2016 (7) TMI 1259 - AT - Income Tax

Rejection of books of accounts - disallowance of total turnover - GP determination - Held that - Going through the relevant record and impugned orders of the authorities below. We do not agree with the arguments of the respondent as menthol is not a restricted item which can be sold to a particular buyer. It is an open commodity and we agree with the arguments of the Ld. DR of the Revenue who has stated that Assessing Officer has rightly assessed the income after discussing the comparative chart of same business and in same financial year. - Decided in favour of revenue

Summary

Issues:
Assessment of business profit based on GP rate, Disallowance of expenses, Rejection of books of account under section 145(3) of the Act, Comparison with other traders in the same line of business, Appeal against the assessment order.

Analysis:
1. Assessment of Business Profit based on GP Rate:
- The appellant, a trader in Menthol, faced a dispute regarding the assessment of business profit. The Assessing Officer (AO) rejected the GP rate of 0.08% shown by the appellant and instead applied a GP rate of 0.65% on the total turnover, resulting in an addition of ?66,54,087 to the income of the assessee.

2. Disallowance of Expenses:
- The appellant argued that the business involved considerable expenses such as loading/unloading, transporting, VAT, and Mandi Tax due to trading in multiple local districts. The appellant also highlighted the impact of trading tie-ups on the Gross Profit and Net Profit rates.

3. Rejection of Books of Account under Section 145(3) of the Act:
- The AO rejected the books of account under section 145(3) of the Act and based the assessment on the average GP rate of other traders in the same line of business during the same financial year.

4. Comparison with Other Traders in the Same Line of Business:
- The AO compared the appellant's GP rate with six other traders in the same line of business, leading to the rejection of the appellant's trading results. The CIT(A) acknowledged the differences in turnover and specific conditions of the appellant, leading to a revision of the disallowances.

5. Appeal against the Assessment Order:
- The appellant appealed against the assessment order, leading to a detailed review of the assessment methodology by the CIT(A) and the Appellate Tribunal. The Tribunal ultimately allowed the appeal of the Department, upholding the AO's assessment based on the comparative analysis of business profits.

In conclusion, the judgment involved a detailed analysis of the assessment of business profit, disallowance of expenses, rejection of books of account, comparison with other traders, and the final decision on the appeal against the assessment order. The Tribunal emphasized the importance of considering industry-specific factors and comparative data in determining the appropriate assessment of business profits.