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2017 (12) TMI 58 - AT - Income TaxRejection of books of account - Trading addition - G.P. determination - CIT(A) has applied the gross profit rate 10.28% instead of 21.96% - Held that:- There is no dispute that the auditor as appointed by the CAG had pointed out various discrepancies in their audit report in respect of the stock, inventory as well as non reconciliation of bank account of the assessee. The auditor specifically taken the note of the unverified stock with the weavers as well as stock shown by the assessee in the books of accounts. Though assessee has pointed out that these discrepancies are carried forward from the earlier years however, even if the discrepancies are carrying forward from earlier year when it is part of the books of accounts of the year and the assessee has failed to reconcile and verify the same, then this very fact that these discrepancies has not been removed by the assessee for the years certainly would lead to the inference that there are defects in the books of account. Therefore, the books do not reflect the correct picture of the state of affairs of the assessee. Cross objection of the assessee to the extent of the rejection of books of account are dismissed. It is pertinent to note that when the G.P. rate declared by the assessee for the A.Y. 2007-08 was not accepted by the AO and has not attained finality then the said G.P. rate cannot be applied for the purpose of working out the average rate for estimation of income of current year. Accordingly, we direct the AO to adopt the average of the G.P. rate declared by the assessee which was accepted by the AO and the G.P. rate adopted by the Assessing Officer which has attained the finality. According, we set aside the matter to the record of the Assessing Officer for limited purpose of computing the income based on the average G.P. rate on the basis of the declared G.P. by the assessee as accepted by the AO as well as the G.P. rate for the years which attained finality.
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