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Issues:
1. Addition of Rs. 2,33,153 based on gross profit rate 2. Rejection of accounts by AO and CIT(A) 3. Valuation of closing stock 4. Duties and responsibilities of auditors 5. Estimation of total receipts and profit rate Issue 1: Addition of Rs. 2,33,153 based on gross profit rate The appellant contested the addition of Rs. 2,33,153 by the AO based on a gross profit rate of 35% applied to estimated sales of Rs. 10,00,000. The appellant argued that the consumption of electricity is dependent on the hardness of the stone, and this should not be a criterion for rejecting accounts. The CIT(A) deviated from the main issue and confirmed the addition without proper justification. The Tribunal found that the AO did not compare month-wise electricity bills to establish disproportionate consumption, and the appellant withdrew the ground on account rejection during the appeal. Considering the facts, the Tribunal estimated total receipts at Rs. 9.25 lakhs and applied a profit rate of 20% for a fair adjustment, modifying the AO's order. Issue 2: Rejection of accounts by AO and CIT(A) The AO rejected the accounts citing high electricity consumption and invoked Section 145 of the Act. However, the Tribunal noted that the rejection lacked sufficient reasons and material evidence. The CIT(A) also deviated from the main issue and made factual errors regarding the auditors' report and closing stock valuation. The Tribunal expunged the adverse remarks against the auditors, emphasizing that the accounts were not found to be unfair or untrue. The Tribunal concluded that no serious errors were found in the accounts during scrutiny, and the estimation of total receipts at Rs. 10 lakhs was deemed higher, leading to a modified order. Issue 3: Valuation of closing stock The CIT(A) found the closing stock valuation to be on the higher side, automatically disclosing higher profits. The Tribunal agreed that the valuation was correct, as per Accounting Standard 2, and the CIT(A) erred in suggesting otherwise. The Tribunal clarified that the closing stock figures were accurate, and the CIT(A)'s remarks were unwarranted and irrelevant to the case. Issue 4: Duties and responsibilities of auditors The CIT(A) made unwarranted remarks against the auditors, suggesting a failure in their duties. However, the Tribunal found the auditors' report to be in compliance with requirements, including stock verification and disclosures. The auditors were not expected to go beyond their duties, and the CIT(A)'s observations were deemed baseless and expunged from the record. Issue 5: Estimation of total receipts and profit rate The Tribunal considered the appellant's submissions and past history, modifying the AO's order by estimating total receipts at Rs. 9.25 lakhs and applying a profit rate of 20%. This adjustment was deemed fair and reasonable based on the circumstances presented. As a result, the appellant's appeal was partly allowed by the Tribunal.
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