly. Consequently, the appeal filed by the Assessee is liable to be allowed partly. Issues Involved:1. Rejection of Books of Account.2. Application of Gross Profit (GP) Rate.3. Maintenance of Stock Register.4. Quantification of Income.Issue-wise Detailed Analysis:1. Rejection of Books of Account:The Assessing Officer (AO) rejected the books of account maintained by the Assessee for the assessment year 2011-12, primarily due to discrepancies in the stock details. The AO noted that the Assessee declared a closing stock of 53758.089 grams of raw gold but showed no finished goods. However, the Assessee exported 5387 grams of gold jewelry on 1.4.2011, indicating that the closing stock details were incorrect. The AO also observed that the Assessee did not maintain a regular stock register, and there were no records of physical stock, purchase orders, or details of the jewelry manufactured and exported. The Assessee's explanations were found to be baseless and illogical, leading to the rejection of the books of account under Section 145(3) of the Income Tax Act, 1961.2. Application of Gross Profit (GP) Rate:The AO applied a GP rate of 3% on sales, considering the GP rate declared by similar jewelry exporters and the GP rate of 2.5% declared by the Assessee in the immediate preceding year. The AO added the difference of Rs. 3,29,32,362 (as determined @ 3%) and Rs. 2,28,61,650/- (declared @ 2.08%). The learned Commissioner affirmed the AO's decision, stating that the Assessee failed to substantiate the lower GP rate and that the AO's action was justified based on the discrepancies in the books of account.3. Maintenance of Stock Register:The Assessee claimed that it did not maintain a separate stock register for finished jewelry as the jewelry was directly exported after manufacturing. The Assessee argued that the stock register was maintained as per customs parameters and verified physically at the year-end. However, the authorities found this explanation unsatisfactory, emphasizing the necessity of maintaining a stock register for manufactured goods to ascertain the correct quantity and value of gold jewelry in possession.4. Quantification of Income:The authorities concluded that the Assessee's books of accounts were unreliable, and the correct profits could not be deduced from them. The AO's application of a 3% GP rate was initially upheld by the learned Commissioner. However, upon appeal, it was observed that the AO did not provide specific details of similar jewelry exporters to justify the 3% GP rate. Considering the past history of the GP and NP declared by the Assessee, the Tribunal directed the AO to apply a GP rate of 2.5%, as declared by the Assessee in the immediate preceding assessment year, deeming it justified and reasonable.Conclusion:The Tribunal partly allowed the Assessee's appeal, directing the AO to apply a GP rate of 2.5% on sales. The rejection of the books of account was upheld due to the Assessee's failure to maintain a stock register and provide satisfactory explanations for the discrepancies. The quantification of income was adjusted based on the past GP rate declared by the Assessee. The appeal was disposed of with the order pronounced in the open court on 28.12.2022.