2014 (9) TMI 1153 - AT - Income Tax

Additions made to trading profit - rejection of books of account - Held that - gross profit rate declared by the assessee for the year under consideration was at 13.61% in comparison to the gross profit rate in the immediately preceding year at 13.32% - thus the GP rate for the year under consideration was better in comparison to the immediately preceding year - hence the trading addition sustained by the Ld. CIT(A) on account of gross profit rate was not justified accordingly the same is deleted - Decided in favor of assessee.

Summary

Issues involved:
1. Assessment order passed after providing proper opportunity to appellant.
2. Rejection of books of accounts under section 145(3) of the Act.
3. Addition of trading profit to returned income.
4. Comparison of gross profit rate with other cases for trading addition.

Issue 1: The appellant contested that the Assessing Officer did not provide a proper and reasonable opportunity before passing the assessment order. However, the Tribunal found that the only grievance of the assessee related to the trading addition of Rs. 1,84,253.

Issue 2: The Assessing Officer rejected the books of accounts maintained by the assessee under section 145(3) of the Act due to certain defects. The AO compared the gross profit rate of the assessee with other companies and made a trading addition of Rs. 8,48,452 based on a gross profit rate of 20%. The CIT(A) sustained an addition of Rs. 1,84,253 by estimating the gross profit rate at 15% instead of 20%. The Tribunal held that the AO should have considered all relevant factors like turnover, capital employed, and locality, rather than selectively comparing gross profit rates. The Tribunal noted that the turnover of comparable cases was lower than the appellant's turnover.

Issue 3: The appellant argued that the gross profit rate and net profit rate declared were better compared to the preceding year. The Tribunal agreed that even if the books of accounts were rejected, no addition was warranted as the appellant showed improved trading results. The Tribunal emphasized that the comparable cases used by the Assessing Officer were not directly comparable due to differences in turnover and establishment age.

Issue 4: The Tribunal observed that the gross profit rate declared by the appellant in the current year was better than the preceding year. Therefore, the trading addition sustained by the CIT(A) was deemed unjustified, and it was subsequently deleted. The Tribunal allowed the appeal of the assessee, emphasizing the favorable trading results shown and the lack of justification for the trading addition.

Overall, the Tribunal ruled in favor of the assessee, highlighting the improved trading performance and the discrepancies in comparing gross profit rates with other cases. The Tribunal emphasized the importance of considering all relevant factors before making trading additions based on gross profit rates.