9911796707
TMI Blog1995 (9) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,21,102 and closing cash balance of Rs. 1,19,202 and withdrawal of Rs. 5,000 on 29th July, 1985 as against the opening cash balance of Rs. 1,29,165 and closing cash balance of Rs. 1,28,845. The assessee was asked to file reasons for the same. The assessee explained that it was a usual practice with it to keep always substantial cash in hand only with a mind to meet any unforeseen and sudden business contingency. It was also explained that cash remained with the partners and the employees had to withdraw money from the bank for day-to-day needs. The AO observed that the explanations given were not satisfactory. He inferred that the assessee invested the opening cash balance in stocks and other investments outside the books of account. The assessee was asked to explain reasons for low gross profit rate. The assessee stated that its sales had increased by Rs. 18 lakhs and the trading results have been consistently progressing. The AO confronted the assessee with the trading result of M/s Pan Fab, Panipat, which were as under: "Sales Rs. 3,41,638 Gross profit Rs. 2,56,072 (8.15%) Gross profit after transferring electricity, packing and forwardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to compare his results to the results shown by a comparable case. Having regard to the fact that the assessee had shown a gross profit rate of 11.36% in the asst. yr. 1983-84 and gross profit rate of 10.04% shown by M/s Pan Fab, Panipat, a comparable case, he estimated the sales of the assessee at Rs. 80,50,000 and applied a gross profit rate of 8%. This resulted in an addition of Rs. 1,52,927 in the assessment order passed under s. 143(3) on21st March, 1988. Aggrieved by the same, the assessee preferred an appeal before the CIT(A). 6. Before the CIT(A) it was pointed out that the gross profit rates declared by the assessee for the asst. yr. 1986-87 was comparable to the gross profit rate declared by it in the immediately preceding two assessment years of 6.29% and 6.5% in the asst. yrs. 1985-86 and 1984-85 respectively. The fall in the gross profit rate for the assessment year under consideration was within the normal variation of profit from year to year. It was also pointed out that the sales of the assessee increased by about Rs. 18 lakhs in the assessment year under consideration, i.e., by more than 20% and that this was one of the reasons for the very slight decrease in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ik. Regarding the valuation of the closing stock, it was contended that the same was properly done and the learned AO had not pointed out any specific item, the valuation of which could be said to have been understated. It was explained that the complete quality wise details of each item of the closing stock were available and if the ITO felt that the valuation of any particular item was understated, he could have valued the same and made an addition on that basis, but this could not be a ground for rejection of the accounts maintained by it. Regarding the observation of the ITO that the sales could not be co-related with the purchases, it was explained that the business of the assessee consisted of fabrication of exportable items from handloom cloth purchased by it. It was contended that the assessee being a manufacturer and the nature of the finished products being different from the nature of the products purchased, it was only natural that the sales could not be co-related with the purchases. Maintenance of the day-to-day manufacturing-cum-production register was explained to be neither practicable nor possible in the assessee's line of business. It was explained that manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments in this regard were considered to have force, particularly in view of the fact that such records have not been shown to have been maintained by any other concern in this line of business at Panipat. He referred to the Punjab High Court judgement in the case of Pandit Bros. vs. CIT (1959) 26 ITR 159 (Punj), where it was held that non-maintenance of day-to-day sock register cannot in itself be a ground for rejection of the accounts maintained by the assessee, where no other serious defect was found. He further observed that all purchases, sales and expenses as claimed by the assessee, are vouched and that no defect in them was found by the AO. Considering the facts, he held that the ITO was not justified in rejecting the accounts maintained by the assessee and in estimating the assessee's gross profit by applying a flat rate of 8% and in estimating the sales of the assessee. Accordingly, he deleted the addition of Rs. 1,52,927. The Revenue is aggrieved over this and, hence, the Departmental appeal. 9. The Departmental Representative relied upon the order of the AO while the assessee's counsel filed a copy of the order of the Tribunal dt. 18th March, 1993 in the case of Raj W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 respectively. The slight fall in the gross profit rate is against gross profit rate in asst. yr. 1985-86 in the assessee's own case has to be viewed against the increase of Rs. 18 lakhs in sales in the assessment year under consideration. On these facts and circumstances of the case, the assessee's gross profit rate cannot be termed as low. Though the AO alleged that many items in the opening and closing stocks had been valued at average price when the items were of different qualities, he has not given any specific instances in the assessment order. Further no opportunity was given to the assessee to explain the alleged defect. The assessee was asked to explain only the low gross profit rate as mentioned in paragraph 6 and reasons for the withdrawal of money from bank when ample cash balance was available as mentioned in paragraph 4 of the assessment order. Even then the assessee's book results cannot be rejected. At the most, he could have valued the closing stock in a manner considered appropriate by him and he should have adopted the same as the opening stock of the next year. The closing stock of asst. yr. 1985-86 has become the opening stock of 1986-87. If the assessment fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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