2011 (1) TMI 1204 - HC - Income Tax

Addition - Rate of G.P - No proper exercise is done by any of the Authorities below, the matter should have been remitted back to the Assessing Officer to take into consideration of those aspects and fix the GP rate - However, having regard to the fact that it is an old matter and all the relevant data are available with us which is taken note of above and this may provide a suitable yardstick for fixing the GP rate, we are doing this exercise ourselves - The average GP rate for the last five years is 3.25 per cent and for the subsequent year it is 4.59 per cent to 5.39 per cent. The GP rate of post survey period is 8-9 per cent but that period is less than three months - Keeping in mind these GP rates, we are of the opinion that the GP rate of 5 per cent would meet the justice - These appeals is disposed of.

Summary

Issues Involved:

1. Rejection of Books of Account
2. Adoption of Gross Profit (GP) Rate
3. Telescoping of Surrendered Amount
4. Basis for Determining GP Rate

Detailed Analysis:

1. Rejection of Books of Account:

The Tribunal upheld the order of CIT(A) regarding the rejection of the assessee's books of account due to discrepancies found during a survey conducted by the Income-tax department. The discrepancies included a difference of Rs. 15 lakhs in stock and Rs. 5 lakhs in unexplained cash, which the assessee accepted and surrendered.

2. Adoption of Gross Profit (GP) Rate:

The Assessing Officer adopted a GP rate of 13% based on a comparable case (M/s Kohli & Co.), which was affirmed by the CIT(A). However, the Tribunal found this comparison inappropriate as the line of business of M/s Kohli & Co. was different from the assessee. The Tribunal then considered the past history of the GP rate declared by the assessee and fixed a GP rate of 3.25% for the pre-survey period.

3. Telescoping of Surrendered Amount:

The CIT(A) allowed the telescoping of the Rs. 20 lakhs surrendered by the assessee during the survey against the trading addition made by the Assessing Officer. The Tribunal upheld this decision, and it was noted that this aspect could not be questioned by the Department as no question of law was framed on this issue.

4. Basis for Determining GP Rate:

The Tribunal's approach of solely relying on the past five years' GP rate to determine the GP rate for the pre-survey period was challenged. The Revenue contended that the GP rate for the post-survey period, which was higher (8-9%), should also be considered. The Tribunal had ignored this post-survey GP rate despite it being from the same assessment year.

The High Court agreed that the Tribunal's methodology was flawed. The Court emphasized that both the past GP rates and the post-survey GP rate should be considered. The Court noted that the average GP rate for the last five years was 3.25%, and for the subsequent years, it ranged from 4.59% to 5.39%. Considering the post-survey GP rate of 8-9% for less than three months, the Court concluded that a GP rate of 5% would be fair and just.

Conclusion:

The High Court directed the Assessing Officer to work out the income of the assessee for the assessment year based on a 5% GP rate. The appeals were disposed of accordingly.