INCOME TAX ACT, 1961

Section 145(3)

Accounting method - Rejection - Allegation, low GP rate and non-maintenance of qualitative stock details, etc. -

Assessee firm was engaged in manufacturing, trading, import and export of precious and semi precious stones, jewellery, etc. AO on perusal of audited financial statements and details of trading results furnished by assessee, noticed that assessee had shown low GP rate of 24.85% and low N.P. rate of 0.62% in comparison to immediately preceding two years. Further, purchases, and sale were not fully verifiable from the stock register in terms of raw material, goods under process of manufacturing and finished goods adversely affecting trading results. Further, expenses have been partly found verifiable and most of the expenses have been found supported by self-made vouchers, the cash sales were not fully subject to verification, therefore, AO rejected assessee's books and made addition applying GP rate of 26% to declared turnover of assessee-firm. Held: As far as rejection of books due to reduction in GP rate was concernd same could not be done since assessee was engaged in jewellery business where gold prices are decided in international markets and assessee had to sale the items at prevalent price only, whereas stock represented historic price. Any adverse fluctuation effected GP. Hence, there remained no control in the hands of assessee to maintain fixed margins. Further, Day wise complete stock register was produced and AO could not point out any specific items for which qualitative and quantitative details were not available. Also, assessee was maintaining category-wise day-to-day inventory of raw material.day-to-day inventory of issue and receipt of material to Karigars for manufacturing and day-to-day qualitative as well quantitative inventory of finished goods. All purchase and sale bill were reflecting in stock register along with reference of their Bill No. Complete Sale and Purchase bills were submitted before AO to facilitate the verification. However, no specific instance of entry not found in stock register was brought into notice of assessee whereas assessee kept on asking to point out such specific defect but AO never pointed out any specific defect in stock records. The nature of business was such that some cash sale is obvious. Assessee submitted complete sale bills containing name and address of customers. Every sale had been entered into stock register with reference to Bill Number. Further details were submitted along with total cash sales bifurcated into two parts; Counter cash sale and sale made for which direct cash was deposited by customer in bank account of assessee. AO never required assessee for any verification of the same, however, declared turnover was accepted and assessed. Accordingly, there was no justifiable basis for rejection of books and trading addition made on rejection was thus deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

INCOME TAX ACT, 1961

Section 36(1)(iii)

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