1. The appeal by the assessee arises out of the order dt. 4th June, 1992 of the CIT(A)-I, Indore, pertaining to the asst. yr. 1989-90.
2. The only grievance of the assessee relates to the sustenance of addition of Rs. 62,900 by the CIT(A) and all the grounds of appeal relate thereto.
3. Briefly stated, the assessee is a firm of three partners engaged in the trading of suitings and shirtings on semi-wholesale and partly on retail basis. In the year of account, which consisted of 17 months, the assessee disclosed gross profit at 9.25 per cent. on total sales of Rs. 82,77,702. The AO found that there was fall in GP by 1.5 per cent. in the year of account as compared to the preceding two years. With a view to verifying the correctness or otherwise of the GP rate disclosed, the AO picked up three sales instances and found that the gross profit in them varied from 11 per cent. to 14.5 per cent. He further found that in three comparable cases, the gross profit disclosed ranged between 10 to 13 per cent. He, therefore, rejected the book results, invoked provisions of s. 145(1), estimated the sales at Rs. 82,80,000 and applied gross profit at 10 per cent. which resulted in the impugned trading addition.
4. On appeal, agreeing with the AO, the CIT(A) upheld the addition.
This has brought the assessee before us.
5. The learned counsel for the assessee submitted that the assessee-firm is assessed to tax since asst. yr. 1967-68. No trading addition has been made in earlier or subsequent assessment years. It is argued that the assessee has maintained proper books of accounts which are duly audited. No defects have been pointed out by the AO. It is pointed out that the assessee has maintained so many quality of suitings and shirtings along with so many range in amount, so it is not practicable to maintain the quantitative details of all types of cloth separately. The learned counsel for the assessee also submitted that the details of the comparable cases quoted by the AO were not supplied to the assessee either by the AO or even by the CIT(A). He further argued that the reasonableness or otherwise of gross profit cannot be ascertained from picking up three instances only at random. In support of his arguments that merely for low gross profit as compared to the preceding years and/or other dealers without bringing on record defects in the books maintained by the assessee, book results cannot be disturbed, reliance was placed on the following decisions : 6. In oppugnation, the learned Departmental Representative submitted that the Revenue authorities have given cogent reasons for rejecting the book results and making the impugned addition, which deserves to be maintained.
7. We have considered the rival submissions, perused the orders of the Revenue authorities as also the documents made available to us by the learned counsel for the assessee. It is not in dispute that the assessee had maintained books of account in the regular course of its business. It would be seen from the assessment order that during the course of assessment proceedings, the assessee had produced the books of account, which were examined by the ITO. It is noticed that no defects could be detected by the AO on such examination of the books produced before him. It is also obvious from the assessment order that entries in the books of account are supported by bills and vouchers and the AO has observed that the books were examined with reference to bills and vouchers. It is also an admitted position that in the year of account, the sales had registered increase and the same had more than doubled in the year of account as compared to the preceding two years.
The slight fall in the margin of gross profit was explained by the assessee and it was asserted that the result shown in the books are reasonable looking to the volume and nature of assessee's business. It was also stated before the AO that the profit margin is not uniform in respect of materials sold by the assessee in the year of account.
Several dress materials were sold at much lesser margin of profit than what was found in random check of three instances of sales picked up by the AO. It is also observed from the assessment order that during the course of assessment proceedings, the assessee had furnished inventory of closing stock. It is, therefore, not correct to say that the results are not verifiable when the sales and purchases are fully vouched and had been produced before the AO. The stand of the assessee that the details of alleged comparable cases were not supplied to the assessee could not be refuted by the learned Departmental Representative.
Admittedly the accounts are audited and the AO had looked into the audit report as well. This fact is also ascertainable from the assessment order itself. We, therefore, hold that in the absence of any defects found in the audited books of account and merely because the profit declared as per books is slightly low as compared to the preceding year in which plausible explanation has been furnished, rejection of book results is not justified. In a composite trading account of semi-wholesale and retail business, a gross profit of 9.25 per cent. on declared sales cannot be said to be unreasonable. We, therefore, set aside the orders of the Revenue authorities and direct the AO to accept the book results.