TaxTMI 
TaxTMI 
2010 (2) TMI 719
X X X X Extracts X X X X
X X X X Extracts X X X X
....dition of Rs.36,95,647 on account of low gross profit ratio. 2. That the addition sustained by the hon'ble Commissioner of Income-tax (Appeals) of Rs.36,95,647 on account of low gross profit ratio is wrong on the facts as well as in law and is incorrect and unjustified." The facts of the case are that the assessee-company is engaged in the business of texturising and twisting of yarn and also trading of the finished yarn. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee has declared the gross profit ratio of 5.36 per cent, as against the gross profit ratio of 7.81 per cent, and 8.28 per cent, respectively in the immediately preceding two years, i.e., the assessment year 2003-04 and the assessment year 2002-03. It was submitted on behalf of the assessee that in the preceding years the excise duty was levied at compounded rate whereas during the year under consideration the excise duty was chargeable on ad valorem basis. The assessee, therefore, contended that if the effect of the above change in the method of levying the excise duty is taken into consideration then the correct gross profit rate for the year under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt-company that its books of account lost in the flood because according to the Assessing Officer, the books of account and records were kept and maintained at the registered office of the assessee-company (302, Trividh Chambers, Ring Road, Surat), which is on the third floor and was not affected by the flood. The contention of the assessee that the books of account/records of the year under appeal were kept at Shop No. 152, under ground, Kohinoor Market, Ring Road, Surat was not accepted by the Assessing Officer on the ground that the assessee-company itself in its reply to question 8 of questionnaire dated May 15, 2006 submitted that the books of account have been kept and maintained at office at 302, Trividh Chambers, Ring Road, Surat. Therefore, the Assessing Officer did not accept the contention of the assessee regarding the loss of books of account/records in the flood and rejected the accounts of the appellant under section 145(3) of the Act on account of non furnishing of some of the details as mentioned in the assessment order and for not producing the books of account before the Assessing Officer. After having rejected the books of account of the assessee, the Assessing O....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the gross profit ratio in texturising industry was accepted in the assessee-company's case in scrutiny assessment order of the last year and there was no justification for making addition by adopting the average gross profit ratio of the last two years when decline was accepted in last year itself. As regards loss of books of account in flood, it was contended that the carpet area of the registered office of the assessee-company is only 1500 sq. ft. from which 5 sister concerns were operating and this space was sufficient only for keeping and maintaining the current year records and records of immediately preceding year. The space was not enough the storing all the past records which were stored at Shop No. 152, in the basement of Kohinoor Textile Market, Ring Road, Surat and which were very near to the registered office and was operating as annexure to the registered office and once the audit was over and all the returns were filed the books of account/records were stored at this place, i.e., 152, basement, Kohinoor Market, Surat which were affected by the flood and the books of account/records for the year under appeal were lost in the flood. The Commissioner of Income-tax (Appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pleting the audit and other legal procedure, the same were kept and stored at 152, basement, Kohinoor Market, where all the past records were stored and which all got destroyed in the flood which occurred in the month of August, 2006. He also argued that the assessee-company furnished the evidence in respect of loss of this books of account in the flood in the form of F. I. R. and affidavit of director of the company which are placed on pages 30 to 32 of the paper book and no defect was found either by the Assessing Officer or by the Commissioner of Income-tax (Appeals) in these evidence. It was vehemently argued by him that in the absence of any defect in these evidence it was not fair on the part of lower authorities in rejecting the above explanation of the asses-see. He also argued that the past conduct of the appellant-company also support the above explanation as the assessee never failed to produce any details/books of account whenever the same were called for scrutiny assessment in any other year. This proves that these details/books of account could not be furnished because same were genuinely lost in the flood. Once this contention is accepted there is no basis for making....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the parries could not be fully reconciled by the assessee. However, to a query by the Bench as to whether any of these differences were attributable to any wrong or failure on the part of the assessee, he could not properly reply or point out whether the difference were attributable on account of the appellant-company. We have carefully considered the rival submissions and perused the materials available on record. We have also gone through the assessment order as well as order of the Commissioner of Income-tax (Appeals) and gone through the paper book filed by the assessee and case law relied upon by him. The first question to be decided is whether the appellant-company was genuinely prevented from producing the details/books of account before the Assessing Officer for the reason that the same were destroyed in the flood. In support of its claim the appellant-company has filed the evidence in the form of F. I. R. and affidavit of the director of the company which are placed in the paper book on pages 30 to 32. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) have not found any defect in these evidence. They simply relied on a reply given by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ls. The books of account of the appellant-company were duly audited. Once the assessee's contention about loss of books of account/records in the flood is accepted then the assessment has to be framed on the basis of audited financial statements as per the law laid down by the hon'ble Delhi High Court in the case of Addl. CIT v. Jay Engg. Works Ltd. [1978] 113 ITR 389. The Assessing Officer had not pointed out any adverse reporting by the statutory auditors in the audited financial statements. This means that these financial statements are based on the entries passed in the books of account which were duly audited by the auditors and, therefore, the audited financial statements have to be accepted as the final result of the books of account claimed to have been lost in the flood. The decline in gross profit rate is accepted in last year scrutiny assessment also. Considering all these fact, we hold that the lower authorities were not justified in rejecting the account of appellant and in making addition of Rs.36,95,647 for fall in gross profit ratio. Therefore, the addition made by the Assessing Officer is directed to be deleted and accordingly this ground of appeal is allowed. &nbs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng Officer in paragraph 6.3, pages 21 and 22 of the assessment order according to which in the case of 12 parties the notices could not be served and in respect of 30 parties there was no compliance. In view of the above reasons the Assessing Officer did not accept the contention of the assessee that the payments were made by cheques. In view of this reason, the Assessing Officer disallowed a sum of Rs.6,21,130 in respect of brokerage expenses pertaining to the parties as listed on page 24 of the assessment order. The Commissioner of Income-tax (Appeals) also upheld the above disallowance mentioning the same reason as mentioned in the assessment order. Before us, learned counsel for the assessee argued that the brokerage bills could not be produced because the same were destroyed in the flood. He submitted that the complete name, address and amount of brokerage paid to all the 46 brokers were furnished to the Assessing Officer. Payments were made through "account payee only" cheques after deducting TDS, wherever applicable. In respect of enquiry conducted by the Assessing Officer, it was submitted that all these enquiries were conducted in post flood period when entire ci....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ground No. 5 in the appeal reads as under: "5 Without prejudice to other grounds of appeal, that the hon'ble Commissioner of Income-tax (Appeals) has erred in rejecting the appellant's claim of deduction under section 80-IB(4) in respect of profits and gains of Silvassa unit." This ground relates to rejection of the assessee's claim for deduction under section 80-IB(4) in respect of profit and gains of Silvassa unit. The facts of the case are that the Assessing Officer has stated that the assessee has not claimed the deduction under section 80-IB(4) of the Act nor filed the requisite Form No. 10CCB. On the other hand, the appellant claimed that the deduction was not claimed in the return because it was not having sufficient profits as per return of income. It is the Assessing Officer who enhanced the profits by making addition/disallowance. In such situation the appellant must be granted an opportunity to file the audit report in respect of its claim as per law under section 80-IB(4) for such an enhanced income. The Assessing Officer, however, rejected this claim of the assessee and the Commissioner of Income-tax (Appeals) upheld the rejection. It was held by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....subsequently, after the Assessing Officer passed an order under section 147 of the Act which resulted in profit, at which point of time the assessee claimed deduction under section 80HHC based on the audit report in Form No. 10CCAC, in view of the specific provisions available under the statute, the assessee should not be denied the opportunity to file audit report for the purpose of claiming benefit under section 80HHC." Respectfully, following the above decision of the hon'ble Madras High Court, we direct the Assessing Officer to grant the opportunity to the assessee-company to file the audit report in Form No. 10CCB on the basis of enhanced income after giving effect to this order and if on the basis of details and evidence furnished it is found that the assessee is eligible for deduction under section 80-IB (4) then the Assessing Officer is directed to grant such deduction in accordance with the provisions of law. Ground No. 6 relating to charging of interest under section 234B is consequential. The Assessing Officer is directed to charge interest under section 234B after giving effect to this order. In the result, the appeal filed by the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s in law. The Commissioner of Income-tax (Appeals) has also erred in confirming the penalty in respect of gross profit addition and brokerage addition. He further submitted that the brokerage has been paid on sales and purchases made through brokers. Complete details of same with name and address have been furnished to the Assessing Officer. However, the Assessing Officer has made addition on ground of suspicion and does not fall into category of concealment of income or furnishing inaccurate particulars of income. The Assessing Officer has made addition on account of low gross profit ratio. The addition on account of gross profit ratio is completely based on estimation and probability basis and there is no finding of concealment of income. It has been held in many case law that no penalty can be levied in respect of addition made on estimation basis of gross profit ratio. Hence, penalty cannot be made on disallowance made on estimated or probability basis. Higher rate of depreciation had been claimed on plant and machinery purchased under TUF scheme for texturising and twisting of yarn. This is clearly covered by block III (6) of appendix I of the Income-tax Rules, 1962. Texturisi....