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2016 (1) TMI 984 - ITAT KOLKATA

2016 (1) TMI 984 - ITAT KOLKATA - TMI - Rejection of books of accounts - applicability of section 145 - CIT(A) deleting the application u/s145 - Held that:- AO has nowhere rejected the sales or purchase of assessee vis--vis other manufacturing expenses incurred by assessee during the year. We find that AO, after rejecting the books of accounts, had presumed that no prudent business man would sell the goods less than the manufacturing cost. However, there is no restriction under any law that ass .....

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cannot be the reason to believe that the assessee returned less profit than what it actually earned. Possibility of unstable market condition cannot be ruled out. The Tribunal, therefore, deleted the trading additions. We do not find any additional evidence having been admitted by the Ld. CIT(A) except comparative chart of expenses. The Ld. DR was unable to point out as to what was the fresh evidence on the basis of which the Ld. CIT(A) allowed relief to the assessee. Even the ground of appeal .....

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/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 26.10.2006 for assessment year 2004-05. 2. At the time of hearing none appeared on behalf of assessee even though notice of hearing was issued to assessee through registered post. However, we find that it is a Revenue appeal and the issue raised in this appeal by the Revenue can be adjudicated without the appearance of the assessee. Hence, we proceed to take up this appeal after hearing, Shr .....

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rse of assessment proceedings, AO found several discrepancies from the audit report filed by assessee which were as follows:- i) Auditor's report states that assessee has not yet adequate internal data commensurate with the nature of assessee's business; ii) The comment of auditor that details examination of cost records u/s. 209(1)(D) of the Companies Act, 1956 has not been carried out with a view to determine whether they are accurate or complete; iii) As per audit report, the assessee .....

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ds of the assessee and replies submitted by those parties. vi) The assessee failed to provide the stock register for verification. The assessee just claimed that the accounts have been audited by an independent auditor and according to his report the accounts are maintained in accordance with the companies Act. vii) The AO observed the discrepancy between the TDS certificate issued by the TATA Motors and submission made by the assessee. In view of above the AO rejected the books of accounts and .....

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ion of rejection of books of account cannot be justified. This ground is therefore allowed." Aggrieved, Revenue is in appeal before us on the following ground : "1. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the application of sec. 145 of the I.T. Act denying the comment of auditor's report." 5. We find from the aforesaid discussion that the AO has not brought sufficient reasons for rejecting the books of accounts. The AO formed the opi .....

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Whether the accounts maintained are complete in the sense that there is no significant omission therein? If the answers to above four questions are in the affirmative, assessee's profits are to be computed on the basis of his accounts. In such cases, proviso to section 145(1) or section 145(2) cannot be invoked. The Patna High Court has delivered a very important ruling in Md. Umer vs. CIT 1975 CTR (Pat) 13 : (1975) 101 ITR 525 (Pat). In that case, the assessee was individual, who derived i .....

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rofit shown was low. (5) Drawings for expenses were inadequate. However, assessee had produced all his books of accounts before the Income-tax Officer and only two defects were found by him : (1) absence of cash memos which means sales are not verifiable, and (2) certain transactions were noted in lump sums. 5.1 But no finding has been recorded by either of the authorities below as to the unacceptability of the method and irregularity of the accounts kept by the assessee. It is well settled that .....

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etermine whether the income, profits and gains of the assessee could properly be deduced there from. Very important principle of law is laid down by Patna High Court in the following words:- "There is no finding in the present case that any of the entries in the books of account was not correct; there is no finding that the assessee is not employing a method of accounting; and there is no finding that such a method of accounting has been irregularly employed by the assessee. In the absence .....

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ar vs. CIT (1961) 42 ITR 237 (Mad)]." The Patna High Court, therefore, held that-"the finding of the Tribunal upholding the rejection of the book profit shown by the assessee was vitiated by reason of its reliance upon suspicion, surmises as also irrelevant material. The finding that sales were unverifiable is not based on the materials on record and is an arbitrary finding." In view of above, the ground raised by the Revenue regarding rejection of books of accounts is dismissed. .....

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u/s 142(1) & collected by the A.O u/s. 133(6)." 7. The common issue raised by Revenue is that Ld. CIT(A) has erred in deleting the disallowance of ₹ 84,40,567/- on the basis of fresh evidence without following the provisions of Rule-46A of the I.T. Rules, 1962. During the year under consideration, assessee has shown manufacturing expenses of ₹ 5,23,32,438/- in relation to sale shown in the financial statement of the assessee for ₹ 4,38,91,871/-. From the above, AO fou .....

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circumstance and facts as narrated above, it is apparent that no difference in the amount between manufacturing cost and sale plus closing stock could be added to the Net Profit of the Appellant as the Appellant had maintained his Books of Accounts as per the provisions of law and further the assessing officer had not found any discrepancy relating to the purchase and sale. While it is unusual for the sale price to be less than the cost price it is not an essential 'sine qua non' of bus .....

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l before us. 9. We have heard Ld. DR and perused the materials available on record. Before us, Ld. DR vehemently relied on the order of AO. We find that during the appellate proceedings before Ld. CIT(A) Ld. AR of assessee submitted the arguments, which extracted from the order of Ld. CIT(A) is reproduced below:- "It is wrong to assume that sale price cannot be less than cost price. In a manufacturing, cost exceeds sales price due to various reasons such as purchase of raw material at high .....

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ery high outgo on account of electricity. This being the first year of manufacturing there were teething problems which took time to stabilize. 2) As may be seen from the following comparative chart the cost of electricity per metric ton for this year was much higher compared to next year: Year 2003-04 2004-05 Production (M.ton) 4007.68 4129.95 Electricity consumed (Rs) 1,54,78,738 1,18,12,249 Consumption per M.Ton 3862 2860 3) The company's manufacturing unit was not working smoothly throug .....

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er were all explained in course of the assessment proceedings. 2. The accounts of the company were properly audited and the same were followed by tax audit, a report of which in Form No. 3CD was filed along with the return. In annexure to Form No. 3CD information in respect of quantity of purchases, consumption, closing stock and production were given and those have not been disputed by the Assessing Officer. 3. During the course of the assessment proceedings, details of the manufacturing proces .....

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Authorities. Such authorities have never given any adverse finding against the records maintained by the company. 5. The rejection of the books of account by the Assessing Officer is not based on any cogent reason. 6. The reason for the high cost of production which ultimately resulted in a loss under the manufacturing and trading account was mainly due to the high expenditure on account of electricity as have been explained in detail above. Considering the facts and circumstances as submitted a .....

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