2015 (10) TMI 252

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....ivate Limited company and is deriving income by way of export of ready made garments. The assessee maintains closed and adjusted Books of Account and accounts are stated to be audited. 3. During the course of assessment proceedings, the Assessing Officer noticed that the Trading Results declared by the assessee were not proper and the Gross Profit rate had declined sharply from 28.14% to 16.22%. An explanation was sought, and it was narrated by the assessee that during the previous year, relevant to the year under appeal, the assessee had made 100% export of ready made garments, that it had purchased mostly Grey fabric, and after purchasing Grey fabric the same was got printed/processed from process houses/printers etc., incurring addition....

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....er that the books had to be rejected for so many reasons mentioned in the assessment order, then there was no material before the Assessing Officer except to resort to estimation to arrive at a proper assessment and to deduce proper profits, and even the Assessing Officer gave leverage and applied G.P. rate of only 25% as against 28.14% in the immediate preceding year. He contended that the material placed on record about rates being higher this year were not supported by adequate material and thus, the appellate authorities erred in deleting the addition which was fair and reasonable. He further contended that in the assessment year 2004-05 again a G.P. rate of 22.92% was shown and this year there is a sharp decline which had not been prov....

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.... to the basis for rejection of the Book of Accounts. Though both the appellate authorities have concurred with the finding of the Assessing Officer that rejection of Books of Account under Section 145(3) of the Act is found justifiable but whether in each and every case where Books of Account are rejected, does it entitle the Assessing Officer to make an addition to the Trading results? This court has taken into consideration similar issue in the case of CIT v. Gotan Lime Khanij Udyog (supra) which has been considered by the Tribunal wherein it has been held ad infra :- "The Assessing Officer had found that the trading accounts of the assessee for the assessment year 1986-87 were not backed up with the quantitative and qualitative stock d....

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....1) was applicable." 8. This court, in the case of Malani Ramjivan Jagannath v. Assistant Commissioner of Income Tax 2007 (207) CTR 19, has held as under:- "Mere deviation in GP rate cannot be a ground for rejecting books of account and entering realm of estimate and guesswork. Lower GP rate shown in the books of account during current year and fall in GP rate was justified and also admitted by the AO as well as CIT(A) as well as the Tribunal. Therefore, fall in GP rate lost its significance. Having accepted the reason for fall in GP rate, namely, stiff competition in market and also that huge loss caused in particular transaction, neither the rejection of books of account was justified nor resort to substitution of estimated GP by rule of....