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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 ..... 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, no infirmity in the order of the A.O. who has rightly invoked the provisions of section 145(3) in rejecting the books of account - in favour of revenue. Estimation of income - Held that:- There was fluctuation in the exchange rate, increase in the cost of manufactured items and other over head expenses and the assessee has discarded the export of high value items which attributed to GP rate in the earlier years at 60-62% as compared to the GP rate of 22-24% on regular items. These aspects were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred 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 with exactly the same business) which is still eligible for deduction (i.e. u/s 10B ) gross profit rates are remaining the same over the years i.e. around ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment 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. After comparing the case of M/s. Chand Engineering, a group concern which had shown GP of about 58% consistently over three year and engaged in the simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the year was 06.46% as compared to 06.56% in the immediately preceding year. The same aspect was also not considered by the AO. In view of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by the assessee before the authorities below and before us that there was fluctuation in the exchange rate, increase in the cost of manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the ld. CIT(A). Since we have upheld the order of the ld. CIT(A) in part, the C.O. of the assessee is dismissed. 9. In the result, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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