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TMI Blog2019 (7) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal was admitted on the following questions of law: 1. Whether, the Income Tax Appellate Tribunal was legally justified in upholding the application of Section 145(3) of the Income Tax Act, 1961, upholding the rejection of books of account, and application of hypothecated G.P. Rate of 23.01 % as enhanced by the Commissioner of Income Tax (Appeals)? 2. Whether the Income Tax Appellate Tribunal as well as learned Commissioner of Income Tax (Appeal) were legally justified in giving their new reasoning for justifying the application of Section 145(3) of the Income Tax Act, 1961 for upholding the rejection of books of account, contrary to the findings and conclusions mentioned by the assessing authority in paras 4.1, 4.II, 4.III, 4.IV and 4.V of the assessment order wherein the assessing authority has recorded positive findings in favour of the appellant for fall of GP rate in the current year, even though applying hypothetical GP rate at 15 %? 3. Whether, the Income Tax Appellate Tribunal was legally justified in upholding the order of lower authorities and addition of Rs. 1,32,02,742/- towards trading profit merely on the basis of surmises and conjectures, ignoring the cogent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and rejected the books of the assessee. He adopted G.P. Rate @15% instead of 14.52% as disclosed by the assessee. Accordingly the extra profit was worked out at Rs. 7,42,607/-and the same was added to the income of the assessee. Apart from this addition various other additions on account of disallowance of travelling and conveyance expense, disallowance of printing and stationary expenses, disallowance of general expenses and disallowance of other expenses. 10. Thereafter the Assessing Officer made an assesment vide Assessment order dated 13.02.06 and came to the following conclusion. " III. On verification of weaving charges payment, it is seen that the payment of Rs. 4,22,48,507 are made to weavers/weavers contractor after deducting tax at source and total of deduction of tax was Rs. 8,49,906, many of weaver/weaver contractor, as per TDS deduction list, are assessed to tax and have been allotted PAN, however, in some of cases PAN have not been quoted. No doubt as far as the genuineness of the person is concerned, the person with the PAN number can be said to be verifiable but as in the maximum no. of weavers cases, they are not maintaining their own books so cross ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ashish Agarwal, learned counsel for the revenue. 16. It is contended by learned counsel for the appellant that the Tribunal as well as the lower authorities have erred in law as well as on facts in upholding the rejection of book of accounts and application of Section 145(3) of the Income Tax Act. The assessing authority had found that the assessee had maintained purchase/manufacturing register, sale register and stock register. He also submitted that in case the Assessing Officer, CIT(A) or Tribunal doubted the transactions carried out by the assessee regarding the payment of weaving charges they should have summoned the persons/weavers in question. Without summoning those persons, tax liability could not be fastened on the assessee on presumptions and conjectures. 17. It is further submitted, that there was no suppression in sales/purchase order or of raw materials nor excess raw material had been found in assessee's case to assume hypothecated GP rate of 23.01 % as assessed by the Commissioner of Income Tax (Appeal) and upheld by the Income Tax Appellate Tribunal. Learned counsel for the assessee relied upon the judgement of this court in the case of M/s Kaka Carpets vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, which was due to increase in cost of raw material, as per assessee. To verify the fall in GP rate, the Assessing Officer examined the books of account and found that the sale and purchase were found verifiable. However, on verification of weaving charges payment, it was found that although payment of Rs, 4,22,48,507 was disclosed to have been made to weavers after deducting tax at source however, only some of the weavers/contractors had permanent account number. About half of them, no permanent account number was available. Total deduction of tax was Rs. 8,49,906, but in case of some of the weavers total payment of Rs. 589324 had been made as weaving charges without any deduction of tax at source. As the addresses of these persons were not complete, verification of weaving charges was not possible. Similarly in the case of manufacturing expenses, it could not be fully verified. The Assessing Officer recorded that the stock position and consumption of raw material and cost thereof cannot be correctly deduced as piece to piece manufacture, consumption, cost, sales is not correlated from the books kept by the assessee and therefore, in view of the unverifiability of the same with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of accounts and recorded the finding to the effect that the assessee has failed to get the weaving charges, manufacturing expenses verified as the addressees of many weavers were incomplete and consumption as well as stock could not be fully verified. It also noticed that there was a change in the method of recording payment of weaving charges, repairing charges and finishing charges. The accounts were opened and the payments had been rooted to the accounts of the weavers/contractors. Thus, it concluded that there is an element of non-genuine expenses. It also took note that there is decline in the cost of raw materials as compared to earlier years. The stock register was not properly maintained and as such it was not possible to ascertain the quantitative details of stock, cost as per unit. 26. Tribunal also noted that the assessee has failed to explain satisfactorily before it as to what was the reason for decline in the gross profit rate and increase in the manufacturing expenses and in absence of any reliable material on record, learned Tribunal did not interfere in the findings arrived at by the authorities below and held that the authorities below were justified in rejecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit rate on the basis of the previous history of the assessee particularly when huge manufacturing expenses have been claimed by the assessee. 33. The assessee has given details of sales for the assessment year under appeal and the preceding assessment years along with computation of gross profit rate but the Assessing Officer rejected books of account on the ground of non maintenance of stock records and the CIT(A) on appeal has sustained the rejection of books of account of the assessee for want of stock records. Therefore, the findings of CIT(A) on the said point cannot be said to be faulted with when the assessee failed to explain the reason for non maintenance of the stock register and also made a bald statement that it is practically not possible for assessee to maintain stock register. The appellant-assessee failed to submit any cogent explanation. 34. Whether the books of account were being properly maintained or not, whether all the entries about the sale transactions therein were made or not, whether stock register was being maintained properly or not, are all questions of fact. The main issue with regard to weaving charges, the same remained unverified on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Shri Venkateswar sugar mills V/s CIT (2012) 341 ITR 588 (AllD). In paragraph no. 12, 13 and 14 it has been laid down as follows. 12. For the assessment year under consideration, the assessee has shown the G.P. Rate 16.20 per cent, as against 33.44 percent. In the previous assessment year. Thus, during the assessment year under consideration, the G.P. Rate was low. The commissioner of Income- tax (Appeals) discussed the facts and circumstances pertaining to the manufacturing cost and selling price. The Assessing Officer has taken the G.P. rate at 27 percent. When the books of account were not properly maintained and the vouchers pertaining to the consumable items were not available for verification, then we find justification for rejection of the books of accounts by the Assessing Officer Once the books of account rejected, then there is no option before the Assessing Officer except to estimate the sale and G.P. Rate which he determined by taking by taking by comparative figure of the assessee for the previous assessment year. The Tribunal has already given the partial relief in the facts and circumstances of the case, there is no scope to give any further relief speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the finding of fact recorded by the AO or the first appellate authority or the Tribunal cannot be disturbed by the High Court in exercise of powers under Section 260-A of the Act unless such finding is perverse or is such which no person of reasonable prudence could arrive at in the given facts of the case. 41. Undisputedly the powers of First Appellate Authority in matters of assessment are co-extensive with the Assessing Authority, in so far as the CIT (A) had issued a notice and thereafter made the enhancement on the basis of relevant material, no question of law may arise against such estimation as it would remain a finding of fact. In so far as the enhancement made by the CIT (A) is based on cogent material and evidence, the said finding does not suffer from any error of Law. 42. In M. Janardhana Rao Vs Joint CIT, reported in (2005) 273 ITR 50 (SC), the Hon'ble Supreme Court held that in the exercise of the powers under Section 260-A of the Act, the findings of fact of the Tribunal cannot be disturbed. The Hon'ble Court held as follows. 14. Without insisting on the statement of substantial question of law in the memorandum of appeal and formulating the same at the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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