TMI Blog2011 (8) TMI 1142X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in confirming the action of the Assessing Officer in passing order u/s. 142(2A) of the IT. Act, 1961 directing special audit of accounts without providing opportunity of personal hearing /or otherwise providing sufficient proper opportunity of hearing without pointing out any complexity in the books of accounts. 2. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in confirming the action of the Assessing Officer in rejecting books of accounts u/s. 145(3) of the Act, 1961. 3. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in confirming the action of the Assessing Officer in making addition of ₹ 25,46,363/- on account of alleged low gross profit. 4. On the facts and circumstances of the case as well as law on the subject, the learned CIT (Appeals) has erred in confirming the action of the Assessing Officer in disallowing deduction u/s. 801B to the extent of ₹ 2,38,533/- being 30% of interest received on LC margin money and vatav kasar income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise law for the production and stocks but the same were not produced before the special auditors and hence, it was stated by the special auditors that they are not in a position to form an opinion about the correctness of the books. The 2nd observation is regarding the maintenance of proper records in respect of fixed assets. It has been stated by the special auditors that the assessee company does not maintain proper records regarding fixed assets. The next observation is regarding stock of raw material and spares. It is reported by the special auditors that the major lacuna is that goods issued to the shop floor are not properly recoded in the register and at the end of the year, physical verification of the stock is carried out and the balance quantity is ascertained and the rest is treated as consumption. The A.O. also noted in para 6.2 of the assessment order that in view of the discrepancies, the special auditors have observed that GP ratio of 28.66% shown by the assessee is on the lower side and the same is required to be estimated @ 29.65%. The A.O. issued show cause notice to the assessee asking the assessee to show cause as to why addition on account of low GP should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies below. 7. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that as per the note given by the special auditors in Annexure 1 to the auditors report which is available on page 34 of the paper book in Alidhara Textool Engineering Pvt. Ltd., it is seen that it was stated by the special auditors that the acceptable GP rate being suggested by him is 29.65% as against GP rate declared by the assessee @ 28.66% and working for this has been done after considering increase in the prices of raw material etc. Hence,, it is seen that this is admitted by the special auditors also with which the A.O. is also in agreement that to the extent of increase in price of raw material, the fall in GP stands explained. The working has not been provided by the special auditors regarding impact of increase in price of raw material on the GP. We, therefore examine this impact. 8. The prices of raw material are noted by the auditors on page 97 of the paper book. It is noted that the quantity of raw material consumed in the present year is ₹ 37,76,171/- and the total value of such consumption is ₹ 1895.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of production is 1.06% in the present year as against 0.83% in the preceding year and hence, there is negative impact of 0.23% on GP in the present year on account of increase in salary and wages. Similarly, other maintenance expenses in the present year is to the extent of 20.28% of total value of production as against 19.84% in the preceding year. This has also resulted in negative impact of GP in the present year to the extent of 0.44%. Hence, we find negative impact on GP in the present year on account of increase in price of raw material @ 2.30% and similar impact on GP in the present year on account of salary and wages is of 0.23% and on account of other maintenance expense is 0.44% and the total negative impact on GP in the present year on account of these three reasons is 2.97% whereas the fall in GP reported by the assessee is only 2.44%. On this analysis it is seen that the entire fall in the GP in the present year is to be considered as explained being on account of increase in price of raw material, and increase in expenses on account of salary and wages and other maintenance expenses. The special auditor himself has stated on page 34 of the paper book being Annexure 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to the extent of 2.74%. The actual fall in GP reported in that case is 3.31%. For the remaining small fall in GP of 0.57%, we are of the considered opinion that when the maximum part of fall in GP is found to be explained, for such a small fall in GP of 0.57%, it is not justified to reject the book results merely on the basis of this allegation that day to day stock register has not been maintained. This is admitted position of the fact that the assessee is following the same basis of accounting and is maintaining similar records in all earlier years also. As per the tribunal order of this very assessee in assessment year 2003-04 and 2004-05 in I.T.A. No. 925 and 3777/Ahd/2007 and 1042 and 7591/Ahd/2007 dated 11.06.2010 which is available on pages 1-31 of the paper book, it is seen that in assessment year 2003-04 also, addition of ₹ 10 lacs was made by the A.O. on account of low GP. In that year also, it was stated by the A.O. that the assessee is required to maintain quantitative records in view of the tribunal decision rendered in the case of DCIT Vs Sameer Diamond Exports Pvt. Ltd. 71 ITD 75, but this addition in that year was deleted by the tribunal. In that year, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n LC margin money which is ₹ 5,82,803/- in the case of Alidhara Texpro Engineering Pvt. Ltd. and ₹ 86,529/- in the second case. Accordingly, this part of the ground in both the case is rejected as not pressed. 12. With regard to allowability of 80IB deduction in respect of vatav kasar income of ₹ 18,45,862/- in the case of Alidhara Textool Engineering Pvt. Ltd. and ₹ 1,85,643/- in the case of Alidhara Texpro Engineering Pvt. Ltd., it was submitted by the Ld. A.R. before us that this is not interest income but is on account of short payments and rate difference on purchases and it should go to reduce the cost of purchases and hence, it cannot be treated as income form other sources and it cannot be reduced form industrial undertaking s income. It was submitted that merely because the assessee has recorded the same separately, instead of reducing it form the purchase cost, it cannot be held that 80IB deduction is not allowable in respect of this income. 13. Ld. D.R. of the revenue supported the order of authorities below. 14. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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