Indian Kanoon - Search engine for Indian Law

4. As regards Question (iv), the Assessing Officer disallowed expenses claimed on the ground that the assessee failed to produce stock register and quantitative details of the raw material of furnished goods. It was observed that new machinery was installed by the assessee which resulted in higher production and quality in which case, rates of its products should have increased resulting in gross profit. Turnover had also come down which created doubt regarding genuineness of the books of account. On appeal, the CIT(A) set aside the addition holding that all the details were available and there was no reason to doubt the genuineness of books of account which had been accepted in the preceding as well as succeeding years. It was held that disallowance of expenses to the extent of 20% of the increased expenditure was not justified. As regards increase of expenses, it was observed that the assessee had given due explanation and increase in expenses was justified on account of cost of diesel and electricity, salary, PF, bonus and other items. Though the turnover had decreased, the production was higher as shown by the higher closing stock. GP rate had also increased. Relevant observations are:-