TMI Blog2015 (9) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not keep some cash balance in hand. It should discharge its liability towards purchase of yarn. But, i.e. not the correct way visited with the AO. Therefore, in our opinion, ld. first appellate authority has rightly deleted the addition. - Decided in favour of assessee. Addition estimating G.P. - CIT(A) deleted addition - Held that:- AO has not pointed out any defect in the books which unable him to deduce the true income. His approach was that assessee ought to have earned more income than the one shown by it. G.P. disclosed during this year is better than that of immediately preceding two yeaRs. The ld. counsel for the assessee pointed out that in earlier two years assessments were under section 143(3). The reference of Rs,62,704 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was contended by the assessee that it made purchases of yarn of ₹ 2,95,92,854/-. It has to incur interest expenditure on late payment of the purchase price which has been worked out to ₹ 16,37,101/-. According to the assessee it was in the line of business norms. The AO was not satisfied with the explanation of the assessee. He observed that there should not be any requirement to keep cash balance of ₹ 18,19,967/- and incur interest expenditure of ₹ 31,13,303/-. On an ad hoc basis he made an addition of ₹ 9,09,983/-. The finding recorded by the AO reads as under :- I have considered, assessee s submission carefully. While going through overall picture of assessee, it came to know that assessee has paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- which was added by the AO by estimating G.P. 6. Brief facts of the case are that assessee had shown GP @ 14.72%. The AO was of the view that assessee has achieved high turnover, it owned machinery, had support of sister concern and made investment of more than 2.16 crores. Therefore, it should not earn nominal profit of ₹ 62,704/-. The AO has estimated the GP at 19% and made addition of ₹ 26,52,783/-. The reasons assigned by the AO are summarized in paragraph No.5 of the assessment order which read as under :- 5. Following data will show that assessee s account has many irregularities which is not reconciliable and so rejection of books and estimation of profit is the only way to assess the incomeITA a. Turnover of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pointed out that book results were accepted in scrutiny assessment for AY 2007-08. It was further mentioned that the appellant regularly maintains books of accounts with quantity records. It was submitted that the AO compared book results of the appellant with three parties, two of which were outside concerns and whose facts were not disclosed to the appellant while the third concern which was an associate had a different business model from the appellant operated in the local market, had different class of machineries and much lower turnover. It was argued that none of the cases were comparable. It was further argued that the AO had rejected the books of accounts, regularly maintained and audited, without finding any specific defects in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the starting profit of investigation and not conclusion. No specific defects have been pointed out in the books during the year. The appellant has correctly objected to the comparison made with other concerns as the details of the said concerns were not made available to it and there were differences in operating business model with sister concern. Even otherwise, merely because the gross profit obtained by the appellant was lower than the gross profit obtained by other persons involved in similar trade does not establish that the books of the appellant was defective. Since no specific defects have been pointed out in the books, the book results could not have been disturbed. The addition made to the book result is therefore deleted. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 145 of the Act. Sub-section (2) provides that the Central Government may notify in the Official Gazette from time to time the accounting standard required to be followed by any class of assessee in respect of any class of income. Thus, it indicates that income has to be computed in accordance with the method of accountancy followed by an assessee, i.e., cash or mercantile. Such method has to be followed keeping in view the accounting standard notified by the Central Government from time to time. Sub-clause (3) provides a situation, i.e., if the Assessing Officer is unable to deduce the true income on the basis of method of accountancy followed by an assessee then he can reject the book results and assess the income according to h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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