TaxTMI 
TaxTMI 
2014 (12) TMI 922
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....erefore both the appeals can be heard together. We therefore proceed to dispose of both the appeals together for the sake of convenience and thus proceed with the facts in ITA. No. 650/AHD/2010 for A.Y. 2006-07. 3. The facts as culled out from the material on record are as under. 4. Assessee is a partnership firm stated to be engaged in the business of diamonds manufacture and its export. Assessee filed its return of income for A.Y. 06-07 on 07.12.2006 declaring total income of Rs. 1,83,42,640/- and thereafter it filed revised return of income on 17.12.2007 whereby the total income was determined at Rs. Nil. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 19.12.2009 and aga....
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....d wages, electricity expenses as compared to earlier years thought the difference in carats of rough diamond manufactured was only 94.590 carats. He also noticed that though Assessee was having its own laser machine yet it had claimed laser cutting expenses. A.O also noted that electricity bills presented by the Assessee were in the name of the 3 different persons. A.O also noted that in A.Y. 05-06 order was passed after giving effect of under valuation of closing stock estimated during the earlier year. He noticed that Assessee had not given the effect of under valuation of polish diamonds which was determined in A.Y. 05-06. He was therefore of the view that if the credit for under valuation for polish diamond factory expenses is given the....
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....ns that the A.O discovered certain defects in some bills and vouchers. The AO observes that most of the factory expenses bills are not signed. The AO further observes that even though the assesseee owns laser machines, it has claimed laser cutting charges. Similarly, electricity bills pertain to more than one premises and the same is not verifiable. Thus, the AO observes that, the assessee resorts to inflation of manufacturing expenses which has resulted in low Gross Profit and hence he rejects the books. However, in my view book rejection u/s. 145(3) can be resorted to if true income of the assessee cannot be deduced from the assessee's books if it follows incorrect method of accounting. In the instant case, the AO has merely pointed o....
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....that the matter has been squarely covered by the Hon'ble ITAT's order. However, on a careful perusal of the assessment order, it is seen that AO has not pointed out any specific defects in the labour and wages payment claims either from the submissions made by the assessee or through any independent investigation. The AO has merely arrived at the purported inflation of such claim from comparison made with the corresponding expenses during the previous year. In the absence of any specific defect in the accounting or any evidence which may warrant any re computation of such claim, I disagree with the AO's estimated addition in this regard. Therefore, the addition made in this regard is directed to be deleted. 6. The next ground r....
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..... further submitted that the electricity bills presented by the Assessee were in the name of 3 different persons and thus the electricity expenses also remained unverifiable. He further submitted that A.O after considering the G.P of 3 other concerns had reasonably estimated the G.P at 7.5%. He therefore submitted that considering the various factors stated by the A.O, the books of accounts was rightly rejected and the estimation of G.P was therefore rightly made. The ld. A.R. on the other hand reiterated the submissions made before A.O and CIT(A). He further submitted that the books of accounts of the Assessee are audited and no specific defects have been pointed out by the A.O. He further submitted hat section 145 nowhere mandates the mai....