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Pr. Commissioner of Income Tax, Jaipur Versus M/s Handmade Paper & Board Industries

2017 (11) TMI 734 - RAJASTHAN HIGH COURT

Trading addition u/s 145(3) - non-maintenance of stock register and decline in GP rate despite Sales constant - ITAT and CIT-A deleted the addition - Held that:- Whatever defects pointed out by the Assessing Officer is not justified, the rejection of books of account U/s 145(3) of the Act. The assessee's manufacturing processes are so complexed that at every stage, the size, length and width of products changed and also the number of process in the manufacturing of handmade papers but the assess .....

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smissed the appeal of the department and confirmed the order passed by CIT(A). 2. This Court while admitting the appeal on 16.11.2016 framed following substantial question of law:- Whether the Tribunal is justified in upholding the decision of CIT(A) of making ad-hoc addition of ₹ 5 Lac by deleting the trading addition u/s 145(3) of ₹ 73,94,581/- made by the Assessing Officer on the basis of non-maintenance of stock register and decline in GP rate despite Sales constant? 3. Counsel f .....

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50149 25104502 33.36% 2008-09 74720272 17262838 23.10% When we take a glance over the chart we see that in A.Y. 2007-08 and 2008-09 turnover is almost equal but G.P. is dipped down sizeable. In its reply dated 09.08.2010 the assessee explained that there is slight variation in the profitability under the year is due to market forces which is beyond the control of the assessee but it failed to explain the substantiate, the market forces. So being judicious and considering the totality of the fact .....

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wherein it has been observed as under:- 3. The second ground of appeal is that the Ltd. AO has erred in making trading additions of ₹ 7394851/- by invoking the provisions of Sec. 145 of the IT Act. 3.1 The AO has discussed his observations, in this regard, as under:- The assessee is a manufacture and trader in handmade paper and board form old paper, rubies and hosiery waste etc. The factory is situated at Sanganer. The assessee was asked to produce stock register of raw material, work in .....

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. Most of the process is done manually which passes through various phases. No of things are done on the paper like embroidery work, printing and screening etc, hence it is beyond the control of the assessee to maintain the quantitative stock register in respect of raw material work in progress and finished goods. The assessee failed to produce even the stock inventory dated 31.03.2008. It means that books are not properly maintained and are not trust worthiness:- a) The Hon ble Supreme Court in .....

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f day to day consumption register can lead to rejection of books of account according to the provisions of section 145 of the Income tax Act. In the present case also the assessee has not maintained day to day record of consumption of material. No proper records related to sites are maintained out of which true and proper income could have deducted. c) The Hon ble Supreme Court in case of CIT v/s British Paints India Ltd. 188 ITR 44 has held that whatever may be the method of accounting adopted .....

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rate 2006-07 49506341 17324217 34.99% 2007-08 75250149 25104502 33.36% 2008-09 74720272 17262838 23.10% When we take a glance over the chart we see that in A.Y. 2007-08 and 2008-09 turnover is almost equal but G.P. is dipped down sizeable. In its reply dated 09.08.2010 the assessee explained that there is slight verification in the profitability under the year is due to market forces which is beyond the control of the assessee but it failed to explain and substantiate, the market forces. So bein .....

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in appeal before us. The ld DR has vehemently supported the order of the Assessing Officer. At the outset, the ld AR of the assessee has reiterated the arguments made before the ld CIT(A). He has further argued that the assessee had not maintained the stock register and manufacturing process of products manufactured by the assessee are so complicated and number of items manufactured are in number of quantities and there are differences, finished process and also the size, length and width of pr .....

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cts pointed out by the Assessing Officer are not sufficient to justify the rejection of books of account U/s 145(3) of the Act. The ld Assessing Officer made the addition on the ground that in preceding year, the GP was higher than the GP disclosed during the year under consideration but in the business line, the number of internal and external factors affect the performance of the business. Some of them are beyond the control of the assessee. The market competitive, there is recession in other .....

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ratio asACIT Vs. M/s Handmand Paper & Board such. Considering these case laws, the ld CIT(A) restricted the addition, therefore, he prayed to uphold the order of the ld CIT(A). 5. We have heard the rival contentions of both the parties and perused the material available on the record. Whatever defects pointed out by the Assessing Officer is not justified, the rejection of books of account U/s 145(3) of the Act. The assessee's manufacturing processes are so complexed that at every stage, .....

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concerned, it is a matter of record that the assessee did maintain all the Registers, verification of which had duly been made by the A.O. The books of accounts of the assessee were periodically checked by the revenue authorities. It appears that in the subsequent year i.e. in assessment year 1995-96, the same G.P. rate has been accepted by the Department. It is a fact that the cost of raw materials has increased. It is also seen that 100% goods are sold to its sister concern and therefore the q .....

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sue raised in Tax Appeal No. 1249 of 2007 in favour of the assessee and against the Department. 7. Now, insofar as, the questions raised in Tax Appeal No. 1250 of 2007 and Tax Appeal No. 1253 of 2007 are concerned, in paragraph No. 14 of its judgment, the Tribunal has observed as under: "14. Now coming to the second aspect that workers engaged by labour contractors are to be counted while counting number of workers. The answer is in affirmative and it is supported by the decision of Jurisdi .....

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trial undertaking manufacturers articles or things; and where the manufacturing process is carried on without the aid of power, it employs twenty or more workers, the requirements of the provision are fulfilled. When the provision is clear and unambiguous, there is no need to read anything more into the same, as is sought to be done by the Revenue. This Court in the case of CIT v. V.B. Narania & Co. MANU/GJ/0339/2001 : 171 CTR (Guj) 416 : 252 ITR 884 (Guj), where in the facts of the said cas .....

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he manner of doing of the work. The Court further held that the Assessing Officer and the AAC were not right in holding that the concerned persons were not employees because they were being paid on piecerate basis or job work basis. In the present case, the Tribunal has found that the assessee has the ultimate control over the affairs of the establishment and that the industrial undertaking of the assessee was employing more than 20 workers through the contractor. Applying the principles laid do .....

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