Dy Commissioner of Income-tax v Himson Twisting & Texturising Ind Pvt Ltd,
Books of accounts — Rejection of — Fall in gross profit — Reasons submitted — Sustainability — Assessee had shown 6.41% GP rate as against GP of 13.02% shown in immediate preceding year — Explanation submitted by assessee was rejected by AO along with books of accounts — AO adopted GP rate of 9% and made addition — CIT(A) deleted addition stating that AO was not justified in rejecting
books of accounts — Held, assessee explained fall in GP rate stating that there was retrenchment of employees whereby higher amount was paid as gratuity as compared to that in preceding year — This had effect on GP — During year under consideration, assessee outsourced much of production as compared to production done at assessee's premises — Since activities were outsourced, many of expenses could not be controlled — It was also submitted that there was decrease in sales price and increase in purchase price of raw material — Combined effects of both of these factors had resulted in decrease in GP by 6.08% of turnover — It was held that AO could not rebut submission of assessee in respect of justification for fall in GP — It was further found that Revenue had not challenged finding of CIT(A) that AO was not justified in rejecting books of accounts of assessee — It was held that law was settled that unless this was done, GP addition could not be defended by Revenue — Order passed by CIT(A) upheld.
Books of accounts — Rejection of — Fall in gross profit — Reasons submitted — Sustainability — Assessee had shown 6.41% GP rate as against GP of 13.02% shown in immediate preceding year — Explanation submitted by assessee was rejected by AO along with books of accounts — AO adopted GP rate of 9% and made addition — CIT(A) deleted addition stating that AO was not justified in rejecting
books of accounts — Held, assessee explained fall in GP rate stating that there was retrenchment of employees whereby higher amount was paid as gratuity as compared to that in preceding year — This had effect on GP — During year under consideration, assessee outsourced much of production as compared to production done at assessee's premises — Since activities were outsourced, many of expenses could not be controlled — It was also submitted that there was decrease in sales price and increase in purchase price of raw material — Combined effects of both of these factors had resulted in decrease in GP by 6.08% of turnover — It was held that AO could not rebut submission of assessee in respect of justification for fall in GP — It was further found that Revenue had not challenged finding of CIT(A) that AO was not justified in rejecting books of accounts of assessee — It was held that law was settled that unless this was done, GP addition could not be defended by Revenue — Order passed by CIT(A) upheld.
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