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2016 (4) TMI 1122 - ITAT MUMBAI

2016 (4) TMI 1122 - ITAT MUMBAI - TMI - Rejection of books of accounts - variations with respect to month-wise consumption of raw material vis--vis finished products - provision of section 145(3) invoked - Held that:- On identical issue in A.Y.2008-09, an elaborate discussion has been made by the Tribunal and after considering the factual matrix, it was concluded that for invoking the provision of section 145(3) of the act to reject the books of accounts, by the Assessing Officer, it can be don .....

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he Act, thereby, we affirm the stand of the ld. Commissioner of Income Tax (Appeals) in deleting the impugned addition - Decided in favour of assessee - ITA NO.1639/MUM/2014 - Dated:- 21-3-2016 - Shri Joginder Singh, Judicial Member and Shri Rajendra, Accountant Member For The Revenue : Shri M. Murli-DR For The Assessee : Shri Subhash S. Shetty and Shri R. N. Vasani ORDER Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 30/12/2013 of the ld. First Appella .....

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on of ₹ 1,92,31,781/- made on account of sales not reflected in the books of account on the suppressed production. 2. During hearing, the ld. counsel for the assessee, Shri Subhash S. Shetty along with Shri R. N. Vasani, claimed that the impugned issue is covered in favour of the assessee by the decision of the Tribunal dated 18/11/2015 (ITA No.6653 & 6570/Mum/2011) for A.Y. 2008-09. This factual matrix was consented to be correct by Shri M. Murli, ld. DR. 2.1. We have considered the r .....

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g Officer u/s. 143(3)(ii) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') dated 07.12.2010 pertaining to the assessment year 2008-09. 2. First, we shall take up the, appeal of the Revenue, wherein, the following three Grounds of appeal have been preferred:- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the reasons for rejection of books of accounts u/s.145(3) of the Act, are riot correct, without appreciating the .....

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nsequently the true and fair profit of business cannot be deducted, the books of accounts deserved to be rejected u/s.145(3) of the, I.T. Act which has also been endorsed by various courts". . 3. A perusal of the aforesaid Grounds reveal that the Revenue has raised the multiple Grounds of appeal but essentially the dispute relates to the action of the CIT(A) in deleting the addition of ₹ 2,70,46,846/- made by the Assessing Officer on account of undisclosed production. 4. In order to a .....

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e month-wise quantitative details of raw materials consumed and production of various products and compared the same with those in the respective months of the immediately preceding assessment year of 2006-07. The Assessing Officer also required the assessee to produce day-to-day item Wise consumption of raw material and production with the consumption of electricity, in units; Labour in number etc. 'In response, assessee company explained that it was using various raw materials for manufact .....

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of consumption and production from month to month." According to the Assessing Officer" the production of finished goods was more than the consumption of raw material in few months, whereas, in other months, the production was lesser than the raw' materials consumed. In the said background and considering the absence of any record of day-to-day item wise consumption/production, the Assessing Officer proceeded to reject the manufacturing account results depicted in the account book .....

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een sold outside the books of account. 5. In this background, assessee challenged the order of the Assessing Officer in appeal before the CIT(A). Before the CIT(A), assessee relied upon the statutory quantitative records for raw materials land finished goods which were maintained and were audited by the Central Excise authorities it was asserted by the assessee that the assessing Officer had passed the assessment order merely on assumptions, guesswork and surmises because the Assessing Officer h .....

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s Profit rate. On facts, it was asserted by the assessee that the Assessing Officer had not found any defects in the books of account maintained. The CIT(A) accepted the plea of assessee and has set -aside the action of Assessing Officer of rejecting the books of account and accordingly he deleted the addition of ₹ 2,70,46,846/-. 6. Aggrieved by the order of CIT(A), the Revenue is in appeal before us. 7 Before us, the Ld. DR appearing for the Revenue reiterated the reasoning adverted to by .....

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on for' the Assessing Officer to have rejected the books of account u/s 145(3) of the Act. 9. We have carefully considered the rival submissions. In the present case, the controversy revolves around the invoking of section 145(3) of the Act by the Assessing Officer in' order to reject the books of account maintained by the assessee. Section 145(3) of the Act empowers the Assessing Officer to disregard the books of account maintained by the assessee if he is not satisfied about the correc .....

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t best be an indication to investigate the issue further but such a variation by itself cannot be conclusive of incorrectness of the accounts. Moreover, the assessee company had explained before the Assessing Officer the reasons for such variation. Such explanation has also been noted by the CIT(A) in para 3.1 of his order which to the effect that the assessee company was undertaking manufacture of various specialty chemicals and concentration of raw materials was decided keeping in mind the spe .....

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essee had explained before the Assessing Officer vide communication dated 7.9.2010, a copy. of which is placed in the Paper Book at page 27 to·28, that due to abnormal increase in overhead expenses with respect to, depreciation, interest and loan etc, the net profit has declined vis-a-vis the preceding year, though there was no decline in the Gross Profit ratio. At page '54 of the Paper Book is placed a tabulation of the GP ratio and the NP ratio for four assessment years which shows .....

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. It was for this reason the net profit for the year under consideration was low in comparison to the immediate preceding year, though" there was no decline in the Gross Profit ratio. The aforesaid explanation rendered by assessee has been glossed over by the Assessing Officer without finding any fault in it. Notably, assessee had referred to statutory records maintained including the stock registers etc, prescribed under the excise laws and such material has not been commented adversely by .....

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