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TMI Blog2012 (12) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the AO by rejecting the books of accounts and by invoking the provisions of section 145(3) of the Income Tax Act, 1961 ii) Whether the Ld. CIT(A) has erred by not appreciating the fact that addition of Rs.7837410/- was made by the AO after applying the G.P. rate of 30% which is mean of assessee's own G.P. rate shown for the last three years. iii) Whether the ld. CIT(A) has also erred in ignoring the fact that the assesse firm, which is engaged in export of engineering goods, is no longer eligible for deduction on export profits (i.e. u/s 80HHC) had been reducing gross profit drastically over the preceding three years whereas the sister concern of the assessee viz M/s. Chand Engineers (Operating under similar circumstances and dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings, the AO observed that the assessee had declared Gross Profit of Rs.2,14,49,531/- (21.14%) on sales of Rs.10.14 crores during the year under assessment as compared to GP of Rs.2,86,14,225/- (31.11%) on sales of Rs.9.19 crores in the preceding year. The assessee explained the fall in GP is on account of increase in turnover, increase in cost of manufacturing and over head expenses, dollar fluctuation etc. The AO, after observing that the assessee did not maintain records of consumption of raw material and production of finished goods, the closing stock was shown at estimated costs in respect of certain misc. items and no sale of scrap was shown, rejected the books of accounts by invoking the provisions of section 145(3) of the Act. Afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chand Engineering, the said concern is knew concern, who had installed a new machines of about Rs.4.69 crores whereas in the case of the assessee there are investment in machines of Rs.0.85 crores only. M/s. Chand Engineering was manufacturing goods with latest technology with higher profit margin. This explanation was not taken into consideration by the AO. Moreover, the assessee had changed the export basket during the year as compared to the immediately preceding year and many high margin items which were exported last year were not exported during the year. In such items, there was a GP rate of as high as 60 -62% as compared to the GP rate of 22-24% in regular items. This aspect was also not considered by the AO. The NP rate during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, when closing stock and opening stock are valued on the estimated basis, having no relevance with the quantitative details of purchases and sales, then any figure as estimated by the management is on adhoc figure of closing stock and therefore, directly effects the Gross Profit of the assessee and the profits deduced cannot be said to be accurate. In the facts and circumstances of the present case, we find no infirmity in the order of the A.O. who has rightly invoked the provisions of section 145(3) of the Act, in rejecting the books of account. The order of the ld. CIT(A) is reversed on this account. 7. As regards the estimation of income, we concur with the findings of the ld. CIT(A) and arguments and explanation given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er profit margin as compared to the old machines in the case of the assessee worth Rs.0.85 crores coupled with many other factors which had brought down the gross profit as low as 21.14% declared by the assessee. These are the materials which were available with the AO for estimating the income, which in fact were not considered by the AO. Therefore, in the facts and circumstances of the case and as per explanation submitted by the assessee and the material available on record, even if the books having been rejected, no addition is called for. We find no infirmity in the order of the ld. CIT(A) in this regard. Thus, the appeal of the revenue is partly allowed. 8. As regards the C.O. of the assessee, the same is supportive to the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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