Ramanand Industries Vs ITO (ITAT Jaipur)
It is settled proposition of law that even if the books of account are rejected U/s 145(3) of the Act, it would not ipso facto result to an addition except the income estimated on same reasonable and proper basis lead to an addition. In the case in hand, neither the Assessing Officer nor the ld. CIT(A) has undertaken an exercise to estimate the income of the assessee on some proper and reasonable basis and therefore the ad hoc addition made by the Assessing Officer as well as the ld. CIT(A) is not permissible under the provisions of the Act. After the rejection of books of account, the Assessing Officer was mandated to estimate the income of the assessee on some proper and reasonable basis. The past history of the declared G.P. is considered as a reasonable and proper guidance for estimation of the income. In absence of any estimation made by the Assessing Officer, the ad hoc addition made by the authorities below is not sustainable. Accordingly, in the facts and circumstances of the case when there is no significant or noticeable decline in the G.P. in comparison to the earlier year whereas there is a significant increase of six times in the turnover. The said insignificant decline in the G.P. cannot be a reason for an addition.
FULL TEXT OF THE ITAT JUDGMENT
This appeal by the assessee is directed against the order dated 10/05/2018 of ld. CIT(A)-3, Jaipur for the A.Y. 2013-14. The assessee has raised following grounds of appeal:
“1. On the facts and in the circumstances of the case, the A.O. rejected books of account thereafter ld. CIT(A) erred in sustaining the rejecting of books of account U/s 145(3), without proper basis which is unjustified.
2. On the facts and in the circumstances of the case, the A.O. and CIT(A) erred in making trading addition of Rs.3,00,000/- which was further reduced only at Rs. 1,50,000 by the ld. CIT(A) without any basis, which liable to be quashed in entirely.”
2. Ground No. 1 of the appeal is regarding rejection of books of account U/s 145(3) of the Income Tax Act, 1961 (in short the Act).
3. We have heard the ld AR of the assessee as well as ld. DR and considered the relevant material on record. The Assessing Officer has rejected the books of account of the assessee on the ground that the inventory of opening stock and closing stock and its value are not verifiable due to the reason that the assessee filed the return of income for the A.Y. 2012-13 U/s 44AD of the Act and therefore, the proper books of account were not maintained by the assessee disclosing the closing stock which is to be taken as opening stock for the year under consideration. The Assessing Officer has further noted that the production expenses booked to the P&L account are not fully vouched and therefore the books of account are not giving a correct picture of the affairs of the assessee and the result being net profit.
4. The assessee challenged the said action of the Assessing Officer before the ld. CIT(A) but could not succeed. The ld. CIT(A) has confirmed the rejection of books of account by noting the fact that the Assessing Officer has pointed out the specific defects in the books of account.
5. Having considering the rival submissions and careful perusal of record, we find that the Assessing Officer has pointed out specific defects in the books of account regarding the opening and closing stock and valuation. Further the expenses were not fully vouched and also day to day stock register was not found to be maintained by the assessee. Accordingly we do not find any error or illegality in the orders of the authorities below qua this issue and rejection of books of account is confirmed.
6. Ground No.2 of the appeal is regarding the trading addition of Rs. 3.00 lacs made by the Assessing Officer was restricted by the ld. CIT(A) to Rs. 1.50 lacs.
7. We have heard the ld. AR of the assessee as well as the ld DR and considered the relevant material on record. The ld. CIT(A) has considered this issue in para 5.3 as under:
“5.3 I have carefully considered the material before me. I find that the Assessing officer made the addition of Rs.3,00,000/-. The A/R submitted that the trading result of the assessee for the year and immediately preceding year are as under: –
