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TMI Blog2017 (12) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier years however, even if the discrepancies are carrying forward from earlier year when it is part of the books of accounts of the year and the assessee has failed to reconcile and verify the same, then this very fact that these discrepancies has not been removed by the assessee for the years certainly would lead to the inference that there are defects in the books of account. Therefore, the books do not reflect the correct picture of the state of affairs of the assessee. Cross objection of the assessee to the extent of the rejection of books of account are dismissed. It is pertinent to note that when the G.P. rate declared by the assessee for the A.Y. 2007-08 was not accepted by the AO and has not attained finality then the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly erred in confirming the application of provisions of section 145(3) and further erred in upholding the trading addition of ₹ 31,82,271/- arbitrarily. 2. The assessee is a state owned company and engaged in the business of manufacturing and trading of cotton, woolen and synthetic, handloom fabrics. During the course of assessment proceedings, the Assessing Officer noted various defects and discrepancies in the books of account and also taken note of the audit report wherein these defects were also pointed out. The AO rejected the books of accounts U/s 145(3) of the Act and subsequently the income of the assessee was estimating by applying G.P. rate of 21.96% as it was declared by the assessee for the assessment year 2006-07 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained. Further, the bank balances in 10 banks accounts were un-reconciled since long and the assessee had defaulted in payment of loans to the banks. Even the copies of the stock statement filed with the banks were not produced before the auditor apart from other various discrepancies regarding unutilized grants and sundry creditors remained unverified due to inadequate details. Thus, the ld. DR has submitted that the Assessing Officer was justified in rejecting the books of account by invoking of provisions of section 145(3) and thereby estimated the income of the assessee by adopting the G.P. rate as declared by the assessee for the A.Y. 2006-07 which was also adopted by the AO for the A.Y. 2007-08. He has relied upon the order of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward from the earlier year. He has further submitted that there is no question of suppressing the income as the assessee is doing the activity without any profit motive. The ld. AR has referred to comparable details of the closing stock and submitted that there is no change in the year under consideration except for one item. The assessee has no stock of raw material and no manufacturing carried out by the assessee, therefore, there cannot be discrepancies in the inventory. It is only old stock which was sold as discarded and the assessee suffered loss due to the sale of old stock. Thus, the ld. AR has pleaded the action of the authorities below in rejecting the books of accounts and adopting the G.P. rate is not justified. 5. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders of the authorities below to the extent of rejecting the books of accounts of the assessee U/s 145(3). Resultant, the cross objection of the assessee to the extent of the rejection of books of account are dismissed. 6. As regards the grievance of the Revenue that the ld. CIT(A) has applied the gross profit rate 10.28% instead of 21.96% we are of considered opinion that once the books of accounts are rejected u/s 145(3), the income of the assessee is required to be estimated by adopting the reasonable gross profit rate. It is settled proposition of law that average of past years declared or adopted gross profit which has attained the finality would be proper reasonable estimation of income for a particular assessment year. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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