TMI Blog2012 (10) TMI 474X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant by: Shri Anil Bhalla, CA Respondent by: Shri R.S. Negi, Sr. DR ORDER PER K.G. BANSAL, AM: These cross appeals of the assessee and the revenue, arising from the order of Ld. CIT(A) XXVI, New Delhi, passed on 2.11.2010 in appeal No. 189/09-10 for assessment year 2007-08, were argued in a consolidated manner by the Ld. Counsel for the assessee and the Ld. Senior DR, as common issues are involved. Therefore, a consolidated order is passed. 2. Ground No. 1 in the appeal of the assessee is as under :- 1) The learned Commissioner of Income Tax (Appeals) has erred both of facts and in law in upholding the action of the learned Assessing Officer in rejecting the books of account regularly maintained by the appellant firm by wrongly invoking the provisions of section 145(3) of the Income Tax Act, 1961 and in estimating the income under the head Profit gains of Business and confirming the addition to the extent of Rs. 2,00,000/- on ad hoc basis. 2.1 In the course of hearing before us, the assessee furnished a revised ground in place of the aforesaid ground, it reads as under :- The learned Commissioner of Income Tax (Appeals) has erred both on fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been dealing in handicrafts and garments. Major sales are by way of exports. Due to slow down in exports, the activities of the assessee were substantially reduced. Therefore, even raw material lying in stock was sold in this year. The opening stock in this year had been shown at the same figure as the closing stock for assessment year 2006-07, which had been accepted in that year. The books of account had been audited. No discrepancy has been pointed out in regard to maintenance of books of account. Sale bills were produced and sale proceed have been realized in cheques and cash. Cash sales amounted only to 17.7% of the total sales. Therefore, the finding that opening stock valuation is not reliable and sales are not verifiable is not borne by facts of record. 3.2 The Ld. CIT(A) also furnished the findings that opening stock is not correctly valued, valuation of closing stock is not subject to verification and therefore trading result cannot be accepted. As submitted earlier the opening stock of this year is the same as closing stock of last year. The closing stock has been valued at cost, which in any case will be more than the realizable value , as seen from trading resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions made before us. We find that the opening stock has been carried forward from the immediately preceding year at same value. Further, the closing stock has been valued at cost. The book result of this year show that realisable value will be lower than the value mentioned in the books. Thus the valuation has no negative impact on the overall result of this year. The assessee had also filed sale bills and account of the parties to whom sales were made by way of cheque. Cash sale form only about 17% of the total sales. The Ld. CIT(A) has recorded a finding that there is no error etc. in quantitative details. The books of account can be rejected on three grounds i) Where the AO is not satisfied about the correctness or completeness of the accounts ii) where the method of accounting, cash or mercantile, has not been regularly followed or iii) the accounting standard as notified by the Board have not been regularly followed. There is no allegation in the impugned order that the accounts are not correct or complete. In any case there is no evidence that sales have not been recorded. There is also no allegation that a particular method of accounting has not been regularly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which it was submitted that the amounts were given by the assessee in the normal course of business and they remained outstanding for more than three years. The amounts could not be recovered inspite of efforts made by the assessee. The business was drastically curtailed and therefore the amounts were written off as non-recoverable. The amounts are allowable u/s 37(1) or 28 as business loss. 7. We may now proceed to consider deduction of these amounts individually. 7.1 The first amount of Rs. 3 lacs is in respect of M/s. Herbal Gifts. The only detail available in the paper book shows the amount to be outstanding, thus the purpose of advances is not ascertainable. The Ld. CIT(A) has recorded a finding that it is a loan given to this party and in respect of the claim it was submitted that the amount was given long back for promoting the business. No benefit accrued to the assessee nor the amount could be recovered. Therefore, the amount has been written off in this year. The fact on record as mentioned above in the submissions before the Ld. CIT(A) do not lead to the conclusion that the amount was advanced long back for promoting the business. In fact past accounts have not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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