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3.1. The Assessing Officer found the aforesaid explanation of the assessee unacceptable on following grounds :-

(a) It is true that there is an increase in gross profit ratio. However, this is because of decrease in turnover (from Rs.1,06,99,834 to Rs.84,89,111) and, therefore, substantial decrease in the labour purchase (from Rs.50,38,158 to Rs.19,44,030).

(b) The argument of learned A.R. is misplaced when he says that the labour charges ratio to total receipt has been decreased from 58.88% of this year to 52.99% of this year. What the learned A.R, has done that he has added the 'labour purchase' head with the 'salary and wages' head and computed the ratio on whole amount In fact, the 'salary and wages' expenses have been increased from 11.79% of last year to 30.09% of current year. In this regard, the learned A.R has never argued nor produced any evidence in support that the increase in salary and wages expense is related to the decrease in labour purchase expense.