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TMI Blog2015 (9) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... before us and has raised the following grounds:- 1. On facts and circumstances of the case, the learned CIT(A) has grossly erred in sustaining the rejection of book results, as made by the AO, by invoking the provisions of section 143(3) of the Act, which is absolutely erroneous and needs to be deleted. 2. On facts and circumstances of the case, the learned CIT(A) has grossly erred in sustaining the addition of Rs. 27,38,931/- as made by the AO, by alleging undervaluation of closing stock, which is absolutely erroneous and needs to be deleted. 3. On facts and circumstances of the case, the learned CIT(A) has grossly erred in sustaining the disallowance of Rs. 5,47,178/-, as made by the AO, out of weaving majuri expenses, by alleging it to be excessive, which is erroneous and needs to be deleted. 4. On facts and circumstances of the case, the learned AO has grossly erred in partly sustaining disallowance to the tune of Rs. 4,96,381/- as against, Rs. 5,11,245/-, as made by the AO, out of interest expenses, by alleging that interest bearing funds have been advanced for non-business purposes, which is erroneous and needs to be deleted. 4. Before us, ld. A.R. submitted that 1s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs on the left top of the comer, has the word proprietor (M.NO.72278) written which has been struck-off, but the same is written on the letter furnished to the A.O. Further, the CA (who presented the case before the AO), no membership number of the CA was typed in the letter, while the letter submitted before me shows the membership number written in hand. Even the signature varies. Most importantly, the AR has now furnished at least 12 pages of annexures to the said letter, whereas, the letter allegedly furnished before the AO had only 3 pages as annexures. Even if it is to be accepted that the purported letter was actually filed before the AO, then on an examination of the same, it is seen that there are glaring discrepancies with the Audit Report. The Annexure-IV to the Audit Report contains details of opening stock, purchases, consumption, sales and closing stock of raw materials in kgs. as also finished goods i.e. grey in kgs. The closing stock of raw material in this Annexure is shown at 82,458 kgs. In the tables furnished by the AR in appellate proceedings as also from the tables furnished before the AO, the closing stock of raw materials is shown at 57,369.865 kgs. The AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that A.O has erroneously compared the G.P ratio of A.Y. 05-06 of 16.69% with the net profit ratio of A.Y. 06-07 of 9.75% and concluded that there is fall in G.P. He therefore submitted that the comparison of profits made by the A.O was wrong as the gross profit of a year cannot be compared with the net profit of another year and submitted that in fact the gross profit ratio in the year has increased in comparison to two preceding assessment years and therefore submitted that since there was no fall in the gross profit rate, the book results could not be rejected for that reason. With respect to the working of average purchase rate of yarn at Rs. 94.93 per kg considered by A.O, he submitted that a typographical error was committed by the auditor consequent to which the quantity of closing stock of yarn was shown 82,458 kg instead of 57,370 kg, as the sale of 25,088 kg of yarn which was sold was missed out while deriving the closing stock in terms of quantity. He therefore submitted that since the actual closing stock of yarn was 57,370 kg and not 82,458 kg that was considered by the A.O and therefore the addition on that count was also not made correctly by the A.O. He fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement at page 17 of the paper book, it is seen that the closing stock of yarn is 57,369.865 kg whereas the closing stock which is erroneously shown as 82,458 kg. The mistake in quantitative terms has been reconciled by the ld. A.R. by demonstrating that the closing stock should have been derived after considering the sale of yarn of 25,088 kg which is also reflected in the profit and loss account placed at page 68 of the paper book. Before us, Revenue has not brought any material on record to controvert the submissions of ld. A.R. In such circumstances, considering the fact that A.O has compared the gross profit with the net profit and computing the working of closing stock with the incorrect quantity and thereby making the addition therefore in the present case is uncalled for and therefore we are of the view that no addition on account of closing stock is called for. We thus direct its deletion. Ground no. 3 is with respect to disallowance on account of weaving majuri expenses 9. A.O noticed that Assessee has debited Rs. 27,35, 893/- as weaving majuri expenses. He asked the Assessee to justify the rate of payment of majuri with the quantity of job work and sales undertaken. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eover, the labourers employed by the Assessee were not migrant labourers but were on the regular employment of the Assessee. It is for this reason that the Assessee was able to undertake not only its own manufacturing activity but also do job-work for other parties. Therefore there was no reason why relevant details and evidences could not be furnished. 10.2 What the AR has attempted to do is to explain the increase in the majuri expenses by showing that there was a decline in the manufacturing activity and an increase in job-work and, because the labour cost component as compared to the job-work receipt was higher than manufacturing and sales, there was an increase in the majuri expenses this year. However, the point to note is that, in the preceding year the turnover of manufacturing (of grey) was Rs. 3.99 crores. During the year under consideration, the turnover on manufacturing, job-work and trading put together worked out to Rs. 2.79 crores. Therefore, even though the labour cost for manufacturing may have decreased as also manufacturing overheads, it cannot be denied-that inspite of the substantial fall in the turnover, even after taking into consideration the change in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 4 is with respect to disallowance of interest expenses. 13. A.O noticed that Assessee has paid interest of Rs. 19,83,875/- to bank. He also noticed that Assessee has advanced loans aggregating to Rs. 42,60,381/- on which no interest was charged by the Assessee, A.O in the absence of any convincing reply from Assessee by applying the rate of 12% being the rate paid to the bank on the amount advanced by Assessee worked out the interest liability of Rs. 5,11,245/- which according to him could not be allowed. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who upheld the order of A.O by holding as under:- 14. I have carefully considered both the positions. From the aforesaid chart, it is seen that the Assessee had given advances to Shree M. D Weaves and Glory Digital Photo Station on which no interest was charged. The argument of the AR that there-were no loans and hence interest was not charged is simply not acceptable. Even advances ought to carry interest especially when it is not shown as to what was the purpose for which interest from advances were given to the said two entities, even though it has been claimed that the advances were given for b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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