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Issues Involved:
1. Deletion of addition on account of low Gross Profit (GP). 2. Deletion of addition on account of unexplained share application money. Summary: Issue 1: Deletion of addition on account of low GP The revenue challenged the deletion of an addition of Rs. 11,03,008/- on account of low GP. The AO rejected the books of account u/s 145(3) due to non-maintenance of a day-to-day stock register for consumables, citing the Supreme Court decisions in S.N. Namasivayam Chettiar and British Paints India Ltd. The AO noted a fall in GP from 29.25% to 20.82% and attributed it to the abolition of Cenvat credit, increase in salary & wages, and price hike in color & chemicals. The CIT(A) deleted the addition, noting that the only reason for rejecting the books was the non-maintenance of a stock register for consumables, and no other defects were pointed out. The CIT(A) found that the assessee justified the fall in GP due to Cenvat and other factors, and the AO did not counter this argument with any material. The Tribunal upheld the CIT(A)'s decision, noting that the assessee maintained proper stock records and the AO failed to bring any other material to justify the rejection of book results. Issue 2: Deletion of addition on account of unexplained share application money The revenue challenged the deletion of an addition of Rs. 3,63,657/- on account of unexplained share application money. The AO added Rs. 3,38,000/- u/s 68 and disallowed interest expenditure of Rs. 25,657/-, stating that the assessee failed to prove the source of cash deposited by the shareholders. The CIT(A) deleted the addition, noting that the assessee provided confirmations, income tax returns, balance sheets, and bank statements of the shareholders, thus discharging its onus to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) applied the Supreme Court decision in Lovely Export Pvt. Ltd., which held that if the share application money is received from alleged bogus shareholders, the department is free to reopen their individual assessments. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had discharged its initial onus and the issue was covered by the Supreme Court decision in Lovely Export Pvt. Ltd. Assessment Year 2006-07: For the assessment year 2006-07, the revenue challenged similar deletions of additions on account of low GP (Rs. 4,92,662/-) and unexplained share application money (Rs. 3,00,960/-). The CIT(A) followed his earlier order dated 15th December 2008 and deleted the additions. The Tribunal, noting that both issues were the same as in the assessment year 2005-06, upheld the CIT(A)'s decision and dismissed the departmental appeal. Conclusion: Both departmental appeals for the assessment years 2005-06 and 2006-07 were dismissed. The Tribunal confirmed the CIT(A)'s findings on both issues, emphasizing the proper maintenance of records by the assessee and the lack of material evidence by the AO to justify the additions.
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