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PER BHAVNESH SAINI: This appeal by the revenue is directed against the order of the learned CIT(A), Valsad dated 24th February, 2009 for the assessment year 2006-07, challenging the deletion of addition of Rs.8,60,688/- made by the AO on account of estimation of net profit @ 1.60% as against net profit of 1.39% disclosed by the assessee.

2. Briefly, the facts of the case are that in this year under appeal, a survey u/s 133A of the IT Act was carried out at the premises of the assessee and additional income of Rs.51,56,477/- was declared by the assessee. The assessee firm had debited expenses under The DCIT, Navsari Circle Vs M/s. Metro Motors various heads noted in the impugned order and going through the same it was found to be disproportionately high as compared to earlier years despite the fact that the turnover has decreased in comparison to earlier years and accordingly book results were rejected u/s 145(3) of the IT Act. The AO, therefore, stated that the expenses were manipulated with the intention to inflate the expenses. It was also observed that some of the expenses were made in cash and that the vouchers produced before him were self made with the intention to create fake and fabricated evidence in support of the expenses and that there was no proper check over the expenses which would have been used for the purposes other than business purposes. The book results were accordingly rejected and net profit @ 1.60% was applied on the total sales and the above addition was made. It was submitted before the learned CIT(A) that addition is unjustified because the AO failed to give any show cause notice to the assessee for his proposed action of rejecting the book results. Copy of the notice was produced before the learned CIT(A) to show that only supporting evidences were called for with regard to disproportionate expenses as compared with the turnover/sales. It was further submitted that the AO only proposed to disallow part of the expenses and had not shown his intention to reject the book results. No specific defects have been pointed out in the maintenance of the books of accounts, therefore, application of provisions of section 145 (3) of the IT Act is without any basis and without giving opportunity of being heard to the assessee to defend his case. It was submitted that the assessee had already shown higher profit rate, therefore, addition is clearly unjustified. No basis is given why profit The DCIT, Navsari Circle Vs M/s. Metro Motors rate of 1.60% was applied. It was further submitted that the expenses were incurred for the purpose of business and all supporting documents, bills and vouchers and ledger accounts were submitted. The AO has observed some minor variation which would not justify the rejection of the book results. It was submitted that profit rate is shown better as compared to the earlier years. Therefore, addition is clearly unjustified.