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TMI Blog2017 (11) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... pholding the decision of CIT(A) of making ad-hoc addition of Rs. 5 Lac by deleting the trading addition u/s 145(3) of Rs. 73,94,581/- made by the Assessing Officer on the basis of non-maintenance of stock register and decline in GP rate despite Sales constant?" 3. Counsel for the appellant has taken us to the order passed by AO and CIT(A) and contended that AO and CIT(A) have seriously committed an error by reversing the observations made by AO, wherein it has been observed as under:- " In the light of aforesaid observations and case laws the books are rejected under provision of Section 145(3) and assessment is framed in the spirit of section 144. The G.P. chart is reproduced below:- A.Y. Turn Over Gross Profit G.P. Rate 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. The assessee was asked to produce stock register of raw material, work in progress and finished goods. In its reply dated 09.08.2010 the assessee reply is as under:- " The assessee has not maintained the quantitative as well as qualitative stock register in respect of its raw materials, work in progress and finished goods. Since the nature of the business of the assessee is such for which practically impossible to maintain the quantitative details. Hundreds and thousands type of products are manufactured by the assessee with different sizes, length, width and dimension. Most of the process is done manually which passes through various phases. No of things are done on the paper like embroidery work, printing and screening etc, henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO is duty bound to adopt any such, computation as the deem appropriate for proper determination true income. In the light of aforesaid observation and case laws the books are rejected under provision of section 145(3) and assessment is framed in the spirit of section 144. The G.P. chart is reproduced below:- A.Y. Turn Over Gross Profit G.P. rate 2006-07 49506341 17324217 34.99% 2007-08 75250149 25104502 33.36% 2008-09 74720272 17262838 23.10% When we take a glance over the chart we see that in A.Y. 2007-08 and 2008-09 turnover is almost equal but G.P. is dipped down sizeable. In its reply dated 09.08.2010 the assessee explained that there is slight verification in the profitability under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, which has been verified and valued property and disclosed in the P&L account and balance sheet. He further argued that whatever defects pointed out by the Assessing Officer are not sufficient to justify the rejection of books of account U/s 145(3) of the Act. The ld Assessing Officer made the addition on the ground that in preceding year, the GP was higher than the GP disclosed during the year under consideration but in the business line, the number of internal and external factors affect the performance of the business. Some of them are beyond the control of the assessee. The market competitive, there is recession in other countries, which affects the assessee, demand and supply and also price. The ld Assessing Officer applied 33% GP w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d duly been made by the A.O. The books of accounts of the assessee were periodically checked by the revenue authorities. It appears that in the subsequent year i.e. in assessment year 1995-96, the same G.P. rate has been accepted by the Department. It is a fact that the cost of raw materials has increased. It is also seen that 100% goods are sold to its sister concern and therefore the question of GP does not arise. The A.O. could not find that the assessee had sold finished goods at a lesser price to its sister concern. In our opinion, low profits and absence of regular stock register are not sufficient reasons for rejection of the accounts of assessee. Hence, the CIT (A) and Tribunal were justified in deleting the addition. Both the autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT v. V.B. Narania & Co. MANU/GJ/0339/2001 : 171 CTR (Guj) 416 : 252 ITR 884 (Guj), where in the facts of the said case, the ITO has disallowed the claim for deduction under Ss. 80HH and 80J of the Act, on the ground that the assessee got certain processes done from outsiders on the piecemeal basis and that the assessee had not provided regular employment to any person in its manufacturing process, held that the Tribunal was right in coming to the conclusion that the persons doing the work were employed by the assessee because the assessee was controlling not only the work to be done by those persons but also the manner of doing of the work. The Court further held that the Assessing Officer and the AAC were not right in holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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