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TMI Blog2017 (3) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... ial and finished goods are concerned, the same have been appropriately disclosed in the Tax Audit Report and therefore, details have been submitted during the course of assessment and the appellate proceedings. In the light of above, we do not see any justifiable reason for rejection of books of accounts in the instant case. Further, no reasonable basis has been given for estimating the GP rate by the lower authorities. Taking into consideration the fact that in the previous years as well as in the subsequent years, the books of accounts have been accepted by the Revenue, we do not see any justifiable basis for rejection of books of accounts in the instant year. - Decided in favour of assessee. Disallowance of office expenses - Held that:- No specific expenditure has been identified by the Assessing officer which calls for disallowance either in terms of the said expenditure being bogus in nature or not incurred for the purposes of business carried on by the assessee. There is no basis for disallowance on adhoc basis in the eyes of law. In the result, the disallowance made by the Assessing officer and sustained by the ld CIT(A) is deleted.- Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ively and the same had decreased significantly in the current year. The Assessing Officer found that wastage in the course of manufacturing had been claimed at 15.80% as against 8.93% in the preceding assessment year. The quantitative details as indicated in the annexure attached with the form No.3CD gave details in terms of sq. meter and pieces only of all quality of goods. The Assessing Officer opined that such inventory did not provide details of manufacturing goods and of the yield. It was also noted that assessee had not furnished the details of item wise inventory of various goods purchased like sandstone, grey stone, rough sandstone and others used for manufacture, export and trading. The details of sold inventory do not indicate how the same can be bifurcated and differentiated with each item of inventory for the purpose of examination. The assessee had stated that it is not possible to maintain such an inventory in a large manufacturing unit, item wise. The assessee was asked to explain the increase in manufacturing expenses and it was submitted that the rate of raw materials have increased ranging between 10% to 160% and a chart to that extent was submitted, the decrease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover which decreased from ₹ 21,85,71,128/- to ₹ 16,59,84,045/- in the current year. Thus, the ld AR submitted that even though past history is considered to be a good guide but in the assessee's case, since he had explained the peculiar facts of the current year, the same need not be applied. After considering the assessee's submission, the ld CIT(A) upheld the rejection of books of accounts but gross profit was determined at 46% as against 44.71% disclosed by the assessee. The relevant finding of the ld CIT(A) is reproduced as under: "During the year, there has been a decrease in the turnover of the assessee as well as in the gross profit. It is contested that the stock register and stock details were submitted to the Assessing Officer. The decrease is claimed due to increase in raw material price and decrease in turnover. The Assessing Officer for reasons discussed earlier rejected the books of accounts. The wastage, it is claimed, has been taken wrongly at a higher figure by the Assessing Officer which is found to be true. However, as regards the stock details, the assessee was dealing in different types of stones and the same was being converted into finished g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) above. 4.3 The objection of the learned AO that the assessee had maintained the quantitative details as indicated and annexure attached with the Form No.3CD in terms of square meter and pieces only of all quantity of goods. However, such inventory and details attached with Form 3CD are giving the extracts of raw material and of finished goods but does not provide the details of manufactured goods and of the yield. In fact, it appears a gross misconception of fact on the part of the AO on the face of the record itself in as much as a perusal of PB 18 to 19 being Annexure G to TAR, clearly shows and also admitted by the AO as well that the assessee has maintained the details of raw material and finished goods both still however, his grievance was that the assessee has not provided the details of manufactured goods and of the yield. A bare perusal of this annexure shall reveal that for Jaipur Unit, the assessee has shown the yield of finished goods in absolute term i.e. 136506.46 sq. mtr. And the percentage of yield being 89.34%, as also the absolute figure of wastage/rejection being 16,287.52 sq. mtr., meaning thereby the wastage percentage was 10.66%. similarly for Chennai Uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had already committed the sales prices however, in the meanwhile the raw material prices went up and hence the assessee was not in a position to recoup the increase in the prices more particularly, in the absence of an escalation clause. Ref. Pr. 2.6 also. 4.6 The AO also alleged that the assessee failed to produce item-wise quantitative sock register maintained at Jaipur and Chennai and had also failed to provide item-wise details of such inventory month wise as well as copies of stock statements filed with the bank from whom the limits have been taken. It is submitted that the assessee did maintain all the possible quantitative details meticulously on day to day basis and the same is evident from the various copies of chart showing Stock Register of Raw Material & Production, Stock Register of Finished Goods. However, the same were even duly produced before the AO time to time for his verification. Hence this allegation is factually incorrect. However the AO never asked of furnishing copies of stock statement filed with the bank, as evident from the query letter dated 05.11.2014 (PB 79-82) 4.7 The AO alleged that the freight inward expenses of ₹ 117.83 lacs and expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the case laws cited and even without appreciating the practical difficulties in the maintenance of the quantitative records, the way the revenue wants more particularly, when there is no prescription u/s44AA r/w Rule 6F. In fact, the AO wanted the assessee to do something humanely impossible. It has been held in various cases that maintenance of the accounts & records in a particular manner, the accounts cannot be rejected. Further, rejection of accounts is a serious matter and unless specific defects are pointed out and it is shown that due to such defect, the profits are not reasonably ascertainable, the accounts cannot be rejected in a casual or routine manner. 4.12. During the course of hearing before the ld CIT(A), when the assessee was asked to clarify how the yield and wastage was arrived at and whether after doing some work, the stone and the ultimate product has changed the shape, a chart showing the mathematical working of wastage of 8.93% was submitted, as under: Assessment Year 2012-13 Goods Issued for Production (Sq. Mtr) Jaipur 152793.98 Chennai 67450.00 220243.98 Finished Goods Production Jaipur 136506.46 Chennai 64077.50 200583.96 Wastage Jaipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in none of these years, the AO has ever invoked S.145 and rejected the accounts either directly or indirectly or even remotely. Therefore, there appears no special reason as to why the AO should have departed from the settled position on facts and on law between the parties and to unsettled the same. Kindly refer copies of assessment order for AY 2011-12 (PB 109-112), AY 2009-10 (PB 113-120), AY 2008-09 (PB 121-126), AY 2007-08 (PB 127- 132). Similarly even in later years A.Y. 2013-14, 2014-15 assessment completed u/s 143(3), yet S.145 was not invoked (copies submitted). 4.15 In the impugned assessment order, the AO has not whispered a single word as to why he is breaking the rule of consistency, which otherwise is binding upon him. In these circumstances therefore the doctrine of res judicata certainly applies on the facts of the present case, so far as this aspect is concerned. It has been held that though the doctrine of res judicata do not apply to Income Tax proceeding yet however, unless there is a change in the facts and circumstances, the view taken earlier should normally be taken consistently. For this kindly refer Sardar Kehar Singh v/s CIT (1991) 92 CTR 88(1992) 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h turnover details. The assessee firm has declared a GP rate of 44.71% on Total Turnover of ₹ 16,59,84,045/- for the year under reference as against GP rate of 49.74% declared on Total Turnover of ₹ 21,85,71,128/- for the immediately preceding year. The NP rate declared for the year under reference was 7.75% as against NP rate of 10.53% declared for the immediately preceding previous year. The main reason for fall in the GP rate for the year under reference was due to increase in cost of Raw Materials in the year under reference. We enclose herewith a statement showing break up of Trading Account for the year ended 31.03.2012 and 31.03.2011. It is evident from the enclosed statement that the cost of purchases in the year under reference was 41.15% of total turnover whereas in the immediately preceding year i.e. financial year 2010-11 it was 36.70% of total turnover of that year. There was about 5.03% increase in the cost of purchases made during the year under reference. We produce herewith the details of purchases made during the year under reference with purchase bills of Raw Materials cost comparison for the financial year 2010- 11 and 2011-12 (PB 84-98) alongwith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.23% applied by the AO to 46% only but absolutely without furnishing any reason as to why she did not accept declared GP rate of 44.71%. There is absolutely no basis/reasoning behind adopting 46%. Once the ld. CIT(A) has accepted the contentions, she was bound to have allowed the relief more particularly, when the revenue is not in appeal challenging the findings recorded and the relief granted by her. 5. The ld DR is heard who has relied on the order of the lower authorities. 6. We have heard the rival contentions and pursued the material available on record. The principal contention raised by the Assessing Officer while rejecting the books of accounts has been substantial increase in the amount of wastage as compared to previous year where the production has also increased substantially during the year. On perusal of documents available on record, it is noted that the percentage of wastage during the year is 8.93% as against 15.8% in A.Y. 2010-11. The detailed working thereof has been reproduced above. Further, the turnover has, in fact, decreased from ₹ 21.85 crore to ₹ 16.59 crore during the year. Therefore, on both account, there is clearly an actual inaccuracy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of hearing, the ld. Counsel for the assessee has submitted that a bare reading of the impugned order shall reveal that in almost all the cases the disallowances have been made on ad hoc basis, simply on mere suspicion, surmises and conjectures. No specific instance of any nature whatsoever has been given by the AO in the impugned order to support his contention with the documentary evidence that the expenditures were incurred for non-business purposes, element of personal use was there. An allegation remains a mere allegation unless proved. Suspicion cannot take the place of reality, are the settled principles kindly refer Dhakeshwari Cotton Mills V/S CIT (1954) 26 ITR 775 (SC). 9.1 It was submitted that a businessman is the best judge to take care of its own interest & to take decisions and the AO is not supposed to intervene therein nor he can replace the assessee. Here, whatever decisions were taken by the assessee has to be understood as taken out of commercial expediency. Kindly refer T.T (P) Ltd. v/s CIT (1980) 121 ITR 551 (Kar), CIT v/s Udhoji Shrikrishnadas (1983) 139 ITR 827 (MP), JK Woolen Manufactures V/S CIT (1969) 72 ITR 612 (SC). 9.2 It was further submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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