TMI Blog2022 (3) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... he book results in absence of any specific defects being pointed out by the AO. Even in his remand report also, as mentioned by the Ld. CIT(A), the AO has not found any discrepancy in the data furnished by the assessee and no adverse remarks have been made by the AO except objecting to the submission of the data on the ground that during the course of assessment proceedings such explanation was not furnished by the assessee. Although, the ld. CIT(A) has called for a remand report from the AO and has given an opportunity to the AO to make his submission, however, the AO has not pointed out any defects or mistakes in the various details furnished by the assessee. See WINNER CONSTRUCTIONS PVT LTD [ 2012 (5) TMI 394 - DELHI HIGH COURT] , M/S PARADISE HOLIDAYS [ 2010 (4) TMI 111 - DELHI HIGH COURT] and JACKSON HOUSE [ 2010 (8) TMI 1156 - DELHI HIGH COURT] Thus book results cannot be rejected or addition of gross profit cannot be made on the sole or mere fact that the gross profits are very low - Decided in favour of assessee. - ITA No.843/DEL/2019 - - - Dated:- 28-2-2022 - Shri R.K. Panda, Accountant Member And Shri N. K. Choudhry, Judicial Member For the Revenue : Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice, asking the assessee to explain as to why the books of accounts should not be rejected and assessment made u/s 144 of the Act. The relevant portion of the notice reads as under:- .From the perusal of month wise sales, purchase production expenses, it is observed that the assessee company has made major raw material purchases in the month of December, January and February. However, production expenses have drastically expenses reduced in the same period. In the month of March the assessee company incurred production ₹ 2,79 crores, however- in the eleven months of the financial year i.e. April, 2010 to February, 2011 the assessee company incurred only ₹ 2.02 crores. In view of the same, it is seen that the accounts as mentioned by the assessee company are not reliable and therefore I propose to reject the books of accounts of the assessee as per section 145(3). You are requested to showcause why your books of account be not rejected and assessment made u/s 144 by 29.03.2014 failing which it will be assumed that you have nothing to state/submit and assessment made accordingly. . 2.2. In response to the show-cause notice, the assessee p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses relates only to the turnover in the first stream i.e. sale of garments manufactured by the assessee and it could not have effect on other streams of the turnover. It was submitted that there is neither mismatch of month wise purchases vis-a-vis production expenses nor the entire purchases can be correlated to the production expenses. The assessee filed a chart to substantiate that the turnover relating to first stream of AY 2011-12 is only 63.88 Crores on which the gross profit is calculated at 58.59% as against the gross profit of 70.57% in the preceding year. In the other two streams, the gross profit is progressive. It was submitted that this figure can be verified from the books of accounts and vouchers, etc. maintained by the assessee which were duly produced by the assessee before the AO. It was accordingly argued that the decline of gross profit is only in first stream, which are due to the following reasons:- i. During the year under consideration, as there was recession in the garment market, the assessee was compelled by the circumstances to close down 84 outlets out of 199 outlets and remaining outlets were closed in Assessment Year 2012-13. ii. The tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been wrongly rejected by the AO, therefore addition of ₹ 25,50,30,422/- made by applying the average gross profit of two earlier assessment years is bad in law. It is the case of appellant that the mere fall in the gross profit rate cannot lead to rejection of books of account. For rejection of books of account u/s 145(3), the AO has to point out specific defect and discrepancy in the maintenance of books of account. It was submitted that the AO called for information regarding production expenses only on 26-03-14 and detailed reply was submitted. The AO applied gross profit rate on the entire turnover, whereas the production expenses relates only to the turnover of first streams of turnover i.e., retail sale of garment manufactured and purchased . The AO was incorrect in correlating the production expenses to the entire turnover and also the purchases made in the other streams of turnover. 4.3 As per Annexure-1 of the written submissions filed on 07-12-2016, it is seen that the gross profit rate of first stream ( retail sale of garment manufactured and purchased ) in the year under consideration has declined to 58.59% from gross profit rate of the similar stream at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer has not denied about the existence of three streams of turnover having separate data of GP etc., and has submitted that the Annexures enclosed with the submission are appearing to be co-related to each other and appears to be relevant. The AO has also mentioned about the reasons for fall in gross profit rate which is mainly attributed to closing down of several outlets and recession in the market and closure of rest of the outlets in the next A.Y i.e 2012- 13. The AO has also accepted about the fact regarding decline of the turnover of the first streams to ₹ 63.37 crore from ₹ 98.72 crore in A.Y 2010-11. The AO in para 2.7 has also accepted that on similar facts in respect of assessment for A.Y 2012-13 huge loss returned by the assessee was accepted by the AO and assessment was framed for A.Y. 2012-13 at a loss of ₹ 27,60,33,300/-. Similarly, the AO has also accepted that for assessment year 2013-14 also the loss was assessed at a sum of ₹ 23,73,97,410/- after getting explanation from the assessee. In both the subsequent assessment years, the books of account were not rejected for the reason of low GP. The AO has stated that the arguments of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by the assessee and has made some minor disallowances. Thus, the method of accounting maintained by the assessee is consistence and has been accepted. 4.10 In the case of CIT Vs Winner Construction Pvt. Ltd. (supra), Hon ble Delhi High Court has held that gross profit or net profit rate can vary from year to year depending on favorable or unfavorable factors and market conditions. There can be fall or reduction in gross profit but this by itself is not a good reason to reject the books. Books results or addition to gross profits cannot be made on the sole or mere fact that the profits are low. In the case of CIT Vs Paradise Holidays (supra) it has been held the accounts. If the accounts are maintained in the regular course and are duly audited by an independent chartered accountant and are free from any qualification by the auditors, the same should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. The onus is upon the revenue to show that either the books of account maintained by the assessee were incorrect or incomplete or method of account adopted by him was such that true profits of the assessee cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retail outlets were closed during the year under consideration and rest of the retail outlets were closed in the next assessment year. Thus, the reason for decline in gross profit rate in the year under consideration is self-evident. 4.13 In view of above discussion, I am of the opinion that the rejection of books of accounts by the AO u/s 145(3) was not called for and therefore, consequential addition made by the AO of a sum of ₹ 25,50,30,422/- is deleted. Appellant succeeds in this ground of appeal. 5. In the result, appeal is allowed. 5. Aggrieved with such order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds:- 1) On the facts and in circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of GP rate of ₹ 25,50,30,422/-. 2) The appellant craves for reserving the right to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal . 6. The ld. DR heavily relied on the order of the AO. He submitted that the Ld. CIT(A) without considering the facts properly, which were brought on record by the AO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of CIT vs Winner Construction Pvt. Ltd. reported in (2012) 81 CCH 0091(Del.), CIT vs Paradise Holidays 325 ITR 0013(Del.) and CIT vs Jacksons House 198 Taxman 0385 (Del.). He submitted that when the Revenue has accepted one view consistently in subsequent years and the facts remain constant, the rule of consistency also should be followed. For the above proposition, he relied on the decisions of the Hon ble Supreme Court in the case of RadhaSoami Satsang vs CIT reported in 193 ITR 321(SC), Honda Siel Power Products vs CIT reported in 295 ITR 466 (SC) and the decision of Hon ble Delhi High Court in the case of Promain Limited vs CIT vide W.P.(C) 3910/2015 order dated 15.02.2016. 8. So far as the various decisions relied on by the AO are concerned, he submitted that the same are distinguishable and not applicable to the facts of the present case. He accordingly submitted that the order of the Ld. CIT(A) being in consonance with law should be upheld and the grounds raised by the Revenue should be dismissed. 9. We have heard the rival arguments made by both the sides, perused the orders of the A.O. and the Ld. CIT(A) and the paper book filed on behalf of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il outlets, the company has closed down 84 outlets could not be controverted by the ld. DR. The submission of the ld. Counsel for the assessee that the turnover of the assessee consists of the three streams i.e. retail sale of garments, trading of fabric and wholesale trading of garments, also could not be controverted by the Ld. DR. Under these circumstances, we are of the considered opinion that merely because there is a fall in the gross profit rate cannot be a ground for rejection of the book results in absence of any specific defects being pointed out by the AO. Even in his remand report also, as mentioned by the Ld. CIT(A), the AO has not found any discrepancy in the data furnished by the assessee and no adverse remarks have been made by the AO except objecting to the submission of the data on the ground that during the course of assessment proceedings such explanation was not furnished by the assessee. Although, the ld. CIT(A) has called for a remand report from the AO and has given an opportunity to the AO to make his submission, however, the AO has not pointed out any defects or mistakes in the various details furnished by the assessee. 11. We find the Hon ble Delhi H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. The onus is upon the Revenue to show that either the books of accounts maintained by the assessee were incorrect or incomplete or method of accounting adopted by him was such that true profits of the assessee cannot be deduced therefrom. Reference can be made to the following observations:- Revenue that the Central Government had notified any particular Accounting Standards to befollowed by tour operators. Hence, the second part of sub-s. (3) of s. 145 does not apply to this case. 6. The AO has not pointed out any specific defect or discrepancy in the account books maintained by the assessee. Admittedly, the assessee had been maintaining regular books of accounts, which were duly audited by an independent chartered accountant. As noted by CIT(A), the financial results were fully supported by the assessee with vouchers and the books of account were complete and correct in all respects. The accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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