TMI Blog2006 (6) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... of 10 per cent. The closing stock has been shown at Rs. 59,69,889. A sum of Rs. 4,57,282 and Rs. 19,645 on account of overriding commission and interest respectively has been credited to the profit loss account and the net profit disclosed is at Rs. 8,72,821. Survey was conducted under section 133A(1) on the business premises of the assessee on 30/31st October, 2002. During the course of assessment proceedings for assessment year under appeal, the Assessing Officer came to the conclusion that inventory of stocks as on 31-3-2001 was neither realistic nor genuine due to the following reasons : ( i )In respect of most of the items, the exact specifications were not mentioned viz., brand name, variety etc. Thus, stocks under the various categories were not amenable to verification. ( ii )Inventory of stock prepared at the time of survey on 31-10-2002, rates quoted of various items of stock were lesser than the rates quoted in the stock inventory prepared by the assessee as on 31-3-2001. The Assessing Officer noted 27 such items on page 2 of the assessment order. ( iii )During the course of survey operations under section 133A(1), a copy of the assessee s stock statement as o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be rejected. It is seen that judicial pronouncements further strengthen the assessee s submission that the stock statement given to the bank cannot be taken for the purposes of computation of profit. Respectfully following the Jurisdictional Tribunal and Jurisdictional High Court s and other decisions, in view of the detailed discussion above, it cannot be said that correct profits cannot be arrived at from the books of account of the assessee and, therefore, the addition of Rs. 15,98,711 made is not justified and, accordingly, deleted." Revenue is in appeal. 4. The ld. D.R. contended that the decision of the CIT(A) is contrary to the decisions of the Supreme Court in the cases of S.N. Namasivayam Chettiar v. CIT [1960] 38 ITR 579 and CIT v. British Paints India Ltd. [1991] 188 ITR 44. He further relied on the decision of Calcutta High Court in the case of Howrah Trading Co. (P.) Ltd. v. CIT [1968] 67 ITR 582 , and the decision of Allahabad High Court in the case of Awadesh Partap Singh Abdul Rehman v. CIT [1994] 76 Taxman 106 , in support of the contention that the absence of stock register coupled with other factors is a valid ground for rejection of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to prepare quantitative details of the stock. The Assessing Officer has mentioned about the rates of Gum Shoes, Rain Coats, Dinner Sets etc. but he has adopted only pick and choose method. ( vii )We had submitted detailed replies to the Assessing Officer, depicting therein various instances of items of different specifications and each item having different G.P. rate at different times and at different transactions, in our reply dated 6-2-2004, 13-2-2004 and 19-2-2004 which clearly shows that the GP rate varies on transaction to transaction as well as on day to day basis. Further we had submitted the G.P. rate calculations for various items and it is not correct to say that we have submitted the details of G.P. rates calculations for selecting items only. ( viii )We have given detailed reply dated 19-2-2004 regarding the valuation of inventory prepared during survey on 30/11-10-2002 and number of instances were given in which MRP/higher rates are taken for valuation of inventory. We have calculated the cost price of approx. 225 to 300 items and photocopy of the relevant purchase bills were also provided to the Assessing Officer, for verification that the rates applied by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69. ( v ) Asstt. CIT v. Axia Engineering Co. [1996] 54 TTJ (Chd.) 335. It was further contended that in any case in the subsequent assessment year, after the agreed trading addition, the GP rate works out to 10.96 per cent and at best the same rate of profit could be adopted for the year under appeal. 7. The ld. Counsel for the assessee further invited our attention to the chart prepared of various items to support the plea that GP rate in respect of various items varies and, therefore, the average rate may be adopted. As compared to higher rate of profit adopted by the Assessing Officer. 8. We have given our careful consideration to the rival contentions. It is not disputed in this case that the assessee has not maintained any stock register. The GP disclosed in the year under appeal of 10 per cent is less than the GP of 10.70 per cent disclosed in the immediately preceding year. The assessee is not able to co-relate the sales with the purchases on the basis of the books of account. The closing stock is adopted by the assessee without supporting material or basis which could be verified by the revenue authorities. In the subsequent assessment year a survey had take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of an ordinary merchant. The account books of the assessee who carried on the business of ginning cotton showed that the yield of cotton was low in the accounting year compared with the earlier years. The explanation of the assessee was not believed by the Income-tax Officer, and relying upon the low yield and the fact that the assessee had not kept any register from day-to-day about the consumption of raw cotton and production of ginned cotton, the income-tax authorities applied the proviso to section 13 of the Income-tax Act." It is noteworthy that the Hon ble Punjab Haryana High Court has also considered the decision of the Hon ble Supreme Court in the case of Pandit Bros. v. CIT [1954] 26 ITR 159, to come to the conclusion that in certain cases, the absence of stock register and other material would justify rejection of book results. 9. Reference may be made to the decision of the Hon ble Supreme Court in the case of S.N. Namasivayam Chettiar ( supra ). In the said case, their Lordships laid down the following principle of law : "( ii ) that in cases such as the instant case, the keeping of a stock register was of great importance because that was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GP rate of 15.1 per cent. In assessment year 2003-04, the assessee had agreed to the addition of Rs. 8 lakhs including the addition of Rs. 1,15,566 on account of disallowance of various expenses. The trading addition gives a GP rate of 11.05 per cent. We consider it appropriate to adopt the same GP rate i.e., 11.05 per cent for the year under appeal. It may be pertinent to mention that in the immediately preceding assessment year, the GP rate disclosed by the assessee was 10.70 per cent and in the year under appeal, the GP rate disclosed by the assessee is only 10 per cent. Therefore, the addition to the extent of 3,23,859 is sustained which is rounded off to Rs. 3,24,000. The said addition is accordingly restored out of the addition of Rs. 15,98,711 deleted by the CIT(A). 13. We now take up the appeal of the revenue in the case of Jagat Singh Sons Agencies. The facts in this case are similar to the facts in the case of M/s. Jagat Singh Sons. The assessee has not maintained any stock register in this case also. On survey, variation in the closing stock was detected. On the basis of variation in the stock register, the assessee has agreed to the addition of Rs. 3,07,465 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in cash, in our view, is not sufficient for making the disallowance. The CIT(A) was, therefore, justified in deleting the addition of Rs. 49,354. The ground raised by the revenue in this regard is accordingly dismissed. 16. In the result, the appeals of the revenue are partly allowed. 17. We now take up the cross-objections filed by M/s. Jagat Singh Sons, the assessee has challenged the disallowance of telephone expenses sustained by the CIT(A) at 5 per cent. The disallowance on account of vehicle expenses for personal use has also been challenged. However, at the time of hearing of the appeal, the above two grounds were not pressed. These grounds are accordingly dismissed as not pressed. 18. The only other ground raised by the assessee in the cross-objection is relating to the addition of Rs. 15,98,711 on account of gross profit which had been deleted by the CIT(A). We have already dealt with this ground in the appeal of the revenue and as far as assessee is concerned, he could not have been aggrieved by the deletion of the addition. This ground raised in the cross-objection filed by the assessee is accordingly dismissed as infructuous. 19. In the result, the cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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