Books cannot be rejected without defects -Low GP not enough: ITAT Ahmedabad

Mukeshkumar Chandulal Dalwadi Vs ACIT (ITAT Ahmedabad)

Books cannot be rejected without defects -Low GP not enough– Tribunal follows Guj HC Ruling

AO had rejected books u/s 145(3) & applied a higher GP rate of 3% on turnover of ₹7.23 crore, against declared GP rate of 1.84% (₹13.30 lakh)

AO’s Findings

• Assessee engaged in trading of grocery & cattle feed.
• Declared GP rate fell from 2.78% in AY 2016-17 to 1.84% in AY 2017-18.
• Assessee’s explanation of cattle feed price volatility was not backed by sufficient evidence.
• Held that books were unreliable; estimated GP @3%, resulting in addition of ₹8.41 lakh

Assessee’s Contentions

• Maintained regular audited books of account u/s 44AB, along with full quantitative details of purchases, sales & stock.
• Fall in GP was due to decline in cattle feed selling prices, despite higher turnover.
• Comparative figures showed: FY 2015-16: Sales ₹1.56 cr, GP ₹14.18 lakh (9.08%)& FY 2016-17: Sales ₹1.77 cr, GP ₹5.15 lakh (2.91%)
• Monthly analysis proved average selling rates consistently fell, reducing margins.
• Cited CIT v. Symphony Comfort System Ltd. (35 taxmann.com 533, Guj HC) – low GP alone is not ground to reject books when no defects found

Tribunal’s Findings

• Assessee filed detailed comparative & monthly summaries showing fall in selling rates of cattle feed despite higher volumes.
• AO & CIT(A) made addition only on basis of GP fall, without pointing to any defect in books, purchases, sales, or stock records.
• Jurisdictional Gujarat HC in Symphony Comfort System Ltd. held that fall in GP by itself cannot justify rejection of books.
• Accordingly, rejection of books u/s 145(3) was unjustified; trading addition unsustainable

Outcome

• Addition of ₹8,41,374/- deleted.
• Assessee’s appeal allowed in full

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD