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2016 (7) TMI 263 - AT - Income TaxAO rejected the books of accounts of the assessee and applied GP @ 2.39% taking average of 2 earlier years on gross turnover - CIT(A) reduced GP rate reduced from 2.39% to 1.50% - Held that - Finding of fact is not controverted by the revenue by placing any contrary material on record. The revenue has not disputed the fact that in the year under appeal there is increase in the sales and the margin as stated by the assessee is not rebutted by the revenue by bringing any material which suggest that the margin as claimed by the assessee is not correct. In the absence of such finding, we are unable to accept the contention of the ld. D/R that the ld. CIT (A) was not justified in reducing the rate of Gross Profit. - Decided against revenue Addition on account of unexplained cash credits - CIT (A) deleted the addition by observing that when profit has been estimated by applying a particular GP rate, no further addition can be made by placing reliance on the judgment of Hon ble Jurisdictional High Court in the case of CIT vs. G.K. Contractor 2009 (1) TMI 840 - RAJASTHAN HIGH COURT - Held that - The judgment as relied on by the ld. CIT (A) pertains to the business outstandings. From the paper book as filed, in Annexure-B to Form No. 3 CD, it is stated that the loan from M/s. B.K. Industries is of ₹ 2,50,000/-. However, in respect of M/s. Pooja Steels, ₹ 1,00,000/- also treated as loan. There is no material available on record suggesting that these amounts were treated as advances and related to any sales or purchases. The onus is on the assessee to demonstrate that such loans/credits were related to business/trade of the assessee. In the absence of such material, treating the same as trade advance would not be correct. Hence the ratio as laid by the Hon ble Jurisdictional High Court would not help the assessee. Accordingly this ground of revenue s appeal is allowed and the impugned order on this issue is set aside. The addition made the AO on this issue is sustained - Decided against assessee
Issues Involved:
1. Rejection of books of accounts and reduction of Gross Profit (GP) rate. 2. Deletion of addition made under Section 68 for unexplained cash credits. Issue-wise Detailed Analysis: 1. Rejection of Books of Accounts and Reduction of Gross Profit (GP) Rate: The Revenue appealed against the order of the CIT (A) which upheld the rejection of the books of accounts under Section 145(3) but reduced the GP rate from 2.39% to 1.50%, thereby deleting the trading addition of ?28,26,523/-. The Assessing Officer (AO) had initially applied a GP rate of 2.39% based on the average of the two preceding years, resulting in a trading addition of ?35,85,474/-. The CIT (A) acknowledged the rejection of the books of accounts but reduced the GP rate to 1.50%, considering the increase in gross turnover and the competitive business strategy of the assessee which led to a reduced profit margin. The Tribunal noted that the CIT (A) provided a detailed analysis, stating that the assessee's books were audited under Section 44AB and no significant discrepancies were found by the auditors. The CIT (A) observed that the AO's objections regarding stock valuation and minor discrepancies in purchases did not justify the rejection of the books. The CIT (A) concluded that the increased turnover justified a lower GP rate and applied a rate of 1.50%, resulting in a trading addition of ?7,58,951/-. The Tribunal upheld the CIT (A)'s decision, noting that the Revenue did not provide contrary evidence to dispute the increased sales and reduced margins. Thus, the Tribunal rejected the Revenue's ground on this issue. 2. Deletion of Addition Made Under Section 68 for Unexplained Cash Credits: The Revenue contested the deletion of ?3,50,000/- added by the AO under Section 68 for unexplained cash credits. The AO noted unsecured loans from M/s. B.K. Industries and M/s. Pooja Steels but no confirmations were provided. The CIT (A) deleted the addition, relying on the judgment in CIT vs. G.K. Contractor, which stated that once profit is estimated by applying a GP rate, no further addition for unexplained credits is justified. The Tribunal, however, found that the CIT (A)'s reliance on the G.K. Contractor case was misplaced as it pertained to business outstandings, not unsecured loans. The Tribunal emphasized that the onus was on the assessee to prove that the loans were related to business transactions. In the absence of such evidence, the Tribunal concluded that the CIT (A) erred in deleting the addition. Consequently, the Tribunal set aside the CIT (A)'s order on this issue and sustained the AO's addition of ?3,50,000/- for unexplained cash credits. Conclusion: The Tribunal partly allowed the Revenue's appeal, upholding the CIT (A)'s reduction of the GP rate but reversing the deletion of the addition under Section 68 for unexplained cash credits. The order was pronounced in the open court on 3/06/2016.
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