ACIT Vs Motisons Jewellers Ltd. (ITAT Jaipur)
ITAT Jaipur held that rejection of books of account on the basis of insignificant defects is unjustified as Before invoking provisions of section 145(3) AO has to bring on record material the basis on which he has arrived at the conclusion with regard to correctness/ completeness of the accounts.
Facts- AO observed that since in the instant case books of accounts are rejected as discussed above, therefore, keeping in view various jurisprudences hodling that part history is the best guiding factor to determine taxable profit in cases where books of accounts are rejected. Accordingly, the average N.P. of the assessee was computed at 2.59%.
AO also observed that assessee deposited amount of Rs. 12,17,48,500/- in the demonetized currency which the AO treated the same as unexplained cash credit of the assessee and by applying the provisions of section 68 of the Act the same was added as income of the assessee and the same taxed as per the provisions of section 115BBE of the Act.
Aggrieved by the order of AO making the assessment based on the above stated fact, the assessee preferred an appeal before the ld. Commissioner of Income Tax, Appeals-4, Jaipur. The appeal filed by the assessee was partly allowed by the ld. CIT(A).
Accordingly, revenue has preferred the present appeal solely on the issue of the deletion of addition of Rs. 12,17,48,500/- and considering the same as part of turnover and applying same rate of G.P. @ 2.59 % of cash sales which was added by AO u/s. 68 of the disbelieving the cash sales recorded by the assessee on the day of demonetization.
Conclusion- Before invoking the provisions of Section 145(3) of the Income Tax Act, the AO has to bring on record material on the basis of which he has arrived at the conclusion with regard to correctness or completeness of the accounts of the assessee or the method of accounting employed by it.
In the instant case, it was not the case that the assessee had not followed either cash or mercantile system of accounting. It was also not the case that the Central Government had notified any particular accounting standard not followed by assessee. Further the assessee maintains proper books of account audited by Chartered Accountant and the profit may be derived from the audited books of account therefore there is no justification in estimation of income by applying NP rate.
Held that we allow the appeal of the assessee by holding that the rejection of books of account on the basis of insignificant defects in all respect, is not justified and books of account deserves to be accepted.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
These are the cross appeals filed by the Revenue and the assessee directed against the order of learned Commissioner of Income tax (Appeals)-4, Jaipur [hereinafter referred to as ‘CIT(A)’] dated 04.02.2022 for A.Y. 2017-18 which in turn arise from the order dated 29.12.2019 passed u/s. 143(3) of the Act by the ACIT, Central Circle-2, Jaipur.
2. As the issues involved in the present appeals are common and inextricably interlinked or in fact interwoven and of the same assessee. Therefore, the parties argued them together and are disposed off by this common order.
3. First, we take up revenue’s appeal in ITA No. 161/JP/2022 for the A.Y. 2017-18. The revenue has marched this appeal on following grounds of appeal:-
“1. Whether on the facts and in the circumstances of the case the ld. CIT(A) was justified in deleting the addition of Rs. 12,17,48,500/- by treating the same as part of turnover whereas the same was found to be bogus and false entries or undisclosed income of the assessee which was induced in the books under the garb of cash sales and advance from customer and receipt from debtors, deleting the addition of Rs. 12,17,48,500/- made u/s 68 of the IT Act, 1961 which was deposited by the assessee during the demonetization period and which was also remained unverified during the assessment proceedings. Deleting the addition of Rs. 12,17,48,500/- and treating the same as part of turnover and apply NP rate of 2.59% on the whole transaction including the sham transaction of Rs. 12,17,48,500/-, deleting the addition of Rs. 12,17,48,500/-, deposited during the period of demonetization, and spoil the sole purpose of curbing out black money under tax bracket.”
4. Brief facts of the case are that the assessee company e-filed its return of income for the previous year 2016-17 relevant to Assessment Year 2017-18 on 31.10.2017 declaring an income of Rs. 4,37,53,418/-. The case of the assessee was taken up for complete scrutiny u/s 143(3) of the Income Tax Act, 1961 (in short ‘Act”) on the basis of computer assisted selection for scrutiny (CASS) and statutory notice u/s 143(2) of the Act, dated 09.08.2018 was issued. Information u/s 142(1) of the Act was called for vide questionnaire through ITBA. In compliance of the said notices, the assessee submitted details/information through e-proceedings. The ld. AO has examined the details so filed by the assessee. The assessee company is engaged in the business of Jewellery.
5. During the course of assessment proceedings, it was noticed that the assessee has deposited cash aggregating to Rs. 12,17,48,500/- in the bank account of assessee having no. 911020053773688 and account no. 916030041790950 held in the Axis Bank during the demonetization period i.e. between 09.11.2016 to 31.12.2016. The cash so deposited was of the Specified Bank Notes [ here in after referred as “SBNs” ]
6. In order to verify the source of cash deposit assessee was asked to explain the source along with documentary evidence, assessee was also asked to furnish various details and comparison of cash sales and cash deposit of preceding two years. In response the assessee furnished various details and documents from time to time. The details, documents and explanation so furnished by the assessee were perused the ld. AO and has observed that :
a) On Perusal of the submission it is found that, on a single day assessee made cash sales aggregating to Rs. 9,79,23,724/-through more than 725 invoices. The cash sales of Rs. 9,79,23,724/- on single day does not seems genuine following the past year’s trends.
b) When the cash of corresponding months of previous years are compared, it was noticed that the cash sale during the month of October 2016 was Rs. 18,81,89,611/-, during October 2015 it stood at Rs. 11,66,19,434/- and October 2014 at Rs. 17,60,14,563/-.
Therefore, during the year under consideration cash sales during October month increased by 1.61 times compared to October 2015 and increased 1.07 times compared to October 2014.
c) The case sales made during October 2016 was 18% and November 2016 was 13% out of total cash sales made during the financial year 2016-17. The cash sales made in two months is higher compared to cash sales made in remaining 10 months of that year. Further when the trend of cash sales is compared to previous years it was noticed that in October 2015 cash sales was just 11% of the total sales and in October 2014 it was 13% compared to total sales.
d) Further, Assessee failed to furnished the details of the persons such as full name, address and PAN to whom cash sale was made during the demonetization period.
e) Further, it is found that the assessee has revised its quarterly VAT return for the AY 2017-18 wherein the turnover of the assessee has been significantly increased which is tabulated as under:
