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TMI Blog2014 (2) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... reciating that the estimation of wastage made by the AO was on the basis of report of CGRI which is an independent agency having expertise in the related field. 2.3 The assessee has raised the following grounds. ''1. Whether it is open to the CIT (A) to make out a new case for appeal by taking up grounds or arguments indulge in guesses and conjectures which the assessee never raised before the CIT(A). the ld. CIT(A) deleted the addition of Rs. 3,72,92,789/- made by AO by applying the wastage of 25% and applied gross profit rate of 24.25% on declared sales as against gross profit rate of 22.59% declared by the assessee made a trading addition of Rs. 60,60,400/-. 2. The ld. CIT(A) confirmed the application of provision of Section 145(3) without pointing out any specific defects in the method of accounting and stock register and production register etc. except the low gross profit rate and transportations charges paid to sister concern. (3) (a) The ld. CIT(A) went wrong in applying the gross profit rate of 24.25% which is arbitrary based on guesses and conjectures without giving any opportunity to the appellant. (b) Whether the ld. CIT(A) was justified in applying gross profit ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the impugned addition, accepting the assessee's appeal and allowing the wastage claimed by it. It was found in consonance with the report of CGCRI, Khurja. The Revenue is of the opinion that the Tribunal's order (supra), copy of which has been enclosed at pages 47 to 69 of the assessee's paper book dated 16- 03-2007, 18-07-2008, 21-11-2008, 09-09-2009 and 26-11-2010 has not been accepted by the Revenue and an appeal has been filed before the Hon'ble High Court. 3.3 After considering the rival submissions, we have found that the issue involved in this appeal filed by the Revenue in ITA No.551/JP/2012 stands squarely covered in favour of the assessee by the aforementioned order of ITAT. In the order of the Tribunal in ITA No. 258/JP/2005 for the assessment year 2001-02 dated 16-03-2007, it has been held as under:- ''6. We have perused the facts of the case. The ld. AR Mr. H.M. Singhvi argued that the assessee has produced all the books of account , vouchers and the assessee's accounts are audited and all the production is subject to Excise Duty and not even a single unit of production can go out of the factory without recording the same in the Excise Registers which are regularly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained by the assessee vide its letter dated 26-3-04 which was ignored by the AO and the AO has not pointed out any specific defects in the purchases, sales, opening stock and closing stock of the assessee and the AO has not brought on record any cogent material to prove that the assessee has sold the underproduction out of the books of account. Therefore, in such circumstances and facts of the case , the AO is not justified in rejecting the books of account by invoking Provisions of Section 145(3) of the Act and the additions made by the AO are liable to be deleted. The objection of the ld. DR that the ld. CIT(A) has not relied upon the CGCRI Report, Calcutta , the ld. AR has pointed out that the in the same report it has been mentioned that the said organization is not involved production practice and the are not sure to what extent their opinion will be useful for the purpose of the assessee and in such circumstances and facts of the case, the report of CGCRI, Calcutta alone cannot be the basis for rejection of books of account and making an estimation of wastage and the ld. CIT(A) was not justified in ignoring other material which was placed before him as mentioned hereinbefore. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the remark "incomplete address or not traceable 1. M/s. Salam & Sons Village Basikalan, District Muzaffar Nagar (U.P) 2. M/s. National Trading Company Shop No. 66, Tehsil Pariser Market, Bhagat Singh Road, Muzaffar Nagar (U.P) 3. M/s. National Trading Company Pul Kambohan , Atish Bazar, Saharan Pur (U.P) The ld. CIT (A) asked the appellant to reconcile the accounts of the above parties and we filed a letter dated 29.03.2012 (See P.B. page no.4).We further submit as under in respect if each party 1. M/s. Salam & Sons, Muzaffar Nagar: - The assessee has filed statement of account duly confirmed (see P.B. page No. 18) on dated 29/03/2012 further in the A.Y. 2009-10 the appeal of this year is also fixed today . The assessee has also filed the confirmation of accounts alongwith PAN card (See P.B. page No. 9 to 11 of A.Y. 2009-10, Appeal No. 26) There was opening balance which was brought forward from preceding year. The payments of bills were made through account payee cheques and the goods were received through truck. The copies of the GR and weight slip were shown to the CIT (A) during appeal proceeding (See P.B. page no. 33 to 46) 2. M/s. National Trading Company, Muzaffar N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e name of the company was change and new name of the company is 20 Microns Nano minerals Limited. Similarly in these two cases the assessee has issued "c" form against all the invoices. The ld. CIT (A) has applied the provision of section 145(3) only on the technical ground which can not be the defect in the eyes of law and in the decided case law of ITAT and Honorable High Court On the one hand the ld. CIT (A) himself has accepted the basis of past history and on the basis of ITAT that the provision if section 145 (3) are not applicable of A.Y. 2001-02 (See P.B. page no. 49) since no defect have been pointed out by the AO as well as CIT (A).The AO and CIT (A) have accepted the production as a result of this the ld. CIT (A) has accepted the opening stock, Purchase , Sales & Closing Stock and ld. CIT (A) has not point out specific defects in the books of accounts and without pointed out any defects in the books of accounts the provision of 145(3) can not be applied. The addition made by the CIT (A) is flimsy and technically ground may kindly be deleted the Assessee relied on the following decisions:- M/S Shree Hari Industries V/S Additional Cit Range Bharatpur:- Where it was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of s.145 while he proceeded to make best judgment assessment. This is not done. Therefore, the AO made best judgment assessments in this case assuming jurisdiction under s. 145(3) invalidly. Such assessments are unsustainable .Therefore, CIT(A) did not approve the AO's decision rightly and he was silent on the issues relating to the provision of s.145 and rejected the AO's basis i.e. 40 per cent of the electricity connection of an area. He fixed the estimation at 10 per cent of the same. The estimation of any kind i.e. 40 per cent or 10 per cent as the case may be, cannot be approved when the books of accounts of the assessee are not proved faulty on fronts of accuracy or incompleteness. It is a trite law that the onus is heavily on the AO when the books are not to be rejected and the income of the assessee is estimated Unless, the accounts are rejected for express reasons, which is not there in this case, And corroborated by the conclusive evidence, in consequenti, any decision on the estimation of income is unsustainable in law. Therefore, the rejection of the books of accounts impliedly made by the AO as confirmed by the CIT(A) is not proper and therefore cancelled. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on the material available on road. Therefore, notwithstanding the rejection of the books of account, the material disclosed by the assessee along with other material that may be collected by the Income Tax Officer forms the basis of computation of income. On that basis what conclusions are to be reached is independent of the results shown in the books of accounts, if any maintained by the assessee Section 145 only provide the basis on which computation of income is to be made for the purpose of determining the amount of tax payable by an assessee. The provision by itself does not deal with addition or deletion in the income. Therefore merely because there is some deficiency in the books of accounts or merely because of rejection of the books of accounts it dose not mean that it must lead necessarily to addition in the returned income of assessee. What changes in either case is the basis for computing the income chargeable under the head "Profit and gain of business or profession" "or income from other sources". The result would depend on the other principles of computing the income. Therefore, we hold that merely changing the basis or method or arriving at the end result of wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incoorect or incomplete before it can not be reject the accounts. Rejection should not be done light.'' 3.5 On the other hand, the ld. DR has tried to justify and support the action of the ld. CIT(A). 3.6 After considering the above, we have found that without pinpointing any defect much less any material defect in the books of account of the assessee regularly maintained, provision of Section 145(3) of the Act cannot be invoked. We draw support from the decision relied on by the ld. AR in his written submission. Accordingly, we are of the considered opinion that provision of Section 145(3) of the Act has been wrongly invoked. Therefore, any addition made as a consequence of invoking of Section 145(3) has to go. We hold accordingly and allow this appeal ITA Nos.942/JP/2012-Assessee and 26/JP/2013 -Revenue (A.Y.2009-10) 4.1 These are the cross appeals which have been filed against the order of the ld. CIT(A)-II, Jaipur dated 16-10-2012 5.1 The brief facts of the case are that Ceramic Industries was a partnership firm. It was converted into a Private Company during the year. The partners of the firm became the share holders of the company. In this year, the assessee has declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20% declared by the assessee made a trading addition of Rs. 26,45,868/- 2. The ld. CIT(A) confirmed the application of provision of Section 145(3) without pointing out any specific defects in the method of accounting and stock register and production register etc. except the low gross profit rate. (3) (a) The ld. CIT(A) went wrong in applying the gross profit rate of 22.20% which is arbitrary based on guesses and conjectures without giving any opportunity to the appellant. (b) Whether the ld. CIT(A) was justified in applying gross profit rate 22.20% as against gross profit rate of 21.44% declared by the assessee and accepted by the AO is based on an obvious mistake.'' 5.5 The Revenue has raised the following ground:- ''On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in restricting the trading addition to Rs. 26,45,868/- against Rs. 5,93,70,607/- made by the AO without appreciating that the estimation of wastage made by the AO was on the basis of report of CGRI which is an independent agency having expertise in the related fields.'' 5.6 We have heard the rival submissions and have carefully perused entire record. In fact, the main issue ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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