TMI Blog2011 (9) TMI 1089X X X X Extracts X X X X X X X X Extracts X X X X ..... s law on the subject, the ld. CIT(A) has erred in confirming the action of the AO in disallowing deduction u/s 80IB to the extent of ₹ 1,32,531/- by reworking written down value of assets. 2. The first and second grounds relate to rejection of books of accounts and estimation of addition @ 21.13% and thereby making addition of ₹ 16,47,501/-. The facts of the case are that the assessee company is manufacturer of textile machineries and parts. The assessee filed return of income on 21.04.2007 declaring total income at ₹ 1,77,13,480/-. During the course of assessment proceedings the assessee has shown GP rate of 19.13% on turnover of ₹ 16,47,50,195/- as against GP rate of 20.62% on turnover of ₹ 17,31,03,258/- shown in the last year. The AO stated that in the course of assessment proceedings various discrepancies were noticed that there are variations in the remarks of the auditor and submissions made by the assessee in response to specific queries raised by him, which are as under: Sl. No. Aspect of business Comment in the audit report Submission of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 6,61,200/- to Alidhara Textile Engineers (P) Ltd. a person covered u/s 40A(2)(b). However, the assessee has not submitted its justifiability that it was reasonable or that its sister concern had rendered any service, especially in view of the fact that the business of both the sister concerns are same. 2.2 In view of the above, the AO issued a show cause notice as to why gross profit addition be not made. The assessee replied that the reason for fall in GP is due to increase in cost of raw material. Due to severe competition it is not possible to increase the value of sales price. With respect to the observation of the AO for maintaining day-to-day stock register, the assessee stated that it had maintained complete stock records as per the Excise Rules. The assessee has purchased different items of raw materials. The quantities of the purchases are recorded separately item-wise in the books of account. The assessee has taken inventory at the end of the year of all the raw materials. There was no closing stock of work in progress on 31.03.2006. The consumption is worked out in respect of each items of raw material, on the basis of opening stock + purchase closing stock. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee had withheld the complete and correct details regarding its accounts from the assessing officer and hence, so far as the AO was concerned the accounts with he was allowed to examine were not correct and complete, hence he was justified in invoking the provisions of section 145(2) of the Income-tax Act. 2.3 The AO also relied on the decision of the Hon ble Allahabad High Court in the case of Awadhesh Pratap Singh Abdul Rehman and Brothers 210 ITR 406 and in the case of Hari Shankar Gopal Hari 97 ITR 716, wherein the Hon ble High Court stated as under: It is difficult to catalogue the various types of defects in the account books of an assessee which may render rejection of account books on the ground that the accounts are not complete or correct from which the correct profit cannot be deduced. Whether the presence or the absence of a stock register is material or not would depend upon the type of the business. It is true that the absence of a stock register or cash memos in a given situation may not per se lead to an inference that the accounts are false or incomplete. However, where the absence of a stock register, cash memos, etc. is coupled with other facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) by making the following remarks: 3.3.1 I have considered the submission made by the appellant and the observation of the AO. It is very strange that even when the special audit has been ordered the appellant chose to not produce all the books of account, mainly stock register and day to day consumption register before the special auditor. The attitude of the appellant remains to be same as before the original auditor. The original auditor had made various remarks, which were contrary to the submission made by the appellant, which shows that the original auditor has not referred to various stock registers, fixed asset register and other records. The appellant did not produce these stock register and day to day consumption register before the special auditor also. Hence it is clear that the books of account have been rightly rejected for the three reasons given by the AO and quoted above. Having rejected the books of account, the GP rate has been increased by only 1.48% against the fall in 2.88%. Neither during the assessment proceedings nor during the proceedings before the special auditor, the appellant could give any reason with evidence for the fall in gross profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) upheld the action of AO by observing that on identical facts the issue was earlier decided against the assessee. Therefore, the orders of AO and the ld. CIT(A) be upheld. 6. We have considered the rival submissions and perused the material on record. We find that there is no dispute that the facts of this year are identical to earlier year and the ld. CIT(A) has confirmed the action of the AO in rejecting the books of accounts of the assessee and estimating the GP by following his earlier order for Asst. Year 2005-06. We further find that the order passed by the ld. CIT(A) for Asst. Year 2005-06 has been set aside by the Tribunal vide its order in ITA No.3496/Ahd/2008 dated 12.08.2011 by observing as under: 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as noted by the special auditors on page 34 of the paper book. Out of this total fall in GP of 2.44%, 2.30% fall is on account of increase in price of raw material in the present year to ₹ 50.20 as against ₹ 45.98 in the preceding year. There are two other factors, which are effecting the fall in GP in the present year. There is increase in the expenses on account of salary and wages to the extent of ₹ 80.70 lacs in the present year as against ₹ 61.53 lacs in the preceding year and also on account of other maintenance expense which also increased to ₹ 1537.04 lacs in the present year as against ₹ 1465.70 lacs in the preceding year. The percentage of salary and wages expenses to value 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 neg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the special auditor that the expense reported by the assessee company on account of salary and wages and other maintenance expenses are not correct because in this case also, the only allegation is regarding non maintenance of proper stock records. In this case, the adverse impart on GP on account of increase in salary and wages is to the extent of 0.89% and the adverse impact on account of increase in other manufacturing expenses is to the extent of 0.64%. Similarly, the adverse impact on GP on account of increase in the prices of raw material is to the extent of 0.32% and the adverse impact on GP on account of increase in rates of imported parts is to the extent of 0.89% and taking together, the negative impact on GP in the present year 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 fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above, we decide the issue in favour of assessee and allow the ground raised by the assessee. 7. Ground No.3 relates to disallowance of deduction u/s 80IB to the extent of ₹ 43,869/- on vatav kasar income of ₹ 1,46,231/-. In the assessment order the AO stated that the assessee has shown vatav kasar income of ₹ 1,46,231/- in the profit and loss account as other income. The assessee has included the above income for calculating deduction u/s 80IB. The AO stated that this income is not derived from industrial undertaking and hence deduction could not be allowed u/s 80IB in respect of this income. The AO in this regard followed the decision of Hon ble Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd., Sterling Foods 237 ITR 579, Hindustan Lever Ltd. 239 ITR 297, Pandian Chemicals 262 ITR 278 and K. Ravindranathan Nair 262 ITR 669. 8. In appeal before ld. CIT(A) the assessee submitted that vatav kasar income is derived from industrial undertaking because it is an account of short payments and rate difference of purchases shown by the assessee. The ld. CIT(A) following the decision of earlier year disallowed the deduction u/s 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n down value of assets. In assessment order the AO has stated that as in earlier years the assessee had claimed deduction u/s 80IB without claiming depreciation. The AO has followed the decision of the Hon ble ITAT, Special Bench in the case of Vahid Paper Converters 98 ITD 165 and computed deduction u/s 80IB after allowing depreciation. The ld. CIT(A) has dismissed the ground raised by the assessee by stating that the decision of jurisdictional ITAT, Special Bench, Ahmedabad in the case of Vahid Paper Converters is squarely applicable. The decision of AO is correct and accordingly be dismissed this ground of assessee. 13. The ld. counsel of the assessee submitted that the lower authorities were not justified in disallowing the claim of the assessee. The same may be allowed now. 14. On the other hand, the ld. DR submitted that the lower authorities have rightly disallowed the claim of assessee by following the decision of this Tribunal in the case of Vahid Paper Converters (supra). Therefore, the order of ld. CIT(A) be upheld. 15. After considering the rival submissions and going through the material on record, we find that identical issue has been decided by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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