TaxTMI 
TaxTMI 
2010 (9) TMI 700
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....fficer, (a) Just because there is fall in rate of gross profit which was explained (b) By not correctly observing that production/consumption records are not maintained when all such records along with excise records were produced and no defect noticed therein; (c) Not accepting comparable case when Assessing Officer has not given any comparable case. (ii) The appellant submits that learned Commissioner of Income-tax (A) has not dealt with various contentions and on the facts and circumstances of the case, the book result has been wrongly rejected." 3. The brief facts are that assessee filed its return of income on 25-10-2004 declaring nil total income. The assessee's accounts are audited u/s.44AB and report in Form 3CB and 3CD was filed supported by trading account, profit and loss account and balance-sheet. The Assessing Officer during the course of assessment proceedings required the assessee to file various details and from the details AO noted that gross profit ratio of the assessee-firm has fallen steeply as compared to two preceding years and accordingly assesse....
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....eturn of income filed in this office. There are nothing but ratio analysis from the data available in financial statements filed with the return of income. (2) The assessee-firm has stated that the cost of purchase per Kgs. Has been increased. It is pertinent to mention here that the gross profit is worked out on the basis of consumption of raw materials and not on the basis of purchase of raw materials because consumption of raw material included in the opening stock as well as purchase during the year minus closing stock. (3) The assessee could not substantiate that why it has sold the finished goods on low price though the cost of finished goods i.e. cost of raw materials as well as production cost increased during the year under consideration. (4) During the course of assessment proceedings, the assessee has submitted the details of month-wise production and consumption of electricity in units. On the basis of these details, the consumption of electricity was compared with the production shown by the assessee- firm. On perusal of the details of production, it is noticed that the consumption of electricity in comparis....
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....ore me. Although, I am inclined to agree with the appellant that there could be no relation between consumption of electricity and production in a particular month due to various factors, it does not explain the fact that the appellant has shown a fall in GP of more than 11% compared to last year. In case the sale price of finished goods was lower, the purchase price of raw material would also be low. It does not make any business sense to sell finished goods at a price which is lower than the cost of production and no business could survive in such a scenario. It is also seen that the appellant is not maintaining production register in the absence of which the book results cannot be relief upon. The comparative case of M/s. Ferdin Texturisers quoted by the appellant in support of its claim does not give the true and correct picture, since there would be a number of other units in the appellant's business which are making profits or else the complete texturising industry would have closed down because of the so called losses in business. It is further seen t....
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.... and he stated that though assessee has maintained RG-1 Register, day-to-day stock and production register for texturised yarn, twisted yarn and cloth as per the pro forma given Excise Rules and Register is pre-authenticated by Excise Authority. He further stated that the registers were produced before AO during the course of assessment proceedings but he has no mentioned any concrete reason for rejecting the books of account u/s.2145(3). Another reason given in the order is of variation in production versus electricity consumption, Ld. counsel for assessee stated that GEB is taking meter reading on the date which is never be the last date of the month and GEB is taking meters reading on different dates according to their convenience, like either 22nd, 24th of month in the March ending it's assessment year. The assessee has given production as per last day of month and as meter reading dates are different, it is very fallacious to co-relate both this thing but had the AO given the assessee an opportunity to explain assessee's case, it would have convinced the AO fully. The electric....
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....ts, which are tallying with respect to the value of purchases and sales. We find from the records that there is no finding as regards to understatement or overstatement of stock with respect to value, which has been found out by the AO. Both input yarn as well as output are excisable commodity and taxed accordingly and even Excise Department has not made any observation for unaccounted sales or production or purchases. Without giving any finding that the account books are unreliable, incorrect or incomplete it cannot reject accounts. The rejection of accounts is not matter to be done light heartedly. We further find that the assessee has maintained the day-to-day production register and stock register as per the pro forma given in the Central Excise Act and the same has been produced before the Assessing Officer along with books of account during the course of assessment proceedings. It is a fact that the assessee has not maintained quality- wise register of production and stock but the assessee submitted the reason for not maintain quality-wise register is that as this are not required by Excise Laws and moreover assessee's unit is small scale unit. Furthermore, the ex....
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.... income chargeable under the Act can properly be deduced from the books of account, and he must decide the question with reference to the relevant material and in accordance with the correct principles. We are of the view that the Assessing Officer has to examine the accounts of assessee and has to consider the following questions:- (i) Whether the assessee has regularly employed a method of accounting? (ii) Even if regular adoption of a method of accounting is there, whether the annual profits can properly be deduced from the method employed? (iii) Whether the accounts are correctly maintained? (iv) Whether the accounts maintained are complete in the sense that there is no significant omission therein? In that event, if the Assessing Officer's finding on all four counts is in the affirmative, the assessee's profits are to be computed on the basis of these accounts. We find that the first proviso to Sec. 145(1), or section 145(2), can be invoked only if and where the elements attracting either of those provisions are found to exist. A clear finding to t....