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TMI Blog2013 (6) TMI 785X X X X Extracts X X X X X X X X Extracts X X X X ..... the auditor has pointed out G.P of 7.83%. However, the same is worked out on the basis of sales excluding other income and direct expenditure. As per schedule 13, 14 and 15 the G. P rate comes to 6% which is less than the GP worked out on the basis of similar working for the earlier year i.e. 10%. Here again the net profit declared during the year by the assessee were compared with the earlier years results. There also it is noticed that the NP last year was 5% on the sales compared to 3% during the year on the sales declared. With regard to the fall in the NP ratio assessee has been asked to explain the individual items of expenditure on the administrative side which has pulled down the profits as compared to the expenditure in the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in para 4.2. Thereafter the CIT(A) sought remand report. Copy of the remand report was given to the assessee. On behalf of the assessee, reply was filed. The contents of the remand report as well as reply in response to remand report is also reproduced in the order of learned CIT(A) in para 4.3 to 4.5. After considering the submissions, learned CIT(A) in para 4.6 observed that there is a considerable decline in GP rate. The CIT(A) further observed that the assessee had not been able to convince the AO regarding the reason for the fall in GP, therefore, the AO rejected the books of accounts of assessee and recalculated the GP of the assessee. However, the CIT(A) observed that the calculation done by the AO was also not correctly made. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repancy in maintaining the record. All the purchases, sales and expenses are vouched. No defects whatever have been found by the lower authorities. For determining the gross profit, expenses have to be seen as to whether they are similar to earlier year or they are different. In the present case, the expenses have been increased substantially whereas the sale price has not been increased due to tough competition in the market. Though the turnover has been increased, however, the GP rate is declined because of reason of increase in purchase cost as well as not increasing the sale price in the same proportion. Therefore, applying the GP rate of 10% against GP rate of 7.83% shown is not justified. It was submitted that at one hand, learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen only the books of accounts could be rejected and, therefore, the best judgment has to be passed. We noted that the assessee is an individual having business of manufacturing cranes and other machines handling equipment in the name of M/s Saico Engineers Fabricators and another concern in the name of M/s 2 B Technologies. The AO observed that the GP rate as well as net profit rate has been declined. However, nothing has been brought on record that what defects were in the books of accounts or how the vouchers maintained by the assessee were not reliable. Each and every detail has been kept by the assessee. Quantitative details of opening stock as well as closing stock have been maintained. Manufacturing account has been maintained. Now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order that, it is not permissible for the Income Tax authorities to allow a part and disallow the rest, if, in law, the assessee is entitled not to take any of the items into consideration in arriving at the G.P. G.P applied should be compatible with the findings on the record and the same should be reasonable and fair, Assessing Officer should exercise his judgment reasonably and not arbitrarily or capriciously. The finding given by him should take into account the conditions of trade. While observing these observations, learned CIT(A) thereafter considered the finding of the AO and confirmed the same. These observations and findings of the learned CIT(A), in our considered view, contradicts itself. We have gone through the submissions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue in part as the assessee has made alternate submission that if the depreciation is not allowed then depreciation should not be disallowed on entire building as can be disallowed only on addition made during the year to the building. Accordingly, the AO was directed to rectify the addition. 12. After considering the rival submissions, we found that the assessee deserve to succeed on this issue. It is seen that the AO has not denied that there was no addition made to the building. He simply denied the depreciation for the reason that there was no necessity to make the addition to the building. It is the businessman, who knows what additions have to be made and how the business has to be run. If the assessee thought that some addition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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