2012 (3) TMI 404 - HC - Income Tax

Gross profit rate determination - Held that - Consideration the various factors on which the gross profit rate is dependent i.e. on the cost of purchases and sales. The assessee had filed a chart showing purchases and sales of 35 items. In these items the rate of profit has varied from 6.32% to 26.45%. The gross profit on sales to the extent of 59, 40, 181/- is around 13%. The total turnover during the year under reference is 8.86 crores. ITAT has held that gross profit rate does not depend on the basis of specification of item but it depends upon the quality shine etc. The assessee has earned gross profit varied from 6.32% to 26.45% but from the chart filed by the assessee it cannot be concluded that gross profit rate declared by the assessee was correct. AO has found that purchases were not fully verifiable. The books of accounts were rejected for various reasons. Previous year also gross profit rate was 18.87% and this year it has been accepted at 17% by the CIT(A) and the order passed by the CIT(A) has been affirmed by the ITAT. No substantial question of law arises

Summary

Issues:
1. Appeal under Section 260A of the Income Tax Act, 1961 questioning the gross profit rate determination for the assessment year 2006-07.

Analysis:
The appeal before the High Court pertains to the application of gross profit rate by the Assessing Officer for the assessment year 2006-07. The CIT(A) had upheld the application of gross profit rate at 17%, while the assessee contended for the gross profit rate of 15.79% declared by them. Both the Revenue and the assessee had filed appeals before the ITAT regarding the gross profit rate determination. The ITAT, after considering all facts and circumstances, concluded that a gross profit rate of 17% was reasonable. The ITAT dismissed the appeals of both the Revenue and the assessee, leading to the current appeal before the High Court.

The counsel for the appellant argued that the findings of the CIT(A) and ITAT were not in accordance with the law. It was contended that the books of accounts of the assessee should not have been rejected, and the declared gross profit rate of 15.79% should have been accepted. However, upon examination, the High Court found the discussion by the ITAT to be appropriate. The ITAT had considered various factors influencing the gross profit rate, such as the cost of purchases and sales. The ITAT noted that the gross profit rate is not solely based on the specification of items but also on factors like quality and shine. The Court observed that the assessee's gross profit varied significantly, ranging from 6.32% to 26.45%. Additionally, the Court noted that the AO had found purchases to be not fully verifiable, leading to the rejection of the books of accounts for various reasons.

Considering the submissions and evidence presented, the High Court concurred with the findings of the CIT(A) and ITAT. It was observed that the gross profit rate determination was based on a thorough evaluation of the facts and evidence. The Court concluded that no substantial question of law arose in the present appeal, as the facts and evidence had been adequately considered by the lower authorities. Consequently, the appeal was dismissed for lacking merits, and the stay application was also rejected.