TMI Blog2014 (6) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts is faulty as circumstances did not require such a drastic measure by disregarding audited books and vouchers - The AO has not given details of the manner in which any income was not booked or any expenses were over booked - the action of the AO in making the best judgement assessment, thereby increasing the GP of the assessee by 4% was based on incorrect appreciation of the facts, on insufficient facts to reject the books, suffers from lack of natural justice to the assessee u/s 144 - the expenses were clearly in the nature of prior period expenses and need to be disallowed in making the computation of income for the current year - CIT(A) has dealt with the entire issue and has rightly decided the issue in favour of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. It was submitted that Ld. CIT(A) after going through the submissions of the assessee, has rightly deleted the addition. As regards the C.O. filed by the assessee, Ld. A.R. submitted that the expenses were wrongly held to be prior period expenses and therefore, the disallowance was bad in law and against the facts and circumstances of the case. 4. We have heard rival parties and have gone through the material on record. We find that the assessee had turnover of Rs.50.35 Crores and had transaction with 252 different parties. Out of these 252 parties, the Assessing Officer had selected 17 parties from whom copies of accounts were called u/s 133(6) of the Act. Out of these 17 parties, there were differences in the amounts outstanding as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) and 142(1) and confronted the appellant with the contra entries in the books of certain supplier parties. The Ld. A.O. observed that the aggregate of differences of transaction with five parties amounting to Rs.6,34,921/- on the basis of which books were rejected. The second adverse observation noted by the Ld. A.O. was with respect to bills issued by M/s Kithania Steels (P) Ltd. which pertain to earlier years. Having made these two adverse observations, the A.O. ought to have confronted the appellant with this and expressed likely intention of rejection of books of accounts and substitution of G.P. and the basis for that. However, since the A.O. gave no such opportunity, I do not find that the A.O. further proceeded in the manner provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenses by the appellant. Further, I also observe that the Ld. Assessing Officer did not give any opportunity to the appellant to reconcile these figures having found out on receipt of the confirmation of accounts appellant never got an opportunity to explain or reconcile the same. 5.3 In the following case laws, various Courts have identified the necessary statutory requirements for the A.O. before invoking provisions of section 145(3) for rejecting the book results of the assessee: (a) CIT Vs. Faridabad Entertainment (P) Ltd. 336 ITR 0129 (2011) (P H) (b) CIT Vs SAS Hotel Entertainment 334/194 (Mad.)(2011) (c) CIT Vs Ponam Rani 326 ITR 223 (Del.) (d) CIT Vs ParA.O.ise Holidays 325 ITR 0013 (Del.) (e) CIT Vs Jas Jack Ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a drastic measure by disregarding audited books and vouchers. The AO has not given details of the manner in which any income was not booked or any expenses were over booked. In view of this, and keeping in view the fact that the appellant has shown the average G.P. rate of 37.92% in a period of four consecutive previous years, ending with the current assessment year, the G.P. for the current year is just marginally low. Therefore, I hold that the action of the A.O. in making the best judgement assessment, thereby increasing the g.p. of the appellant by 4% was based on incorrect appreciation of the facts, on insufficient facts to reject the books, suffers from lack of natural justice to the appellant under Section 144 and in view of ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to have reflected the same in the books of accounts and as it is required to maintain the books for excise purposes as well. If the goods were not of the specifications desired by the appellant, the same could have been returned in that previous year or subsequently by making proper entries in the books. I find that in view of the above, it cannot be said that the liability with respect to the aforesaid four bills of M/s Kithania Steels (P) Ltd. A.O. not crystalised during the F.Y.2006-07and therefore, the aforesaid expenses were clearly in the nature of prior period expenses and need to be disallowed in making the computation of income for the current year. The A.O. is directed to make disallowance accordingly in view of these expen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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