Books Rejected for Absence of Stock Register and Abnormal Cash Sales: ITAT Upholds Rejection and Confirms 5% Profit Estimation u/s 145(3) [Read Order]

The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) upheld the rejection of books of accounts under Section 145(3) of the Income Tax Act, 1961, and confirmed net profit estimation at 5%, noting the absence of a stock register and abnormal spike in cash sales during the demonetisation period.

The assessee-appellant, Manglam Sales Corporations, had declared income in its return for Assessment Year (AY) 2017–18. During scrutiny, the Assessing Officer (AO) observed that the assessee had deposited cash of ₹59,78,000 in its bank account during the demonetisation period, and to prove the source, the appellant produced their books of accounts, and sale and purchase registers.

The Assessing Officer (AO) rejected the books of accounts after observing discrepancies in the tax audit report, absence of the stock register in Form 3CB, and that the cash sale in less than two months is about ₹57.25 lakh, which is highly abnormal.

The assessee submitted purchase and sales registers and claimed that all sales were properly recorded and reflected in VAT returns. The AO claimed that the supporting details were insufficient and proceeded to frame the assessment under Section 144 of the Act.

The CIT(A) confirmed the decision by AO and estimated net profit at 5%.

The Tribunal Bench comprising Mahavir Singh (Vice President) and Brajesh Kumar Singh (Accountant Member) observed that the failure to maintain a stock register, as well as the audit report, is the mere reason for rejection of the books.

The tribunal held that rejection in the turnover amount was without any basis as the complete sales data was available and was not found to be false.

Accordingly, the ITAT upheld the rejection of books and confirmed the CIT(A)'s estimation of 5% net profit on the turnover of ₹1.24 crores.

The assessee was represented by Rushabh Mehta, while Krishna K. Ramawat represented the revenue.

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