TMI Blog2014 (2) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... t be the defect in the eyes of law - CIT (A) has not point out specific defects in the books of accounts and without pointed out any defects in the books of accounts the provision of 145(3) cannot be applied – Relying upon Madnani Construction Corporation (P) Ltd. Vs. CIT [2006 (12) TMI 79 - GAUHATI HIGH COURT] - When the AO has neither expressed his dissatisfaction about the correctness or completeness of the accounts nor any error is pointed out in P&L a/c and Audited report, the powers of best judgment cannot be invoked - Without pinpointing any defect much less any material defect in the books of account of the assessee regularly maintained, provision of Section 145(3) of the Act cannot be invoked - The provision of Section 145(3) of the Act has been wrongly invoked – thus, any addition made as a consequence of invoking of Section 145(3) has to go – Decided in favour of Assessee. No specific defect much less any material defect has been pointed out by the AO in the books of account of the assessee duly maintained during the course of this regular business - The other issues regarding adoption of a particular gross profit rate is not tenable in the eyes of law – thus, no trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) was justified in applying gross profit rate 24.25% as against gross profit rate of22.59% declared by the assessee and accepted by the AO is based on an obvious mistake. 3.1 Briefly stated, the facts of the case are that the assessee firm is engaged in the business of manufacturing of Bone China and Stone Ware Crockery for the last many years. The assessee has been maintaining complete books of account including the stock register pertaining to raw material, finished goods, packing material and also production register. This firm was subsequently converted into a company. The assessee is covered under the Central Excise Act and Rules which are mandatory and according to which it is required to maintain all the records which is being required to be maintained under the Central Excise Rules and it includes the stock register in respect of raw material, finished product, packing material etc. All these registered are subject to verification and checking by the Central Excise Authority at any time. The books of account maintained by the assessee in its regular course of business are duly audited as per the provisions of Section 44AB of the I.T. Act, 1961 ( the Act for short). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same in the Excise Registers which are regularly and continuously verified by the excise Department and are under their control. The AO has not pointed out any defect in the purchases , sales , opening stock and closing stock and as explained before the AO and the ld. CIT(A) that M/s. Bharat Potteries Ltd. i.e. a sister concern is manufacturing more of maximum stoneware crockery and the assessee is manufacturing more of bone china crockery and the difference in yield and the wastage and the gross profit had been explained vide our letter dated 26-3-04 before the AO and similarly the output/input ratio has also been explained before the AO through the same letter and the AO has not commented upon the same and has not found out any defect in our explanation . The assessee has also filed before the AO following documents / publications to support the wastage declared by the assessee is reasonable and according to the standard practice adopted in the country as under:- 1. C.G.C.R.I., Khurja (PB No. 13 to 1) 2. Publication of Article in white wares (P.B. NO. 18) 3. Photocopy of Hand book of Ceramics Volume 2 (EditorS. Kumar ) showing typical composition of Bone china 4. Phot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l which was placed before him as mentioned hereinbefore. Therefore, the ld. CIT(A) was not justified in sustaining the applicability of Section 145(3) of the Act and addition of Rs.11,15,087/-. Thus Ground No. 1 of the assessee is allowed and the solitary ground of the Revenue is dismissed. Accordingly the appeal filed by the Revenue stands dismissed, by respectfully following the above order. 3.4 With regard to assessee's appeal in ITA No.460/JP/2012, it has been submitted by the ld. AR through written submission as under:- i) The Learned CIT (A) has made observation on page- 4 that the transportation charges were paid for few months whereas the transportation charges were paid throughout for full year. The CIT (A) further observed that the premises of M/s Ceravit Sanitware (I) Pvt Ltd were at short distance of few hundred meter whereas it was about 31/2 K.M ii) The figure given in para ii of page 4 are of assessment year 2007-08 and not for the year under appeal. Again the CIT (A) assessed a wrong fact. iii) The CIT (A) in last para of page -4 has wrongly observed that the transportation payment were made in cash and all the figure were given pertaining to last asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.B. page no. 33 to 46) 2. M/s. National Trading Company, Muzaffar Nagar : The assessee has filed statement of account of the party receive on email alongwith the reconciliation statement with the copy of account of the supplier in books of the assessee (see P.B. page No. 19 to 31) on dated 29/03/2012 further in the A.Y. 2009-10 which is also fixed today . The assessee has also filed the confirmation of accounts alongwith PAN card (See P.B. page No.30 to 33 of A.Y. 2009-10, Appeal No. 26). There was opening balance which was brought forward from preceding year. The payment of bills were made through account payee cheques and the goods were received through truck . The copies of the GR and weight slip were shown to the CIT (A) during appeal proceeding (See P.B. page no. 33 to 46) 3. M/s. National Trading Company, Saharanpur :- The assessee has filed statement of account duly confirmed (see P.B. page No. 32) on dated 29/03/2012 Since these above parties are outside the Rajasthan and the purchases are being interstate purchases. The assessee has issued C form to these parties against all the invoices (see P.B. page No. 33 to 46) And the Two cases there was no compliance was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/S Shree Hari Industries V/S Additional Cit Range Bharatpur:- Where it was held that where the assesse mentioned the complete book of account and A.O has not found any discrepancy in maintains of record and day to day stock records. Assesses has given explanation in respect of each and every discrepancy including of fall in GP rate CIT (A) relied only the order of the ITAT for A.Y. 94-95 but did not consider the order of ITAT for A.Y. 96-97 and 97-98 where application of section 145(3) was held unjustified. A.O. has not pointed out any specific defects in the books of account and has not brought any evidence of unrecorded production or sale, the invoking of provision of sacion 145(3) was not justified and Hon ble ITAT deleted the additions Malani Ramjivan Jagnnath V Asstt. CIT :- Where it was held that mere deviation in GP rate can not be a ground for rejecting books of accounts and entering realm of estimate and guess work where lower GP rate shown in the books of account during current year and Fall in GP rate was justified and also admitted by all the lower authorities. The rejection of books of account was therefore, justified nor resort to substitution of estimated GP by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y made by the AO as confirmed by the CIT(A) is not proper and therefore cancelled. In consequenti, the estimation of income made by the AO for all seven assessment years adopting 40 per cent of the electricity connections of the area as the basis has to be dismissed. Madnani Construction Corporation (P) Ltd. Vs. CIT (2008)296 ITR 45 (Gau) When the AO has neither expressed his dissatisfaction about the correctness or completeness of the accounts nor any error is pointed out in P L a/c and Audited report, the powers of best judgment cannot be invoked. Ashoke Refractories (P) Ltd vs. CIT (2005) 199 CTR (Cal) 115 : (2005) 279 ITR 457 (Cal) Without formation of opinion that the accounts maintained by the assessee were not correct or complete or that income could not be deduced from the books of accounts, the assessee s books of accounts cannot be rejected and such a rejection is perverse and void. International Forest Co. vs. CIT 1975 CTR (J K) 88 : (1975) 101 ITR 721 (J K) Accounts cannot be rejected merely on the ground that the summons issued to parties were either returned unserved or no compliance was made where the assessee has maintained proper books of accounts and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we hold that merely changing the basis or method or arriving at the end result of working out the computation of taxable income under the income tax Act, necessarily dose not result in devising profit or gain from business or other sources different from one returned by the assessee, where he has returned his income and different from the result reached by the assessee as per the method of accounting employed by him, by adopting a different basis by the assessee authority. It was held on point no. 11 Likewise the appeal of the revenue before the Tribunal has been rejected on the ground of having invoked the provision of section 145 by adopting a methodology of his own. The assessing Officer by rejecting the explanation furnished by him for returning the income at the reduced gross profit rate has made addition on estimate basis. The commissioner of Income tax(Appeals) while substantially accepting the explanation furnished by the assessee for reduction in gross profit rate over its turnover during the year in question, was justified in not sustaining the addition made by the Income tax Officer and having come to that conclusion the formation of estimation fell within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The partners of the firm became the share holders of the company. In this year, the assessee has declared gross profit of Rs. 7,45,50.196/- on turnover of Rs. 34,77,30,020/- giving a gross profit rate 21.44$ and net profit of Rs. 82,12,453/- which comes to net profit rate of 2.39%. The comparable chart of the rates for the last three years is as under:- F.Y. Percentage Turnover (Rs.) Gross profit (Rs.) 2008-09 21.44% 34,77,30,020/- 7,45,50,196/- 2007-08 22.59% 36,45,39,389/- 8,23,40,403/- 2006-07 24.64% 29,44,37,868/- 7,25,47,521/- During the assessment proceedings, the books of account were examined on test check basis. The AO found following discrepancies in them. 1. The assessee has claimed loss @ 37.02% 2. The purchases made from sister concerns were not found in order. 3. The job charges paid to sister concern were not found comparable. 4. No record regarding purchase of finished goods from its sister concern which were sold after making some decoration thereon. 5. No record is maintained separately regarding intermediary processes In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO was on the basis of report of CGRI which is an independent agency having expertise in the related fields. 5.6 We have heard the rival submissions and have carefully perused entire record. In fact, the main issue raised by the assessee by taking as much as three grounds and the grounds of the Revenue are in respect of one issue relating to appreciation of the Report of CGRI which is an independent agency of having expertise in the related field. The submissions of the parties are exactly similar to what was taken in assessment year 2008-09 when this company was having a status of firm. As per the ld. AR, this issue stands fully covered by the order of the Tribunal as discussed and stated in earlier assessment year. 5.7 Per contra, the ld. DR has repeated the reasons given by the AO in making the impugned addition. 5.8 After considering the rival submissions and treading through entire record including the Tribunal orders referred by the ld. AR , we have found that no specific defect much less any material defect has been pointed out by the AO in the books of account of the assessee duly maintained during the course of this regular business. The other issues regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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