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2018 (6) TMI 1181 - AT - Income TaxGP estimation - rejection of books of accounts - Held that - Without pointing out any specific defects / deficiencies in the books, it was not justified in rejecting books of accounts merely because the assessee reflected low Gross Profit. Proceeding on the same analogy, estimating the profit merely on the basis of profit reflected by the comparables was not justified and therefore, the action of Ld. AO, to that extent, could not be sustained. The assessee was dealing in varied quality of diamonds, the price of which ranged from 28 to 9400 which necessitate the assessee to maintain adequate quantitative as well as qualitative details of stock so as to arrive at the true profits for the impugned AY. The assessee has apparently not maintained these qualitative details and merely harping on the point that furnishing of quantitative details was sufficient enough to discharge the obligation casted on him in this regard. We are not convinced with the same particularly in view of the fact that the assessee has undertaken majority of the transactions with the related party. Further, we find that the month-wise quantitative details as given in summary of stock for the period 2009-2010 do not matches with ledger extract of monthly summary of cut & polished diamonds. Keeping in view the totality of facts, we deem it fit to restore the matter back to the file of Ld. AO for re-appreciation of the books of accounts of the assessee and profitability reflected therein. Revenue s appeal stands allowed for statistical purposes
Issues:
1. Discrepancy in Gross Profit rate determination by the Assessing Officer and the Commissioner of Income-Tax (Appeals) 2. Rejection of books of accounts by the Assessing Officer under section 145 3. Applicability of profit rates based on comparable cases 4. Transactions with related parties and their impact on profit determination Issue 1: Discrepancy in Gross Profit Rate Determination The appeal by the revenue for Assessment Year 2010-11 challenges the order of the Commissioner of Income-Tax (Appeals) regarding the Gross Profit (GP) rate adopted. The Assessing Officer (AO) estimated the GP at 4.39%, resulting in an addition of ?919.62 Lacs. The Commissioner directed to adopt a GP of 0.05% instead. The Commissioner found that the AO's estimation solely based on the average GP of comparables was not proper, as each assessee's GP depends on various factors peculiar to it. The Commissioner also noted that the AO's rejection of books due to lack of qualitative details was unjustified, especially when the books were audited and no defects were found. The Commissioner partially allowed the ground, directing the AO to rework the GP at 0.05%. Issue 2: Rejection of Books of Accounts The Corporate assessee, engaged in diamond trading, faced the rejection of books by the AO under section 145 due to lack of qualitative details in stock records. The Tribunal found that the AO was unjustified in rejecting the books solely based on low GP without pointing out specific defects. However, the Tribunal noted the necessity for the assessee to maintain qualitative details of stock due to dealing in varied quality diamonds. The Tribunal observed discrepancies in stock details and transactions, indicating the need for re-evaluation. Consequently, the matter was remanded to the AO for re-assessment. Issue 3: Applicability of Profit Rates Based on Comparable Cases The Tribunal highlighted the importance of not applying profit estimates solely based on comparable cases, emphasizing the need for a case-specific analysis. The Tribunal found fault with the AO's reliance on comparables without verifying financials thoroughly. The Tribunal directed the AO to re-evaluate the GP based on the specific circumstances of the assessee rather than generic averages from comparables. Issue 4: Transactions with Related Parties The revenue contended that the assessee's profitability was unreliable due to transactions with related parties. However, the Authorized Representative for the assessee argued that stock details were maintained as per trade practices and justified the relief granted by the Commissioner. The Tribunal found discrepancies in the transactions with related parties and directed the matter to be re-evaluated by the AO for a more thorough assessment. In conclusion, the Tribunal allowed the revenue's appeal for statistical purposes, remanding the matter back to the AO for re-evaluation based on the detailed analysis of the books of accounts and transactions, emphasizing the need for substantiation by the assessee.
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