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2015 (9) TMI 747 - AT - Income TaxUnder valuation of closing stock - Rejection of books of accounts - A.O has rejected books of accounts mainly on three grounds namely fall in GP ratio, non maintenance of stock register and quantitative details and under valuation of closing stock of yarn - Held that:- A.O in the order has noted that Assessee has earned a gross profit of 9.75% as against the gross profit of 6.69% in the immediate preceding year. However on perusing the particulars of accounting and the ratio which are Annexure to the Tax Audit Report it is seen that the auditor had shown the net profit ratio for the year under consideration at 9.75% and the gross profit ratio at ₹ 29.84%. We thus find that A.O has proceeded on an incorrect basis as he had compared the net profit of a year with the gross profit of another year whereas the correct way would have been that he should have compared the gross profit ratio for both the years. If the gross profit ratio for the year under consideration is compared with that of immediate preceding year, it appears that there is no fall in the gross profit ratio. Another submission of the ld. A.R. that due to typographical error the closing stock in quantitative terms of the raw material has been shown at 82,458 kg seems to be correct when seen in the light of the submission of the quantitative details which were submitted to the A.O. On perusing the statement it is seen that the closing stock of yarn is 57,369.865 kg whereas the closing stock which is erroneously shown as 82,458 kg. The mistake in quantitative terms has been reconciled by the ld. A.R. by demonstrating that the closing stock should have been derived after considering the sale of yarn of 25,088 kg which is also reflected in the profit and loss account. Before us, Revenue has not brought any material on record to controvert the submissions of ld. A.R. A.O has compared the gross profit with the net profit and computing the working of closing stock with the incorrect quantity and thereby making the addition therefore in the present case is uncalled for and therefore we are of the view that no addition on account of closing stock is called for. We thus direct its deletion. - Decided in favour of assessee. Disallowance on account of weaving majuri expenses - Held that:- In the present case, the A.O has disallowed labour expenses on adhoc basis. We further find that ld. CIT(A) has noted that Assessee did not produce register or records of the labour charges paid before the A.O. Before us, ld. A.R. has submitted that there is change in the constitution of the income and therefore the ratio of labour expenses as compared to earlier year would not be proper. He has also submitted that the disallowance of 20% made by the A.O is on a higher side and a reasonable disallowance may be made. Considering the totality of facts and circumstances we are of the view that in the absence of any finding of the authorities that the expenses are bogus in nature, we are of the view that the ends of justice shall be met if addition is restricted to 10% of the expenses as against the 20% made by A.O. We thus direct accordingly. - Decided in favour of assessee in part. Disallowance of interest expenses - Held that:- From the details of loans and advances which is reproduced by ld. CIT(A) it is seen that the amount (excluding the TDS receivable) which has been advanced by the Assessee is ₹ 41,36,507/-. Before us, it is Assessee’s contention that it has sufficient own interest free funds. During the course of hearing a specific query was put to ld. A.R. and he was asked about the date on which the aforesaid advances were advanced and also the availability of own funds in the year in which the amounts were advanced to which ld. A.R. submitted that the required information is not readily available and therefore could not furnish the information asked for. It was however submitted that it can furnish the required information later on. In view of these facts, the contention of the ld. A.R. about the availability of sufficient interest free funds could not be verified. However, in the interest of justice, we feel that the contention of Assessee needs re-examination. We therefore remit the issue to the file of A.O to verify the contention of Assessee about the availability of interest free funds vis-à-vis the amounts advanced. In case the contention of Assessee about availability of interest free funds in excess of the amounts advanced is found correct then the addition made by A.O be deleted. The Assessee is also directed to cooperate by furnishing promptly the details called for by the A.O. Needless to state that A.O shall granted adequate opportunity of hearing to the Assessee. - Decided in favour of assessee in part.
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