RAKESH KUMAR GARG, J. - (1.) THE Revenue has filed the present appeal under s. 260A of the IT Act, 1961 (hereinafter referred to as the "Act") against 2001 -02 raising the following substantial questions of law : "1. Whether on the facts and in the circumstances of the case, the learned Tribunal was right in law in upholding the order of the CIT(A), in deleting the trading addition of Rs. 20,83,752 made by the AO, as the assessee failed to produce the quantitative details of raw material and finished products ?
(2.) WHETHER on the facts and in the circumstances of the case, the findings recorded by the learned Tribunal are perverse and contrary to material available on the record - 2. The respondent is a partnership firm deriving income from the manufacturing and export of Duries, Rugs, woollen subsequently the assessee firm was assessed under s. 143(3) of the Act, 1961 at an income of Rs. 14,60,740. The assessee declared gross profit of Rs. 3,30,18,576 on the total turnover of Rs. 13,00,80,622 giving the Gross Profit Rate (GPR) of 25.38 per cent as against 29.5 per cent declared in the immediate preceding assessment year.
(3.) THE AO required the respondent to explain the decline in the GPR for the relevant assessment year. The explanation furnished by the respondent in this regard was found to be unsatisfactory. Therefore, the AO rejected the books of account of the assessee by invoking the provisions of s. 145(3) of the Act and applied the GPR of 27 per cent which resulted in addition of Rs. 20,83,752. Aggrieved against the said order, the assessee filed an appeal before the CIT(A), Karnal. The appeal filed by the made by the AO was deleted. While allowing the said deletion the CIT(A), Karnal, observed as under : "The matter has been considered. It is seen that the addition has been made by the AO without pointing out any specific defect in the books of account. The AO has rejected the books of account only on the ground that the appellant has not been able to keep records of raw material consumed in respect of each and every item produced by the appellant. The AO has rejected without any justification the explanation of the appellant that consumption of raw material for each of the products cannot be reconciled in the case of the appellant because the product pattern was large and items of different designs and sizes etc. were produced by the appellant. There was no legal obligation on the part of the appellant to maintain such a record. Audited accounts could not have been rejected without pointing out any specific defect or deficiencies in the books of account maintained by the appellant. Moreover, the appellant's income was 100 per cent exempt and there could not have been any tax liability and higher income being declared. Thus, no purpose of the Revenue has been served by making such additions. Keeping in view all these facts, addition of Rs. 20,83,752 is directed to be deleted.";