9911796707
TMI Blog2010 (9) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee is arising out of the order of Commissioner of Income-tax (Appeals)-III, Surat in appeal No. CAS-III/249/06-07 dated 30-11-2007. The assessment was framed by ITO, Ward-5(3), Surat u/s143 (3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 11-12-2006 for assessment year 2004-05. 2. The first issue in this appeal of the assessee is against the order of CIT(A) confirming the action of Assessing Officer in rejecting the book results u/s.145 of the Act. For this, assessee has raised the following ground No.1:- (I) Rejection of book Result: (i) The learned Commissioner of Income-tax (A) erred in confirming the rejection of books by the Assessing Officer, (a) Just because there is fall in rate of gross profit which was explained (b) By not correctly observing that production/consumption records are not maintained when all such records along with excise records were produced and no defect noticed therein; (c) Not accepting comparable case when Assessing Officer has not given any comparable case. (ii) The appellant submits that learned Commissioner of Income-tax (A) has not dealt with various contentions and on the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not accepted the explanation of the assessee and rejected the book results by giving following reasons in para-3.3 of his assessment order:- 3.3 The reply of the assessee is considered carefully. However, the contentions of the assessee cannot be accepted due to the following reasons:- (1) The explanation of the assessee is vague and general in nature and not supported d by any evidence. In reply to the reasons for fall in gross profit, the assessee-firm has merely submitted the reply on the basis of the figures available on records i.e. the return of income filed in this office. There are nothing but ratio analysis from the data available in financial statements filed with the return of income. (2) The assessee-firm has stated that the cost of purchase per Kgs. Has been increased. It is pertinent to mention here that the gross profit is worked out on the basis of consumption of raw materials and not on the basis of purchase of raw materials because consumption of raw material included in the opening stock as well as purchase during the year minus closing stock. (3) The assessee could not substantiate that why it has sold the finished goods on low price though the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed day-to-day quality yarn Production Register and day-to-day Stock Register. Therefore, inventory of opening and closing stock is also not verifiable. (6) The assessee has also not provided evidences of some expenses such as Octroi Expenses, Freight expenses and Air Charges. The Assessing Officer also estimated the gross profit rate at 11.15% i.e. average of preceding two years. Aggrieved against the rejection of book results, assessee preferred appeal before CIT(A), who also confirmed the action of Assessing Officer by giving following finding in page-2-3 of his appellate order:- I have considered the submissions and gone through the details before me. Although, I am inclined to agree with the appellant that there could be no relation between consumption of electricity and production in a particular month due to various factors, it does not explain the fact that the appellant has shown a fall in GP of more than 11% compared to last year. In case the sale price of finished goods was lower, the purchase price of raw material would also be low. It does not make any business sense to sell finished goods at a price which is lower than the cost of production and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d purchase of MODVAT goods, RG-23A Part-II, regarding clearance of goods against input MODVAT etc as per Rules of Central Excise. The AO has mentioned the day-to-day production and stock register has not been produced is not totally wrong and he stated that though assessee has maintained RG-1 Register, day-to-day stock and production register for texturised yarn, twisted yarn and cloth as per the pro forma given Excise Rules and Register is pre-authenticated by Excise Authority. He further stated that the registers were produced before AO during the course of assessment proceedings but he has no mentioned any concrete reason for rejecting the books of account u/s.2145(3). Another reason given in the order is of variation in production versus electricity consumption, Ld. counsel for assessee stated that GEB is taking meter reading on the date which is never be the last date of the month and GEB is taking meters reading on different dates according to their convenience, like either 22nd, 24th of month in the March ending it s assessment year. The assessee has given production as per last day of month and as meter reading dates are different, it is ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manner no irregularities are found in sales as well in stock statements, which are tallying with respect to the value of purchases and sales. We find from the records that there is no finding as regards to understatement or overstatement of stock with respect to value, which has been found out by the AO. Both input yarn as well as output are excisable commodity and taxed accordingly and even Excise Department has not made any observation for unaccounted sales or production or purchases. Without giving any finding that the account books are unreliable, incorrect or incomplete it cannot reject accounts. The rejection of accounts is not matter to be done light heartedly. We further find that the assessee has maintained the day-to-day production register and stock register as per the pro forma given in the Central Excise Act and the same has been produced before the Assessing Officer along with books of account during the course of assessment proceedings. It is a fact that the assessee has not maintained quality- wise register of production and stock but the assessee submitted the reason for not maintain quality-wise register is that as this are not required by Excise Laws and more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account, and he must decide the question with reference to the relevant material and in accordance with the correct principles. We are of the view that the Assessing Officer has to examine the accounts of assessee and has to consider the following questions:- (i) Whether the assessee has regularly employed a method of accounting? (ii) Even if regular adoption of a method of accounting is there, whether the annual profits can properly be deduced from the method employed? (iii) Whether the accounts are correctly maintained? (iv) Whether the accounts maintained are complete in the sense that there is no significant omission therein? In that event, if the Assessing Officer s finding on all four counts is in the affirmative, the assessee s profits are to be computed on the basis of these accounts. We find that the first proviso to Sec. 145(1), or section 145(2), can be invoked only if and where the elements attracting either of those provisions are found to exist. A clear finding to that effect, along with the materials on which such finding is based, has to be made out and given by the Assessing Officer. No assessment under the first proviso to section 145(1) or under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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