2015 (5) TMI 721 - AT - Income Tax

Rejection of books of accounts - Held that - As from the assessment order that it is not the case of the Assessing Officer that the respondent assessee failed to produce the information called for, nor is it the case that the books of account are defective. The Assessing Officer failed to give any specific reason for rejection of book results. It appears that the sole basis for rejection of book results is the assessment order of the immediate preceding year i.e. 2008-09 in which the books of account have been rejected by the Assessing Officer. This Tribunal in the assessee s own case for the assessment year 2008-09, rejected this ground of appeal raised by the Revenue, which reads that in the Remand Report the contentions of the assessee that the AO was not justified in rejecting the books of accounts was accepted by the A.O. The A.O. also accepted the contention that he has not been able to point out any discrepancy in the books of account and stock record produced by the assessee before him. Thus, in our view, the First Appellant Authority had no other option but to reject the action of AO in rejecting the books of accounts. Decided against revenue. Addition on account of generation of scrap - CIT(A) deleted the addition - Held that - the claim for generation of Scrap as per the Books of Account is significantly lower, not just for items at S. No. 4 and 5 i.e. Knife and Pasta/Noodle-SM , as mentioned in Para 8.10 above, but also in case of the item at S. No. 3, i.e. Table Fork , for which the Assessee claims that the actual figure of generation of Scrap as per Books was 49.576% and not 54.99% as shown the Assessment Order, as against the Departmental figure of Scrap generation of 51.93%. In such a situation, it is seen that the Departmental figure for Scrap generation would be significantly higher than the Assessee s claim for 3 items and lower for 2 items. In any case, no conclusion can be drawn from the Inspector s Report regarding inflation of claimed Scrap generation as no trend for inflation of Scrap is seen from the Inspector s Report and though there are variations between the Inspector s Report and the claim of the Assessee but no definite conclusion of inflation or suppression can be suppression can be drawn when for 3 items a different trend is seen and for the other 2 items a different trend is seen.In any case, it is seen that the Inspector s Report cannot lead to any conclusion that the generation of Scrap was shown by the Assessee at any inflated figures - Decided in favour of assesse. Addition on account of closing stock - Held that - The learned CIT(A) has taken G.P. rate at 4.63% while valuing the cost of the finished goods. The learned CIT(A) ignored the fact that by the addition of AY 2009-10 ₹ 1,23,22,100/- the gross profit increases to ₹ 2,79,56,800/- and consequently the G.P. rate will be 8.28% not 4.63% applied by him. The assessee has disclosed the G.P. rate at 14.93%. It is settled principle of law that the closing stock should be valued at lower cost of sale price. As submitted by the respondent assessee, the cost should be arrived at after deletion of addition made in respect of sale of scrap. Accordingly, the cross objections are allowed.- Decided in favour of assesse.

Summary

Issues Involved:
1. Rejection of Books of Accounts
2. Addition on Account of Generation of Scrap
3. Valuation of Closing Stock of Finished Goods
4. Adjustment in Opening Stock

Detailed Analysis:

1. Rejection of Books of Accounts:
The Revenue contended that the CIT(A) erred in deleting the action of the Assessing Officer (AO) in rejecting the books of accounts due to the assessee's failure to produce requisite details. The Tribunal observed that the AO did not specify any defects in the books of accounts nor did he provide a valid reason for their rejection. The rejection was solely based on the previous year's assessment, which had been dismissed by the Tribunal. Consequently, the Tribunal upheld the CIT(A)'s decision to accept the book results, dismissing the Revenue's ground of appeal.

2. Addition on Account of Generation of Scrap:
The Revenue argued that the CIT(A) erred in allowing a 49% scrap rate and deleting the addition of Rs. 3,98,16,047/- for excess scrap generation. The CIT(A) had compared the scrap generation percentages for five items and found no consistent evidence of inflation in the assessee's scrap claims. The Tribunal noted that the AO failed to confront the assessee with the Inspector's Report, which was used to justify the addition. Furthermore, the Tribunal referenced its previous decision for the assessment year 2008-09, where it had dismissed a similar ground raised by the Revenue. Thus, the Tribunal upheld the CIT(A)'s deletion of the addition, dismissing the Revenue's appeal on this ground.

3. Valuation of Closing Stock of Finished Goods:
The assessee objected to the CIT(A)'s confirmation and enhancement of the addition regarding the valuation of closing stock. The AO had valued the closing stock by deducting the Gross Profit (G.P.) from the sale price, resulting in Rs. 226/- per kg. The CIT(A) found that the actual G.P. rate was 4.63%, not 14.93% as used by the AO. After recalculating, the CIT(A) determined the valuation at Rs. 236.94 per kg, enhancing the addition by Rs. 23,67,470/-. The assessee argued that the G.P. rate should consider the sale of scrap, which reduces the cost of production. The Tribunal agreed with the assessee, stating that the closing stock should be valued at the lower cost of sale price, and allowed the cross objections.

4. Adjustment in Opening Stock:
The assessee contended that the CIT(A) erred in not allowing an adjustment in the opening stock of Rs. 60,81,102/-, which included an addition made by the AO in the preceding assessment year. The Tribunal did not specifically address this issue in the detailed analysis provided.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross objections, emphasizing the need for specific and justified reasons for rejecting book results and making additions. The decision was pronounced in the open court on 13th May, 2015.