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2010 (11) TMI 548 - AT - Income TaxRejection of books of accounts - estimation of profit - Held that - AO was having suspicion that the yield shown by the assessee is lower as compared to the comparable cases. The AO has not been able to establish that there were sales outside the books of account in respect of either finished product or by-product. - The Hon ble Punjab and Haryana High Court in the case of CIT vs. Ludhiana Steel Roll Mills (2007 -TMI - 2281 - HIGH COURT, PUNJAB AND HARYANA) had an occasion to consider the case where the AO found various discrepancies. - there is no case of rejection of books of account except some variation in valuation of closing stock.
Issues Involved:
1. Deletion of addition on account of ESI and PF payment. 2. Deletion of addition on account of trading addition. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of ESI and PF Payment: The first issue raised by the Revenue was that the learned CIT(A) erred in deleting the addition of Rs. 22,021 on account of ESI and PF payment by invoking the provisions of section 43B of the IT Act, though the disallowance is covered by section 36(1)(va) of the IT Act. The Hon'ble apex Court in the case of CIT vs. Atom Extrusions Ltd. affirmed the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Sabari Enterprises, where it was held that the ESI and PF contributions relating to employees' contributions are allowable if paid before the due date of filing the return. Thus, the learned CIT(A) was justified in deleting the disallowance of Rs. 22,021. 2. Deletion of Addition on Account of Trading Addition: The second issue raised by the Revenue was that the learned CIT(A) erred in deleting the addition of Rs. 43,12,908 made on account of the trading addition. The AO compared the yield of oil from Taramera and groundnut as shown by the assessee with the results of the preceding year. The AO noted discrepancies in the production register and concluded that the shortages were increased to show the lower yield. The AO also noticed discrepancies in the stock register, production register, and valuation of closing stock, and accordingly applied the provisions of section 145 of the Act. Before the learned CIT(A), the assessee argued that the AO was not justified in invoking the provisions of section 145 of the Act. The assessee provided explanations for the fall in yield of oil and referred to various judicial decisions to argue that the books of account should not be rejected on account of variation in yield or GP rate. The learned CIT(A) observed that some of the AO's observations were factually incorrect and deleted the disallowance, stating that the AO was not justified in rejecting the audited books of account. During the proceedings before the Tribunal, the Departmental Representative argued that the discrepancies noticed by the AO were not properly explained and that the learned CIT(A) was not justified in deleting the addition. The assessee's Authorised Representative relied on the order of the learned CIT(A) and provided detailed written submissions and a paper book. The Tribunal considered the objections raised by the AO and the replies given by the assessee. The Tribunal noted that the assessee had provided valid explanations for the discrepancies pointed out by the AO, including the average rate of purchase of groundnut seeds, the yield of oil on specific dates, and the capacity of the machines. The Tribunal found that the AO was justified in finding undervaluation of closing stock of mustard oil to the extent of Rs. 8,273, but not in respect of groundnut oil and Taramera oil. The Tribunal concluded that the accounts of the assessee could not be termed as incorrect or incomplete and that there was no case for rejection of the books of account except for some variation in the valuation of closing stock. The Tribunal upheld the valuation in the closing stock to the extent of Rs. 8,273 + Rs. 839 + Rs. 834 and directed that the increase in closing stock be considered as opening stock of the subsequent year. The appeal of the Revenue was partly allowed.
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