TaxTMI 
TaxTMI 
2018 (1) TMI 710
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....1.04.2008 to 12.06.2008 comes to Rs. 9,14,710/- which gave a G.P. rate of 5%. 3. He noted from the books of accounts that in order to bringing down the G.P. rate the assessee started managing its accounts which was evident from the fact that the next entry made in the stock register was on 13.06.2008. On this date the assessee had purchased timber of 1407.0238 CFT for Rs. 4,93,865/- from Shree Amarnath Timber, Delhi. However, he noticed a very strange fact that the closing stock of this timber of 1407.0238 CFT was reflected at Rs. 3,99,183.70/- in the stock register. 4. Further the A.O. noted that as per the stock register there was NIL closing stock as on 28.03.2009 and, thereafter, the purchases were made only on 31.03.2009. The A.O. made an examination of quantitative details of timber purchases on 31.03.2009 and noted that the total of 4989.9671 CFT was purchased by the assessee, whereas he sold 4960.3171 CFT on the same date and reflected NIL closing stock as on 31.03.2009 in the stock register. Mathematically, this entry of NIL in the closing stock by the assessee on 31.03.2009 was wrong as the assessee should have had 30 CFT timber with him on 31.03.2009. Therefore, both, ....
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....ber sold by him when the assessee himself had admitted that price of timber varies on account of these factoRs. In view of the above, the Assessing Officer rejected the book results and applied the G.P. rate of 5% which was the G.P. rate suo-motu reflected by the assessee for the sales made from 01.04.2008 to 12.06.2008. The Assessing Officer accordingly made an addition of Rs. 44,77,601/- to the total income of the assessee. 8. Before the ld. CIT(A), the assessee challenged the action of the Assessing Officer in invoking the provisions of section 145(3) and thereby framing the GP at the flat rate of 5% for the entire year. It was argued that the observations made by the Assessing Officer in the body of the assessment order are merely surmises and conjectures although there are some type of minor errors while making accounts which is possible in case of an assessee who has started business for the first time without having sufficient resources and meager capital. However, the same cannot be the basis for rejecting the book result. So far as the observations of the Assessing Officer that in the audit report in the Form No.3CD, there is no mention of the stock register is conc....
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....similar the stock is. 10. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :- "1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts. 2(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of AO in rejecting the books of accounts by invoking the provision of section 145(3) of the Act. (ii) That the books have been rejected despite the assessee maintaining proper books of accounts. (iii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in ignoring the fact that the books of account have been duly audited under the provisions of Section 44AB and have been certified by the auditor that the books of accounts have been properly maintained. 3(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of AO in making addition of Rs. 47,77,601/- applying an arbitrary G.P. rate of 5%. (ii) That the G.P....
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....c., therefore, correct valuation of closing stock is not possible. The price of timber depends on the above items. Therefore, when the correct profit cannot be determined in absence of computing the correct closing stock, the books of account have to be rejected and estimation has to be made. Further, the rate of 5% applied by the Assessing Officer and upheld by the ld. CIT(A) under the facts and circumstances of the case is justified. He accordingly argued that the order of the ld. CIT(A) be upheld and the grounds raised by the assessee should be dismissed. 13. We have carefully considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and ld. CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case is engaged in the business of whole-sale trading of timber under the name and style of M/s Shree Rama Nand TimbeRs. Since the assessee has not maintained its stock register on the basis of quality, shape, size, colour, variety etc. and since the audit report does not mention the maintenance of any stock register, the Assessing Officer....