TMI Blog2005 (2) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer further observed that up to the assessment year 1997-98, the assessee was doing business in synthetic stone only and the present business of trading in gold, silver and diamond has been started from this year only. The Assessing Officer also observed that the turnover of the assessee in the assessment year 1997-98 when he was doing business in synthetic stone was Rs. 2,46,534 on which the gross profit shown was at Rs. 83,886 which comes to 34 per cent. During the year the assessee has started business of bullion and diamond in wholesale basis and his turnover is Rs. 79,39,22,675. The assessee has shown G.P. at Rs. 14,46,772 which in terms of percentage comes to 0.18 per cent. Since the GP shown by the assessee is very low as compared to other dealer dealing in same commodity, the Assessing Officer issued show-cause notice to the assessee as to why its results should not be rejected. It was submitted by the assessee that there was competition in the market in this line of business and the G.P. margin is very low. The assessee also submitted the statement of day-to-day purchases, sales and profit/loss arise and the margin of G.P. and submitted that the book resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. The Assessing Officer was also present at the time of hearing and he was also shown both cash and debit sales which were comparable, the CIT(A), therefore, held that it cannot be said that in case of cash sales, sale rate was less. He therefore, deleted the additions made on account of gross profit. 6. Aggrieved by the order of the CIT(A), the Department is in appeal before the Tribunal. It was contended by the learned DR that in spite of giving opportunity, the assessee failed to furnish full names and address of the cash purchasers, and therefore, sales was not open to verification. He, therefore, submitted that the matter should be restored back to the Assessing Officer for examining afresh and assessee may be directed to furnish names and addresses of the purchasers so as to enable the Assessing Officer to verify the correctness of the sales/purchases in the books of account. 7. On the other hand, the learned AR, Mr. D.M. Rindani, Chartered Accountant vehemently argued that during the course of scrutiny assessment the assessee had filed audited books of account in which there was no adverse comment by the auditor along with quantitative details of daily purchase and sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer. As per the learned AR, expenditure on sales-tax was in Profit Loss nature which was earlier inadvertently debited to the trading account, which could not be a reason for rejecting the book results. The learned AR also invited our attention to the comparable, cases furnished by the assessee before the Assessing Officer, dealing in the same items in which GP at much lower rate was declared. As per the learned AR, the assessee was not having his own capital, therefore, purchase was on credit basis for only two days and because of paucity of funds, the assessee could not hold the stock for a long period, and started selling immediately on receipt of goods. He, therefore, submitted that the Assessing Officer has not given any valid reason for rejection of book results and estimation of profit at 0.41 per cent of the sales. The learned AR also relied on the judgment of Kerala High Court in the case of M. Durai Raj v. CIT [1972] 83 ITR 484 in support of proposition that the department was not justified in rejecting the book results on the plea of lo~ gross profit rate and absence of particulars of address of the customers, without which verification of sales was not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds could not hold the stock and because being new entrants, was not able to get long credits on the purchases. 9. As per our considered view before rejecting the books of account, the Department has to prove that accounts are unreliable, incorrect or incomplete, the accounts regularly maintained in the course of business, duly audited under the provisions of I.T. Act and free from any qualification by the Auditors, should be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. Even though, it is not possible to lay down the exact circumstances in which accounts should be rejected as unreliable or incorrect, yet the accounts may be rejected as unreliable if important entries and transactions are omitted therefrom or if proper particulars and vouchers, bills, etc. are not forthcoming or if they did not include entries relating to particular class of business transaction. The assessee should invariably be given opportunity for offering explanation regarding defects in accounts and on his failure to satisfactorily explain the defects, the Department would be justified in rejecting the books of account. Thus, books of account should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine the assessee's income as per the provisions of section 145. Income-tax provisions nowhere either authorize the Assessing Officer or cast an obligation on the assessee to prove a negative result, i.e., to prove as to why he failed to make a profit at a particular rate. In disposing of an appeal from against any order under section 143(3)/144, the First Appellate Authority need not confine itself only to the materials on record at the time of assessment. It may make such enquiries as it thinks fit. The First Appellate Authority has all the powers which the original authority may have. In the absence of any statutory provisions to the contrary, the appellate authority is vested with the plenary powers, which the subordinate authority has in the matter. In this case, the CIT (Appeals) himself has looked into audited accounts as well as quantitative statement of daily sales and purchases and compared it with the rate prevailing in Ahmedabad Bullion Merchant Association and found that the profit arrived at in each and every transaction was correct. All these exercise was done by the CIT(A) in the presence of the Assessing Officer. No ground has been taken by the Revenue with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gross Profit of earlier years along with all the facts and circumstances of the case. By rejecting book result, the Assessing Officer does not get absolute and unbridled powers to estimate whatever profit he wants, as per his sweet-will. 14. Sales-tax was paid by the assessee on sales which is liable to be debited in Profit Loss account and which has been correctly dealt with by the assessee by rectifying its inadvertent mistake. Non-supply of full name and address in case of cash sales cannot be a reason for rejecting books of account, as held in the judgment of M. Durai Raj's case by the Kerala High Court, relied on by the learned AR. 15. The fact that some of the cash vouchers, the names and addresses of buyers were not fully written, may give rise reason to doubt regarding genuineness of the sale price, but mere suspicion is not enough for making addition by estimating higher G.P. rate. For rejecting sale price of cash transactions, the Assessing Officer has to bring corroborative material on record to reach to the conclusion that sale price of these cash bills were lower than the sale price of credit sales bills in respect of which full names and addresses of the buyers ..... 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