TMI Blog2014 (4) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts at the rate of 23.04% which was the gross profit rate shown by the assessee itself in the immediately preceding assessment year 2005-06 - The CIT(A) estimated the rate of gross profit of the assessee at 22% without any basis - the rejection of books of accounts by the AO was fully justified as no material was brought on record to show that the yield of the assessee was verifiable - the average of gross profit rate shown by the assessee in the immediately preceding two assessment years i.e. 2004-05 and 2005-06, and after including the gross profit rate for the assessment year 2006-06, works out to 21.79% - thus, the order of the CIT(A) is modified and the AO is directed to re-compute the income of the assessee by adopting the Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there was reduction in the gross profit of the year under consideration. The explanation of the assessee was that the insurance company accepted the claim of loss of the assessee at Rs.44.85 lakhs as against the actual loss of Rs.50.09 lakhs and therefore the loss on account of fire of Rs.5.34 lakhs was debited in the Profit and Loss account. Further, it was also explained that the assessee incurred an expenditure of Rs.6.96 lakhs towards workers settlement reached during the year in the Labour Court in case No.511/05. The award was given on 27.10.2005 and accordingly the payment was made to the workers. During the year, payment of Rs.3.48 lakhs was made and a further provision of Rs.3.47 lakhs was made in respect of the balance amount. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed products and its related figure because the raw material cork was purchased in different dimension and density and it being a natural product differed from batch to batch and that the auditors had accepted the figures as authenticated by the partners. Thus, these facts are contrary to the facts that the assessee was maintaining complete day to day stock in quantity and value. He, therefore, made addition for the difference amount in gross profit rate of Rs.21.15% shown by the assessee and gross profit rate of 23.04% shown by the assessee in the immediately preceding assessment year 2005-06 and thereby made an addition of Rs.11,81,194/- to the income of the assessee. 5. On appeal, the ld. CIT(A) confirmed the action of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95 lakhs on account of payment to workers pursuance to award dated 27.10.2005 in Labour Court case No.511/05 were also the reasons for low net profit. He also submitted that if the average of gross profit rate for the immediately preceding two assessment years and the current assessment year was taken, then the average gross profit rate works out to 21.79%, against which the assessee has shown the gross profit at 21.15%. Thus, when compared with the average rate of GP, the assessee has shown lower GP by 0.64% which is not very significant and can be for reasons like economical factors etc. Further it was submitted that the products of the assessee were liable to excise duty and the assessee was also claiming MODVAT credit on majority of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loss Account of the assessee. It was also the explanation that the assessee s products were chargeable to excise duty and the assessee was claiming MODVAT credit on majority of its inputs and was maintaining complete records of material consumption and finished products required by the excise authorities which were examined by them and therefore, it cannot be said that the assessee had not maintained proper records of its accounts. The Assessing Officer did not accept the explanation of the assessee. He observed that the explanation of the assessee that the factory was closed for 1 months due to fire at the factory premises of the assessee occurred on 27.01.2006 was not correct as the assessee has achieved sales of Rs.43,68,913/- in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejecting the books of accounts at the rate of 23.04% which was the gross profit rate shown by the assessee itself in the immediately preceding assessment year 2005-06. The ld. CIT(A) estimated the rate of gross profit of the assessee at 22% without any basis. We are of the opinion that the rejection of books of accounts by the Assessing Officer was fully justified in the given facts and circumstances of the case of the assessee as no material was brought on record to show that the yield of the assessee was verifiable. However, we find that the average of gross profit rate shown by the assessee in the immediately preceding two assessment years i.e. 2004-05 and 2005-06, and after including the gross profit rate for the assessment year 2006- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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