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Surender Jain A-24, Street No. 20, Madhu Vihar New Delhi. Vs. ACIT Circle-36(1) New Delhi.
May, 01st 2015
                   IN THE INCOME TAX APPELLATE TRIBUNAL
                         DELHI BENCH: G : NEW DELHI

                 BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER
                 AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER

                              ITA No. 6304/Del/2012
                             Assessment Year: 2009-10


        Surender Jain              vs.         ACIT
        A-24, Street No. 20,                   Circle-36(1)
        Madhu Vihar                            New Delhi.
        New Delhi.
          (PAN AEBPJ6586P)
         (Appellant)                        (Respondent)

             Appellant by          :      Shri P. Roychaudhuri, Advocate
             Respondent by         :      Shri B.R.R. Kumar, Sr. DR


                                  ORDER


PER I.C. SUDHIR, JUDICIAL MEMBER

      The assessee has questioned first appellate order on the following

grounds :-

      1. " That in the facts and circumstances of the case the Ld CIT(A)
         had erred in upholding the Order of the Ld AO by which the Ld
         AO had rejected the books of accounts and made additions by
         assuming a higher rate of gross profit.

      2. That in the facts and circumstances of the case the appellant has
         been prejudiced as the Ld CIT CA) had erred by ignoring the
         grounds raised by the appellant and confirmed the Order of the
         Ld AO.

      3. That in the facts and circumstances of the case the
                                                                                2

                                                      ITA No. 6304/Del/2012


            rejection of the GP rate as reflected in the books of accounts by
           the Ld AO and upheld by the Ld CIT(A) is bad in law and not
           evidenced.

        4. That in the facts and circumstances of the case the Ld CIT (A)
            failed to observe that the addition made by Ld AO by rejecting
           the books of accounts was made           without observing the
           principles of natural justice and without giving any show cause
           notice to the appellant.

        5. That in the facts and circumstances of the case the Ld.
           CIT(A) failed to appreciate that the Ld AO had erred in estimating
           gross profit @ 11% without observing the principles of natural
           justice.

        6. That in the facts and circumstances of the   case the Ld.
           CIT(A) failed to appreciate that the Ld AO had erred in adding
           back Rs. 39,31,192/- by estimating a higher rate of gross profit
           while completing the assessment under section 143(3)."






2.      We have heard and considered the arguments advanced by the parties

order in view of the orders of the authorities below and the decisions relied

upon.

3.       The facts in brief are that the assessee, a proprietor of M/s. Ahinsa

Textiles, M/s. Khoobsoorat design fabrics is also one of the directors in

Khoobsoorat Fabrics Pvt. Ltd. All the firm and companies are dealing in trading of

fabrics since its inception. During the year under consideration the assessee has

shown gross profit rate at 4.22 % on the turn over of Rs. 5,79,82,181/- against

the GP rate at 11.25 % in asstt. year 2008-09 and 11.73% in asstt. year 2007-

08. The AO noted certain defects as the assesee did not produce all the sale and
                                                                                3

                                                      ITA No. 6304/Del/2012


purchases bills of items purchased, some of the bills filed do not contain any TIN

No., the debit note against sales issued in two cases were not produced before

the AO, the percentage of sundry credit to the total turn over was quite high, the

figure percentage of purchases to the total turn over was 104% and that against

the purchases of Rs. 6.01 crores, the assessee has shown expenses incurred on

cartage was only Rs. 80,000/-. The AO also called for the explanation of the

assessee for showing lower GP rate during the year but she was not satisfied

with the reasons shown by the assesee in this regard. The AO thereafter found it

proper to reject the books of accounts and estimate the profit by applying GP

rate of 11% resulting into the addition of Rs. 3931192/-. The Ld. CIT(A) has

upheld the same against which the assesee is in appeal before us. In support of

the grounds the Ld. AR submitted that the authorities below have doubted

purchases only and not the sales. They have not shown any reason for disbelief

the explanation of the assessee for showing lower GP rate during the year in

comparison to the last two assessment years. The explanation shown by the

assessee in this regard was that it is a wholesale dealer of different types of

fabrics, the purchase and sales rates of which fluctuates with the supply and

demand situation in the market. The same material fetches different rate of GP

at different point of time. To survive in the market and to keep rotating its

capital one has to take decisions as per the market conditions on particular time.

The Ld. AR contented further that no notice for rejection of books of account u/s
                                                                                4

                                                        ITA No. 6304/Del/2012


145 (3) of the Act was ever issued by the AO before making the addition of profit

on estimation basis. Thus principle of natural justice has been violated. He

placed reliance on the decision of Hon'ble Jurisdiction Delhi High Court in the

case of CIT vs. Smt. Poonam Rani (2010) 326 ITR 223 (Delhi).

4.      Ld. DR on the other hand tried to justify the orders of the authorities

below with this submission that no bills and vouchers as required by the AO were

produced by the assessee. Hence the AO was having no option but to work out

the profit by estimation after rejecting the books of accounts.

5.     Having gone through the orders of the authorities below and the decisions

relied upon, we find that the Ld. CIT(A) has produced the comparative chart of

the trading result of the assessee for the current year and two preceding years

as under :-




              Assessment     Turnover          G.P. %        N.P. %
              year
              2009-10        5,79,81,181/-     4.22%         2.28%
              2008-09        2,80,08,342/-     11.25%        3.49%
              2007-08        1,58,26,733/-     11.73%        2.36%


6.      Undisputedly the assessee has shown lower GP rate in comparison to

earlier two assessment years but on the higher turn over. NP rate of the year

under consideration is however almost similar to that of the assessment year

2007-08. It is a settled proposition of law that showing a lower GP rate cannot

be a basis for rejection of books of accounts nor non-maintenance of stock

register can be basis to justify the rejection of books of accounts. The AO in the
                                                                                 5

                                                       ITA No. 6304/Del/2012


present case before rejecting the books of accounts u/s 145(3) of the Act has

also not given opportunity to the assessee to meet out the defects pointed out

by the AO to justify the invocation of the provisions u/s 145 (3) of the Act. The

reason for showing lower GP rate during the year explained by the assessee

before the AO that it is a wholesale dealer of different kinds of fabrics, the

purchase and sale rates of which fluctuate with the supply and demand situation

in the market. The same material fetches different rate of GP at different point of

time and to survive in the market and to keep rotating its capital one has to take

decisions as per the market conditions on particular time has not been rejected

by the AO with proper ground for the same. The Hon'ble Jurisdictional Delhi High

Court in the case of CIT vs. Smt. Poonam Rani (supra) has been pleased to hold

that a low rate of gross profit, in the absence of any material pointing towards

the books could not by itself be a ground to reject the accounts books u/s 145(3)

of the Act. There is no reason before us to doubt the explanation of the assessee

showing the lower GP rate during the year. Keeping in view the totality of the

fact of the present case on the issue as discussed above we are of the view that

there was no justification before the AO to reject the books of accounts of the

assessee that too without affording opportunity of being heard to the assessee

before rejection of books of accounts and estimation of profit by applying GP at

11% of the turn over. We thus while setting aside orders of the authorities below

direct the AO to accept the trading result shown by the assessee. The trading
                                                                               6

                                                      ITA No. 6304/Del/2012


addition in question is accordingly directed to be deleted. The grounds involving

the issue are thus allowed.

7.     In the result appeal is allowed.

       Order pronounced in the open court on 30th     April, 2015.


                sd/-                                               sd/-
            (INTURI RAMA RAO)                                ( I.C. SUDHIR )
          ACCOUNTANT MEMBER                                JUDICIAL MEMBER

Date     30th    April, 2015

*Veena

Copy of order forwarded to:
  1. Appellant
  2. Respondent
  3. CIT(A)
  4. CIT
  5. DR
                                                    By Order
                                                  Assistant Registrar, ITAT

 
 
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