2010 (5) TMI 878 - AT - Income Tax

Summary

Issues Involved:
1. Sustaining the addition of Rs. 1,21,67,320/- of Gross Profit on an estimate basis.
2. Ignoring the reply made to ITO in response to notice in remand report proceedings.
3. Upholding the rejection of books u/s 145.

Summary:

Issue 1: Sustaining the addition of Rs. 1,21,67,320/- of Gross Profit on an estimate basis
The Assessing Officer (AO) observed a significant reduction in net profit despite an increase in turnover. The AO compared the financial results with other entities and found discrepancies. Due to the assessee's failure to provide satisfactory explanations and produce books of accounts, the AO invoked provisions of section 145 of the Act and estimated the gross profit at 15%, resulting in an addition of Rs. 1,11,77,787/- to the total income. The CIT (A) upheld this estimation, noting the lack of supporting documents and the non-comparability of the cases cited by the assessee.

Issue 2: Ignoring the reply made to ITO in response to notice in remand report proceedings
The assessee argued that it had submitted the necessary documents and that the parties had complied with notices u/s 133(6). However, the AO reported that the assessee did not attend the hearings and filed submissions in Tapal. The CIT (A) observed that the assessee did not produce regular books of accounts or supporting documents, justifying the AO's rejection of the book results and estimation of income.

Issue 3: Upholding the rejection of books u/s 145
The assessee contended that it was a 100% export trader, not a manufacturer, and that the AO's comparison with manufacturers was incorrect. The Tribunal noted that the AO wrongly presumed the assessee as a manufacturer. Despite this, the assessee failed to produce full details and supporting documents. The Tribunal found that the comparative cases cited by both the AO and the assessee were not comparable due to differences in turnover and assessment years. Considering the facts, the Tribunal deemed the adoption of a 15% GP rate excessive and directed a GP rate of 8% for the assessment year 2005-06, partly allowing the appeal.

Conclusion:
The Tribunal partly allowed the appeal, directing the adoption of an 8% GP rate for the assessment year 2005-06, considering the non-comparability of cited cases and the assessee's failure to produce full details.