2015 (8) TMI 459 - AT - Income Tax

Addition made on account of low Gross profit - Estimated GP rate to determine Net profit - rejection of books of accounts - Held that - We find that the assessee AO found that the books of account were not reliable. It is a fact that payment of more than 3 Crores were made in cash that details of nature of purchases quantity of purchases or name of suppliers were not supplied before the AO or FAA mentioned in the ledger, that assessee could not produce any vouchers in support of the expenses he had claimed. It is not the case that the AO had made GP addition without any basis. He had actually compared the GP of the bamboo supplier who were from the same locality and had similar turn over. We find that in the earlier preceding year the assessee had shown GP of more than 9%. Thus, his approach is very logical. It is also a fact that the assessee had not produced the creditors and the cash book and the bank account details were not matching. Considering the non reliability of the books of account, expenses and purchases, we are of the opinion that the estimate the income of made by the AO and confirmed by the FAA was is reasonable and justifiable. With regard to the higher percentage of the GP, we are of the opinion that in the interest of justice it should be restricted to 6.5% in place of 7.37%. We find that the cases relied upon by the assessee are not applicable to the facts of the case, as the business of the assessee is different and the facts are not similar. In our opinion, same are of no help. - Decided partly in favour of assessee.

Summary

Issues:
1. Addition made on account of low Gross profit.
2. Appeal against the order of the Commissioner of Income Tax (Appeals) confirming the addition of estimated GP rate to determine Net profit.

Issue 1: Addition made on account of low Gross profit:
The Assessing Officer (AO) observed discrepancies in the books of account of the assessee, an individual engaged in the business of bamboo supply. The AO found that the identity of suppliers and the genuineness of purchases were not ascertainable due to lack of proper documentation and maintenance of records. The AO also noted that the Gross Profit (GP) shown by the assessee was significantly lower at 4.25% compared to the previous year's 9.52%. After a comparative study, the AO estimated the Gross Profit of the assessee at Rs. 27,18,868/-, 7.37% of the turnover of Rs. 3,68,91,02/-.

Issue 2: Appeal against the order of the Commissioner of Income Tax (Appeals) confirming the addition of estimated GP rate to determine Net profit:
The First Appeal Authority (FAA) upheld the AO's decision, stating that the identity and genuineness of suppliers and purchases were not proven by the assessee. The FAA rejected the contention that low GP was due to credit purchases, as the sundry creditors were found to be non-genuine, and proper records were not maintained. The FAA agreed with the AO's estimation of GP based on the analysis of other suppliers in the same business. The Authorized Representative (AR) argued before the Tribunal that the GP estimation was on the higher side and cited relevant case laws. However, the Tribunal found the AO's estimation reasonable, considering the unreliable books of account and lack of supporting documentation. The Tribunal adjusted the GP percentage to 6.5% in the interest of justice.

In conclusion, the Tribunal partially allowed the appeal by reducing the estimated GP rate to 6.5% from 7.37% but upheld the addition made on account of low Gross profit due to unreliable books of account and lack of proper documentation. The decision was based on a thorough analysis of the facts and legal precedents, ensuring a fair and justifiable outcome.