TMI Blog2023 (8) TMI 963X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals)-1, Vadodara as against the assessment order passed under section 144 and 154 r.w.s. 155 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relating to the same Assessment Year (A.Y) 2014-15. 2. Brief facts of the case is that the appellant is Private Limited Company engaged in the business of repairing and servicing of power distribution transformers, small amount of manufacturing and supply of transformer parts. For the Assessment Year 2014-15, the assessee filed its Return of Income on 26-09-2014 declaring total income at Rs. 24,96,784/-. During security assessment, the Assessing Officer noticed that the closing stock of raw material as on 31-03-2014 was of Rs. 23,77,400/- as compared to closing stock of Rs. 59,58,140/-. In Form 3CA, the Chartered Accountant has mentioned that the assessee company was engaged mainly in rendering overhauling and repairing service of power generation transformers and it had not maintained detailed records of inventory, therefore it was not possible to verify the consumption of stock and closing stock, etc. Therefore the A.O. issued a show cause notice requiring the assessee to submit the details of month-wise purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acs Employee cost in % Net Profit in Lacs Net Profit in % 1 2012-13 506.03 191.48 37.84% 48.16 9.52% 2 2013-14 325.24 166.86 51.30% 24.87 7.65% 3.2. From the above table, it can be seen that assessee s net profit has decreased by 1.87%, whereas the employee cost increased by 13.46 %. Despite steep decrease in turnover, with almost same amount of overhead costs one cannot achieve reasonable net profit for the year under consideration. The assessee being engaged in repairing of power generation transformer, the turnover depends on the nature of job received by it. The nature of job, number of jobs depends on the wear and tear of transformer. Thus the assessee to keep team of workers for whole the year, whether work is there or not. Even there is always keen competition to get the repairs jobs, the assessee required to quote reasonable rate for the job. The quantum of job is not continuous, whereas ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds of appeal are interlinked because the Net Profit is affected by the income from other sources also, the same are being dealt with simultaneously. 4.2. Undisputedly, the appellant company is mainly engaged in the business of manufacturing and repair/overhauling of the transformers: Huge raw material to the tune of Rs. 1,13,56,320/- has been consumed during the year under consideration, but, the appellant has not maintained any record of consumption of raw material. It has also not maintained quantitative record of opening stock, purchases, consumption and closing stock of various items of raw material. Therefore, it is not possible to verify the genuineness of consumption of raw material as well as valuation of closing stock as on 31.03.2014. It is worthwhile to mention that the closing stock shown as on 31.03.2014 at Rs. 23,77,400/- is substantially lower as compared to the closing stock of immediately preceding assessment year of Rs. 59,58,140/- and there is no documentary evidence available to verify the correctness of the same. The appellant has disclosed income from other sources at Rs. 48,57,180/- which includes interest on FDRS at Rs. 47,85,740/-. In the written s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t amenable to yield correct operating results and accordingly, rejection of book results u/s 145(3) was justified. b) Zamidara Timber Traders vs ITO (2015) 55 taxmann.com 80 (Delhi-Trib) In this case, the assessee purchased timber at different rates according to the quality, but, no narration of quality was maintained in the sale vouchers. No stock register was also maintained. Under these circumstances, rejection of books of account was justified. c) Sage Infrastructure (P) Ltd. vs ACIT (2013) 37 taxmann.com 32 (Guj) The assessee was a civil contractor and non-maintenance of stock register was found to be sufficient ground for rejection of books of account u/s 145(3) since, purchases, consumption and closing stock was not verifiable. 4.3.1. In view of the above facts and legal position, thus, it emerges that the books of account maintained by the appellant are not correct and complete, because the consumption of raw material vis- -vis sales and closing stock are not verifiable Accordingly, I hold that the AO has rightly rejected the book results u/s 145(3). 4.4. It is an established legal position that after rejection of books of account, a reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is decrease in returned income for A.Y. 2013-14. The comparative table containing assessment year, turnover, net profit, direct expenses like material consumption, labour charges, power fuel, overheads containing salaries, administrative expenses, finance expenses, depreciation etc. for the assessment year under consideration and last 3 immediately preceding assessment years are as under :- A.Y. Turnover Net Profit Material Consumption, Labour Charges, Power Fuel % of (c) vs. (a) Overheads (Salaries, Admn. Finance, Depreciation etc.) % of (e) vs. (a) (a) (b) (c) (d) (e) (f) 2010-11 4,31,39,511 1,28,67,471 2,12,48,123 49.25 1,18,01,971 27.36 2010-12 4,29,44,028 1,71,10,830 1,38,64,927 32.29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Superior Crafts [2012] 20 taxmann.com 144 (Delhi) (ii) CIT Vs. Inani Marbles (P.) Ltd. [2008] 175 taxmann.com 56 (Rajasthan) (iii) CIT Vs. Jas Jack Elegance Exports [2010] 191 taxmann.com 386 (Delhi) 8. Per contra, the Ld. Sr. D.R. Shri Sanjay Kumar appearing for the Revenue supported the order passed by the Lower Authorities and pleaded to uphold the same. 9. We have given our thoughtful consideration and perused the materials available on record. It is seen from the records that the turnover of the Assessee Company and net profit thereon are not static because of the nature of repairing and servicing of power generation transformers. As pleaded by the assessee, the nature of repairing jobs and number of servicing jobs depends upon the wear and tear of the transformers, whereas the assessee was required to keep a team of expert workers to attend the repairing works throughout the year. Therefore the employers cost is found to be static. It is also the case of the assessee to quote reasonable rate for being a successful bidder in the auctions for the repair works of the power generation transformers. Therefore the profit margin or profit ratio cannot be directly link ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer rejected closing stock as declared by assessee and held that there was undervaluation of closing stock-Accordingly, Assessing Officer made addition - Tribunal found that assessee had not been maintaining day-to-day account of stock but had been determining closing stock items on physical verification at end of year Considering volume of business and numerous items involved, assessee had been valuing finished goods, semi finished goods and goods. in progress on basis of sale price of these items sold in subsequent year after deducing a particular margin, which had been uniformly followed by assessee in earlier and subsequent years - Tribunal also observed that no efforts had been made by revenue to gather any other material to establish that closing stock on last day of accounting period was higher than declared value; that even if Assessing Officer rejected closing inventory on ground that no day to day stock register was maintained, he had to determine gross profit only on estimate either on basis of assessee's own past record or on basis of a comparable case; that no comparable case had been brought on record - Tribunal also found that GP rate declared by assessee in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pined that in absence of any change in factual position, profit rate declared and accepted in preceding years constituted a good basis for working out gross profit rate - Accordingly, Tribunal held that since in earlier year gross profit rate declared and accepted was 2.51 per cent, same rate should have been applied for relevant year also - Whether on facts, impugned order passed by Tribunal was justified - Held, yes 9.3. Similarly, the Delhi High Court in the case of CIT Vs. Jas Jack Elegance Exports (cited supra) held as follows: .5. Section 145(3) of Act provides for assessment in the manner prescribed in section 144 of the Act, where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee or where either the method of accounting provided in sub-section (1) or the accounting standards as notified under sub-section (2) have not been regularly followed by the assessee. This is not the case of the revenue that the assessee had not followed either cash or mercantile system of accounting stipulated in sub-section (1) of section 145 of the Act. This is also not the case of the revenue that the Central Government had noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in the previous Assessment Year 2013-14 to be adopted for the present Assessment Year 2014-15. Thus the Assessing Officer is directed to adopt 9.52% as the net profit for the Assessment Year 2014-15. Thus the Grounds raised by the Assessee is hereby allowed. 10. In the result, the appeal filed by the Assessee is partly allowed. ITA No. 917/Ahd/2019 is relating to A.Y. 2014-15 11. The Grounds of Appeal raised by the Assessee reads as under: 1. The Ld. CIT(A) erred in law and on facts in rectifying his own order dated 04.09.2018 by invoking the provision of sec. 154 and thereby enhancing the income of the Appellant by amount of Rs. 60,50,269/-. 1.1. The Ld. CIT(A) erred in law in reviewing the order in the garb of rectification by invoking the provision of sec. 154 of the I.T. Act, 1961. 12. ITA No. 917/Ahd/2019 is rectification of the Ld. CIT(A) s order dated 04-09-2018, since there is an arithmetical mistake in that order. This appeal become infructuous, since the main order in ITA No. 2367/Ahd/2018 wherein the A.O. was directed to compute the net profit at 9.52% of the turnover of the assessee relating to the Assessment Year 2014-15 and no separate a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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