TMI Blog2023 (1) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... tward register is being maintained by the Assessee on regular basis. Hence, we are inclined not to interfere in the rejection of books of account. Coming to the application of GP rate @ 3% on sales by the Assessing Officer and affirmation thereof by the learned Commissioner, we observe that the AO has taken into consideration the prevailing GP rate amongst similar jewellery exporters who have declared GP rate @ 4-8% in the vicinity and, therefore, application of GP rate @ 3% on sales as reasonable and appropriate. AO has no where mentioned details of similar jewellery exporters and has remarked qua the prevailing GP rate in general and, therefore, the same is un-sustainable. Considering the peculiar facts and circumstances of the case and past history of the GP and NP declared by the Assessee, in our considered view, as agreed the parties too, justice would be met by directing the AO to apply the GP rate @ 2.5% as declared by the Assessee in immediately preceding assessment year, as justified and reasonable, hence order accordingly. Consequently, the appeal filed by the Assessee is liable to be allowed partly. - ITA No. 2435/Del/2015 - - - Dated:- 28-12-2022 - SHRI ANIL C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al record of 22 ct. gold jewellery manufactured by him, it is practically impossible to ascertain the correct quantity and value of gold jewellery in the possession of the Assessee as on 31.3.2011. 3.1. The AO further held that examination of books of the Assessee clearly revealed that the Assessee does not maintain a regular stock register. Despite being accorded several opportunities, the Assessee failed to produce any record of physical stock of goods. Further, neither the sale bills nor the so called stock register contain any information as to type of jewellery manufactured, actual quantity in terms of number of items, designs or specifications. In the absence of these vital details, the genuineness of value addition charges claimed by the Assessee is unascertainable. Further, the Assessee could not produce a single purchase order placed by parties in respect of export sales, which would have contained any details as to quantity of jewellery, type of jewellery, design, specifications and rates charged by them. It is highly improbable that an Assessee would have sale transactions over crores of rupees with parties in International market without a single record of orders pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee firm charge 3% making charges of export while our direct expenditure is only .76% which show that the decline in G.P. ratio is due to fluctuation in gold price. 6.) Assessee firm completely depend on buyer like M/s Alkabi Jewellers, whenever Assessee firm export jewellery the purchase price of gold fixed accordingly, that is why the purchase price and sales price are same. Assessee firm amin source of income is only making charges. Second Assessee firm import gold from M/s Alkabi Jewellers for which there is no payment terms and it is adjustable against the export to Alkabi Jewellers. Alkabi Jewellers make the makes payment after netting of import and export. 5. The Assessing Officer though considered the reply/contentions of the Assessee but found not acceptable and ultimately rejected the books of account and trading results u/s 14593) of the Act by observing as under: 4.3. The reasons for contention of the Assessee not held to be acceptable are as hereunder: (i) The Assessee's contention at S.Nol 2 are absolutely baseless and illogical since the supervisor to whom Assessee claims to be delivering gold for manufacture is just an employee of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermined rate and value, the same cannot be held to be genuine transactions. (vii) It is also significantly noteworthy that Assessee has submitted absolutely no justification for the decline of over 0.5 % in GP Rate since previous year. The very fact that over 90% of business transactions of the Assessee were with Alkabi Jewellers only in both financial years, also proves that Assessee had stable fixed customer base which was not affected by other market factors. The Assessee has not been able to put forth any market exigency that could have caused decline in business profits since previous year. Also, since Assessee itself claims that its main source of income is value addition only, there exists no justification for decline in GP rate over the previous year, because purchase and sale value of gold declared by the Assessee is the same. 6. The Assessing Officer ultimately held that trading result declared by the Assessee is incorrect. Keeping in view GP rate of 2.5% declared by the Assessee in immediate preceding year, as also the prevailing GP rate amongst similar jewellery exporters which have declared GP rate in the vicinity of 4-8% it would be reasonable and appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is held that these books of accounts have been rightly rejected by the AO u/s 145(3). Accordingly, the 4th ground of appeal is dismissed. 8. The next question is quantification of income. The Hon'ble Supreme Court in the case of British Paints India Ltd. (supra) has held as under: What is the profit of a trade or business is a question of fact and it must be ascertained, as all facts must be ascertained, with reference to the relevant evidence, and not on doctrines or theories: no assumption need be made unless the facts cannot be ascertained, and then only to the extent to which they cannot be ascertained. There is no room for theories as to flow of costs. Minister of National Revenue v. Anaconda American Brass Ltd. [1956] AC 85; [1956] 30 ITR 84,99 (PC). Section 145 of the Income-tax Act, 1961, confers sufficient power upon the officer-nay it imposes a duty upon him-to make such computation in such manner as he determines for deducing the correct profits and gains. This means that where, accounts are prepared without disclosing the real cost of the stock- in-trade, albeit on sound expert advice in the interest of efficient administration of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3). The rule of law on this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh v. Commissioner of Income-tax, Punjab [1944] (12 I.T.R. 393.) [Held: On the facts of the case that both the Income-tax Officer and the Appellate Tribunal in estimating the gross profit rate on sales of the assesses did not act on any material but acted on pure guess and suspicion and therefore it was a fit case for the exercise of the power of the Supreme Court under Article 136 of the Constitution of India.] 8.2. The Hon'ble Supreme Court in the case of McMillan Co.; 33 ITR 182 has held that the AO even when he accepts the Assessee's method of accounting, is not bound by the figure of profits shown in the accounts. The AO must refer to the inherent defect in the system and record a clear finding that the system of accounting followed by the Assessee is such that correct profits cannot be deduced from the books of account maintained by the Assessee. It is not open to the AO to intervene and substitute a different system of accounting from the one which is followed by the Assessee, on the ground that the system which commends to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We fail to understand, once the Assessee having stock of raw-material then how the stock register of manufactured goods is not necessary. Further, the Assessee tried to shift the onus upon the Supervisor, whereas it is a fact that Supervisor is working for the benefit of the Assessee firm only and, therefore, the Assessee is not justified in not maintaining the stock register of the finished items/ gold jewellery. 9.1 Before us, the Assessee also failed to controvert the findings of both the authorities below with regard conclusion drawn and rejection of its books of account on the pretext that Assessee would have sale transactions over crores of rupees with parties in International market without a single record of orders placed, the terms and conditions of payment, date of delivery and rate of such sale/purchase. The books of account are neither complete nor reliable since no stock register, goods inward register, goods outward register is being maintained by the Assessee on regular basis. Hence, we are inclined not to interfere in the rejection of books of account. 9.2. However, coming to the application of GP rate @ 3% on sales by the Assessing Officer and affirmation the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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