2020 (3) TMI 1014 - AT - Income Tax

Rejection of books of accounts - adoption of 10% GP on the ground that the assessee was unable to provide the manufacturing account as it cannot be made - submission of the assessee that the accounts are audited and no defects were pointed out by the auditors; that due to dispute in the family, the turnover has come down and the GP has also fallen and in subsequent years the business has been closed and, therefore, adoption of such high rate of GP is uncalled - HELD THAT - No force in the argument of the ld. Counsel for the assessee, especially in absence of non-production of manufacturing account and non-furnishing of details to arrive at the actual value of items consumed and the value of closing stock. However, going by the past results and considering the totality of the facts of the case, we are of the considered opinion that adoption of 4% GP in the instant case will meet the ends of justice. We, therefore, direct the AO to adopt the GP rate of 4% and recompute the disallowance. Addition on account of disallowance of interest - Held that - neither any specific ground has been taken before the Tribunal nor anything was argued by the assessee on this issue although the assessee in the general grounds of appeal has challenged the entire addition made by the AO. We, therefore, refrain from adjudicating the issue of disallowance of interest made by the AO in the original order. The grounds raised by the assessee are accordingly partly allowed.

Summary

Issues:
Assessment of income based on GP rate, Disallowance of interest payable, Maintenance of manufacturing account and stock register.

Assessment of income based on GP rate:
The appeal was against the order relating to the assessment year 2010-11. The AO noted discrepancies in the audit report regarding the absence of a manufacturing account and lack of clarity in the books of account regarding the preparation of raw materials for the mixture of adulterated hing. The AO applied a 10% GP rate, making an addition to the total income. The CIT(A) reduced the GP rate to 6.5%, confirming the addition. The Tribunal dismissed the appeal, leading to an appeal to the High Court, which remitted the issue back to the CIT(A) for fresh examination. The CIT(A) rejected the appeal, emphasizing the absence of a manufacturing account and stock register, leading to the Tribunal directing the AO to adopt a 4% GP rate, partially allowing the appeal.

Disallowance of interest payable:
The AO disallowed interest payable due to the absence of filing confirmation. However, the Tribunal refrained from adjudicating this issue as no specific ground was taken before them, and the assessee did not argue on this point. Hence, the disallowance of interest made by the AO in the original order was not addressed in the Tribunal's decision.

Maintenance of manufacturing account and stock register:
The case revolved around the maintenance of a manufacturing account and stock register. The AO rejected the book results due to the absence of a manufacturing account and lack of clarity in the books regarding raw material preparation. The High Court remitted the issue back to the CIT(A) for fresh examination, emphasizing the need to determine if a quantitative tally of raw materials used was maintained. The CIT(A) dismissed the appeal, noting discrepancies in the submissions made by the assessee regarding the maintenance of qualitative and quantitative stock. The Tribunal found that the assessee failed to produce quantitative and qualitative stock details, leading to a directive to adopt a 4% GP rate. The lack of maintenance of a manufacturing account and stock register was a crucial factor in the decision-making process throughout the litigation.

This comprehensive analysis of the judgment highlights the key issues addressed in the legal proceedings, focusing on the assessment of income based on the GP rate, the disallowance of interest payable, and the maintenance of a manufacturing account and stock register.