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TMI Blog2017 (2) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... oods, but did not maintain quantity details relating to inter process manufacturing. Hence, the Assessing Officer took the view that the assessee has failed to explain reasons for fall in GP rate to his satisfaction. Accordingly, he rejected the books of account and estimated the GP rate at 9% of the sales turnover. Accordingly, he added difference amount arising on account of difference in GP rate to the total income of the assessee, which worked out to Rs. 15.99 crores. 3. In the appellate proceedings, the learned CIT(A) did not agree with the view taken by the Assessing Officer and accordingly, set aside the order of the Assessing Officer in rejecting the books of account and also in estimating GP by taking GP rate at 9%. However, the learned CIT(A) made a lump sum addition of Rs. 1 crore on account of non-correlation of consumption of input and output material and for any leakages. For the sake of convenience, we extract below the operative portion of the order passed by Ld CIT(A):- "I have carefully considered assessment order as well oral/written submissions of the Ld. AO and AOs report on Ld. AR's submission. It immensely transpires that the AO had heavily relied on fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of cost of raw material consumed has increased by approximately Rs, 15,603.39/- per MT whereas the average rate of sale has increased only by Rs. 14,192.64/- per MT Hence, the net average cost of raw material has increased by Rs. 1,41075/- over and above the increase in average rate of sale which has resulted into increase in cost of raw material consumed and consequent reduction in percentage of gross profit (refer page no. 129)." The explanation of the assessee could not be rebutted by the Assessing Officer either in assessment proceeding or remand proceeding convincingly as it has force of facts. Be that at it may, mere fall in Gross Profit rate cannot be a ground for rejection of books of account which has been settled by judicial pronouncements, out which few are relied upon by Ld. A.R. in his submission, and which are squarely applicable to the facts of the instant case. Here, the Ld. A.R. is able to substantiate reasons for fall in Gross Profit rate. Moreover, no other infirmity or defect could be detected either during assessment proceeding or remand proceedings. It is undisputed that neither there is a inflated purchase or purchase price nor bogus/sham purchase. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... input and output material and any leakages." The revenue is aggrieved by the decision of Ld CIT(A) in setting aside the rejection of books of account and consequential relief granted. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the addition to the extent of Rs. 1.00 crore. 4. The Ld A.R submitted that the assessee, being a private limited company, has maintained records as required under Companies Act. He submitted that the turnover of the assessee has increased by about 40% during the year under consideration, vis-à-vis the immediately preceding year. He submitted that the assessee has maintained proper records for the raw materials and also for finished goods. He submitted that the assessee has manufactured and sold the virgin oils and also Vanaspathi by mixing certain oils, fat etc. He submitted that the quantity details have been properly maintained for both the items. He submitted that the Tax auditor has examined the stock register maintained by the assessee and reported the same in his tax audit report. He submitted that the assessee has given quantity details of raw materials in page 69 of the paper book, which shows that the percentage o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO in AY 2009-10 and he did not make any addition thereof. The Ld A.R further submitted that the assessee has furnished all the details before the AO as well as before the Ld CIT(A). Convinced with the details furnished by the assessee, the ld CIT(A) called for a remand report from the AO, but the AO did not make any submission except stating that these details were furnished before him during the course of assessment proceedings also. The Ld A.R submitted that the Ld CIT(A) was convinced with the details of stock maintained by the assessee and accordingly held that there was no case for rejection of books of accounts. Having held so the Ld CIT(A) has, however, sustained addition to the extent of Rs. 1.00 crore on adhoc basis without giving any reason or basis. The Ld A.R submitted that the Ld CIT(A) was not justified in sustaining the addition to the extent of Rs. 1.00 crore and accordingly pleaded that the same should be deleted. 8. On the contrary, the Ld D.R submitted that the assessee has furnished quantity details on overall basis in the Tax audit report. He further submitted that the assessee has shown higher G.P. rate of 10% in the immediately preceding year and the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) was justified in holding that the AO has not made out a proper case for rejecting the books of accounts. On the contrary, we notice that the assessee has convincingly explained the reasons for the fall in G.P rate. Accordingly we uphold the order of Ld CIT(A) in setting aside the order of rejection of books of account. 12. Since the assessee has explained the reasons for the fall in G.P rate and since the normal loss declared by the assessee is much lower than earlier years, we are of the view that the non-maintenance of inter process record has not impacted the profit of the year. We notice that the assessee has been maintaining same set of books of accounts and stock register year after year and they have been accepted by the AO in the past. Even otherwise, the assessee has reconciled the quantity details of raw materials and finished goods category wise. Under these set of facts, we are of the view that the Ld CIT(A) was not justified in making adhoc addition of Rs. 1.00 crore. Accordingly we set aside the order of Ld CIT(A) in confirming the addition of Rs. 1.00 crore. 13. In the result, the appeal filed by the assessee is allowed and the appeal of the revenue is dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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