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2012 (3) TMI 140 - AT - Income TaxRejection of Books of Account on low GP ratio, payment to sister concerns section 40A(2), un-justified job work expenses - Held That - Assessee furnished detailed explanation. Assessee had explained the decrease in sale price as also its reasons. AO admitted purchase price of the raw materials have risen during the year under consideration. Similarly non reporting of transaction can be best attributed to auditor and cannot be ground to reject books. Job work - previously was carried from outside and now from sister concern at same amount with no un-reasonable expenditure. - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition made under Section 145(3) of the Income-tax Act, 1961. 2. Allowance of deduction under Section 80IB of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Deletion of Addition Made Under Section 145(3): The Revenue challenged the deletion of an addition of Rs. 2,10,97,492/- made under Section 145(3) by the CIT(A). The Assessing Officer (AO) had invoked Section 145(3) due to the assessee's failure to maintain an inventory of opening and closing stock, which was deemed necessary to determine the correct income. The AO applied a Gross Profit (GP) rate of 30% against the declared GP rate of 19.90%, citing a steep fall in the GP rate and the absence of a stock register. The CIT(A) deleted the addition, noting that the same issue had been decided in favor of the assessee in earlier years by the ITAT. The CIT(A) highlighted that the AO had not brought any new facts to justify a different conclusion. The CIT(A) also considered the reasons for the fall in the GP rate, such as a sharp increase in raw material prices, which were explained during the assessment proceedings. The ITAT upheld the CIT(A)'s decision, referencing its own previous rulings in the assessee's case for assessment years 2004-05 and 2005-06, where similar additions were deleted. The ITAT emphasized that the AO's objections, such as the decline in GP rate and non-reporting of payments to a sister concern, were not strong enough to negate the book results. The ITAT found the assessee's explanations for the decline in GP rate and the job work payments to be plausible and justified. 2. Allowance of Deduction Under Section 80IB: The Revenue contested the CIT(A)'s decision to allow a deduction of Rs. 22,95,197/- under Section 80IB for a new unit, arguing that the conditions laid down in Section 80IB were not satisfied and no deduction had been allowed in the assessment year 2003-04. The CIT(A) allowed the deduction, following the ITAT's decision in the assessee's own case for earlier years. The CIT(A) noted that the AO had not brought any new facts to dispute the claim and that the ITAT had previously allowed similar deductions in the assessee's case. The CIT(A) referenced the ITAT's order for assessment year 2003-04, which had allowed the deduction under Section 80IB. The ITAT upheld the CIT(A)'s decision, reiterating its previous rulings in the assessee's case for assessment years 2004-05 and 2005-06. The ITAT emphasized that the assessee's claim for deduction under Section 80IB had been allowed in the initial assessment year (2001-02) and subsequent years, and no new facts had been presented to justify a different conclusion. The ITAT referenced several judicial precedents, including Saurashtra Cement & Chemical Industries Ltd. vs. CIT and CIT vs. Paul Brothers, which supported the principle that once a deduction is allowed in the initial year, it cannot be denied in subsequent years without justifying such departure. Conclusion: The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The ITAT emphasized the consistency of its previous rulings in the assessee's case and the lack of new facts presented by the AO to justify a different conclusion. The appeal of the Revenue was dismissed, and the order was pronounced in the Open Court on 4th January 2012.
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