TaxTMI 
TaxTMI 
2026 (8) TMI 473
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.... assessee has been associated with gem and jewelry industries over three decades and engaged in business of manufacturer and export of cart and polish diamonds. The assessee's case was selected for scrutiny mainly because there were differences in opening and closing stock, very high turnover with low profit, noncompliance with Ind-AS, larger loans squared up during the year and high liabilities compare to income. The assessee submitted that it maintains complete books of accounts including inventory register and purchase register and sale register etc. The assessee submitted the details of maintaining of books of accounts in Tax Audit Report (TAR) duly filed u/sec. 44AB of the Act in Form No. 3CA. The list of books of accounts maintained by the assessee is reported by the Charted Accountant in TAR which is enclosed in APB page 7. The list is reproduced as below: Sl. No. Books examined 1 Cash Book-Cash receipts and payment vouchers 2 Bank Book-Bank receipts and payment vouchers, Bank reconciliation statements 3 Journal Books-Journal vouchers 4 Sales Register-Sales Invoices 5 Purchase Register-Purchase Invoices 6 General Ledger-Expense Invoi....
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.... 1.57% 1.37% 1.20% 1.23% 1.33% 1.46% 1.74% 1.65% 1.98% During the relevant previous year, the assessee disclosed a net profit of 1.23% on its turnover. The Ld. AR submitted that all the relevant books of account and supporting documentary evidence were furnished before the Ld. AO as well as the Ld. CIT(A). The same documents have also been placed before us in the APB at pages 115 to 311. The Ld. AR further contended that the following books of account, ledgers, and supporting documents had been duly furnished before the revenue authorities in support of the assessee's claim, which are as follows: "(i) Statement of details of Trade Payables as on 31.03.2022 (ii) Copy of relevant statement from TAR-closing stock (iii) Statement of party wise details of sales (iv) Statement of party wise details of purchase of raw materials polished diamonds and gold and others. (v) Statement of details of Trade Receivables as on 31.03.2022 (vi) Matrix of profit & Loss account for year ended 31.03.2022 in percentage of 31.03.20221 and 31.03.2020. (vi) Statement of party wise detai....
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....s found by the AO. The Tribunal has found that the production of mustard oil is a continuous process and the seeds are put into the milling for continuous oil production. The Tribunal has further found that 80% of its mustard oil is by way of trading sale and neither discrepancies were noticed by the AO in either purchase or sale nor any sale or purchase, found unrecorded. The Tribunal also found that the books of account had been maintained in the same manner as in the past and the assessee cannot be expected to stop the plant as and when the new lot of mustard seed is subjected to crushing as manufacturing of mustard oil is a continuous process. The Tribunal has also found as a finding of fact that except quality, quantity wise stock details has been maintained but no other defect was noticed by the AO in the quantitative details and after noticing the above fact, has come to the conclusion that the books of account ought not to have been rejected. In our view, such a finding of fact which has been reached by the Tribunal is after appreciating the material and evidence on record and such a finding has been arrived at by the Tribunal after analyzing the material and in our view, n....
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....e's sale was abruptly increasing in impugned assessment year in comparison to the other years. Whereas the net profit was duly reduced. The assessee was unable to maintain the qualitative details which is duly essentially for the same type of industries. The Ld. DR invited our attention in impugned assessment order paragraph no.4.5 which is reproduced as below: "4.5 Point-wise rebuttal of reply of the assessee including analysis of any case law relied upon: Non-verification of Opening and Closing Stock The reply of the assessee is not found acceptable for the reasons that the case of the assessee has been selected in scrutiny and one of the reasons for selection is large difference in the opening stock of current year (in Trading & Manufacturing account) and closing stock of previous year shown in P&L a/c as per Return of Income. The assessee is engaged in the business of manufacturing and selling gold and polished diamonds. It is noticed that purchase register is maintained by the assessee according to quantity of the particular item but quality, shape, clarity, size is not taken into account whereas in such type of business, quality, shape, cla....
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....ndatory for determining true valuation of stock. Without these attributes, the correctness of opening and closing stock cannot be verified. It is noticed that the Assessing Officer has correctly identified serious defects in the appellant's books of account. The appellant has not produced any item-wise billing, item-wise costing, or item-wise sale and consumption records to substantiate its claim of lower margins or discounts to new customers. The Assessing Officer has therefore rightly concluded that the declared profit does not reflect the true income of the appellant. The addition made by estimating profit at 3% is reasonable based on proper material. Hence, ground No. 1 raised by the appellant is dismissed. 5.2. Ground No.2. With regard to relates to Rejection of Books of Account for invoking the provisions of section 145(3) of the I.T.Act, 1961. 5.2.1. On perusal of the submissions of the appellant, the assessment order and the material available on record, it is evident that the Assessing Officer has correctly invoked the provisions of section 145(3) of the Income-tax Act, 1961. Although the appellant has emphasised that the accounts are audited under the Co....
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.... to estimate the income in a reasonable manner. In this case, application of a net profit rate of 3% on turnover of Rs. 1,79,37,37,589/-, as against the declared rate of 1.23%, is found reasonable considering business realities, past results and the pattern of declining profitability. The appellant has not produced any comparable industry data or scientific basis to dispute the AO's estimation. 5.2.4. Section 145(3) reads as under: "Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the Appellant, or where the method of accounting provided in subsection (1) or accounting standards as notified under sub-section (2) have not been regularly followed by the Appellant, the Assessing Officer may make an assessment in the manner provided in section 144." 5.2.5. The Assessing Officer is empowered to reject books when discrepancies such as improper accounting, non-production of records, absence of stock register or other defects are noticed. In the present case, I fully agree with the AO that the absence of quality-wise stock registers and other vital details forms a valid ground for rejection. The Assessing Offic....
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....e have heard the rival submissions and carefully considered the material available on record. It is an undisputed fact that the assessee has been engaged in the business of manufacturing and export of studded gold jewellery and sale of polished diamonds for nearly three decades. During the year under consideration, the assessee declared a turnover of Rs. 1,79,37,37,589/- and a net profit of Rs. 2,21,40,797/-, resulting in a net profit ratio of 1.23%. The books of account were rejected by the Ld. AO solely on the ground that the assessee had not maintained qualitative details of stock such as size, clarity, colour and shape of diamonds. Based on such rejection, the Ld. AO estimated the net profit at 3% of the turnover, which resulted in an addition of Rs. 3,16,71,331/-. We find that except for the alleged absence of qualitative stock records, no specific defect or discrepancy has been pointed out either in the books of account, purchase register, sales register, inventory records, stock register, vouchers, or other primary records maintained by the assessee. The assessee had furnished complete books of account, inventory records, statutory audit report, Tax Audit Report under sectio....