Case Number: ITA 661/DEL/2019
Appellant: Raghunathji and Sons, Delhi
Respondent: ITO, Ward-47(1), New Delhi
Assessment Year: 2012-13
Result: Appeal Partly Allowed
Case Filed On: 2019-01-30
Order Type: Final Tribunal Order
Date of Order: 2019-08-02
Pronounced On: 2019-08-02
Raghunathji and Sons, a partnership firm engaged in manufacturing and trading Hing, Dry Fruits, and Kiryana Merchants, filed an appeal against the assessment order for the assessment year 2012-13. The appeal challenged the addition made by the Assessing Officer (AO) based on the estimated gross profit (GP) and non-maintenance of stock records.
During the assessment proceedings, the AO observed that the appellant did not maintain any stock records and the physical stock was verified and certified by the partner. Consequently, the AO rejected the book results by invoking the provisions of section 145 of the Income Tax Act and analyzed the past results of the appellant:
Based on this analysis, the AO adopted a GP rate of 10% and made an addition of Rs. 32,12,706 to the total income of the appellant.
The appellant challenged the AO’s decision before the Commissioner of Income Tax (Appeals). However, the CIT(A) upheld the AO’s decision, leading to the appellant filing a further appeal before the Income Tax Appellate Tribunal (ITAT).
The appellant’s counsel, Shri K. P. Manjani, Advocate, argued that no defects were found in the books of accounts except for the non-maintenance of stock records. He emphasized that the books of accounts were maintained with quantity-wise details of purchases and sales, and the GP rate during the year was better than the GP rate shown in the preceding assessment year. The counsel relied on several judicial decisions to support the argument that no addition should have been made:
The counsel distinguished the present case from the cases cited by the CIT(A), such as Kachwala Gems vs. CIT and CIT vs. Chadha Automobiles India, where substantial defects in the books of accounts justified the rejection of book results and estimation of profits.
The ITAT, presided over by Shri R.K. Panda, Accountant Member, considered the arguments and examined the case details. The Tribunal noted that although the appellant did not maintain a stock register, the accounts were maintained with sufficient details to ascertain quantitative information.
The Tribunal recognized that a decrease in turnover could result in a lower GP rate and agreed that an assessee not maintaining a stock register cannot be equated with one maintaining detailed stock records. However, the Tribunal also acknowledged the necessity of ensuring revenue leakage is addressed.
Considering the facts of the case, the ITAT concluded that a complete deletion of the trading addition was not justified. Instead, the Tribunal directed the AO to restrict the addition to Rs. 2,00,000 on an estimated basis for possible revenue leakage due to non-maintenance of stock records. The Tribunal partly allowed the appeal filed by the appellant.
Source: Income Tax Appellate Tribunal, Delhi Bench ‘SMC’, New Delhi
Disclaimer: This article provides an overview of the case and is not a substitute for professional legal advice. For detailed information, readers are encouraged to refer to the official case documents and consult with a qualified legal professional.
Raghunathji and Sons vs ITO: Appeal on Trading Addition for AY 2012-13
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