2014 (2) TMI 319 - HC - Income Tax

Estimation of Gross profit rate - Held that - Relying on the percentage of profit of two local traders the assessing officer estimated the gross profit 7% for cotton clothes and 10% for tericot clothes - When the assessing officer himself noticed that the assessee had already disclosed his profit as 5.95%, which was much more than second traders Mrs. Kedarnath Nathmal - When example of two local traders has been taken by the assessing officer and the profit shown by the assessee was more than one of such traders, there was no reason to discard the profit at the rate of 5.95% - Decided in favour of assessee.

Summary

Issues:
Whether the application of 8% gross profit by the CIT (Appeal) and Tribunal is legally justified based on material and valid reasons.

Analysis:
The appellant filed an appeal under section 260(A) of the Income Tax Act against the order of the Tribunal dated 30.04.2001. The substantial question of law admitted for appeal was regarding the justification of applying 8% gross profit in the case. The assessing officer noted that the assessee had submitted audited account copies but did not show the inventory of closing stock. The total sale was Rs. 44,44,243/-. The assessing officer held that due to the absence of closing account details, the books of account could not be accepted. The assessing officer estimated the gross profit at 7% for cotton clothes and 10% for tericot clothes based on the profit percentages of two local traders.

The appellate authority partly allowed the appeal and fixed the gross profit at 8%. The Tribunal dismissed the subsequent appeal. The question at hand was whether the application of 8% gross profit was justified. The judgment highlighted that the assessing officer had already noted the assessee's disclosed profit as 5.95%, which was higher than one of the local traders. Despite this, the assessing officer estimated the profit at different rates. The judgment emphasized that there was no material or valid reason provided for applying the 8% gross profit.

The High Court concluded that there was no justification for the 8% gross profit application, as no reasons or material were provided in the orders of the Commissioner (Appeal) and Tribunal. Therefore, the question framed in the appeal was answered in favor of the assessee against the revenue. Consequently, the appeal was allowed, and the orders of the Tribunal, CIT Commissioner (Appeal), and Assessing Officer regarding the estimation of gross profit for the relevant year were set aside. The Assessing Officer was directed to pass consequential orders accordingly.