2023 (6) TMI 571 - AT - Income Tax

Addition on account of low GP - rejection of books of accounts without pointing out the defects - CIT-A deleted the addition - cause and effect relationship between the defect found by the AO and the addition made - As per revenue assessee had not furnished any specific explanation for fall in GP and the ld.CIT(A) despite the said fact had deleted the addition made - HELD THAT - There is no coherence in the order of the AO. The defect found by the AO and the addition made by him, we find has no connection at all. AO had found that there were two annexures attached to the tax audit report reflecting two figures of GP for the year. However, he went to reject the books of the assessee and made GP addition on account of absence of any justification given by the assessee for fall in GP ratio in the impugned year, which was 5.7% as opposed to the GP shown by the assessee in the preceding year i.e. 11.14%. Therefore, there is no cause and effect relationship between the defect found by the AO and the addition made by him. AO rejected the book results as unreliable, but as rightly pointed out by the Ld.CIT(A) no specific defect has been pointed out by the AO in the books of the assessee. CIT(A) rightly said that the AO has failed to take note of the business circumstances in which the assessee operates, being an exporter of cotton garments wherein he has noted there is wide variation in margins. CIT(A) has rightly found no basis with the AO for making GP addition @ 2%, which is purely adhoc. No reason to interfere in the order of the ld.CIT(A) deleting the GP addition - Decided against revenue.

Summary

Issues involved:
The judgment involves the issue of appeal filed by the Revenue against the order of the ld. Commissioner of Income-Tax (Appeals) pertaining to Assessment Year 2013-14. The main contention is the deletion of addition made on account of low gross profit.

Details of the Judgment:

Issue 1: Recalling of appeal and non-appearance of assessee
The appeal of the Revenue was initially dismissed due to low tax effect but was later recalled based on the exception clause in the CBDT circular, as prosecution under section 276C of the Act was launched against the assessee. Despite multiple opportunities given for defense, the assessee or their representative did not appear, leading to an ex parte adjudication of the appeal by the Tribunal.

Issue 2: Deletion of addition on account of low gross profit
The Revenue contested the deletion of the addition made on account of low gross profit amounting to Rs. 98,66,323. The AO had rejected the books of the assessee and made the addition based on discrepancies in the calculation of gross profit. However, the ld.CIT(A) found merit in the assessee's explanation, noting that the fall in GP ratio was due to business circumstances and no specific defect was pointed out in the books of the assessee. The Tribunal agreed with the ld.CIT(A) that the addition made by the AO was adhoc and lacked a proper basis, leading to the dismissal of the Revenue's appeal.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, upholding the decision of the ld.CIT(A) to delete the addition made on account of low gross profit. The judgment was pronounced in the Court on 9th June, 2023 at Ahmedabad.