Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2020 (8) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (8) TMI 7 - AT - Income TaxRejection of books of account u/s 145(3) - non maintenance of stock register and the incorrect method of valuation of stock adopted by the assessee - estimation of gross profit earned - CIT(A) who upheld the rejection of books of account but at the same time reduced the estimation of GPR from 18% to 16% - contention of Assessee that merely because stock registers were not maintained by the assessee it could not be the reason for rejecting the books of accounts and when the assessee had explained that since it was manufacturing large number of small items it was not feasible and was not in the practice of maintaining stock register for each items - HELD THAT:- As for the non maintenance of stock register the assessee has explained the non feasibility of maintaining it considering the fact that it was dealing in a large number of small items. It was also explained that the assessee was consistently following the method of physically verifying its stock at the end of the year. We are not in agreement with the Revenue that the non maintenance of stock register was sufficient for exercising the power of rejecting the books of the assessee. It is not unusual for businesses dealing in large number of small items and operating at a small or medium scale to do away with the maintenance of any stock register since it is not feasible maintaining movement of stock of every such item. Such businesses usually verify physically their stock at the end of the year and all wastages, pilferages and other losses therefore get automatically accounted for in the process, reflecting thus the true profits earned by the assesses. As assessee has been doing the same consistently, following the method of determining its stock at the end of the year by physically verifying the same and not maintaining any stock register since it was dealing in a large number of small items. We fail to understand how the non maintenance of stock register has affected the determination of true and correct profits of the assessee in the circumstance. The Revenue has found no other defect in the books of the assessee. Therefore in our opinion the mere fact of non maintenance of stock register cannot be the basis for rejection of books of accounts. Method of valuation adopted for determining the value of the stock - Merely because of adoption of an incorrect method of valuation or merely on account of non compliance with the prescribed accounting standard, the books of accounts cannot be rejected. In fact in such cases the correct accounting standard or the correct method of accounting should be applied by the Revenue and the true and correct profits determined. Such defects, relating to method of valuation of stock, do not render the books of accounts unreliable, incorrect or incomplete, in which circumstances alone the Books of accounts can be rejected. On the contrary such defects can be cured and the taxable profits determined by applying the correct method of accounting/valuation. We set aside the order of the Ld. CIT(A) upholding the rejection of books of accounts of the assessee under section 145(3) of the Act. We further direct the AO to determine the value of stock after applying the correct method of valuation and thereafter determine the taxable profits earned by the assessee. For this limited purpose the issue is restored back to the AO. - Decided in favour of assessee.
|