2014 (1) TMI 1692 - AT - Income Tax

Trading addition - CIT(A) applying G.P. Rate of 9% as against G.P. Rate of 7.18% declared by the assessee - Held that - Since the facts of the present case are similar to the facts involved in the earlier years, the only difference is that the turnover for the year under consideration is lower at ₹ 7,27,78,920/- in comparison to ₹ 8,99,95,783/- in the preceding year. It is also noticed that the G.P. rate declared by the assessee is also declining year after year and the reason for the same as given by the assessee is that there is a tough competition and to maintain the sales, the assessee reduced the price. We, therefore, considering that fact, are of the view that it would be fair and reasonable if the G.P. rate of 8% is applied for the year under consideration as against 8.11% directed to be applied by the ITAT for the earlier A.Ys. 2006-07 & 2007-08. Accordingly, we modify the order of the Ld. CIT(A) and direct the AO to work out the income of the assessee by applying the G.P. rate of 8% instead of 9% directed to be applied by the Ld. CIT(A). - Decided partly in favour of assessee.

Summary

Issues Involved:
Cross appeals against trading addition of Rs. 13,24,130 by AO at 9% GP rate instead of 7.18% declared by assessee.

Analysis:

Issue 1: Trading Addition Dispute
- The AO made a trading addition of Rs. 27,42,651 due to unverifiable purchases, rejecting books under section 145(3) of the IT Act.
- Assessee appealed citing tough competition affecting GP rate, maintaining sales by reducing prices.
- CIT(A) upheld rejection of books but directed applying 9% GP rate based on past history and decline in turnover.
- ITAT considered previous case, directing 8% GP rate for current year due to declining GP rate and tough competition.
- Decision based on past history, current events, and fair assessment of GP rate adjustments.
- Assessee's appeal partly allowed, department's appeal dismissed, modifying GP rate to 8% for fair assessment.

This detailed analysis covers the trading addition dispute, the rejection of books, application of GP rates, past history influence, and the final decision modifying the GP rate for a fair assessment.