2020 (4) TMI 262 - AT - Income Tax

Estimation of income - Decline in gp - declaring less GP rate for the year under consideration in comparison to the preceding years - HELD THAT - It is undisputed that the margin in trading of bullion is very less and 1% GP is considered as a reasonable prevailing margin. Thus, 99% of the export turnover can fetch only 1% margin being trading in bullion then in remaining 1.23% turnover of the assessee is representing the sale of jewellery. As per directions of the Bench the assessee has filed the details of exports from which it is clear that out of total turnover ₹ 53.56 Crore the turnover of trading in bullion is ₹ 52.96 Core and the turnover from sale of jewllery is ₹ 6,00,000/-. When around 99% of the turnover of the assessee is from trading of bullion and purchases of bullion made from the Corporation Bank then the GP declared by the assessee at 1.39% is reasonable. The rejection of books of account would not be ifso facto result an addition if the assessee has declalred the profit in line with the prevailing profit in the trade /industry or in line with the past history of the assessee. In the case in hand when the assessee has declared GP at 1.39% of total turnover of ₹ 53.56 Cores out of which about 53 Core turnover is consisting of export of bullion. Thus when almost all the turnover of the assessee is an export of bullion then the margin/GP declared by the assessee at 1.39% is in the line with the profits prevailing in this trade. Neither the AO nor the ld. CIT(A) has appreciated this fact that about 99% of the turnover of the assessee is from trading in bullion, therefore, the addition made by the AO and sustained by the ld. CIT(A) is not justified and the same is deleted. - Decided in favour of assessee.

Issues Involved:
1. Assessment against CBDT Circular.
2. Invocation of section 145(3).
3. 25% Trading addition on unverified purchases.
4. Books of account and entries therein - evidentiary value.
5. Assessment based on mere conjecture.
6. Failure to issue proper show cause notice.
7. Interest levied u/s 234A, 234B, and 234C.

Detailed Analysis:

1. Assessment against CBDT Circular:
The assessee contended that the initiation of proceedings under section 143(2) and the framing of assessment under section 143(3) were not in accordance with CBDT instructions for the financial year 2012-13. However, the tribunal did not address this issue explicitly in the final judgment, focusing instead on the substantive grounds of appeal.

2. Invocation of section 145(3):
The Assessing Officer (AO) rejected the books of accounts under section 145(3) due to unverifiable purchases amounting to ?94,23,653 from five parties. The CIT(A) upheld this rejection, citing the lack of compliance from suppliers and the assessee's failure to produce them for verification. The tribunal, however, noted that the significant increase in turnover and the nature of the business (mainly export of bullion) justified the gross profit (GP) rate declared by the assessee.

3. 25% Trading addition on unverified purchases:
The AO made a disallowance of 25% of the unverifiable purchases, totaling ?23,55,913. The CIT(A) sustained this addition but suggested that the income should be estimated based on the average GP from preceding years. The tribunal found that the GP rate of 1.39% for the year under consideration was reasonable given the substantial increase in turnover and the nature of the business (98.77% export of bullion). Consequently, the tribunal deleted the addition, stating that the GP declared was in line with industry standards.

4. Books of account and entries therein - evidentiary value:
The assessee argued that the books of account maintained in the regular course of business should be accepted as prima facie proof of the entries. The tribunal agreed, noting that the rejection of books does not automatically warrant an addition if the declared profit aligns with industry norms or past history. Given the nature of the business and the substantial turnover, the tribunal found the declared GP rate reasonable and deleted the addition.

5. Assessment based on mere conjecture:
The assessee claimed that the assessment was based on conjecture, surmise, or suspicion. The tribunal found merit in this argument, emphasizing that the GP rate declared was justified by the nature of the business and the substantial increase in turnover. The tribunal concluded that the addition was not warranted and deleted it.

6. Failure to issue proper show cause notice:
The assessee contended that the AO failed to issue an appropriate show-cause notice detailing the reasons for the proposed additions, violating the principles of natural justice. The tribunal did not specifically address this procedural issue, focusing instead on the substantive grounds for deletion of the addition.

7. Interest levied u/s 234A, 234B, and 234C:
The assessee challenged the interest levied under sections 234A, 234B, and 234C. The tribunal's decision to delete the substantive addition implicitly addressed this issue, as the deletion of the addition would affect the computation of interest.

Conclusion:
The tribunal deleted the addition of ?23,55,913 made by the AO and sustained by the CIT(A), finding that the GP rate declared by the assessee was reasonable given the nature of the business and substantial turnover. The tribunal did not delve into the procedural issues raised, focusing on the substantive grounds for deletion of the addition. The appeal of the assessee was allowed.

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