TMI Blog2013 (4) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... ages as also there was hike in the cost of the material. Comparative figures were on record to substantiate the hike in the expenses. Therefore CIT(A) has rightly held that the assessee was able to substantially explain the fall in GP rate in manufacturing activity. On this count, no addition is required in the hands of the assessee - against revenue. Invocation of the provisions of section 40A(2)(b) - increase in lease-rent - Held that:- While applying the provisions of section 40A(2)(b), CIT(A) has not examined the lease agreement, if any, as also the reason for increase in lease-rent from Rs.35.83 lacs to Rs.59.19 lacs. Only this much was stated that 52 water jet-looms. were utilized. There was a mention of a contract on the basis of which the lease-rent was paid, but that fact remained uninvestigated. From the tone and tenor of the arguments of both the sides, it was noticed that the Revenue as also the Assessee both remained unsatisfied as expressed from both the sides that before invocation of section 40A(2)(b), certain information were required to be collected and in the absence of those information it was not fair on the part of the CIT(A) to assess an amount by holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayed that the order of the CIT(A) may be set-aside and that of Assessing Officer may be restored to the above extent. 3. Facts in brief as emerged from the corresponding assessment order passed u/s. 143(3) dated 30.12.2009 were that the assessee-company is engaged in the business of manufacturing of yarn fabrics. It was noted by the AO that during the year under consideration, the assessee has shown gross profit of Rs.4,15,27,000/- on total turnover of Rs.62,70,79,000/- which worked out to 6.62% as against the G.P. of 13.70% on total turnover of Rs.45,25,71,000/- shown in the immediate preceding year. According to AO, there was a fall in G.P. of 7.08% during the year under consideration as compared to immediate preceding year. In compliance of show cause, the explanation of the assessee was that there was high increase in the salary and wages. It has also been informed that the cost of the material had gone up. As per AO, there was disproportionate increase in the expenses. There was no day-to-day stock register maintained by the assessee. He has referred Samir Diamonds 71 ITD 75 for the legal proposition that in the absence of incomplete books of accounts, the AO is justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of closing stock is not supported with evidences. The appellant on the other hand stated that vide letter dated 30.11.2009 Annexure-VII gave complete details of stock record. The appellant has been able to substantially explain the fall in G.P. rate in manufacturing as seen from the above discussion. However, with respect to the lease rent it is seen that the lease rent has been increased from Rs.35.83 lacs to Rs.59.19 lacs, i.e. an increase of almost Rs.23.36 lacs. It has been stated that 52 water jet looms were utilized both in current year as well as in last year and still the lease rent has increased substantially by almost 65%. The explanation of the assessee that the lease rent is paid as per agreed contract. Confirmation of the party was given. It is pertinent to note that the party is covered by provisions of Section 40A(2)(b) and hence this explanation is not fully acceptable. The appellant has brought no material on record to show that the lease rent of the water jet loom had to be increased. This is second year of taking the water jet looms. Increase of rent just after one year is not justified, specially when the lesser is sister concern and because of this reason also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06,287 1.85% (4.8% of total) 2007-08 16,93,20,549 31,88,081 1,88% (27.5% of total) Actual fall of rate of gross profit in manufacturing operation has been from 11.05% to 9.13% i.e. by 1.92% only." 7.1. The next plank of the argument of the ld.AR was that per se the non-maintenance of stock register should not be made the basis for addition. Case law relied upon were as follows:- 1. Kiran Corporation [TM] - 102 TTJ 375 (Ahd) 2. Protinkem - 102 TTJ 604 (Asr) 3. Gajanan Traders - 104 TTJ 1030 (Bang] 4. Ashokkumar Agarwal - 98 TTJ 663 (Jd.) 7.2. Further, it has also been argued that the assessee had maintained the stock records on software known as DOS. Ld.AR has also informed that the assessee had maintained the complete record as prescribed by Excise Department. He has therefore pleaded that the GP addition made by the AO merely because of the reason that there was no stock register was baseless. 8. From the side of the Revenue, ld.Sr.DR Mr.Y.P.Verma has pleaded that in the absence of stock register, the AO is empowered to estimate the GP. Rather, the ld.CIT(A) has arbitrarily held that the provisions of section 40A(2)(b) was to be applied, although the AO has not made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for increase in lease-rent from Rs.35.83 lacs to Rs.59.19 lacs. Only this much was stated that 52 water jet-looms. were utilized. There was a mention of a contract on the basis of which the lease-rent was paid, but that fact remained uninvestigated. From the tone and tenor of the arguments of both the sides, we have noticed that the Revenue as also the Assessee both remained unsatisfied with the result of ld.CIT(A), hence both are in appeal before us. It was expressed from both the sides that before invocation of section 40A(2)(b), certain informations were required to be collected and in the absence of those information it was not fair on the part of the ld.CIT(A) to assess an amount by holding that the increase in the lease-rent was not justified. We therefore deem it proper to restore this issue back to the file of ld.CIT(A) for de novo adjudication with the direction that the parties before us should be allowed a reasonable opportunity of hearing to be granted on this issue, so that a reasonable as also a justifiable view should follow. 10. The result of above discussion is that ground No.1 of both sides are set aside, hence to be treated as allowed for statistical purposes ..... 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