2008 (12) TMI 297 - AT - Income Tax

Summary

Issues Involved:
1. Decline in Gross Profit Rate
2. Maintenance of Stock Register and Quantitative Details
3. Lump Sum Addition of Rs. 6 Lakhs
4. Appeal against Agreed Addition
5. Verification of Agreement to Addition

Detailed Analysis:

1. Decline in Gross Profit Rate:
The Assessing Officer (AO) observed a decline in the gross profit rate from 19.73% in the previous year to 16.83% in the current year. The assessee attributed this decline to a steep hike in the purchase price of colors and chemicals, which are the primary raw materials used in their job work. The AO noted that while job work receipts increased by 0.09%, the cost of production increased by 0.69% per meter, leading to the decline in gross profit.

2. Maintenance of Stock Register and Quantitative Details:
The AO pointed out that the assessee did not maintain a day-to-day stock register or quantitative details of the colors and chemicals used, nor did they maintain records for the consumption of coal and diesel. This lack of detailed records was considered a defect by the AO.

3. Lump Sum Addition of Rs. 6 Lakhs:
The AO made a lump sum addition of Rs. 6 lakhs to the assessee's income, purportedly on an agreed basis due to the decline in gross profit and the aforementioned defects in record-keeping. However, the CIT(A) deleted this addition, stating that a lump sum estimated addition cannot be sustained without a proper basis.

4. Appeal against Agreed Addition:
The learned Departmental Representative (DR) argued that the CIT(A) was not justified in deleting the addition since the assessee had agreed to it during the assessment proceedings. Conversely, the assessee's Authorized Representative (AR) contended that the assessee never agreed to any such addition and that the mention of agreement in the assessment order was incorrect.

5. Verification of Agreement to Addition:
The Tribunal noted a difference of opinion between the Judicial Member and the Accountant Member. The Accountant Member dismissed the revenue's appeal, finding no material evidence that the assessee had agreed to the addition. The Judicial Member, however, believed that the CIT(A) erred in entertaining the appeal without verifying the agreement to the addition and suggested that the matter be remanded to the CIT(A) for verification.

Third Member Order:
The Third Member, R.P. Garg, was appointed to resolve the difference. He noted that while the AO mentioned the addition was made on an agreed basis, the CIT(A) deleted it without verifying this claim. The Third Member emphasized that if an addition is claimed to be agreed upon, it should be verified from the assessment records. He concluded that the matter should be remanded to the CIT(A) to verify whether the assessee had indeed agreed to the addition of Rs. 6 lakhs and then re-adjudicate the issue based on this verification.

Conclusion:
The final decision was to set aside the CIT(A)'s order and remand the case for verification of whether the assessee agreed to the addition of Rs. 6 lakhs. The CIT(A) was directed to call for the assessment records, verify the agreement, and re-adjudicate the addition accordingly, ensuring both parties are given an opportunity to be heard.