TaxTMI 
TaxTMI 
2019 (10) TMI 773
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....audited under section 44AB of the 'Act' and the Auditor has furnished unqualified Audit Report certifying the correctness in the accounts. (b)BECAUSE, the authorities below had taken the estimated rate of Gross Profit without considering the facts of the case, explanations furnished by the appellant and evidences as were brought on records during the course of hearing. (c) BECAUSE, in any view of the matter, rejection of accounts do not ispo facto gives rise to the jurisdiction to the 'AO' to make addition in the Gross Profit as fairly shown by the 'appellant' in the light of law laid down by the Hon'ble Rajasthan High Court in the case of CIT Vs Gotan Lime Khanij Udyog reported in (2002) 256 ITR 243(Raj.). 3. BECAUSE, the authorities below erred on facts in making and sustaining addition of Rs. 12,26,645/- on account of notional gain on foreign currency as income without considering the facts that the same is unrealizable and notional. 4. BECAUSE, the authorities below had fallen in error in disallowing prior period expenses amounting to Rs. 13,52,866/- and taxing prior period income without considering the normal pru....
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....in A.Y. 2007-08 to 0.268 Kg. in A.Y. 2009-10 During the year under consideration it is 0.33 Kg. 3. Count wise details of production consumption, sales etc. of yarns has not been maintained by the assessee. 4. Valuation of stock is neither at cost or market price as can be seen from the above tables. 5. Perusal of the above chart reveals that average cost of yarns comes to Rs. 163.66 per kg, whereas the assessee is making sales @ 95.05. Cost of processed fabrics comes to Rs. 317.78 against the average sale prices of Rs. 257.94 per kg. On the facts and in the circumstances of the case as discussed above, Manufacturing/trading results as shown by the assessee cannot be accepted. Books of account are liable to be rejected under section 145(3) of Income Tax Act and sales have to be estimated by adopting appropriate G.P. rate. There is huge fall in G.P. rate as compared to immediately preceding year. This is a fact that cotton prices have increased substantially. Other reasons as stated by the assessee cannot be totally ignored. But the fact remain that the assessee is selling goods at prices lower than its cost. The assessee has also made sales of some items a....
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....Act. Having confirmed the rejection of books of account by the AO, i have also found that the AO has reasonably estimated the gross profit rate at 16% after taking into account the GP rate disclosed by the assessee(appellant) in the previous assessment year as well as in the subsequent year and hence, I do not find any infirmity in estimation of profit by the AO and making the requisite addition of Rs. 7,31,07,000/- on account of showing low GP rate and, therefore, the addition of Rs. 7,31,07,000/- is confirmed and accordingly, ground no.1 is dismissed." 5. It was submitted that during the assessment proceedings, the assessee had produced the books of account consisting of audited balance sheet and tax audit report, cost audit report and other documents as called upon by the Assessing Officer and there is no reason for the Assessing Officer to reject the books of account. 5.1 Before the ld. CIT(A), the assessee had given point-wise rebuttal to the objection raised by the Assessing Officer. Said objections are forming part of the paper book. The ld. AR has summarized the same in the written submissions in para 6.10 to the following effect : 6.10 In fact, the observati....
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....our own record, there could be no ground or basis for drawing adverse inference by making erroneous comparisons. 6. On the basis of the above, it was submitted that firstly there was wrong exercise of power u/s. 145(3) by the Assessing Officer and secondly, even if there were alleged objections, those objections were duly answered by the Assessee the assessment proceedings as well as in remand proceedings. The ld. AR has taken us to the order passed by the ld. CIT (A) where the contentions of the assessee were duly noticed by the ld. CIT(A). Moreover, our attention was drawn to page 32 of the paper book (Annual Report) where the quantities, cost and value of raw material consumed for the assessment year 2007-08 were mentioned to the following effect : 6.1 It was further submitted that the assessee has been consistently following the same accounting method and there was no reason for the Assessing Officer to reject the books of account. Further, it was submitted that the conclusion of the Assessing Officer is wholly unsustainable. 6.2 It was submitted that on account of fall in GP ratio, the Assessing Officer is not empowered to invoke the provisions of section 145(3). It w....
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....02% which is increased by 11.61% of the relevant year GP rate. The assessee's co. had G.P. rate of 2035% in the A.Y. 2010-11 and G.P. rate of 19.69% in A.Y. 2011-12. The same has fallen to 8.41% in the relevant assessment year i.e. 2012-13. The assessee co. was asked to file the details regarding month wise sale and purchase vide notice u/s. 142(1) dated 30.01.2015. The assessee was failed to file any of these details. In absence of these details the genuineness of the trading result declared by the assessee co. could not be relied upon by the AO and this addition had been made. During the course of remand proceedings assessee co. furnished a detailed submission regarding addition on G.P. rate. It is worthwhile to mention here that AO has not indicated any discrepancy in the books of account, statutory audit report and also in tax audit report already placed on record. The AO has not rejected books of accounts u/s. 145(3) assumption basis applying G.P. Rate without finding any discrepancy in books of account. The assessee co. has maintained proper books of account and are audited under Companies Act and tax audit is also conducted as per the provisions of Income Tax Ac....
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....icer, but the Assessing Officer has to do more homework to dig up the reasons for decrease in GP/NP and for that purpose, it is the duty of the Assessing Officer to point out the specific defects as to the correctness and completeness of the books of account. Nothing has been done in the present case. 10. When we look into the order of the AO, it is clear that the Assessing Officer has given following reasons for rejection of books of account as Fall in G.P. rate (page 3 of AO). The reasons for fall in GP rate were delineated on account of following reasons: (i). Increasing raw material price (ii). Decrease in sale price The Assessing Officer in tables A,B,C,D&E at page 5 to 7 has mentioned that the production of Gray Fabrics from yarn, production of garments from processed fabrics, cost of different raw material used, average sale price of different items sold by the assessee and average rate of opening and closing stock of different items are shown. After recording all this, the AO has rejected the books of accounts of the assessee. 10.1 The assessing officer had mentioned the reason for coming to the conclusion for increase in raw material by comparing....
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....oks of account can not form basis of addition , similar view was taken in the matter of U. P State Food and Essential Commodities. 221 Taxman 16 (All). 10.4 In the present case, basis of rejection of rejection of accounts by the Assessing Officer was totally erroneous and uncalled for. The Assessing Officer has not given any reason which would fall within the four corners of the ingredients as stipulated u/s. 145 (3) of the Act. 11. We may further mention that the basis of making the addition on the basis of G.P. is also unsustainable, as making the GP addition on the basis of earlier year or future year is not called for when the rejection of books of account was found to be unsustainable. As in the present case, we do not agree with the finding of the lower authorities with respect to the rejection of books of account and in consequence thereof, we have no hesitation to hold that the GP rate of 16% is also erroneous and liable to be set aside. We may further mention that in the similar circumstances, the remand report was submitted by the Assessing Officer for the assessment year 2012-13 and the ld. CIT(A) had deleted the addition of Rs. 82.68 crores based on the remand rep....
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....l its products at a particular price, so that the assessee derives maximum profit..." 12.3 Reliance is also placed on the order of Hon'ble Punjab & Haryana High Court in the case of Saimbhi Cycles & Auto Industries, Ludhiana [(2015) 229 Taxman 552 P&H] = [TS5397-HC-2014(Punjab &haryana)-O] wherein the Hon'ble High Court has upheld the following finding of Hon'ble ITAT contained in Para 7 of the order. The same is reproduced for the sake of convenience: "...The above findings were affirmed by the Tribunal vide order dated 29.4.2013, Annexure A.III with the following observations:- "8. We have considered the rival submissions carefully. We find that first of all the assessee is a concern wherein assessee was entitled to deduction under section 80IB of the Act @ 25% which would mean that effective tax rate would be 22.50% whereas the sister concern M/s Darshan Udyog is required to pay tax @ 30%, therefore, there was no incentive to make sales at lower rate. In any case, in the detailed submissions before the Assessing Officer and CIT(A) it demonstrated that practically no sales have been made to outside parties and therefore, comparison is not correct. In any case....
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.... period income taxed by the AO during the year under consideration. However, the AO is directed to examine from the details of income furnished before him whether any prior period income has been taxed in this year and if any such income has been taxed for this year, the same should be excluded and the assessment proceeding of earlier year may be reopened for taxing the income of prior period in the relevant assessment year." 16. From the perusal of the above, it is clear that the ld. CIT(A) has directed the Assessing Officer to verify from the record whether any prior period income has been taxed in the year under consideration and if it was so then it should be excluded and added to the relevant assessment year after reopening the case for taxing the income of the prior period. In our considered opinion, the income and expenditure are required to be taxed in the year in which it was accrued and if the income is considered to be accrued in the year under consideration, may be relating to the prior period, then any expenditure laid out or expanded wholly and exclusively for the purpose of business is also required to be allowed in this year. In the present case, if we look into ....
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....ent on the said machines during the year." 17.1 It was further submitted that M/s. GIL had refused to recognize its liability to pay rent on account of non-realization of rent and that the AO had accepted this position in the preceding as well as succeeding year and no additions were made on account of notional rent. 17.2 Further, it was submitted that an amicable settlement entered between the parties in the assessment year 2011 for the total consideration of Rs. 2.60 crores based on the cost of machine and rent of machines as placed at page 162 of the paper book. It was submitted that the above said amount received by the assessee was used by the assessee for reducing the block of asset in the assessment year 2010-11. 17.3 The ld. AR relies on the decision of Hon'ble Supreme Court in the case of CIT vs. Excel Industries Ltd., 358 ITR 295 (SC) and also in the matter of CIT vs. Goyal MG Gases (P) Ltd. 303 ITR 159 (Delhi). 18. On the other hand, the ld. DR has submitted that the assessee was following mercantile method of accounting and hence, the rent is required to be shown on accrual basis in the books of account. 19. We have heard the rival contentions and perused....
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....nefits of duty free import to the assessee even without any imports having been made ; and the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic." However, when we look into the record, it is clear that the assessee has let out the machines on lease to GIL and the GIL was under legal obligation to pay yearly rent of Rs. 29.11 lacs. In our considered opinion, there is an obligation of GIL to pay rent to the assessee in terms of lease agreement and further it was under obligation to return back the assets leased to it by the assessee. Further the GIL while entering into amicable settlement had paid an amount of Rs. 2.60 crores towards the value of machines as well as for pending rent which clearly shows that the rental income of the assessee was not a hypothetical or imaginary income, ....