2015 (4) TMI 104 - HC - Income Tax

G.P. Rate addition - Tribunal agree with the submission of assessee that assessee s taxable income from business should be computed on the basis of comparison of net profit rate shown by the assessee in the immediate previous year and shown in the current year, taxable income from business for this year by applying the net profit rate as accepted in the immediate previous year. - Held that - The findings of facts in the peculiar facts and circumstance of the case, go to show that there was fall in gross Profit rate and the justification of profit ought to have been seen from the angle and not net profit rate. Thus, we are in complete agreement with the findings of facts by the Tribunal and the decision of the CIT(Appeals) which is placed reliance on certain authoritative decisions of the Tribunals were misplaced and were misreading of the provisions of law as they were not applicable in the present case. In the facts and circumstances of this case, we hold that the Tribunal was right in coming to the conclusion that addition made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals)-II, Surat, on G.P. rate is not correct. - Decided in favour of the assessee

Summary

Issues:
Challenge to judgment and order of Income Tax Appellate Tribunal on Gross Profit Rate addition.

Analysis:
The appellant-Revenue challenged the judgment and order of the Income Tax Appellate Tribunal, Ahmedabad Bench 'C' in ITA No.2480/Ahd/2006. The substantial question of law framed was whether the Tribunal was correct in concluding that the addition made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals)-II, Surat, on Gross Profit Rate was incorrect. The case involved the assessment of the appellant's total income, appeals before CIT(A) and ITAT, and the subsequent appeal by the Revenue before the High Court.

The Tribunal, in its analysis, highlighted that the failure to produce books of account was beyond the control of the present partners, as the books had been taken away by other partners and not returned. The Tribunal emphasized that estimating Gross Profits in such circumstances was not appropriate. It noted discrepancies in the Assessing Officer's approach, stating that the net profit rate for the current year was significantly different from the previous year. The Tribunal concluded that assessing the taxable income based on net profit rate was more appropriate than the Gross Profit rate applied by the Assessing Officer.

The High Court agreed with the Tribunal's reasoning, emphasizing that the fall in Gross Profit rate should have been viewed from the net profit angle. It noted that the CIT(Appeals) had relied on irrelevant decisions, misinterpreting the law's provisions. The Court held that the Tribunal's conclusion on the incorrectness of the addition made by the Assessing Officer was valid. Consequently, the High Court dismissed the Tax Appeal in favor of the assessee.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of assessing taxable income based on the net profit rate in the given circumstances. The judgment highlighted the misapplication of law by the Assessing Officer and the relevance of considering the peculiar facts and circumstances of the case in determining the correct approach to assessing income.