2010 (5) TMI 939 - AT - Income Tax

Summary

Issues Involved:
1. Justification for invoking provisions of section 145.
2. Comparison of Gross Profit (GP).
3. Onus on the assessee to produce parties for verification of sales and purchases.

Summary:

1. Justification for invoking provisions of section 145:
The Assessing Officer (AO) invoked section 145, doubting the veracity of transactions with 19 parties, as only 2 responded to notices u/s 133(6), 4 notices were returned unserved, and 13 did not reply initially. The AO rejected the book results, considering the replies received later as not genuine. The assessee argued that the AO should have used his powers u/s 131 to summon the parties. The CIT(A) found the AO's action unjustified, noting that the GP was progressive and no specific defects were found in the books of accounts.

2. Comparison of Gross Profit (GP):
The AO compared the assessee's GP with other diamond traders, finding it lower. The assessee contended that its GP had improved over the years and that it dealt in the local market, unlike the comparables engaged in exports. The CIT(A) agreed with the assessee, noting that the GP was better than in previous years and that the AO's comparison was not appropriate.

3. Onus on the assessee to produce parties for verification of sales and purchases:
The AO doubted the transactions as some notices were returned unserved and others were replied to from the same post office on the same date. The assessee requested the AO to summon the parties u/s 131, which the AO did not do. The CIT(A) held that the AO should have summoned the parties if he had doubts and that no adverse inference could be drawn without doing so.

Conclusion:
The Tribunal upheld the CIT(A)'s order, stating that the AO did not point out any specific defects in the books of accounts and that the assessee had provided sufficient explanations and documentation. The appeal of the revenue was dismissed.