Brief Facts of the case-
- This appeal has been filed by the revenue.
- Assessments for four years 2002-03 to 2005-06 were made on 29.12.2006 under Section 153A pursuant to a search conducted on 07.10.2004.
- The assessee used to procure and restore rice after due processing. In the course of such procurement, it was contended to retain gunny bags supplied by the Food Corporation of India (FCI) and deal with them.
- After the search and during the assessment proceedings, the assessee had surrendered a sum of ₹1.75 Crores. Apparently, in the course of search, some excess stocks were found.
- The AO rejected the books of account on the following basis:-
- Absence of stock register;
- Irregularity or failure to disclose the receipts and transactions pertaining to the gunny bags (“bardana”);
- The excess stock found in the premises; and
- A portion of the transport expenses were found to have been transacted in cash with no supporting evidence.
- The assessee appealed to the CIT(A) contending that the AO’s rejecting the books of account and imposing a gross profit margin of 12% was arbitrary. The CIT(A) upheld rejection of books but granted limited relief to the extent that the GP rate was reduced from 12% to 11.6%.
- The ITAT gave a favorable ruling and now the Revenue is in appeal.
Contention of the revenue
The Revenue urges that the ITAT fell into error on the following questions:-
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