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Judgment
J.K. Ranka, J.—This income tax appeal under s. 260A of the IT Act is directed against the order passed by the income tax Appellate Tribunal, Jaipur Bench (for short "Tribunal") dt. 30th May, 2008. Brief facts, as emerging on the face of record, are that the appellant-assessee is a private limited company involved in extraction of oil from mustard seeds and also manufacturing/purchasing mustard oil and mustard oil cake. During the previous year, relevant to the asst. yr. 2004-05 under appeal, the appellant-assessee declared a total sale of Rs. 24,62,85,578 declaring a gross profit of Rs. 1,16,37,333 giving a GP rate of 4.73 per cent as against total sale of Rs. 24,15,73,513 with gross profit of Rs. 1,96,70,344 giving a GP rate of 8.14 per cent in the immediately preceding assessment year. It has been observed by the AO that the GP rate has drastically declined in comparison to not only the immediately preceding year but also the year preceding to that. It is the claim of the appellant-assessee that it has maintained complete books of accounts supported by supporting material i.e. bills, vouchers, stock register and yield of manufacturing is also reasonable. However, the AO was not satisfied and came to the conclusion that not only the GP rate has fallen drastically but also the yield rate of mustard oil is substantially lower in comparison to other concerns as also in the case of appellant-assessee itself. The AO was not satisfied with the explanation offered by the appellant-assessee. In the assessment order, it has also been observed by the AO that assessee has also failed to produce for verification the stock register of production and sale of mustard cake for the year. Not being satisfied with the overall explanation, as stated aforesaid, the AO invoked provisions of s. 145(3) of the IT Act, 1961, rejected the trading results and applied a GP rate of 6 per cent on the total sale declared by the appellant-assessee and made a trading addition of Rs. 31,39,802 (Rs. 1,47,77,135 - Rs. 1,16,37,333).
Dissatisfied with the trading addition so made by the AO, the appellant-assessee preferred an appeal before the CIT(A), Alwar. Before the CIT(A) detailed explanation, as has been reproduced in the order of the CIT(A), was offered by the appellant-assessee. However, insofar as the factum about stock register is concerned, even the CIT(A) has observed that "further the appellant has not maintained records regarding quality of mustard seeds purchased by him. It is also seen that the appellant has also not produced the stock register for verification regarding production, sale of mustard cake for the relevant period". He also observed that the loss (driage) has been recorded in a very tentative style and in the manner which suits the appellant. However, the CIT(A) considering all facts partially sustained the trading addition of Rs. 6,50,000 as against the addition made by the AO amounting to Rs. 31,39,802.
Dissatisfied with the sustenance of the addition of Rs. 6,50,000, an appeal came to be filed by the appellant-assessee before the Tribunal, who vide order impugned, has also sustained the said trading addition. While doing so, it has also been observed by the Tribunal that "The assessee has not produced the stock register for production and sale of mustard cake and therefore, the production and sale of the mustard cake declared by the assessee cannot be relied upon and therefore, the consequent yield declared for the mustard oil can also not be relied upon. Therefore, we find no infirmity in the order of the learned CIT(A) who has rightly upheld the applicability of s. 145(3) of the Act. As regards the estimation, we concur with the views of the learned CIT(A) who has rightly estimated the income and rightly sustained the addition Rs. 6.50 lacs". The appellant has challenged this addition in the present appeal.
It is the claim of Mr. Anant Kasliwal, learned counsel for the appellant-assessee that not only the Tribunal but CIT(A) as well as the AO have ignored the material fact that the appellant-assessee did maintain the stock register and the same was produced before the AO and other authorities. Learned counsel also submits that even the chartered accountant in its report in Form 3CD (Annex. 1) has specifically observed that the appellant-assessee did maintain the stock register and this report of the chartered accountant was submitted along with return of income submitted by the appellant-assessee. He further submits that when stock register has been maintained and no defect has been notified and when all purchases so also the sales are vouched and no defect has been noticed by the AO, then provisions of s. 145(3) cannot be invoked. He further submits that once the stock register has been maintained, then the books of accounts have to be held to be completely verifiable and no addition can be made. He also relied upon a judgment of Hon''ble Gauhati High Court rendered in the case of Swapna Rani Sarkar and Chandan Kr. Sarkar Vs. Commissioner of Income Tax and Others, He also submits that the results were fair and reasonable and there was no justification for sustaining the aforesaid addition of Rs. 6,50,000 which has been made merely on estimate basis without any concrete evidence. He also submits that substantial questions of law arise out of the order of the Tribunal which require consideration by this Court.
Smt. Parinitoo Jain, learned counsel for the respondent-Revenue, on the other hand, submits that the submission of counsel for the appellant-assessee has to be outrightly rejected because the authorities, namely, AO, CIT(A) as well as the Tribunal have categorically come to a specific finding recorded in the orders passed by them that no stock register was maintained by the appellant-assessee. She further drew attention of this Court to an order passed by the Tribunal subsequently on 30th Sept., 2008 in a miscellaneous application under s. 254(2) where also the Tribunal has categorically observed again that no stock register was produced. She further submits that the trading results were improper and records were maintained according to the convenience of the appellant-assessee, were not fool proof and therefore, while adequate addition was made by the AO, substantial relief has already been granted by the CIT(A) which has been affirmed by the Tribunal after appreciating the evidence on record. She further submits that it is basically a finding of fact and no substantial question can be said to arise out of the order of the Tribunal so as to call for any interference by this Court.
We have considered the arguments advanced by the learned counsel for the parties and have also perused the order impugned as also the judgment cited by learned counsel for the appellant-assessee.
At the outset, it will be appropriate to quote s. 145(3) of the IT Act, 1961, which provides as under:
Where the AO is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-s. (1) or accounting standards as notified under sub-s. (2), have not been regularly followed by the assessee, the AO may make an assessment in the manner provided in s. 144.
On perusal of the assessment order as well as the order of the CIT(A) as also the Tribunal, it is patently clear that all the three authorities have categorically come to a conclusion that the appellant-assessee did not maintain the stock register and when there is a specific finding of fact by all the three authorities below, then mere observation by a chartered accountant in its report, cannot be said to be fool proof. Even in the subsequent order dt. 30th Sept., 2008, while disposing the miscellaneous application under s. 254(2) of the Act, the Tribunal has categorically observed as under:
We are convinced with the arguments of the learned Departmental Representative that the assessee has not actually produced the stock register before any of the authorities below with regard to production and sales of mustard cake from which the AO could compute the actual production of mustard cake and consequently yield of mustard yield can also not be relied upon. We find no error in our order and the contentions of learned Authorised Representative are rejected. We find no mistake apparent from record in our order.
Thus, even subsequent to passing of the impugned order, on an application moved by the appellant-assessee again the Tribunal came to reject the claim of the appellant-assessee about maintenance of the stock register. Thus, the claim of the appellant-assessee is not supported by any of the authorities below. Even otherwise, the AO has pointed out several deficiencies noticed by him while making of the assessment order coupled with the fact that there is a drastic fall in the GP rate in comparison to the appellant''s own case and we do not find any reason by which proper explanation appears to have been made to justify the fall in the GP rate. While one may have a good case that maintenance of stock register coupled with maintenance of proper books of accounts, bills, vouchers etc., then the results have to be accepted but in the instant case, not only the stock register has not been maintained or if maintained, was not produced before any of the authorities for the reasons best known and not only this, other discrepancies noticed, have not been properly explained, not only before the AO but even before the higher appellate authorities.
As regards the judgment relied upon by learned counsel for the appellant-assessee in the case of Swapna Rani Sarkar (supra), it is entirely distinguishable in as much as in that case, the stock register was maintained and was even produced before the AO which was ignored by the AO and therefore, the matter was remitted/restored back to the learned Tribunal for fresh decision. However, in the present case, it is clear that though the assessee claimed to have maintained stock register but was not produced at any stage and there is categorical finding by all the three authorities below about non-production of the stock register. Therefore, in our view, the judgment, as relied upon by counsel for the appellant-assessee of Swapna Rani Sarkar (supra) is entirely distinguishable and does not help the appellant-assessee.
Rejection of books of accounts after invoking provisions of s. 145(3) is clearly a finding of fact and no substantial question arises out of the order of the Tribunal. It has been held by several authorities and it would be relevant to quote a few judgments on the issue.
The Hon''ble apex Court in the case of Chhabildas Tribhuvandas Shah and Others Vs. Commissioner of Income Tax, West Bengal, has observed as under:
We may point out that we are not concerned with the correctness of the conclusion and we are only concerned with the question whether there is any material in support of the finding of the Tribunal. In cases involving the applicability of the proviso to s. 13, the question to be determined by the ITO is a question of fact, namely, whether the income, profits and gains can or cannot be properly deduced from the method of accounting regularly adopted by the assessee. There is nothing special about this question of fact, and generally the only question of law that can possibly arise is whether there is any material for the finding. In our opinion the High Court was right in refusing to call for a statement of the case.
This Court in the case of CIT Vs. Singhal Natural Stone (P) Ltd., has held that the finding about rejection of income from a particular amount (from Rs. 20,78,821 to Rs. 5,15,259) was based on appreciation of material on record and accordingly it was observed that no question of law, much less a substantial question of law, arises so as to entertain the said appeal.
This Court, again in the case of Commissioner of Income Tax, Jaipur Vs. Amrapali Jewels (P.) Ltd., observed as under:
In our opinion, therefore, once the Tribunal accepted the factual explanation of assessee and accordingly deleted the additions in question made by AO in exercise of its appellate discretionary powers, then it would not involve any substantial issue of law as such. In other words, this Court in its appellate jurisdiction under s. 260A ibid would not again de novo hold yet another factual inquiry with a view to find out as to whether explanation offered by assessee and which found acceptance to the Tribunal is good or bad, or whether it was rightly accepted, or not. It is only when the factual finding recorded had been entirely de hors the subject, or when it had been based on no reasoning, or when it had been based on absurd reasoning to the extent that no prudent man of average judicial capacity could have ever reached to such conclusion, or when it had been found against any provision of law, then a case for formulation of any substantial question of law on such finding can be said to arise. Such is not the case here on facts.
This Court in the case of Pansari Gems International Vs. Commissioner of Income Tax has held as under:
The total turnover during the year under reference is Rs. 8.86 crores. The Tribunal has held that GP rate does not depend on the basis of specification of item, but it depends upon the quality, shine etc. The assessee has earned gross profit which varied from 6.32 per cent to 26.45 per cent, but from the chart filed by the assessee, it cannot be concluded that GP rate declared by the assessee was correct. AO has found that purchases were not fully verifiable. The books of accounts were rejected for various reasons. Previous year also GP rate was 18.87 per cent and this year, it has been accepted at 17 per cent by the CIT(A) and the order passed by the CIT(A) has been affirmed by the Tribunal. In view of the reasons assigned by the CIT(A) as well as the Tribunal in its orders, we find that no substantial question of law arises in the present appeal. The facts of the case and the evidence have been properly appreciated by the CIT(A) as well as the Tribunal.
This Court again in the case of Commissioner of Income Tax Vs. Dr. A.P. Bahal observed as under:
In that case, the assessee was a dealer in marble. The AO had found that the trading accounts of the assessee were not backed up with quantitative and qualitative stock details, and there was considerable fall in the GP rate. Invoking the provisions of s. 145(1), the AO was not convinced by the reason given by the assessee that the assessee had employed a method of accounting regularly and an addition of Rs. 3,34,960 was made by increasing GP rate. The CIT(A) in appeal, while substantially accepting the explanation of the assessee for reduction in the GP rate, was of the view, that the addition was on the higher side, and sustained an addition of Rs. 34,000 only, to cover up the possible leakage in the books of account. The Tribunal had upheld the invocation of the provisions of s. 145(1), but did not sustain the additions retained by the CIT(A). And this Court, in reference, held the finding to be finding of fact.
Having gone through this judgment and after hearing learned counsel for the Revenue also, in our view, the question, as to whether the additions were rightly deleted by the CIT(A) and the Tribunal is a pure question of fact, and cannot be said to be tantamounting to any substantial question of law.
This Court, again in the case of CIT vs. Jaimal Ram Kasturi (2013) 33 taxmann.com 315 (Raj), observed as under:
In our view, ultimately, the matter had been of putting an estimate on the profit of the assessee while recording the findings on facts. The CIT(A) has given cogent reason for not endorsing the approach of the AO in making assessment with reference to the case of another assessee after finding it to be not a directly comparable case and hence, not a safe guide more particularly, when assessee''s past history was available and there was no material difference in the facts pertaining to the relevant assessment year and the past history year. The CIT(A), even while accepting the past history as the relevant basis for assessment, proceeded to retain a part of the addition to the tune of Rs. 10,65,928 without cogent and sufficient reason therefor. The Tribunal therefore, while endorsing the basis adopted by the CIT(A), has found no reason to sustain any addition and hence, deleted the addition altogether.
In the totality of circumstances the Tribunal cannot be faulted in accepting the profit rate as declared by the assessee while not approving the rate as applied by the AO. The order as passed by the Tribunal does not appear suffering from any perversity or from the application of any wrong principle so as to call for interference.
The Hon''ble apex Court, though in a case of sales-tax, in the case of Commissioner, Sales Tax, U.P., Lucknow Vs. Girja Shanker Awanish Kumar, observed that the books of account of the dealer were rejected for non-maintenance of manufacturing account as required under s. 12(2) of the UP Sales-tax Act. Sec. 12(2) requires to maintain stock register in respect of raw materials as well as products obtained at every stage of production. The apex Court held that if a stock book as contemplated under s. 12(2) of the UP Sales-tax Act is not maintained, it leads to the conclusion that the account books are not reliable or that particulars are not properly verifiable, though, the judgment is under the UP Sales-tax Act it is relevant in the context of the present case.
The Delhi High Court in the case of Commissioner of Income Tax Vs. Jas Jack Elegance Exports, has observed as under:
In any case, the question whether the fall in gross profit stood explained by the assessee or not is a question of fact. Both, the Tribunal as well as the CIT(A) have accepted the explanation given by the assessee. This Court cannot disturb the finding of fact unless some perversity is pointed out in the finding of the Tribunal which is otherwise the final authority on the facts. No substantial question of law arises for our consideration in this case. The appeal is, accordingly, dismissed.
The other judgments on this point are Arya Confectionery Works Vs. Commissioner of Income Tax, and Awadhesh Pratap Singh Abdul Rehman and Brothers Vs. Commissioner of Income Tax,
In view of the aforesaid, we find no perversity or illegality in the order of the Tribunal. It is essentially a finding of fact and we find no question of law, much less substantial question of law, which can be said to arise out of the order of the Tribunal. Consequently, the instant appeal, being devoid of merit, is hereby dismissed. No order as to costs.