Sparkle Diam Pvt. Ltd. Vs DCIT (ITAT Mumbai)
The Mumbai ITAT held that non-maintenance of qualitative stock details, by itself, is not a valid ground for invoking section 145(3) where the assessee has maintained complete books of account, inventory records, purchase and sales registers, stock registers, tax audit records and stock valuation reports, and the Assessing Officer has not pointed out any specific defect in those records. The Tribunal noted that the assessee had consistently followed the same accounting system over the years, which had been accepted by the Department in earlier as well as subsequent scrutiny assessments.
The Assessing Officer had rejected the books solely because the assessee, engaged in the diamond and jewellery business, did not maintain stock records based on qualitative attributes such as size, clarity, colour and shape of diamonds, and consequently estimated the net profit at 3% of turnover, resulting in an addition of ₹3.16 crore. The Tribunal held that, in the absence of any other defect in the books or evidence showing that the accounts were incorrect or incomplete, such rejection was unsustainable and the estimation of profit had no rational or scientific basis.
Relying on the decisions of the Bombay High Court in Swananda Properties Ltd. and Time and Space Haulers and the Rajasthan High Court in Bhawani Silicate Industries, the Tribunal deleted the addition, holding that books of account cannot be rejected merely because qualitative stock records are not maintained when no other material defect is found.
Cases Discussed
- PCIT v. Swananda Properties Ltd. (Bombay HC), (2019) 111 taxmann.com 94 (Bom.)
- PCIT v. Time and Space Haulers (Bombay HC), ITA No. 52 of 2016, decided on 04.07.2018
- PCIT vs Bhawani Silicate Industries (Rajasthan HC), (2016) 65 taxmann.com 106 (Rajasthan)
- Sage Infrastructure (P.) Ltd. v. ACIT (Gujarat HC), [2013] 37 taxmann.com 32 (Guj.)
- Neena Mahajan v. CIT (Punjab & Haryana HC), [2011] 14 taxmann.com 88 (P&H)
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity ‘Ld. CIT(A)’], order passed under Section 250 of Income Tax Act, 1961 (for brevity ‘the Act’) for Assessment Year 2022-23, date of order 24.11.2025. The impugned order emanated from the order of the Assessment Unit Income Tax Department (for brevity ‘Ld. AO’), order passed under Section 143(3) r.w.s. 144B of the Act, date of order 23.03.2024.
