AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 1374
X X X X Extracts X X X X
X X X X Extracts X X X X
....ous business and residential premises of Roop Square Group of cases. The assessee is the part of the said group. Subsequent to the search, a notice u/s 153A of the Act was issued and in response to the said notice, the assessee filed its return of income declaring income at Rs.31,48,430/- which was the same income as the income reflected in the original return of income filed earlier on 30.10.2017. Thereafter, the assessment was completed at an income of Rs.3,70,03,300/- after making an addition u/s 68 of the Act amounting to Rs.6,85,735/- on account of unexplained cash credit (being alleged undisclosed money introduced by the assessee as sales). Another addition of Rs.3,31,69,133/- was made on account of enhancement of gross profit rate with respect to the jewellery turnover. The Assessing Officer (AO) applied gross profit rate @38.63% as against gross profit rate of 11.65% declared by the assessee. 2.1 Aggrieved, the assessee carried the issues before the Learned First Appellate Authority who was pleased to partly allow the appeal of the assessee. The Ld.CIT(A) deleted the addition of Rs.6,85,735/- in respect of unexplained cash credit added u/s 68 of the Act. The Ld.CIT(A) al....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... time when the demonetisation process had been announced by the Government of India). It was submitted that during this assessment year, the assessee had a turnover of Rs.12,29,17,614/- in respect of the jewelllery business and cash deposits was to the tune of Rs.11,35,00,000/- in the bank accounts. It was submitted that this cash deposit duly stood accounted for in the books of account and that there has been no allegation either by the AO or by the Ld.CIT(A) that this cash was unaccounted money of the assessee. It was further submitted that gross profit on the sales of Rs.12,29,17,614/- was Rs.1,43,13,941/- which works out to 11.65%. It was further pointed out that the AO had also drawn the trading account for assessment years 2015-16 and 2016-17 (as appearing on page 14 of the assessment order) wherein for assessment year 2015-16, the gross profit rate was 15.75% and for assessment year 2016-17, it was 16.28%. It was further submitted that as per the AO, the reason for rejection of books of account was the low gross profit rate as compared to the two immediately preceding assessment years as above. The Ld. AR submitted that the AO had proceeded to apply the gross profit rate of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the assessee maintains complete quantitative details of the jewellery which was also evident from Annexure-9 of the Tax Audit Report filed by the assessee wherein it has been clearly mentioned that the assessee maintains complete quantitative details. It was submitted that even this fact of the assessee maintaining quantitative details, has not been disputed by the AO. The Ld. AR submitted that, therefore, there was no justification in the action of the AO in rejecting the books of account as no specific defect had been pointed out by the AO while arriving at such conclusion. 3.2 It was also submitted that although the Ld.CIT(A) has upheld the rejection of books of account, no valid reason has been given by the Ld.CIT(A) also for upholding the rejection. The Ld. AR further submitted that the Ld.CIT(A), after giving a finding in favour of the assessee that valuation done at the time of search cannot be made the basis for calculating gross profit on sales, proceeded to arbitrarily apply the gross profiti rate of 20% on an adhoc basis without giving any basis for arriving at the percentage of 20%. It was submitted that the accounts of the assessee were duly audited and the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed the data. It was submitted that the Ld.CIT(A) had erred in deleting this entire addition without providing any cogent reason. 5.1 On the issue of reducing the addition pertaining to gross profit by applying the rate of 20% as against 38.63% applied by the AO, the Ld.CIT DR submitted that this action of the Ld.CIT(A) was arbitrary as no reasoning had been given by the Ld.CIT(A) while allowing the relieif to the assessee. 6.0 In response to the arguments of the Ld.CIT DR in respect of the departmental appeal, the Ld. AR submitted that he was placing extensive reliance on the findings of the Ld.CIT(A) in respect of addition of Rs.6,85,735/-, whereas in respect of the 2nd ground of appeal of the departmental appeal pertaining to the restriction of addition to the extent of Rs.1,02,69,581/- on account of suppressed gross profits, the arguments made on the issue by the Ld. AR in assessee's appeal would apply and that the same were not being repeated for the sake of brevity. 7.0 We have heard the rival submissions and have also perused the material available on record. The first issue for our consideration is whether the Ld.CIT(A) was justified in upholding the action of the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....while rejecting the books of account and apparently the AO has proceeded on mere suspicion of assessee lowering the gross profit rate. It is also duly noted by the AO that the gross profit rate in assessment year 2015-16 was 15.75and in assessment year 2016-17 it was 16.28. Thus, in both the years, it was below 17% and even if the past trends of the assessee are to be considered, there is no justification or rationale behind computing the gross profit rate at 38.63% for the year under consideration. It is also not in dispute that the assessee has been maintaining stock register of the jewellery items and, therefore, the inferences drawn by the AO are mere surmises and conjectures lacking any sound basis. 7.1 The Hon'ble High Court of Gujarat in the case of PCIT Vs. Garden Silk Mills. Limited, 388 ITR 237 (Guj.) has categorically held that it is a settled position of law that the books of account cannot rejected on insignificant grounds. The AO is required to point out specific defects whereby the accounts of the assessee cannot be treated as correct or complete giving rise to distorted figure of gross profit. The Hon'ble Gujarat High Court went on to hold that the AO is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....routine observation of suspicious nature such as making sales on 270 bills in the span of four hours, non-availability of KYC documents for sales, non-writing of tag of the jewellery to the sale bills, non-availability of CCTV footage during the rush hours, etc. The ITAT Vishakhapatnam held that the contention of the assessee that due to demonetization, there was panic in public as the cash available with them in old denomination notes was to become illegal from 09.11.2016 and, therefore, proceeded to invest in jewellery resulting in thronging in jewellery shops , appears to be reasonable and is also supported by newspaper clippings. Similar are the observations of the AO in the present case also relating to non-availability of PAN, huge cash bills, non-availability of CCTV footage and we find that the issues raised by the AO are squarely covered in favour of the assessee by the order of the Coordinate Bench of ITAT Vishakhapatnam as aforementioned. 7.4 Also, it is worth-noting that no incriminating material had been unearthed during the course of search which would indicate that the assessee had either concealed sales in quantity or price-wise and, therefore, we do not agree wi....