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2019 (10) TMI 72 - AT - Income TaxRejection of books of accounts - Fall in GP - variation in Power (Electricity) Consumption. - HELD THAT - Business was stopped on account of some dispute amongst the Directors, which is cited as one of the reasons for the decline of the business and ultimately the bank took possession of the business. It is further seen that when para B relied upon by the ld. Sr.DR is considered alongwith the above explanation extracted also from the assessment order, it is seen that the conclusions referred to by the AO qua electricity bills are de-horse the explanation offered namely that over and above the electricity utilized from the electric company, electricity was stated to have been purchased from the private parties. No rebuttal or contrary fact has been referred to either by the AO or the CIT(A). Similarly, it is seen that yield of the finished goods claimed at 91.68% is on record which also has not been rebutted by the Revenue or the CIT(A). Consistently the assessee has given cogent explanation for the fall in G.P. as well as non-production of supporting documents. In the absence of any rebuttal or attempt by the Revenue to seek the relevant documents from the Bank, I find that estimated addition by resorting to tinkering with the G.P. rate on facts was not warranted in the peculiar facts of the present case. The addition made is, accordingly, directed to be deleted.
Issues Involved:
1. Validity of the CIT(A)'s order. 2. Rejection of books of accounts based on variation in power consumption. 3. Addition of ?23,30,046/- on account of Gross Profit (G.P.) rate. 4. Non-adjudication of the ground related to the application of enhanced G.P. rate on the entire turnover inclusive of Excise Duty. Issue-wise Detailed Analysis: 1. Validity of the CIT(A)'s Order: The assessee challenged the correctness of the CIT(A)'s order dated 11.09.2017, arguing that it was against the facts of the case and bad in law. The tribunal reviewed the material available on record and found that the CIT(A) had merely confirmed the findings of the Assessing Officer (AO) without providing any specific independent findings. Therefore, the tribunal concluded that the CIT(A)'s order lacked a proper basis and was not justified. 2. Rejection of Books of Accounts Based on Variation in Power Consumption: The AO rejected the books of accounts due to inconsistencies in power consumption and production figures. The assessee explained that the inability to produce certain records was due to the business being declared a non-performing asset, and the factory premises being under the possession of Punjab & Sind Bank. This explanation was confirmed by the bank manager. The tribunal noted that the AO's conclusions were based on suspicion without addressing the assessee's explanation that additional electricity was purchased from private parties. The tribunal found the assessee's explanation plausible and cogent, and thus, the rejection of the books of accounts was not warranted. 3. Addition of ?23,30,046/- on Account of G.P. Rate: The AO made an addition of ?23,30,046/- by adjusting the G.P. rate due to observed variations. The assessee argued that the G.P. rate can vary due to multiple factors and provided reasons for the decline in G.P., including business disputes and possession of the unit by the bank. The tribunal found that the assessee's explanations for the fall in G.P. and non-production of supporting documents were consistent and credible. The tribunal held that the estimated addition by adjusting the G.P. rate was not justified in the absence of any contrary evidence from the Revenue. 4. Non-adjudication of the Ground Related to Enhanced G.P. Rate on Entire Turnover Including Excise Duty: The assessee contended that the enhanced G.P. rate should not apply to the entire turnover inclusive of Excise Duty, as there can be no profit on Excise Duty. Since the tribunal allowed the primary grounds of appeal, it did not find it necessary to adjudicate this ground separately. Conclusion: The tribunal allowed the appeal of the assessee, directing the deletion of the addition made by the AO. The order was pronounced in the Open Court on 31.05.2019.
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