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2008 (12) TMI 290 - AT - Income TaxRejection of books of accounts - lack of vouchers - determination of profit - applicability of G.P. rate on total sales - Method of Accounting - firm engaged in the business of trading of country liquor and IMFL - Difference of opinion - Third member Decision - HELD THAT:- On a careful consideration, it is seen that despite the fact the AO referred to on record by way of comparison with others specifically named concerns existing in this line of business, it is seen that the CIT(A) has proceeded in an arbitrary manner to disregard the said comparison. No effort has been made to spell out why the comparison made by the AO keeping all the arguments canvassed by the assessee in mind so as to apply a lesser G.P. rate of 5 per cent is not correct and instead he has proceeded to adjudicate upon the issue in very casual terms. Moreover, no reasons or basis of arriving at the G.P. rate of 4 per cent is given. It is seen that the AO has himself given sufficient margin for the fact that this was the first year of the assessee's business and handicap if any on account of the same or on account of operating in a different area he has already tried to factor in these considerations by applying a lesser G.P. rate as compared to 13.13 percent, 15.5 percent and 5.88 per cent shown by the concerns specifically named in the Assessment Order. It is seen that no efforts have been made by the assessee either before the AO or before the CIT(A) or for that matter before the Bench to distinguish the area of operation etc. of M/s. Singh Associate, Laxmi Narain Shivhare & Co. and M/s. S.R. Trading Co. with whom specific comparison has been made by the AO. Therefore, rejection of books of account was correctly made. However, in regard to the application of rate, we are of the view that the comparative case of Gendalal Hazrilal & Co.[2003 (7) TMI 70 - MADHYA PRADESH HIGH COURT] by the AO maybe taken into consideration by the CIT(A) who shall thereafter as directed above pass a speaking order in accordance with law after giving the assessee an opportunity of being heard. Accordingly, ground Nos. 1 & 2 of the Revenue and ground No. 1 of the assessee which is in support of the impugned order are both restored back to the file of the CIT(A). In the result, the appeal of the revenue is partly allowed for statistical purposes and the appeal of the assessee is also allowed for statistical purposes. ld. Accountant Member, pointed out that the AO himself accepted the sale value disclosed by the assessee and, therefore, there was no factual or legal justification in rejecting the book results and estimating the income by applying higher profit than what was declared by the assessee. Accordingly, the appeal of the revenue was dismissed and the assessee's appeal stood allowed. Difference of opinion between the ld JM and ld AM - Third member appointment - (i) Whether under the peculiar facts of this case and in law there is any factual or legal justification in the action to reject book results? (ii) Whether on the facts and findings it is justified to delete the addition by applying estimated gross profit rate. or that the issue is to be restored to ld. CIT(A) to decide the application of gross profit rate afresh? HELD THAT:- This is the first year of the assessee's business. All its supplies are duly supported by proper vouchers and is regulated by the excise authorities and payment of country liquor is made through Government warehouses against payment made to the Government on the basis of the auction conducted by the Government. In other words, the purchases are all supported by valid documents. When it comes to the sale, the nature of the assessee's business is such that it cannot maintain proper sale bills. But the assessee has declared 3.11 per cent of gross profit. In fact, the AO has given comparative cases wherein the profit of 2.56 per cent in the case of M/s. S.R. Trading Co., Gwalior was shown. Again, the profit varies from area to area and the bid money that is paid by the assessee. The accounts of the assessee are subject to regular audit and the small variation in the profit is quite possible. The CIT(A) himself writes in his order that no significant defects are pointed out in the books of account by the assessee except the lack of sale bills. Having regard to these facts, in my view, the ld. A.M. is right in having given the direction to the department to accept the declared results. I agree with his finding on both the questions. I do not think it is necessary to again set aside the issue for fresh determination by the CIT(A) as done by the ld J.M. The matter is factual and all the facts are already there before the two revenue authorities when they framed the issues. Thus, in the light of the majority view, the appeal of the assessee stands allowed and the appeal of the Revenue stands dismissed.
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