2020 (5) TMI 56 - HC - Income Tax

GP rate estimation - rejection of books of accounts - Assessee argued that while making addition on account of G.P. rate the amount surrendered should have been considered for calculating the gross profit - HELD THAT - The gross profit as per the previous year was considered by the AO. The same cannot be said to be excessive or arbitrary. The Tribunal rightly came to the conclusion that surrendered amount of Rs. 10, 50, 000/- was on account of un-explained investment in the stock. It represented unaccounted transaction and does not represent the profit of unaccounted transaction of purchase and sale. There was no convincing reason put forth by the assessee justifying the low G.P. Rate. There is another aspect of the matter. The Assessing Officer while finalising the assessment considered the profit amounting to Rs. 3, 06, 705/- as covered under the surrrendered amount of Rs. 10, 50, 000/- and thereafter made the addition. The conclusion arrived at by the Tribunal is plausible and calls for no interference.

Summary

Issues:
1. Legality of orders Annexures P-1 and P-3
2. Rejection of books of accounts based on presumptions and conjectures
3. Legality of addition on account of G.P. rate
4. Sustaining rejection of books of account without discrepancies post search and seizure
5. Inclusion of surrendered amount in trading account for calculation of loss and profit rate

Analysis:
1. The appellant appealed against the order of the Income Tax Appellate Tribunal (ITAT) allowing the revenue's appeal. The substantial question of law raised pertained to the legality of orders Annexures P-1 and P-3. The appeal was admitted only concerning the addition on account of G.P. rate.

2. The assessment year in question was 1990-91. During a search on the business premises, excess stock worth &8377; 10,50,000 was found, and discrepancies in maintaining up-to-date books of account were noted. The Assessing Officer rejected the books of account considering factors like high electricity consumption and a low G.P. Rate. The income was assessed at 2% G.P. Rate, resulting in a total assessable income of &8377; 8,33,845.

3. The Commissioner of Income Tax (Appeals) deleted an addition of &8377; 5,41,148 based on the estimated gross profit of 2%. However, the Tribunal overturned this decision and allowed the revenue's appeal. The appellant contended that the surrendered amount should have been considered for calculating the gross profit.

4. The Tribunal reasoned that the surrendered amount of &8377; 10,50,000 was related to unexplained investment in stock and did not represent the profit from unaccounted transactions. The Assessing Officer had already considered a profit of &8377; 3,06,705 as part of the surrendered amount before making the addition. The Tribunal's conclusion was found to be reasonable and warranted no interference.

5. The Tribunal's decision was upheld, emphasizing that the surrendered amount did not reflect profits from transactions but unexplained investments. The appellant's argument regarding the G.P. Rate was deemed unfounded, and no substantial question of law arose. Consequently, the appeal was dismissed.