TaxTMI 
TaxTMI 
2012 (12) TMI 744
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....d in deleting the addition of Rs.7837410/- made by the AO by rejecting the books of accounts and by invoking the provisions of section 145(3) of the Income Tax Act, 1961 ii) Whether the Ld. CIT(A) has erred by not appreciating the fact that addition of Rs.7837410/- was made by the AO after applying the G.P. rate of 30% which is mean of assessee's own G.P. rate shown for the last three years. iii) Whether the ld. CIT(A) has also erred in ignoring the fact that the assesse firm, which is engaged in export of engineering goods, is no longer eligible for deduction on export profits (i.e. u/s 80HHC) had been reducing gross profit drastically over the preceding three years whereas the sister concern of the assessee viz M/s. Chand Engineers ....
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....rt of engineering goods. During the course of assessment proceedings, the AO observed that the assessee had declared Gross Profit of Rs.2,14,49,531/- (21.14%) on sales of Rs.10.14 crores during the year under assessment as compared to GP of Rs.2,86,14,225/- (31.11%) on sales of Rs.9.19 crores in the preceding year. The assessee explained the fall in GP is on account of increase in turnover, increase in cost of manufacturing and over head expenses, dollar fluctuation etc. The AO, after observing that the assessee did not maintain records of consumption of raw material and production of finished goods, the closing stock was shown at estimated costs in respect of certain misc. items and no sale of scrap was shown, rejected the books of acco....
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....s were not considered by the AO. As regards the comparable case of M/s. Chand Engineering, the said concern is knew concern, who had installed a new machines of about Rs.4.69 crores whereas in the case of the assessee there are investment in machines of Rs.0.85 crores only. M/s. Chand Engineering was manufacturing goods with latest technology with higher profit margin. This explanation was not taken into consideration by the AO. Moreover, the assessee had changed the export basket during the year as compared to the immediately preceding year and many high margin items which were exported last year were not exported during the year. In such items, there was a GP rate of as high as 60 -62% as compared to the GP rate of 22-24% in regular it....
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....ent year in the Income Tax proceedings. Therefore, in the facts and circumstances of the case, when closing stock and opening stock are valued on the estimated basis, having no relevance with the quantitative details of purchases and sales, then any figure as estimated by the management is on adhoc figure of closing stock and therefore, directly effects the Gross Profit of the assessee and the profits deduced cannot be said to be accurate. In the facts and circumstances of the present case, we find no infirmity in the order of the A.O. who has rightly invoked the provisions of section 145(3) of the Act, in rejecting the books of account. The order of the ld. CIT(A) is reversed on this account. 7. As regards the estimation of income, w....