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Issues Involved:
1. Deletion of trading addition of Rs. 13,05,606 by the CIT(A). 2. Application of net profit rate by the AO. 3. Rejection of book results by the AO under Section 145(2) of the IT Act. Detailed Analysis: 1. Deletion of Trading Addition of Rs. 13,05,606: The Revenue contested the deletion of the trading addition of Rs. 13,05,606 made by the AO by applying a net profit rate of 2.67% against the net profit of 0.74% declared by the assessee. The CIT(A) deleted this addition, reasoning that the method adopted by the AO was improper and misleading. The CIT(A) noted that all sales and purchases were vouched, and quantitative details were available, even if not in the format desired by the AO. The appellant's inability to produce details in the desired format was understandable due to the large number of qualities produced. The AO had given insufficient time (10 to 15 days) for filing such details. Furthermore, the CIT(A) found that the AO's reliance on excise declarations for estimating profit was flawed, as these declarations were theoretical and meant for excise duty purposes only, not reflecting actual sales prices or profits. 2. Application of Net Profit Rate by the AO: The AO applied a net profit rate of 2.67% based on information gathered from the Central excise department. The CIT(A) found this method misleading, as the actual selling prices for many items were lower than the estimated prices declared to the excise department. The CIT(A) provided examples where the actual selling price was significantly lower than the estimated price, indicating that the income could not be accurately estimated based on excise declarations. The CIT(A) concluded that the AO had no justification for rejecting the book results and that the estimation method was improper. 3. Rejection of Book Results by the AO under Section 145(2): The AO rejected the book results under Section 145(2), citing wide variations between the net profit as per the books and the net profit estimated from excise department information. However, the CIT(A) noted that the AO had not pointed out any serious defects in the books of accounts. The total sales declared by the assessee were accepted, and no disallowance out of expenses was made. The CIT(A) emphasized that the books of accounts were maintained in compliance with statutory requirements, audited by a CA, and no specific defects or discrepancies were identified by the AO. The CIT(A) held that the AO had no justification for rejecting the book results under Section 145(2). Conclusion: The appellate tribunal upheld the CIT(A)'s decision, agreeing that the net profit rate of 2.67% applied by the AO was not correct and that the book results should not have been rejected under Section 145(2). The tribunal found that the net profit declared by the assessee was better than in previous years and that the AO's estimation method was flawed and misleading. Consequently, the appeal of the Revenue was dismissed.
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