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Issues Involved:
1. Validity of assessment under Section 143(2) after completion under Section 143(1). 2. Trading addition of Rs. 55,258 by applying a gross profit rate of 17%. 3. Disallowance of Rs. 37,268 under Section 40A(3). 4. Addition for unexplained cash credit of Rs. 27,934. 5. Disallowance of factory expenses, vehicle expenses, and depreciation. Issue-wise Detailed Analysis: 1. Validity of Assessment under Section 143(2): The appellant did not press this ground of appeal. Consequently, it was dismissed. 2. Trading Addition of Rs. 55,258: The AO applied a gross profit (g.p.) rate of 17% by invoking the proviso to Section 145 of the IT Act, 1961. The AO's reasons included improper accounting of screen and design costs, unvouched expenses, and discrepancies in stock and purchases. The CIT(A) upheld the AO's decision. However, the appellant argued that the AO's rejection of the books was unjustified and that the g.p. rate was based on conjectures without citing comparable cases. The tribunal concluded that while the invocation of the proviso to Section 145 was justified due to defects pointed out by the AO, the application of a higher g.p. rate of 17% was not warranted. The tribunal found no material to justify the higher rate and deleted the addition of Rs. 55,258. 3. Disallowance under Section 40A(3): The AO disallowed Rs. 37,268 for cash payments exceeding Rs. 2,500, not covered under Rule 6DD(j) of IT Rules. The CIT(A) confirmed the disallowance, stating that the appellant failed to prove special circumstances justifying cash payments. The appellant argued that certain payments were covered by the Board's Circular No. 220 and Rule 6DD(j). The tribunal deleted disallowances for payments where either the purchaser or seller did not have a bank account but upheld the disallowance of Rs. 14,000 paid to Marda Trust, as it did not meet the exceptions under Rule 6DD(j). 4. Addition for Unexplained Cash Credit of Rs. 27,934: The AO added Rs. 27,934 for cash deposits in various names, as the appellant failed to produce the creditors for examination. The CIT(A) upheld the addition, noting the appellant's failure to prove the genuineness of the creditors. The appellant argued that confirmation letters were submitted and requested the AO to issue summons to the creditors. The tribunal held that the appellant had a legal obligation to explain the source and nature of credits and upheld the addition, agreeing with the AO and CIT(A) that the appellant failed to discharge the onus of proof. 5. Disallowance of Factory Expenses, Vehicle Expenses, and Depreciation: The CIT(A) confirmed disallowances of 1/4th of vehicle expenses and depreciation for personal use by partners and their families. The CIT(A) also allowed a reduction of Rs. 500 in factory expenses. The tribunal found no reason to interfere with the CIT(A)'s decision on these disallowances. Conclusion: The appeal was allowed in part. The tribunal deleted the trading addition of Rs. 55,258 and provided partial relief on disallowances under Section 40A(3), but upheld the disallowance of Rs. 14,000 and the addition for unexplained cash credits. The disallowances of factory expenses, vehicle expenses, and depreciation were also upheld.
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