Punjab & Haryana High Court held In the case of Harish Ahuja vs. CIT that in this case AO was not in position to verify the proper Gross profit rate because the assessee has not maintained the stock register. No satisfactory explanation had been furnished by the assessee for not maintaining the stock register. Considering that assessee is trading in the items of well established companies and is a wholesaler/ C&F agent, maintainability of stock register is compulsory for the assessee and in absence of the same, rejection of books of account is valid.
Facts of the Case
The assessee filed his return of income 30.9.2009 for the assessment year 2009-10 declaring the income at Rs. 14,04,784/-. The Assessing Officer passed order under Section 145(3) framed the assessment at Rs. 55,14,510/- by making an addition of Rs. 41,09,728/-. Feeling aggrieved, the assessee filed an appeal before the CIT (A). The CIT (A) while partly allowing the appeal of the assessee restricted the GP rate to 9% and upheld the rejection of books of account. Still dissatisfied, the assessee filed an appeal before the Tribunal who upheld the ground of rejection of books of account and directing the Assessing Officer to apply GP rate of 8% instead of 9% as ordered by the CIT (A).
Contention of the Assessee
The learned counsel for the assessee relying upon the judgments in Pandit Brothers v. Commissioner of Income-Tax, Delhi 26 ITR 159 (Punjab), Ashoke Refractories Pvt. Ltd. v. Commissioner of Income Tax 279 ITR 457 (CAL) and Commissioner of Income Tax v. Smt. Poonam Rani, 326 ITR 223 (Delhi) submitted that non-production of stock register by itself was not sufficient to invoke Section 145(3) of the Act.
Held by CIT (A)
The CIT (A) while partly allowing the appeal of the assessee restricted the GP rate to 9% and upheld the rejection of books of account.
Held by ITAT
The Tribunal upheld the ground of rejection of books of account on the facts that there was a variation in the GP rate and further, assessee has not maintained any stock register, therefore the verification of the proper gross profit could not be done by the Assessing Officer. The valuation of the closing stock was thus, not verifiable. ITAT also directed the AO to apply GP rate of 8% instead of 9% on the basis that in past the assessee has declared lesser gross profit and which was accepted by the Department.
Held by High Court
The assessee was trading in the items of well established companies and is also a wholesaler C&F agent. In order to check veracity of the gross profit disclosed by the assessee, maintenance of stock register by the assessee was essential. The Assessing Officer had compared the gross profit rate of the assessee viz-a-viz other similar concerns. No satisfactory explanation had been furnished by the assessee for not maintaining the stock register. The rejection of books of account of the assessee by the Assessing Officer was, thus, justified
Although the principal of law in the judgments Pandit Brothers 26 ITR 159 (Punjab), Ashoke Refractories Pvt. Ltd. 279 ITR 457 (CAL) and Smt. Poonam Rani’s 326 ITR 223 (Delhi) cases relied upon by the ld counsel for the appellant is well recognized, yet they were based on individual fact therein. So, they will not support to the case of the assessee.
Accordingly, appeal of the assessee dismissed.