IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER ITA No. 641/JP/2016 Assessment Year : 2011-12 Shri Anil Kumar Agarwal cuke ITO Prop. M/s. Affairs India Vs. Ward- 1(3) 31-B, Geejgarh Vihar, Hawa Sarak, Jaipur Civil Lines,Jaipur PAN/GIR No.: AAMPA 9639 B Appellant Respondent Assessee by: Shri Shrawan Kumar Gupta, Advocate Revenue by:Shri R.A. Verma, Addl.CIT - DR Date of Hearing : 29/09/2016 Date of Pronouncement : 6 /10/2016 ORDER PER BHAGCHAND, AM assessee has filed appeal against order of ld. CIT(A)-1, Jaipur dated 19-04-2016 for assessment year 2011-12. wherein assessee is aggrieved that ld. CIT(A) has erred in confirming invocation of provision of Section 145(3) and sustaining addition of Rs. 2,20,944/-. 2 ITA No. 641/JP/2016 Shri Anil Kumar Agarwal vs. ITO, Ward- 1(3), Jaipur . 2.1 Brief facts of case are that assessee filed its return of income on 27-09-2011 declaring total income at Rs. 5,55,230/-. case of assessee was selected for scrutiny and assessment order u/s 143(3) of Act was passed on 7-03-2014 determining total income at Rs. 11,29,040/-. It is noted from assessment order that assessee derived income from trading of Kaftan Cloth and printed running cloth. details of trading results of assessee for year under consideration and past two years are as under:- A.Y. Sales Gross profit Percentage 2009-10 6,04,07,173 30,14,582 4.99% 2010-11 7,17,69,756 35,57,192 4.96% 2011-12 6,68,59,759 41,24,941 6.17% books of account of assessee were rejected by AO because of following reasons. (i) Non-maintenance of stock register of raw material and finished goods (ii) No list of closing and opening stock. (iii) No record of day to day printing cloth. (iv) No stock record of colour and chemicals purchased and used. (v) No separate details of raw material, work in progress and finished goods were maintained in respect of opening 3 ITA No. 641/JP/2016 Shri Anil Kumar Agarwal vs. ITO, Ward- 1(3), Jaipur . stock and closing stock and no quantitywise details were maintained. AO observed that assessee had not maintained stock register of raw material and finished goods, no list of opening and closing stock, no record of day to day printing cloth and no record of colour and chemicals purchased and used. It is noted from assessment order of AO in which he noticed above defects in books of account of assessee for which AO required assessee to explain reason for non-maintenance of books of account but assessee did not file any reply to this effect. Hence, AO rejected books of account of assessee and invoked provisions of Section 145(3) of I.T. Act, 1961. It is noted that AO had made addition of Rs. 5,55,243/- ( Rs. 46,80,184 minus Rs. 41,24,941) in trading results after applying gross profit rate of 7% by taking into consideration decision of ld. CIT(A) for assessment year 2009-10. 2.2 In first appeal, ld. CIT(A) has confirmed action of AO in invoking provisions of Section 145(3) of Act but restricted trading addition to extent of Rs. 2,20, 944/- by observing as under:- 3.1.2 .. (iii) It is to be noted that appellant has not been able to controvert finding of AO while rejecting books of accounts of appellant. It may be mentioned that 4 ITA No. 641/JP/2016 Shri Anil Kumar Agarwal vs. ITO, Ward- 1(3), Jaipur . in absence of qualitative details of opening stock and closing stock, their valuation is not verifiable. Further, consumption of raw material cannot be verified. In absence of breakup of opening and closing stock in terms of raw material, work in progress and finished goods, nothing can be verified and it is serious defect and true income of appellant cannot be determined on basis of books of account maintained by appellant. It is, therefore, held that AO was justified in rejecting books of account u/s 145(3) of Act. Hence, this ground of appeal is hereby rejected. 3.2.1 (i) appellant has shown gross profit rate of 6.17% on sales of Rs. 6,68,59,769/- for year under consideration whereas for immediate preceding year, it had shown gross profit rate of 4.96% on total sales of Rs. 7,17,69,756/-. It is generally accepted that with increase in turnover , gross profit rate decreases and vice versa. In instant case under consideration, though there is slight increase in gross profit rate but there is substantial decrease in turnover. Therefore, looking to totality of facts and circumstances, it would be appropriate to apply gross profit rate of 6.5% to total turnover of appellant declared at Rs. 6,68,59,769/- i.e. gross profit is estimated at Rs. 43,45,885/-. Hence, out of trading addition of Rs. 5,55,243/- made by AO, trading addition is restricted to Rs. 2,20,944/-. Thus, appellant gets relief of Rs. 3,34,299/-. In result, this ground of appeal is partly allowed. 2.3 During course of hearing, ld. AR of assessee prayed that during assessment proceedings audited balance sheet, profit and loss account, trading account along with all annexue were placed before AO. audit report in form No. 3CD were also filed before AO. assessee also filed books of account namely cash book, ledger, 5 ITA No. 641/JP/2016 Shri Anil Kumar Agarwal vs. ITO, Ward- 1(3), Jaipur . journal, vouchers and bills of expenses and purchases from time to time. There is no change in method of accounting and nature of business. No defect was found by AO except maintenance of stock register. ld. AR further submitted that accounts are audited u/s 44AB of Act by qualified person and he did not point out any defects. ld. AR of assessee also submitted that gross profit rate of assessee is better than other preceding years. ld. AR of assessee also relied on order of ITAT Jaipur Bench in assessee's own case for assessment year 2009-10 (ITA No. 288/JP/2014) wherein similar ground of assessee was allowed. Hence, gross profit rate shown by assessee at 6.17% should be accepted and invocation of provision of Section 145(3) is not justified by lower authorities. ld. AR of assessee relied on various case laws in his written submission. 2.4 ld. DR relied on order of lower authorities. 2.5 I have heard rival contentions and perused materials available on record. issue in question is elucidated herein above which is not required to repeat it again as Coordinate Bench vide its order dated 24-02-2016 in assessee's own case for assessment year 2009-10 in ITA No.288/JP/2014 has delivered verdict in favour of assessee which is reproduced as under:- 6 ITA No. 641/JP/2016 Shri Anil Kumar Agarwal vs. ITO, Ward- 1(3), Jaipur . 4.3. We have heard rival contentions and perused material available on record. We noticed that it is undisputed position that assessee has changed business from production of running cloths to Kaftan and it is also undisputed position that major sales of assessee were made in Anantpur (A.P). It is also undisputed that purchases and sales of goods were duly supported by vouchers and purchases were made from registered dealers. payments were made through account payee cheque. However, sole allegation on basis of which AO has rejected books of account was on account of assessee s failure to produce confirmations of accounts from purchasers of goods from assessee. In our view, rejection of books of account by AO was without any rhyme and reason or justification. In our view, once assessee was maintaining books of account, purchases and sales were duly vouched, there was sufficient compliance in maintaining records and there was no justification on part of AO to reject books of account. Accordingly, ground no. 1 of appeal is allowed and decided in favour of assessee and against revenue. Since we have held that books of accounts were duly maintained by assessee and no specific defect has been pointed out by AO, therefore, in our view, AO has no reason to estimate income of assessee by applying GP rate of 8.54%. authorities below have failed to bring on record basis of arriving at GP rate of 8.54% which is contrary to GP shown by assessee to extent of 4.99%. Since we have held that books of accounts were duly maintained by assessee, therefore, estimation brought on record by AO and confirmed by ld. CIT (A) is without any basis. Accordingly addition made by authorities below is hereby directed to be deleted. In view of above facts and circumstances of case and respectfully following order of ITAT, Jaipur Bench (supra), I direct to 7 ITA No. 641/JP/2016 Shri Anil Kumar Agarwal vs. ITO, Ward- 1(3), Jaipur . delete addition of Rs. 2,20,944/- sustained by ld. CIT(A). Thus appeal of assessee is allowed. 3.0 In result, appeal of assessee is allowed . Order pronounced in open court on 6 /10/2016 Sd/- (Bhagchand) Accountant Member Jaipur Dated:- 6 /10/ 2016 Copy of order forwarded to: s 1. Appellant- Shri Anil Kumar Agarwal, Jaipur 2. Respondent- ITO,Ward- 1 (3), Jaipur 3. CIT(A). 4. CIT, 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 641/JP/2016) By order, Assistant. Registrar Anil Kumar Agarwal v. ITO Ward- 1(3), Jaipur