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2016 (10) TMI 889 - ITAT AHMEDABAD

2016 (10) TMI 889 - ITAT AHMEDABAD - TMI - Rejection of books of account - addition on low GP ratio - Held that:- The undisputed fact is that the only reason for lower GP by ₹ 10,10,213/- was due to overstated closing work in progress in FY 2007-08 i.e. Asst. year 2008-09 due to wrong estimate taken by the assessee. We are of the view that purpose of assessment is to assess the correct income of the assessee for the year. If there is a mistake in the preceding year then that needs to be co .....

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possible ways to rectify its mistake in the preceding FY by revising the return, correcting the financial statement and getting it duly certified by the auditors. We, therefore find no reason to interfere with the order of ld. CIT(A). We uphold the same. The grounds raised by the assessee are dismissed. - ITA No.706/Ahd/2014 - Dated:- 5-10-2016 - Shri Rajpal Yadav, JM, and Shri Manish Borad, AM. For The Appellant : Shri Rashesh Shah, AR For The Respondent : Shri James Kurien, Sr. DR ORDER PER M .....

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tion u/s 133A of the Act was carried out at the business premises of the assessee o 15.9.2008. Partner of the assessee firm admitted to have earned unaccounted income of ₹ 1,11,00,100/- over and above the regular business of the firm and offered to disclose the same during Asst. Year 1009-10. Return of income was filed on 24.09.2009 declaring total income at ₹ 1,00,17,890/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act following by notice u/s 142(1) .....

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.3.2008 was overstated by ₹ 10,10,213/- due to wrong estimates. This overstated closing stock of work in progress as on 31.3.2008 was taken up as opening stock in the year under appeal and, therefore, GP was reduced to the extent of ₹ 10,10,213/-. However, Assessing Officer was not convinced with this reply and was of the view that books of account are audited for both the financial years which have been duly certified by partners of the firm. As per Assessing Officer this plea of th .....

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ddition towards unexplained cash credit of ₹ 8,70,238/- and after making addition of ₹ 23,30,071/- income was assessed at ₹ 1,23,47,961/-. 3. Aggrieved, assessee went in appeal before the first appellate authority. Ld. CIT(A) supported the action of ld. Assessing Officer in rejecting the books of account u/s 145(3) of the Act due to anomally in the books of account with regard to the closing work in progress. Ld. CIT(A) sustained the addition to the extent of ₹ 10,10,213/ .....

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cumstances of the case as well as law on the subject the learned Commissioner of Income Tax (Appeals) has erred in partly confirming the action of Assessing Officer and making addition of ₹ 10,10,213/- on account of low G.P Ratio. 3. It is therefore prayed that the above additions made by Assessing Officer and confirmed by learned Commissioner of Income-tax (Appeals) may please be deleted. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hea .....

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f any suppression of income or defect in the method of accounting. Fall in GP is marginal and is fully explained and looking to the nature of business activities i.e. construction business there are absolute chances of error of judgment or difference of opinion or element of estimation in determining the value of work in progress. Ld AR submitted that the GP rate might be a symptom of malice with which assessee s account would be suffering. However, it is the duty of the Assessing Officer to pin .....

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n the other hand, ld. DR supported the orders of lower authorities and further added that the overstated closing stock in previous year could have been rectified by the assessee by filing the revised return and further assessments are made for each year and true income of the particular year needs to be assessed and, therefore, income for the year under appeal has been rightly calculated by the ld. Assessing Officer. 8. We have heard the rival contentions and perused the material on record and g .....

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i.e. the year under appeal GP has lowered down to 2.82% which was the beginning of the issue before the ld. AO to examine this aspect. Before the lower authorities, assessee has repeatedly mentioned that this reduction in GP has arisen due to the mistake committed in the preceding F.Y. i.e. A.Y. 2008-09 wherein closing working in progress has been over stated by ₹ 10,10,213/- which has resulted into the overstated opening stock for the year under appeal lowering the GP rate to 3.82%. We al .....

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ellant. The reason given by appellant for reducing the income during the year that in the earlier year income was shown at higher amount as the value of closing stock was overstated by ₹ 10,10,213/- therefore to correct the mistake, income was reduced by that amount during the year under consideration, does not seem convincing. The AO has rightly held that the books of account of assessee were duly audited by auditors and closing stock valuation has been certified by the partners then how .....

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end of the relevant assessment year to do so. But, it has not been done. Now, when the appellant has come to know that there is huge rise in the profit of the year under consideration, in order to reduce the profit, he has taken this plea that the value of closing stock in the earlier year was overstated which requires to be corrected this year by reducing the profit to that extent. This change of stand by appellant cannot be accepted. The appellant cannot be allowed to change the method of valu .....

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any concern and in the case of appellant, it has contradicted its own valuation of closing stock therefore the books of account maintained by appellant are not authentic and reliable. The conclusion drawn by AO is also supported by the judgment of Hon'ble High Court of Delhi in the case of Triveni Engineering and Industries Ltd. vs. CIT reported in 320 ITR 430 wherein it has been held that accounting method cannot be changed to suit the convenience of the assessee so as to deprive the Revenu .....

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10,10,213/- in the year under consideration, he should have made the addition to that extent only by estimating the gross profit. Had the AO not in the knowledge of exact figure of under estimation of profit, he could have worked out the profit on estimation basis on the basis of earlier years G.P. rate. But, here he is in the knowledge of the specific amount of suppression of profit therefore he should have made the addition of that specific amount even if the books of account were rejected u/s .....

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t year only and it cannot be carried forward in subsequent years to be rectified or revised. There is no provision in the Income Tax Act to carry forward the mistake of earlier year and rectify it in subsequent year. Moreover, the appellant has shown the figures of closing stock at lower value in place of actual value* just to reduce his profit as per his convenience. This cannot be allowed. In this way also, addition of ₹ 10,10,213/- is liable to be sustained in the case of appellant. In .....

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