2013 (11) TMI 1797 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made on account of estimation of Gross Profit (GP) by rejecting the books of accounts u/s 145 of the Income Tax Act.

Summary:

Issue 1: Deletion of Addition on Account of Estimation of GP by Rejecting Books of Accounts u/s 145

The Revenue appealed against the CIT(A)-II, Ahmedabad's order, which deleted an addition of Rs. 1,62,22,980/- made by the AO on account of estimation of GP by rejecting the assessee's books of accounts u/s 145 of the Income Tax Act. The AO observed a significant decline in the GP rate from 13.69% in the previous year to 7.43% in the year under consideration. The assessee attributed this decline to increased costs of goods sold and provided comparative statements to support this claim. However, the AO found the explanations insufficient and estimated the GP rate by averaging the GP rates of the last two years, resulting in an addition of Rs. 1,62,77,255/-.

The CIT(A) upheld the rejection of the books of accounts u/s 145(3) but deleted the addition, noting that no defects were found in the books for the post-search period, and the fall in GP was covered by the disclosure of unaccounted income of Rs. 2.10 crores. The CIT(A) also found that the increase in purchase prices justified the decline in GP.

Upon appeal, the ITAT observed that the AO did not point out any specific defects in the post-search period books and that the CIT(A) had provided a detailed explanation for the fall in GP. The ITAT found no reason to interfere with the CIT(A)'s order, as the Revenue could not provide any material evidence to counter the CIT(A)'s findings. Consequently, the ITAT dismissed the Revenue's appeal and upheld the deletion of the addition.

Conclusion:
The appeal of the Revenue was dismissed, and the CIT(A)'s order deleting the addition of Rs. 1,62,22,980/- was upheld.