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2013 (11) TMI 207 - AT - Income TaxAddition on account of low gross profit rate There is a fall in the GP rate of assessee from 22.60% of the immediately preceding assessment year to 14.39% during the relevant assessment year whereas turnover of the assessee has increased from Rs.2.15 crores to Rs.4.91 crores during the relevant period - Held that - the assessee has filed a statement showing variation in sale and purchase price and its effect on GP - The assessee has maintained day- to-day stock register, excise record and produce-wise quantitative details - The sale price of the assessee has not increased in proportion to the increase in the purchase price of the assessee - There is no adverse remark in the audit report regarding the assessee maintaining the day-to-day stock register Decided against Revenue.
Issues involved:
Appeal against deletion of addition on account of low GP for assessment year 2006-07. Analysis: The Revenue appealed against the deletion of an addition made by the AO on account of low GP for the assessment year 2006-07. The AO noted that the assessee did not maintain a day-to-day stock register, leading to a decrease in the gross profit ratio due to increased raw material consumption. The GP rate dropped from 22.60% to 14.39%, prompting the AO to add 2% of the turnover on account of low GP. The Revenue argued that this addition was reasonable. However, the assessee contended that they maintained a stock register and provided detailed explanations for the fall in GP rate. The CIT(A) found in favor of the assessee, stating that the AO's findings were based on a wrong understanding of the facts. The assessee submitted item-wise stock register details and quantitative information, which the CIT(A) accepted. The CIT(A) reasoned that the increase in purchase price did not proportionally affect the sale price, and different products had varying margins. Additionally, the audit report did not raise any concerns about the stock register maintenance. Ultimately, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal as lacking merit. In conclusion, the Tribunal affirmed the CIT(A)'s order, ruling in favor of the assessee and dismissing the Revenue's appeal against the deletion of the addition on account of low GP for the assessment year 2006-07.
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