Assessees maintaining and not maintaining stock register cannot be equated. ITAT directs addition on estimate basis for possible leakage of revenue
ABCAUS Case Law Citation:
ABCAUS 3132 (2019) (09) ITAT
Important case law relied upon by the parties:
Kachwala Gems Vs. CIT [2007] 288 ITR 10 (SC)
M/s. Chadha Automobiles India reported in 13 taxman.com 152
The instant appeal was filed by the assessee against the order of the CIT(A).
The assessee was a partnership firm and deals in trading of Kirana Merchants. During the course of assessment proceedings, the Assessing Officer (AO) observed from the audit report that assessee was not maintaining any stock record and the auditors had pointed out that physical stock was verified and certified by the partner.
The AO, therefore, held that all sales/purchases were not properly entered in the books of account. He, therefore, rejected the book results by invoking the provisions of section 145 of the Income Tax Act, 1961 (the Act).
The AO analyzed the past results of the assessee vis-à-vis the current year results and adopting the GP rate of 10% he made addition to the total income of the assessee.
In appeal the CIT(A) relying on the decision of the Hon’ble Supreme Court and Delhi High Court sustained the addition so made by the Assessing Officer.
Aggrieved with such order of the CIT(A) the assessee appealed before the Tribunal. He submitted that no defects were found in the books of accounts except non maintenance of stock records. However, the books of accounts were maintained by the assessee giving quantity wise purchases and sales. The quantity of closing stock also tallied.
It was submitted that the Assessing Officer had not given any instance of earning of higher GP of any other comparables concern. He submitted that from in past the trading addition made by the Assessing Officer was deleted by the CIT(A) and on further appeal by revenue, the Tribunal had dismissed the appeal filed by the revenue.
On the contrary, the Revenue submitted that the CIT(A) had given categorical finding that stock register was indispensable necessity for arriving of the correct profit of the business. She had also held that availability of sale/ purchase ledger alone in the absence of the corresponding stock register cannot give correct and true nature of the state of affairs of the business.
Further, it was submitted that the assessee had purchased from the sister concern where also the books of accounts were rejected. He accordingly submitted that an assessee who was not maintaining any stock register could not be equated with an assessee maintaining stock record. Therefore, the CIT(A) was fully justified in sustaining the addition made by the Assessing Officer by adopting the GP rate of 10%.
The Tribunal observed that it was the submission of the assessee that although he had not maintained any stock register, however, the accounts were maintained in such a way that quantitative details could be arrived at any point of time since quantity was given in purchase and sales register.
The Tribunal opined that an assessee who is not maintaining any stock register cannot be equated with an assessee who maintains a stock register on day today basis giving quantitative details of items traded.
Further the Tribunal noted that the GP rate had fallen although the turnover had significantly gone up as against the preceding year. The Tribunal opined that when the turnover goes up substantially it is quite possible that the GP rate may come down. However, an assessee not maintaining any stock register cannot be equated with an assessee maintaining stock register giving full details. Therefore, deleting the entire trading addition as argued by the assessee could not be accepted.
The Tribunal opined that an addition of Rs. 50,000/- on estimate basis for possible leakage of revenue due to non maintenance of stock records was sufficient to meet the ends of justice.
Therefore, the Tribunal directed the Assessing Officer to restrict the addition to Rs.50,000/-.
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