TaxTMI 
TaxTMI 
2017 (5) TMI 360
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....(b) ignoring the fact that specific defects in the valuation of closing stock of valves have been pointed out and communicated to the assessee for which the assessee failed give any satisfactory explanation. 1(c) ignoring the facts that the proposed GROSS PROFIT rate was worked out by taking specific cases of sale of specific valves and their purchase/cost price, wherever available and in remaining cases the GROSS PROFIT shown by the assessee itself was accepted and this GROSS PROFIT so worked out by the A.O. was communicated to the assessee by way of show cause letter, obviously after inferring that books of account are rejectable. 1(d) observing that books of account have not been rejected by the A.O., whereas in the assessment order repeated at many places specific defects have been pointed out in the books of account eg. Valuation of various types of valves in closing stock etc. 2(a) deleting the addition of Rs. 38,75,000/- made by the A.O. U/s 68 of the IT Act on account of bogus unsecured loans without appreciating the fact that assessee failed to prove the identity, genuineness and creditworthiness of persons/concerns from whom said unsecured loans were received. 2(b....
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.... after making various additions. 4. In the ground Nos. 1(a) to 1(d) of the appeal, the issue involved is against deleting the addition of 1,50,17,636/- made on account of lower profit rate. It is claimed by the ld. AR of the assessee that this addition was made without detecting any defect in the valuation of the closing stock. The assessee's gross profit for the year under consideration was 18.54% as against 24.83% in the immediate preceding year. The reason for decline was stated to be the increasing of cost of raw material by about 25-26% in comparison to the preceding year. The sales prices were not increased correspondingly. In some of the products, even the sale price decreased in comparison to the preceding year. Moreover, the appellant's turnover increased from 11.60 crores to Rs. 14.25 crores in comparison to the preceding year and due to increase in turnover also, the selling prices were lower to withstand competition. The books of account of the appellant were audited by the C.A. The Assessing Officer has not found any defect in the books of account and in absence of any specific defect, the audited books of account were not rejected then the Assessing Officer was not j....
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....orce in the arguments of the appellant that the Ld. AO is not I justified in recalculating the gross profit without actually rejecting the books of accounts u/s 145(3) of the Act. The Ld. AO has not rejected the appellant's books of accounts u/s 145(3) of the Act, that itself means that he has accepted the book results, which were duly audited by a qualified Chartered Accountant. The Ld. AO's powers to make a best judgement assessment are provided u/s 145(3) of the Act that - - Where the assessing officer is not satisfied about the correctness or completeness of the accounts of the assessee, or - Where the method of accounting provided in section 145(1) or accounting standards as noticed u/s 145(2), have not been regularly followed by the assessee, The assessing Officer may make an assessment in the manner provided in section 144. The Ld. AO on page No. 2 of his order has mentioned as under:- " In response to the notices, the assessee's authorized representative Sh. R.C. Garg C.A. attended and submitted the requisite details, information, documents and clarification sought for vide notices u/s 143(2) & 142(1) and as per order sheet entries. The Authorized Representative of ....
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....is lower than the market value, the appellant has rightly valued the closing stock at cost. I also find that the assessee is duly registered under Central Excise Act and was maintaining proper quantitative details in the prescribed manner. I find that the assessee has submitted complete details including quantities details of opening stock, production, sales and closing stock of raw materials, WIP and finished goods. The accounts of the assessee were duly audited U/S 44AB of the Income Tax Act, 1961 and the assessee has furnished complete details of stock as required by the statute. There is no finding that the actual cost of raw material purchased by the assessee was less than what was declared in account books. There is no finding that actual cost of wages and manufacturing expenses was less than what was declared in account books. No particular expenditure shown in the books of accounts has been disallowed by the Ld. AO. There is no finding by the Ld. AO that actual quantity of finished goods produced by the assessee was more than what it was shown in the books of accounts. There is no finding by the Ld. AO that finished product was sold by the assessee at a price higher than ....
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....sidered the submissions of the appellant as well as the findings of the Ld. AO. Keeping into consideration the various case laws of the higher appellate authorities and the Hon'ble Courts I incline to agree with the contention of the appellant that the Ld. AO could not have increased the gross profit ratio because it was low as compared to the gross profit ratio of the preceding year without rejection of books u/s 145(3) of the Act. After taking into account the submission of the appellant, finding of the Ld. AO, the position of the book results duly audited by a qualified Chartered Accountant and position of law emerging out of the above referred Judgements, I am of the considered opinion that the addition was made without any factual basis and on the basis of suspicion, conjectures and surmises. Accordingly the same is not sustainable and the addition of Rs. 1,50,17,636/- made on account of lower gross profit is deleted. The grounds of appeal are allowed." 6. Now the revenue is in appeal before us. The ld. CIT D.R. has relied on the order of the Assessing Officer. At the outset of hearing, the ld AR of the assessee has relied on the order of the ld. CIT(A) and pleaded that the l....
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....nsidered the observations of the Ld. AO in the assessment order and the above written submission of the appellant. Since certain documents viz. confirmations from the said two companies, their audited Balance Sheet, IT acknowledgements, copies of assessment orders were not submitted before the Ld. AO, the same were forwarded to Ld. AO for his comments on the same. The Ld. AO in his remand reply has stated as under: "That the additional evidence under Rule 46A shall not be admitted. The AO further elaborated the opportunities given to the assessee to produce the confirmations to prove the genuineness of the said two loans. The A.O. further states that the assessee's case was earlier scrutinized in A.Y. 2005-06. Since, there was no scrutiny between A.Y. 1105-06 to 2011-12, the genuineness of these unsecured loans could not be questioned. The AO further states that since these unsecured loans have been written by the said two companies in earlier years i.e. FY 2003-04 and 2006-07 and therefore, these credit entries cannot be considered to be genuine in the year under consideration." In reply to the remand report the appellant submitted as under: " That the Ld. AO has simply obje....
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....sion of the Ld. AR and documentary evidences produced before me, I find that these loans were not bogus loans as has been held by the Ld. AO. The documents submitted clearly establish the identity and creditworthiness of the said two parties. The loan transactions are through banking channels and through account payee cheques, even the genuineness of the said loans is proved. The assessee company has suo moto offered the said loans as income in A.Y. 2013-14 and paid the tax thereon as evident from the audited Balance Sheet as on 31.03.2013 filed before the Ld. AO as well during the course of appellate proceedings. I am inclined to agree with the contention/ submission of the Ld. AR of the appellant that same income cannot be taxed twice. The appellant company has already offered the said loans as income in AY 2013-14, the addition of the same to the income of A.Y. 2011-12 is unjustified. I have considered the submissions of the appellant as well as the findings of the Ld. AO. Keeping into consideration the various case laws of the higher appellate authorities and the Hon'ble Courts I incline to agree with the contention of the appellant that the Ld. AO is not justified in making ....
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.... appellant. This addition has been made purely because of the wrong figure of turnover for the fourth quarter taken by the learned A.O. Since, the mistake committed by the learned A.O. is apparent from the Form CST-1 of the fourth quarter, the addition may kindly be deleted as it is incorrect. During the course of hearing the appellant further submitted copy of the CST-1 form for the 4th quarter, which shows the gross sales turnover for the 4lh quarter at Rs. 4,64,28,104/-. The appellant submits that the correct gross sales turnover for the 4th quarter was Rs. 4,64,28,104 but there was a mistake while preparing the VAT-10 return of 4th quarter in which the sales within state of Rs. 3,47,186/- has been added twice. The AR also explained that the CST-1 form filed for the 4th quarter gives the correct figure of gross sales turnover of Rs. 4,64,28,104/-." I have carefully considered the observations of the Ld. AO in the assessment order and the above written submission of the appellant. The Ld. AR has filed copies of assessment order reveived from Rajasthan sale tax department which proves that sales turnover figure appearing in the audited P & L account is correct. I find that thi....
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....he provisions of section 145(3) of the Act, the A.O. should have satisfied that the books of accounts maintained by the assessee suffered from various major defects and he should have pointed out such defects due to which the actual income earned by the assessee cannot be adduced and the law does not permit the rejection on doubtful presumption/assumption using either this or that". As regards the doubtful under valuation of closing stock, it may be mentioned here that the appellant company has valued the closing stock as per the valuation method consistently followed by it since the beginning of the business and this has not been disputed by the A.O. anywhere in the assessment order. Further, as per the submissions and evidences placed by the appellant company, the appellant has valued its closing stock at a higher rate than the valuation of opening stock. Further, the A.O. has not made any finding about the rate at which the appellant should have made the valuation of its closing stock. In my view, if the A.O. was not satisfied with the rate at which the valuation of closing was made by the appellant, then he should have worked the rate at which the closing stock should have been....