AI Drafter 
TaxTMI 
TaxTMI 
2021 (3) TMI 929
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....ness of manufacturing and export of wooden handicraft items. The assessee has filed return of income for the year under consideration on 01/01/2013 declaring total income of Rs. 92,91,120/-. The case of the assessee was selected for scrutiny and notices were issued to him which was duly served upon the assesssee. The A.O. passed assessment order U/s 143(3) of the Income Tax Act, 1961 (in short, the Act) on 10/03/2015 determining total income of Rs. 1,93,58,940/- by making trading addition. 4. Aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering all the details and material placed on record, given part relief to the assessee. Against the order of the ld. CIT(A), the assessee has preferred present appeal before the ITAT on the grounds mentioned above. 5. The assessee has raised sole effective ground of appeal which is against the order of the ld. CIT(A) in estimating G.P. rate @ 12.86% on the basis of five years average assessed gross profit rate and sustained GP addition of Rs. 20,43,900/-. The ld AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also rel....
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....n India is maintaining quality wise, size wise, quantitative records of raw material & WIP. Only stock of finished goods can be made. So AO is wrong to state that non maintenance of day to day stock by assessee in deliberate. The Ld. Assessing officer also referred the irrelevant case of Howrah Trading Co., Ltd vs The Commissioner Of Income(1968)67 ITR 582 (CAL)- which is not relevant with the assessee's case as assessee's matter is related to rejection of books of accounts u/s 145(3) whereas this case is referred to High Court with Question as " Whether in the facts and circumstances of this case, the Applicant (the assessee) was entitled to have this dividend income grossed up under section 16(2) and claim credit for tax deducted at source under section 18(5) of' the Income-tax Act? " So facts of this case totally different and this case is irrelevant in the case of assessee. 1.6 In the para 3.4 of the AO order at page no. 5 the Ld. AO has himself accepted in order however, it remains a fact that the assessee has successfully achieved a substantial turnover despite severe competition and adverse market condition which could not have been possible unless margi....
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....odself Honorable ITAT as already decided in our own case in just previous year vide Manoj Kumar Johari v ACIT ITA No. 495,487/JP/2016 AY 2012-13 "Regarding estimation of G.P. rate, wherein the books of accounts are rejected, a fair estimate is required to be made by the Assessing Officer. The principle of average taking into consideration last 5 years past history is clearly a robust and fair basis of estimation to determine the gross profits for the year under consideration. The ld. AR has submitted that average G.P rate of last 5 years comes to 12.29% as against declared G.P. rate of 13.19% in the year under consideration. On perusal of records, the track record of declared Gross profit by the assessee and gross profit as upheld either by AO or by higher appellate authorities is as under:- Assessment year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 G.P% (as declared) 13.85 14.11 12.03 8.48 12.96 13.19 G.P. (as affirmed as applicable) 17.20 17.20 12.03 8.52 12.96 13.58 In light of above, the average G.P rate of last 5 years as finally affirmed comes to 13.58%.A0 is accordingly directed to apply the G.P. ra....
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....s of 56.40%. The job work charges which were Rs. 159.20 lacs in the year 2004-05 was increased to Rs. 194.96 lacs in the year 2012-13 resulting 22.46% increase. Hence overall increase in purchase sale power fuel and job work submitted to AO. These are the main reasons of decrease of G.P. from 17.20% to 11.75% which is based on actual facts and figures. Hence declared GP must be accepted. 1.14 Your goodself is also requested to see the concluding part of assessment order of same assesse u/s 143(3) of A.Y 2010-11 vide PB no. 71-72 where the assesse declared GP at the rate of 8.48 % against the G.P of 12.03 % in the immediate preceding year A.Y 2011-12 and Ld AO made only lumsum trading addition of Rs. 1.00,000/- and G.P. remained unchanged at 8.48% . So your honor is requested to accept the genuine G.P. of 11.75% against 12.86% accepted by CIT(A) . There was also very stiff competition from various local exporters as many our type of manufacturers have been crop up during these years who were operating at very low margin to establish their market. Due to this reason Assessee's Gross Profit was dipped during the year under consideration. 1.15 Honorable I....
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....rld Vol XXXIII Part 43-56). Ld. A.O. has erred in rejection of books of accounts without applying above-mentioned principal in our case, without considering the entire situation. PB no 104-105 1.17 The Ld. A.O. have arbitrarily applied OP rate of 17.20% applied by Ld. A.O. just on the basis of 8 year old G.P. ignoring own assessment of A.Y. 2010-11 and pointing out non maintenance of stock register. The fact is the assessee has made valuation of closing stock by verifying the items physically. In the year end a note on details of inventory/closing stock had been prepared by the supervisors with the help of labours. They have been doing valuation of each and every article, products, furnished/semi furnished/ finished goods in packing/goods in process/goods lying in open grounds, stocked or at saw-mills, woods in paya, gattu, beems and planks, consumable stocks of all working sites of Ramgarh. The factory staff & labour count the goods and then the proprietor with the help of supervisors cross-examines it and properly value the Closing Stock. In the nature of such kind of artistic business, where each item has different quality, different shape, different look, different val....
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....t 11.75% in the preceding year and lump sump addition of only of Rs. 1,00,000/- was made. We are enclosing copy of relevant pages of the order passed by AO vide PB no 71-72 here it was mentioned that GP rate of 8.48% is justifiable and only lump sump addition of Rs. 1,00.000/- was made. The extract of assessment order of AY 2010-11 is as follows:- Reason of low GP rate: The reason of low G.P. rate is sudden increase in cost of raw material during the relevant period. The assessee offered low rates of its goods to the purchasers to compete with the existing exporters. Further to capture the market, the assessee had to work at more competitive rates. Furthermore, the assessee faced more competition in his business from other competitors during the relevant period. Here, it is pertinent to note that in the present case, orders from foreign buyers are received in advanced and sales price is determined and settled at that time. As requested in my earlier written reply, goods are then manufactured as per specifications of the importers. During this gap of time, some time, cost of raw material is increased and sometime rate of Indian currency is valued down. This result ....
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.... specifications. The assessee maintained regular books of account, which are audited and purchases, sales and manufacturing expenses are fully vouched and verifiable. This is a case of exporter and more than 90% sales are in foreign market, stock tally of these goods is not much relevant. The purchases and sales are completely vouched and looking to the nature of the business, it is very difficult for the assessee to affect the sales without bills. Under such circumstances, the figures of raw materials, finished goods, polishing materials, and packing materials shown in regular books of accounts may kindly be accepted. We are submitting some case laws which are highlighted here to further supports that AO cannot resort to provisions of the section 145(3) of the IT Act,1961, in case of non maintenance of stock register and other issues as already decided in many cases but G.P. addition can not be made, such as : A. CIT Vs Gotan Lime Khaniz Udhyog (2002) 256 ITR 243 (Rajasthan High Court). The assessee had maintained regular books of account, which are supported by regular bills and vouchers, and no defect or discrepancy had been observed by the learned assessing of....
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....en held that it would not be justified to make any addition in the declared trading results without pointing out specific mistakes and discrepancies. Therefore, the deletion of the trading addition by the learned Commissioner (Appeals) was perfectly justified. The learned Commissioner (Appeals) has considered the nature of business activity, market conditions, quality of raw material used, and the fact that the assessing officer laid no material on record to suggest that there has been any suppression of income nor that the assessee carried any activity outside the books. Hence in the light of above all cases, it is not justifiable to reject the books of accounts on the ground of non maintenance of day to day Closing Stock Register and no G.P. rate can be applied arbitrarily without any basis. There was also very stiff competition from various local exporters as many our type of manufacturers have been crop up during these years who were operating at very low margin to establish their market. Due to this reason our sales was dipped during the year under consideration. In-spite of agreed with the above facts and submission, the learned assessing officer has made an....
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....ould be imparted in the favour of assessee." 6. On the other hand, the ld. DR has vehemently supported the orders of the revenue authorities. 7. We have considering the rival contentions of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. From perusal of the record, we observe that the ld. CIT(A) has dealt with the issue in para 4.3 of his order and the same is reproduced below: "4.3 I have carefully considered the material before me. I find that Assessee deals in purchase/manufacture and sale of furniture handicraft items. Clause 28 of the form No. 3CD of the audit report requires quantitative; details of items traded and also of items manufactured. Shortage in the manufacturing process and percentage of yield in the manufacturing process are required to be given. Quantitative tally of traded items and finished products is also required to be given. However no such details are given. Auditor's remarks against these clauses is details not maintained. V....
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.... accounting certain income & expenses on yearly basis (impact on profit not ascertained)" Non maintenance of records of quantitative details renders the accounts of assessee incomplete. Preparation of the Inventory at the end of year but not keeping it on record and not producing such Inventory for scrutiny can only lead to the inference that accounts are not correct. Quantitative tally of items traded and manufactured by assessee is not only possible but also the requirement of proper accounting system. Today when books are maintained on computer and advanced software like tally are available and used, maintenance of quantitative details is very easy and convenient. Assessee's failure to provide the quantitative details is thus deliberate. Assessee is not maintaining day to day stock register. He has not maintained inventory of closing stock. Assessee deals in manufacture/trading of wooden furniture items. Purchases of wood are in volume i.e. cft / m cube measurement but sales are in nos. of various items. Adoption of different standards for receipts and production in stock, accounts can justify rejection of accounts:- If the stock received are shown in the books by o....
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....5% is almost near to actual GP of 11.75%.So our genuine G.P. of 11.75% may please be accepted. The Hon'ble ITAT Jaipur Bench decided in the appellant own case for A.Y. 2012-13 that Manoj Kumar Johari v ACIT ITA no. 495,487/JP/2016 AY 2012-13 "Regarding estimation of G.P. rate, wherein the books of accounts are rejected, a fair estimate is required to be made by the Assessing Officer. The principle of average taking into consideration last 5 years past history is clearly a robust and fair basis of estimation to determine the gross profits for the year under consideration." Therefore following the decision of the Hon'ble ITAT in the appellant own case and considering the above observation I adopt the average Gross profit rate of 5year which comes to 12.86% (17.2% + 12.03% + 8.52% + 12.96% + 13.58%). Hence I apply the Gross profit rate @12.86% instead the Assessing officer apply 17.02%. Thus the Gross profit comes to Rs. 2,37,75,945/-. The appellant shown Gross profit of Rs. 2,17,32,045/-. The addition comes of Rs. 20,43,900/-. The Assessing officer made the addition of Rs. 1,00,67,820/-. I confirm addition of Rs. 20,43,900/- and balance amount of Rs. 80,23,9....
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....ter and advanced software like tally are available and used, maintenance of quantitative details is very easy and convenient. Assessee's failure to provide the quantitative details is thus deliberate. Assessee is not maintaining day to day stock register. He has not maintained inventory of closing stock. Assessee deals in manufacture/trading of wooden furniture items. Purchases of wood are in volume i.e. cft/m cube measurement but sales are in numbers of various items. Adoption of different standards for receipts and production in stock, accounts can justify rejection of accounts. If the stock received are shown in the books by one standard and goods produced from those stocks are shown by another standard it is quite clear that profits cannot be correctly deduced. In such cases the A.O. would be justified in rejecting the method and in estimating the income. The assessee failed to file any evidence against the defect pointed out by the A.O.. 9. The ld. DR has drawn our attention towards the decision of the Coordinate bench of this Tribunal in assessee's own case for the A.Y. 2012-13 wherein the Coordinate Bench has held as under: "9 We have heard the rival contenti....