2010 (10) TMI 1118 - AT - Income Tax

Summary

Issues Involved:
1. Addition on account of low gross profit.
2. Addition u/s 40A(2)(b) on account of excess job charges paid to sister concerns.

Summary:

Issue 1: Addition on account of low gross profit

Both the cross appeals are directed against the order of the learned CIT(A)-III, Surat dated 01-10-2007 for assessment year 2004-05. The AO made an addition of Rs. 15,30,398/- on account of low gross profit by rejecting the books of account, estimating the gross profit rate at 20.24% as in the last year. The learned CIT(A) restricted the addition to Rs. 5,00,000/-, noting that the assessee maintained detailed stock registers and no specific defect was pointed out in the maintenance of accounts. The Tribunal found that the rejection of book results u/s 145(3) of the IT Act was not justified as the assessee maintained detailed stock registers and no specific defects were pointed out. Therefore, the part addition of Rs. 5,00,000/- sustained by the learned CIT(A) was also deleted. In the result, the departmental appeal on this ground was dismissed and the appeal of the assessee was allowed.

Issue 2: Addition u/s 40A(2)(b) on account of excess job charges paid to sister concerns

The AO made an addition of Rs. 95,39,796/- out of job charges paid to sister concerns by invoking the provisions of section 40A(2)(b) of the IT Act, comparing the cost per meter of the assessee's own production with that of job work production. The learned CIT(A) deleted the entire addition, noting that the activities of the job workers and the assessee were different and the job charges paid were comparable to those charged by independent job workers. The Tribunal upheld the CIT(A)'s decision, stating that the AO failed to prove that the expenditure was excessive or unreasonable having regard to the fair market value of the services. The Tribunal found no infirmity in the order of the learned CIT(A) in deleting the addition. In the result, this ground of the departmental appeal was dismissed.

In conclusion, the departmental appeal was dismissed and the appeal of the assessee was allowed.

Order pronounced on 22-10-2010.