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TMI Blog2010 (9) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of gross profit which was explained (b) By not correctly observing that production/consumption records are not maintained when all such records along with excise records were produced and no defect noticed therein; (c) Not accepting comparable case when Assessing Officer has not given any comparable case. (ii) The appellant submits that learned Commissioner of Income-tax (A) has not dealt with various contentions and on the facts and circumstances of the case, the book result has been wrongly rejected." 3. The brief facts are that assessee filed its return of income on 25-10-2004 declaring nil total income. The assessee's accounts are audited u/s.44AB and report in Form 3CB and 3CD was filed supported by trading account, profit and loss account and balance-sheet. The Assessing Officer during the course of assessment proceedings required the assessee to file various details and from the details AO noted that gross profit ratio of the assessee-firm has fallen steeply as compared to two preceding years and accordingly assessee was asked to furnished the reasons for fall in gross prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in financial statements filed with the return of income. (2) The assessee-firm has stated that the cost of purchase per Kgs. Has been increased. It is pertinent to mention here that the gross profit is worked out on the basis of consumption of raw materials and not on the basis of purchase of raw materials because consumption of raw material included in the opening stock as well as purchase during the year minus closing stock. (3) The assessee could not substantiate that why it has sold the finished goods on low price though the cost of finished goods i.e. cost of raw materials as well as production cost increased during the year under consideration. (4) During the course of assessment proceedings, the assessee has submitted the details of month-wise production and consumption of electricity in units. On the basis of these details, the consumption of electricity was compared with the production shown by the assessee- firm. On perusal of the details of production, it is noticed that the consumption of electricity in comparison to the production of 1 Kg of yarn was carried in different months. Month Production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors, it does not explain the fact that the appellant has shown a fall in GP of more than 11% compared to last year. In case the sale price of finished goods was lower, the purchase price of raw material would also be low. It does not make any business sense to sell finished goods at a price which is lower than the cost of production and no business could survive in such a scenario. It is also seen that the appellant is not maintaining production register in the absence of which the book results cannot be relief upon. The comparative case of M/s. Ferdin Texturisers quoted by the appellant in support of its claim does not give the true and correct picture, since there would be a number of other units in the appellant's business which are making profits or else the complete texturising industry would have closed down because of the so called losses in business. It is further seen that the appellant has also not been able to produce evidences for expenses like octroi, freight etc. which would support eh appellant's case for having made purchases. In view of this, the Assessing Officer's action in Aggrieved, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by Excise Authority. He further stated that the registers were produced before AO during the course of assessment proceedings but he has no mentioned any concrete reason for rejecting the books of account u/s.2145(3). Another reason given in the order is of variation in production versus electricity consumption, Ld. counsel for assessee stated that GEB is taking meter reading on the date which is never be the last date of the month and GEB is taking meters reading on different dates according to their convenience, like either 22nd, 24th of month in the March ending it's assessment year. The assessee has given production as per last day of month and as meter reading dates are different, it is very fallacious to co-relate both this thing but had the AO given the assessee an opportunity to explain assessee's case, it would have convinced the AO fully. The electricity consumption may be taken as base but it cannot be directly co-relate with actual production, because what is important is un interrupted power supply for the production not merely units of consumption of electricity but also in the production of y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nput yarn as well as output are excisable commodity and taxed accordingly and even Excise Department has not made any observation for unaccounted sales or production or purchases. Without giving any finding that the account books are unreliable, incorrect or incomplete it cannot reject accounts. The rejection of accounts is not matter to be done light heartedly. We further find that the assessee has maintained the day-to-day production register and stock register as per the pro forma given in the Central Excise Act and the same has been produced before the Assessing Officer along with books of account during the course of assessment proceedings. It is a fact that the assessee has not maintained quality- wise register of production and stock but the assessee submitted the reason for not maintain quality-wise register is that as this are not required by Excise Laws and moreover assessee's unit is small scale unit. Furthermore, the expenses of octroi, air charges and freight are paid by cheques only and the assessee during the course of assessment produced the ledger account and month-wise summary of these expenses. We further find that the producti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correct principles. We are of the view that the Assessing Officer has to examine the accounts of assessee and has to consider the following questions:- (i) Whether the assessee has regularly employed a method of accounting? (ii) Even if regular adoption of a method of accounting is there, whether the annual profits can properly be deduced from the method employed? (iii) Whether the accounts are correctly maintained? (iv) Whether the accounts maintained are complete in the sense that there is no significant omission therein? In that event, if the Assessing Officer's finding on all four counts is in the affirmative, the assessee's profits are to be computed on the basis of these accounts. We find that the first proviso to Sec. 145(1), or section 145(2), can be invoked only if and where the elements attracting either of those provisions are found to exist. A clear finding to that effect, along with the materials on which such finding is based, has to be made out and given by the Assessing Officer. No assessment under the first proviso to section 145(1) or under section 145(2) can be sustained if the Assessing Officer&nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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