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TMI Blog2018 (3) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had factored/ included his DEPB gains while determining her selling price and if the DEPB gains is not taken into consideration, then the GP of the assessee will be meager and NP will be negative. 3. On the facts of the case and in law, the Ld. C.I.T.(A) ought to have upheld the assessment order of the A.O. 4. It is, therefore, prayed that the order of the CIT(A) may be set aside and that of the A.O. be restored to the above extent." 3. Brief facts of the case are that the assessee is an individual. She has filed return of income on 25.9.2009 declaring total income at Rs. 1,04,47,640/- Case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, the AO formed an opinion that books of accounts of the assessee deserves to be rejected and her income is to be estimated according to the best judgment of the AO. Basically, the ld.AO has assigned four reasons for harbouring such belief, viz. (a) the assessee should have valued closing stock either on cost price or market price. She has valued on realizable value of the stock, (b) purchases are mostly from unregistered dealer, (c) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same period. I therefore find that the Gross Profit of the initial few years after the DEPB scheme was started in Assessment Year 1998-99 and the Gross Profit of Assessment Year under appeal cannot be compared to reach any conclusion of rejection of books of account. The gross profit of the business of appellant was at 11.68% and 11.46% and net profit was at 2% in assessment years 2006-07 and 2007-08, which is a more comparable period. In the assessment year under appeal, gross profit was 13.14% and net profit was 2.08% and therefore GP and NP certainly cannot be a criteria to reject the books of appellant. Assessing Officer has not found out any evidence to prove any purchase or expense as bogus or incorrect. Assessing Officer has only raised a suspicion that the purchase are from unregistered dealers therefore they may be incorrect. Assessing Officer has not brought out any evidence by examining the suppliers of goods to reach any conclusion to reject the books of accounts. 4.2 Appellant has not accounted for the body parts of fish, which are removed during production process. If, these body parts are fond to have market value that would be another ground to reject the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of whole, headless, fillet (only meat) etc. to different customers. Therefore, it is not possible to say whether the yield shown by appellant is correct or not unless the appellant has followed a particular process on a particular fish. However, a yield below 40% in case of most of the fish, and a yield below 35% in case of Shrimps would be unusual. In case of appellant, the yield in all fish was above 40% in Assessment Year 2008-09 and all but in Shrimps was above 40% in the Assessment Year under appeal. In case of Shrimps the minimum yield may be 35% and appellant has shown yield of 32.55%. A/R of appellant had submitted that the appellant is selling quality products and therefore losses on account of grading and removing defects in finished goods as well as rejection from raw material itself are also present in the business of appellant which account for further loss to maintain quality product. In view of these facts, I find that no adverse inference may be drawn in case of appellant as yield of none of the products are beyond the acceptable range. 4.3 I find that the appellant books of export sale in subsidiary ledger based on exchange rate as on the date of sale. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shodwala Foods, is almost five times but the electricity expenditure is less than that shown by the appellant. Assessing Officer stated that such abnormal expenditure was not explained by appellant with clinching evidence beyond any doubt. During the appellate proceedings, appellant submitted the explanation that the material purchased and processed during the year under appeal was 23%-24% more than what was processed in earlier year. The increase in cost of electricity was only 15-16% over the preceding year. I find that the electricity cost is mainly incurred in cold storage or for freezing the final product. The quantity of material purchased is not material. In terms of material produced and which could required cold storage and freezing increased by 7.5% from the preceding year in quantity terms. In Assessment Year 2008-09 also when there was a decrease of about 6% in material produced, there was a decrease of only 1% in consumption of electricity wrt assessment year 2007-08. This shows that a certain percentage of inflation of about 6%-8% every year in the cost of electricity is inherent. Therefore electricity consumption of appellant, when compared with appellant's own consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m time to time [accounting standards] to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) [or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee], the Assessing Officer may make an assessment in the manner provided in section 144.]" 5. A bare reading of Section 145 would reveal that it provide the mechanism how to compute the income of the Assessee. According to sub- section 1, the income chargeable under the head profit and gains of business or profession or income from other source shall be computed in accordance with the method of accountancy employed by an Assessee regularly, subject to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld.CIT(A) has observed that same fish will be sold as whole fish or headless fish or after removal of all non-edible parts. Therefore, yield in the same fish may vary from 40% to 100%. The ld.CIT(A) has visualized percentage of yields according to the processing norms carried out on a particular quality of fish i.e. whether its non-edible parts are removed or only head was removed or bones and heads were removed etc. Considering detailed analysis of different types of fishes, the ld.CIT(A) has recorded a finding that if yield is below 40% and below 35% in the case of shrimps then it will be unusual. Otherwise, it is within the range in this line of business. Yield of the assessee in all aspect is more 40% in the assessment year. The ld.CIT(A) has taken note of yield achieved by the assessee. Such details are available on page no.25 of the CIT(A)'s order. After looking into this aspect, we are of the view that there is no fall in the yield achieved by the assessee in processing of fishes, and this cannot be used as a reason for doubting audited accounts of the assessee. 8. Next reason assigned by the AO is electricity consumption in comparison to other similarly situated assessees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36/Kg for Octopus for valuation of closing stock. These rates are much lower than the average sale price of these products, i.e. Rs. 127/Kg, Rs. 171/Kg, Rs. 176/Kg and Rs. 61/Kg respectively and therefore the claim of appellant that these products have been valued at net realizable value is not apparent at all. The Average purchase price of these products after yield is Rs. 76/Kg., Rs. 146/Kg, Rs. 144/Kg and Rs. 64/Kg respectively. The average purchase price after yield is less than the Average sale price in respect of all products. Therefore presuming that no manufacturing expenses is loaded to the cost price of closing stock, still, appellant should have selected at least the Average purchase price of these products after yield for valuation of closing stock. Therefore I find that the valuation of closing stock should be made as under: Item Closing Stock Quantity (Kg.) rate considered by appellant Amount Correct Price Difference Squids 165948 76 12553711 76 0 Shrimps 112285 116 13069514 146 3368550 Cuttle Fish 129061 95 12313456 144 6323989 Octopus 4915 36 175373 60 117960 412209 38112054 9810499 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant clarified that no one is covered u/s.40A(2)(b) of the I.T. Act. The details submitted by appellant were apparently copy of ledger account of "Commission on sale", copy of form No. 16A of TDS issued to payee wherever TDS was deducted with PAN of payee, copy of debit note of commission raised by the payee explaining the particular transaction for which the commission was charged in the debit note. I do not find any reason as why after submission of these details the commission could be held as disallowable. Moreover, in Assessment Year 2008-09, appellant had claimed similar sales commission expenditure of Rs. 10186988/- which the Assessing Officer had allowed. The foreign tour expenditure of Rs. 6,29,855/- was also claimed by the appellant for her son Shri Kenny Thomas and his family. The question of allowance of disallowance of an expenditure revealed in the books cannot be a reason to reject the books of account. Appellant has not submitted not submitted any argument during the appellate proceeding also. The foreign travelling expenditure of Rs. 6,29,855/- for appellant's son and his family is apparently a pleasure trip and personal in nature. I therefore confirm the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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