2011 (8) TMI 1219 - AT - Income Tax

Summary

Issues involved:
The appeal filed by the Revenue against the order of ld. CIT(A) dated 19.03.2008 regarding the deletion of an addition made by AO by adopting GP ratio of 16.71% u/s 143(3) of the I.T. Act 1961.

Issue 1: Gross Profit Calculation
The assessee, engaged in manufacturing and trading of Art Silk Cloth, showed a significant fall in GP during the year, attributing it to mistakes in finalizing design and quality of cloths. The AO observed discrepancies in production, sales, and purchase registers, questioning the quality of goods sold and the credibility of the explanation provided by the assessee. The AO rejected the books of accounts u/s 145 of the Act and estimated gross profit at 16.78%, making an addition of &8377; 34,65,892.

Issue 2: Double Claim of Shortage
The assessee claimed shortage in closing stock of grey and finished cloth, which was admitted to be claimed twice due to human error. The AO questioned the credibility of this claim, highlighting inconsistencies in the stock statements and lack of concrete evidence to support the double deduction. The AO concluded that the books of accounts were manipulated, leading to the addition on account of low GP.

Judgement Summary:
The ld. CIT(A) overturned the AO's decision, stating that the regular method of accounting followed by the assessee should be accepted, and there was no justification for rejecting the books of account. The ld. CIT(A) deleted the gross profit addition made by the AO. The Revenue appealed this decision before the ITAT AHMEDABAD. The Tribunal upheld the ld. CIT(A)'s decision, emphasizing that the Revenue did not challenge the finding that the book results could not be rejected u/s 145(3) of the Act. Citing precedent, the Tribunal confirmed the acceptance of the book results and dismissed the Revenue's appeal.