Case Law Details

Case Name : ACIT Vs Smarneev Fashions Pvt. Ltd. (ITAT Ahmedabad)
Appeal Number : ITA No.1800/Ahd/2011
Date of Judgement/Order : 05/06/2015
Related Assessment Year : 2008-09

Brief of the Case

In the case of ACIT vs. Smarneev Fashions Pvt. Ltd, ITAT Ahmedabad held that merely because there is a fall in gross profit or there is a NIL closing stock at the end of the year the books of accounts cannot be rejected. Since the appellant was closing down its business and has in fact closed down all the operations, the stock at the year-end was Nil which was duly supported by the documentary evidence. The assessing officer was not justified in comparing the GP ratio of normal working years with the year in which there was a close of business.

Facts of the Case

A.O. rejected the trading results shown by the assessee during the assessment u/s 143(3) and made the addition of Rs.1281112/- on account of suppression of closing stock. Against the assessment order, the assessee preferred an appeal before CIT(A), who after considering the submissions allowed the appeal and deleted the addition made by the A.O. Revenue, being aggrieved, filed the appeal before Tribunal.

Contention of the Revenue

The Ld. DR supported the view of the A.O. that despite the gross profit rate declared by the assessee in earlier years i.e, 22.99% in A.Y. 2005-06, 22.75% in A.Y. 2006-07 and 25.18% in A.Y. 2007-08, the assessee has shown negative GP ratio in the year under appeal.

Contention of the assessee

The Ld. Counsel of the assessee submitted that the assessee has physical verification system of inventory. Same set of books of accounts had been maintained from last so many years which were accepted by the Department. No Specific finding regarding the defects in the books of account have been given by the department. The assessee has closed down all the operations and the stock at the year-end was physically Nil.

Held by Tribunal

The Hon’ble Tribunal noted that CIT(A) has given elaborate findings in his order which was not been rebutted by the Revenue by placing any contrary material on record. CIT(A) in his order noted that the appellant had explained the reasons for fall in GP rate as it had to sell its goods at a huge discount as it had decided to close down the business. All these facts were properly recorded in books of accounts and duly supported by the documents. Therefore, there was no reason to interfere with the findings of the ld. CIT(A) and the order of CIT(A) was allowed to sustain. As a result appeal of Revenue dismissed.


GP ratio of earlier years cannot be compared with the year in which assessee has closed down its business because there may be many reasons affecting the GP such as huge discount given to customer for stock clearance.

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