AI Drafter 
TaxTMI 
TaxTMI 
2011 (5) TMI 1026
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....of low GP. In the assessment order the AO stated that the assessee is engaged in the business of dyeing and printing of cloth. The assessee has shown turnover of Rs. 5.56 crores and G.P. @ 20.82% in the current year as against turnover of Rs. 1.99 crores and G.P. @29.25% in the last year. The A.O. rejected the books of account u/s. 145(3) for the following reasons:- (i) The assessee company stated that it has not maintained dayto- day stock register in respect of consumption of consumables and, therefore, the quantity shown in the closing stock could not be considered correct which has affected the book result. The assessee stated that it was doing job work of processing of art silk cloth and hence quantitative details are not kept in connection with goods received, processed and dispatched. (ii) In view of the decision of the Hon'ble Supreme Court in the case of S.N. Namasivayam Chettiar 38 ITR 579, the book results cannot be acceptable. In this case, the Hon'ble Supreme Court stated as under: - "the keeping of a stock register is of great importance because that is a means of verifying the assessee's accounts by having a "quantitative tally". If....
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....ll fall by 3.03% in comparison to last year. The A.O. also accepted the argument of increase in salary and wages partially because working had been started in the last year from September 2003 only. The A.O. stated that the price hike in colour & chemicals in certain quality in comparison to previous year cannot result in such huge fall in G.P. rate. In view of these reasons, the A.O. adopted the G.P. rate at 22.80% and made an addition of Rs. 11,03,008/-. During the appellate proceedings, the assessee argued that during the assessment proceedings all the bills and vouchers were produced for verification and the A.O. has not pointed out any specific discrepancies. It was stated that they had maintained stock record of principal items on day-to-day basis but in the case of consumable items which are more than 100 in numbers are used frequently cannot be maintainable day-to-day records. The assessee stated that the decision relied upon by the A.O. in the cases are distinguishable on facts. In the judgment referred by the A.O., the Hon'ble Supreme Court has stated that merely in absence of stock register cannot be a valid reason for rejecting the books of account. The A.O. has not....
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....lete record and day to day stock register in respect of other items except the consumables. Quantitative details of other items are also maintained. It was also accepted that the assessee started new business in the last year; therefore book results cannot be compared with the last year. The assessee also explained that main reason for fall in GP was because of Cenvat Credit, increase in salary and wages and price hike in colour and chemicals. The assessee also demonstrated before the AO that in case Cenvat is added back, the GP rate of the assessee would enhance. It was contended that the assessee maintained proper books of accounts in which no defects have been pointed out by the AO. The AO accepted part of the contention of the assessee but noted that even after considering Cenvat there was a fall in GP by 3.03% in comparison to last year. The learned CIT(A) considering the totality of the facts and circumstances rightly noted that the AO has not brought any other material on record for rejecting the books results. The Hon'ble Delhi High Court in the case Smt. Poonam Rani 326 ITR 223 held that "absence of stock register alone not a ground to infer that accounts are inaccurate or....
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..../s.44AF by showing income of Rs. 88,078/-. The A.O. stated that relying on the decision of the Hon'ble Supreme Court in the case of Sumati Dayal 214 ITR 801 stated that the assessee's explanation about the nature and source is not satisfactory. In view of these reasons, the A.O. added the amount of Rs. 3,38,000/- as unexplained cash credit u/s.68 and he also disallowed interest expenditure of Rs. 25,657/- paid by the assessee on this amount. The total disallowance made by the A.O. is Rs. 3,63,657/-. During the appellate proceedings, the assessee stated that the assessee has submitted copy of confirmation of both the persons. Full name, address and PAN, copy of return of income, balance sheet and Bank statement have also been submitted to prove the identity, creditworthiness and genuineness of the transaction. The A.O. has not made any cross-inquiry with the lenders. The amount has been received through Bank account of the lenders by account payee cheque. In view of these reasons, the assessee has stated that it has discharged the onus and no addition can be made in view of the decision !of the Hon'ble Supreme Court in the case of Orissa Corporation Ltd. and the decision....