TaxTMI 
TaxTMI 
2016 (4) TMI 997
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....se is that the assessee company is engaged in the business of publication of books and filed its return of income on 19.09.2010 declaring total income of Rs. 20,78,640/-. The return of income filed by the assessee is supported by regular books of account which are duly audited. During the course of assessment proceedings, the assessee produced the books of account, which was examined by the AO. During the year, the assessee has turnover of Rs. 183669894/- and has shown gross profit of Rs. 13025661/- which is 7.09%. However, the assessee does not maintain stock register. During the assessment proceedings, the assessee was asked to produce the various bills and vouchers of various expenses and on verification of them it was found by the AO that vouchers of various expenses were self-made but contain the complete details of the payee. Hence the AO rejected the books of account and applied provisions of section 145(3) of the Act and estimated gross profit @ 35% amounting to Rs. 64284462 consequently made an addition of Rs. 51258801/-. Further an addition of Rs. 88909/- was also made to the various expenses incurred by the assessee. 4. Aggrieved by this the assessee preferred appeal be....
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....ot produce any stock register. The AO has stated that in the absence of the stock register, the quantitative and qualitative details of stock cannot be verified. It is also stated that sale and purchase registers were produced but it was not possible to work out the quantitative/qualitative details of stocks from these registers. The AO has stated that it was the stand of the assessee that the stock register was not maintained because of the numerous varieties of books/raw materials used by the assessee company. The AO has also observed the narration in the tax audit report that the company had physically verified the stock and that stock register is not maintained. Thereafter, the AO has stated that vouchers for various expenses were self-made containing incomplete details of the payee. Therefore, the genuineness of these vouchers could not be ascertained and consequently the genuineness of the books of accounts also could not be proved. The AO has then proceeded to reject the books of accounts and cited certain case laws. Having done so, the AO has adopted a gross profit rate of 35% instead of 7.09% declared by the assessee and applied this rate to the turnover of the assessee....
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....Court in the case of P. Appavu Pillai (58 ITR 622) held that section 145 does not say, nor is there any provision in the statute that an assessee carrying on business shall maintain a specified set of accounts. In the case of Advance Construction Company (275 ITR 30), the Gujarat High Court had held that the Department is bound to accept the method of accounting regularly employed by an assessee, except for a situation where the AO is able to demonstrate that income, profits and gains cannot be arrived at by the method employed by the assessee. In the case of McMillan and Co. (33 ITR 182), the Honorable Supreme Court held that the choice of method of accounting lies wife the assessee and the assessee should only show that he had followed the method regularly. Similar is the observation of the Apex Court in the case of Investment Ltd (77 ITR 533) that a method of accounting adopted by a trader consistently and regularly cannot be discarded by the Department authority on the view that he should have adopted a different method of keeping account or of valuation. In the case under consideration, the AO has neither doubted the correctness or completeness of the accounts nor has conclude....
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....the GP rate declared and accepted in the earlier years. The assesses has also distinguished the various case laws cited by the AO and has also relied on certain case laws. 3.3 As regards the case laws cited by the AO are concerned, insofar as the decision of the Allahabad High Court in the case of Awadhesh Pratap Singh Abdu Rehmam & Brother Vs CIT (1994) 210 ITR 406 (All) is concerned, in the extract reproduced by the AO in the assessment order, it has been categorically stated that absence of stock the stock register in a given situation may not per se lead to an inference that accounts are false or incomplete. However, where the absence of stock register, cash memo, etc is coupled with other factors like vouchers in support of expenses and purchases made not being forthcoming and the profit being low, may give rise to a legitimate inference that all is not well with the books and the same cannot be relied upon to assess the income, profits or gains of an assessee. In the case under consideration, no such other factor has been pointed out by the AO. It only goes to show that the AO is mechanically referring to certain case laws without appreciating the contents thereof. As rega....
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....ed by section 145 of the Act. It was further held in CIT Vs Dr. A.P. Banal 2010 322 ITR 71 (Raj) that even where rejection of accounts was justified for defects in accounts, the estimate of income should be based upon some materials in support of same. Where there is none, such estimate cannot be upheld. 3.5 The AR has also referred to the order passed by the Ld. CIT(A), in the case of M/s Arihant Publication India Ltd. for A.Y. 2010-11 wherein the additions made on same facts in the assessment order passed by the same AO have been deleted. The appellate order as well as the assessment order referred to above has been perused. 3.6 In light of the above principles, the AO was completely unjustified in rejecting the books of accounts of the assessee and estimating the gross profit at the rate of 35% of the turnover. Firstly, the system of maintaining inventory on the basis of periodical stock inspection rather than on the basis of stock register, has been regularly followed by the assessee and the accounts based on such system have been accepted in the scrutiny proceedings in earlier assessment years. The AO has not specified why he has departed from the principle which had bee....
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....ening and closing stock were also verified by the AO. The comparative chart of gross profit is submitted by the assessee at Page 133 of his Paper book wherein starting from Assessment Year 2003-04 to 2010-11 consistently the assessee has shown gross profit from 6.35% to 7.09% and for Assessment Year 2003-04 assessment has been made u/s 143(3) of the Act. Further, the nature of the business of the assessee is publication of the books and assessee submitted that it is not feasible for maintenance of regular stock account, this facts was not controverted by AO. Further merely non maintenance of stock register cannot be the basis of rejecting the books of accounts of the assessee when the complete details of purchases, sales and stock is available and on verification no defects are noticed. In view of the above facts, we do not any infirmity in the order of the ld.CIT (A) and confirm the deletion of addition of Rs. 51258801/- by rejecting the books of accounts and estimating GP ratio @ 35 %. 9. In the result, appeal of the revenue is dismissed. CO- 195/Del/2015 10. The assessee has preferred cross objection, which are against some factual accuracies in the grounds of appeal raised b....