9911796707
TMI Blog2015 (9) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... filed its return of income on 30.9.2008 declaring total income of Rs. 62,704/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the I.T. Act, 1961 was issued on 26.8.2009 which was duly served on the assessee. On scrutiny of the accounts, ld. AO noticed that assessee has paid interest expenditure of Rs. 31,13,303/-. It has also kept cash balance of Rs. 18,19,967/-. Such interest was paid to the creditors who have supplied yarn to the assessee. On query of AO, it was contended by the assessee that it made purchases of yarn of Rs. 2,95,92,854/-. It has to incur interest expenditure on late payment of the purchase price which has been worked out to Rs. 16,37,101/-. According to the assessee it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the business. The ld. AO felt that assessee should do the business in a particular way and should not keep some cash balance in hand. It should discharge its liability towards purchase of yarn. But, i.e. not the correct way visited with the AO. Therefore, in our opinion, ld. first appellate authority has rightly deleted the addition. 5. In the next ground of appeal the Revenue has pleaded that ld. CIT(A) has erred in deleting the addition of Rs. 26,52,783/- which was added by the AO by estimating G.P. 6. Brief facts of the case are that assessee had shown GP @ 14.72%. The AO was of the view that assessee has achieved high turnover, it owned machinery, had support of sister concern and made investment of more than 2.16 crores. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has deleted the addition by recording the following finding :- "4.2 During the course of assessment proceedings, it was submitted that the gross profit of the appellant for the year was 14.72% which compared favourably with gross profit of 14.4% in AY 2007-08 and 13.45% in AY 2006-07. It was also submitted that gross profit had increased in absolute terms also (Rs. 78 lacs to Rs. 88 lacs). It was also pointed out that book results were accepted in scrutiny assessment for AY 2007-08. It was further mentioned that the appellant regularly maintains books of accounts with quantity records. It was submitted that the AO compared book results of the appellant with three parties, two of which were outside concerns and whose facts were not disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The book results have been accepted in earlier assessments under scrutiny. The gross profit shown during the year is higher than the book results accepted in earlier assessment in scrutiny. The details of creditors were made available to the AO during the course of assessment proceedings. Larger than normal working capital cycle only indicate inefficiency and not defect in the books and at best could be the starting profit of investigation and not conclusion. No specific defects have been pointed out in the books during the year. The appellant has correctly objected to the comparison made with other concerns as the details of the said concerns were not made available to it and there were differences in operating business model with sister ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bare reading of this section, it would reveal that it provides the mechanism how to compute the income of the assessee. According to sub-clause (i), the income chargeable under the head "Profits and gains of the business or professions or income from other sources" shall be computed in accordance with the method of accountancy employed by an assessee regularly subject to the sub-section (2) of section 145 of the Act. Sub-section (2) provides that the Central Government may notify in the Official Gazette from time to time the accounting standard required to be followed by any class of assessee in respect of any class of income. Thus, it indicates that income has to be computed in accordance with the method of accountancy followed by an ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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