TaxTMI 
TaxTMI 
2016 (2) TMI 1250
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....That the ld. CIT(A) has erred in giving his findings about the rejecting of books of accounts, whereas, in fact, no books of accounts were rejected by the AO and the CIT(A) out to have not given the finding without confronting the same to the assessee. 3. That the ld. CIT(A) has erred drawing presumptions /assumption while sustaining the addition. 4. That the addition has been made against the facts and circumstances of the case and submissions made during the course of hearing have not been considered properly." 3. In ITA No. 252(Asr)/2014 for the AY 2009-10, the assessee has taken the following grounds: "1. That the ld. CIT(A) has erred in upholding the addition of Rs. 1,46,69,660/- as per para 6.11 of the order out of addition of Rs. 2,55,92,341/- made by the AO by applying the gross profit @ 38.23% on cost of sale of Rs. 5,32,29,279/- and G.P. @ 16.5% on cost of sale of Rs. 1,02,14,439/- on estimation without pointing any discrepancy. 2. That the ld. CIT(A) has erred in giving his findings about the rejecting of books of accounts, whereas, in fact, no books of accounts were rejected by the AO and the CIT(A) out to have not given the finding without confronting the same to ....
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.... AO after rejecting the books of account of the assessee. 2. That it is prayed that the order of the ld. CIT(A) be set aside and that of the AO restored." 8. The brief facts of the case as noted in the assessment order for the AY 2009-10 are that the assessee is an individual and is deriving income from retail sale of School Books and Stationery items. The case of the assessee was selected for scrutiny for the assessment year 2009- 10. From the copies of the audited accounts filed by the assessee alongwith the return of income, the AO observed that the gross profit declared by the assessee was 2.40% only. The AO held that the gross profit rate declared by the assessee was quiet low, as in such items the retail margin is more than 20%. The AO further observed that the assessee had made cash deposit totaling Rs. 16,04,500/- in Saving Bank A/c No. 71510137597 with the Standard Chartered Bank, Jalandhar. The AO observed that this S.B. A/c was not disclosed in the balance sheet of the assessee and during assessment proceedings, the assessee was confronted with this Bank account and was asked to explain the source of deposit of cash. In response, the assessee vide reply 08.12.2011 subm....
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....n recorded in the books of account. The AO held that since the assessee was not maintaining quantity-wise register, therefore, there cannot be any check to verify whether all the sales have been duly accounted for or not. He held that since the assessee had already admitted that part of unaccounted sales were deposited in the S.B. A/c, therefore, he held that it is an admission by the assessee that the sales were not fully recorded. Therefore, he held that since the margin of profit on all items traded by the assessee was not less than 30% on sale, which worked out to be 42.86% on the cost of goods. The AO, then, confronted this issue to the assessee and in reply the assessee submitted that he was also distributing a few sets free of cost to the poor students and submitted that self prepared details. The AO observed that no evidence regarding distribution of free books was filed by the assessee and further held that the assessee is receiving free samples from publishers also. Therefore, the claim of free distribution of books was set off against free samples from publishers. He, therefore, held that it was a clear case of suppression of sales and as such he held that sale figure de....
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....not admittedly maintain quantitative stock records. While making the trading addition under reference, the Assessing officer has applied gross profit rate of 42.80% on the cost of sales which have been worked out in the assessment order. The Ld.AR of the assessee has vehemently argued that the Assessing Officer has not considered his submission made during the course of assessment proceeding s with regard to distribution of free/discounted books to poor students and giving of free books to teachers. According to the assessee, his margin of profit ranges from 0% to 50% and not from 25% to 80% as alleged by the assessing officer as he is also giving books of account free of cost or at a heavy discount to the poor students as and when a request come from any school. To support his contention., the learned AR of the assessee also filed some copies of letters from some schools vide which books of account have been demanded free cost or at 50% discount for distribution to the poor students. It has also been submitted that the assessee is also giving books free of cost to the teachers of the school. It has again been submitted that the Assessing Office picked up the sale bills according t....
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.... stationary items are not being sold by the assessee at MRP. It is also a fact that the assessee has not maintained quantitative stock records. It is again fact that he quantitative details of opening and closing stock have also not been furnished by the assessee either during assessment proceedings or during appellate proceedings. In these facts and in the circumstances of the case, I agree with the opinion of the Assessing Officer that the books results shown by the assessee are not reliable more particularly in view of the fact that the assessee has himself admitted to have made sales outside the books results is upheld . I also do not agree with the submissions of the Ld. AR of the assessee that the Assessing Officer has not rejected the books of account of the assessee. In my opinion, the Assessing Officer has rejected the books of account of the assessee. In my opinion, the Assessing Officer has rejected the books of account when he has specifically held that the books results declared by the assessee are not reliable. While rejecting the books of account, the Assessing Officer has also specifically brought on record that all the sales are not recorded in the books, quantitat....
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....received Rs. 1,14,55,914/- (16.1%) Purchases on which assessee got discount Rs. 5,97,09,836/- Ranging from 10% to 50% (83.9%) Total purchases(Net of discount) accounted for in the Books of account Rs. 7,11,65,750/- Total cost of sales as worked out by the Assessing Officer in the assessment order Rs. 6,34,43,718/- In the absence of any quantitative details, it is presumed that out of goods valuing at Rs. 6,34,43,718/-, the assessee sold 83.9% of goods on which he got discount and 16.1% of goods on which he did not get any discount. 83.9% of cost of sales of goods Rs. 5,32,29,279/- 16.1% of cost of sales of goods Rs. 1,02,14,439/- Total cost of sales Rs. 6,34,43,718/- Gross profit @ 38.23 % on cost of sales of Rs. 5,3,29,279 Rs. 2,03,49,553/- Gross profit @16.5% on cost of sales of Rs. 1,02,14,439 Rs. 16,85,382/- Total gross profit earned by the assessee Rs. 2,20,34,935/- Less: Discount allowed by the assessee Rs. 58,03,705/- Balance gross profit 1,62,31,230/- Rs. Less: Gross profit declared by the assessee Rs. 15,61,570/- Undisclosed gross profit earned by the assessee 1,46,69,660/- 6.11. I have also gone through th....
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.... assessee were worked out. He submitted that the calculation of gross profit on sales was correct method and if the gross profit ratio is applied on the sales, and the assessee is given benefit of wastage @ 10% of purchases there will not be any suppression of gross profit. Therefore, he argued that the ld. CIT(A) has wrongly sustained the additions. Arguing upon the legal issue taken in his appeal as ground no.2, the ld. counsel submitted that the AO had not rejected the books of account u/s 145(3) of the Act and he had held only in a casual manner that trading account was not reliable and then he estimated the profit without taking into consideration any comparable case. He submitted that no specific defects in the books of account were pointed out in the day to day maintenance of the books and therefore, there was no justification of application 42.8% of gross profit by the AO. Reliance in this respect was placed on the following case law: i) CIT vs. Om Overseas, 315 ITR 185 (P&H) ii) Raj & San Deeps Ltd. vs. ACIT, ITA No.1853/Chd/1992, ITAT, Chandigarh Bench, Chandigharh. iii) Pyarelal Mittal vs. ACIT, 291 ITR 214 (Gauhati) iv) CIT vs. R.K.Rice Mills, 319 ITR 173 (P&H) v) ....
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....ly allowed the relief to the assessee, as the claim of free distribution of books was after-thought. 21. The ld. counsel for the assessee, on the other hand, heavily placed reliance on the order of the CIT(A) and submitted that the detailed submissions as filed before the CIT(A) were forwarded to the AO and the AO in his reply had not commented upon the documents as he held that all documents were examined during assessment proceedings and in this respect our attention was invited to PB-92, 106 & 81 respectively where the remand reports of the AO were placed for all the three years.. 22. We have heard the rival parties and have gone through the material placed on record. We find that the assessee has taken a jurisdictional issue in the AY 2008-09 by way of an additional ground, which during the course of hearing before us, was revised and which reads as under: "That the assessment having been reopened u/s 148 on the basis of cash deposit of Rs. 5,45,980/- in the bank account with Standard Chartered Bank, Jalandhar in the name of the assessee but no addition having been made for the same by the AO Thus, no income as a matter of fact having escaped assessment, it was not open to t....
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.... of Rs. 16,52,000/- in assessee's saving bank account No.715-1-013759-7 with Standard Chartered Bank, Jalandhar was received. During the course of assessment proceedings vide letter dated 20.l2.2011, assessee admitted that the source of deposits in the said bank account were unaccounted and were the proceeds of unaccounted sales of his proprietary concern M/s Navjeevan Enterprises. Keeping in view the facts the facts/information on record vide order dated 30.12.2011. assessment was completed for the assessment year 2009-10. Addition amounting to Rs. 2,55,92,341/- was made primarily on the basis of AIR information w.r.t cash deposits in the saving bank account. From the bank statement obtained from the bank of the same account, it is seen that cash amounting to Rs. 5,45,980/- has been deposited during financial year 2007-08 relevant to assessment year 2008-09 also. Since, it has already been admitted by the assessee that the source of deposits in this bank account is actually unaccounted sale proceeds of his business of trading in books/stationary items. Notice u/s 147/148 of the Income Tax Act,1961 dated 08.02.2012 was issued after recording the reasons for the same. The said n....
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....rded a finding that books of accounts were rejected which is not a correct findings. However, since we have held that income was not just estimated but was calculated on the basis of figures submitted by assessee himself therefore, this ground of appeal has become a non-issue and therefore is not being adjudicated. 27. Now coming to the merits of the case, we find that it is a fact that the assessee had not recorded a part of sale in the regular books of accounts as he has already admitted that part of sale proceeds were deposited in the bank. Therefore, the AO and the ld. CIT(A) has rightly not considered the figure of sales for arriving at the cost of goods sold. However, the authorities below have rightly estimated the calculation of cost of goods sold on the basis of figures provided by the assessee in his trading account. The authorities below completely verified the purchases after calling information u/s 133(6) from the various suppliers of the assessee and from where the assessee was getting discount also. By completing the assessment, the AO did not allow benefit of free distribution of stationery and books which the assessee had claimed and which was one of the reasons f....
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....ge etc. equivalent to 10% of purchase also do not carry any force in view of the fact that method of valuation of stock as adopted by the assessee and as noted in audit report is cost or market price, whichever is less. Therefore, the deterioration in value of stock if any on account of change in syllabus/wastage must already have been taken into account while valuing the stock at market prices as apparently market value of such stock would have been lower than the cost price. In view of the above, these two arguments of the ld. counsel are rejected and the formula adopted by the ld. CIT(A) is upheld subject to application of gross profit rate worked out by him. The suppression of gross profit in various years by applying gross profit ratio based upon gross purchases and gross discount for three years is worked out as under: Asst. Year 2008-09 Total purchases made by the assessee. Rs. 3,24,13,274/- Purchases on which no discount was received Rs. 5002821/- (15.43%) Purchases on which assessee got discount Rs. 2,74,10,454/- Ranging from 10% to 50% (84.57%) Total purchases accounted for in the Books of account Rs. 3,24,13,274/- Total cost of sales as worke....