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2023 (12) TMI 1042 - HC - Income TaxGP estimation - AO has determined the GP rate at 6% as against the disclosed GP rate of 4.6%, which was reduced by the CIT(A) to 5% - ITAT has further reduced it and made an ad hoc addition of Rs. 4,00,000/- to the Gross Profit - HELD THAT - No reason whatsoever has been assigned by the Tribunal to sustain the addition of Rs. 4,00,000/- in the GP rate of the assessee. Under the circumstances, the finding of the ITAT that ad hoc addition of Rs. 4,00,000/- to the disclosed GP rate of the assessee would be reasonable and fair, is based on no material. Even the Tribunal has not recorded any finding based on any material so as to disbelieve the GP rate disclosed by the assessee. Under the circumstances, the ad hoc addition made by the Tribunal to the GP of the assessee is wholly arbitrary and based on no evidence, consequently, it cannot be sustained. Therefore, the substantial question of law no. (i) is answered in favour of the assessee and against the revenue. Addition u/s 68 - transaction of sale of jewellery out of receipt of gift of jewellery - HELD THAT - The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is necessarily required to be based on proper appreciation of material and other attending circumstances available on record. The Assessing Officer has to form his opinion objectively with reference to the materials available on record and not merely on surmises and conjecture. Application of mind is a sine qua non for framing the opinion of the Assessing Officer. Since in the present set of facts the assessee has offered proper explanation based on documentary evidences and the evidences so filed by the assessee were not found to be in-genuine or fake, therefore, genuineness of the sale transaction of jewellery by the assessee could neither be disputed nor Section 68 could be invoked to make addition in the income of the assessee. The legal proposition with respect to applicability of Section 68 has also been settled by the Hon ble Supreme Court in Commissioner of Income Tax Vs. P. Mohanakala 2007 (5) TMI 192 - SUPREME COURT which also helps the assessee in the present set of facts. Therefore, the addition of Rs. 9,00,000/- upheld by the Tribunal cannot be sustained. Decided against the revenue.
Issues involved: The judgment involves issues related to the addition made under Section 68 of the Income Tax Act, 1961 and the Gross Profit Rate disclosed by the assessee.
Facts: The assessee, engaged in trading of commodities, received a gift of jewellery during the assessment year 2005-06. The assessing officer added the entire sale amount of jewellery to the assessee's income under Section 68. Another addition was made to the Gross Profit Rate disclosed by the assessee. Decision on GP Rate Addition: The Tribunal made an ad hoc addition to the Gross Profit of the assessee without providing any reason or material basis. The Court found this addition arbitrary and unsupported by evidence, thus setting it aside in favor of the assessee. Decision on Section 68 Addition: The Tribunal upheld the addition under Section 68, but the Court found that the assessee had provided proper explanation and evidence for the sale of jewellery, including receipt of payment by cheques. The Court noted that the assessing officer did not dispute the genuineness of the transaction or the party involved. As per legal precedent, the Court ruled that Section 68 could not be invoked in this case, and the addition was deemed arbitrary and set aside in favor of the assessee. Conclusion: The High Court of Calcutta set aside the impugned order of the Income Tax Appellate Tribunal and allowed the appeal of the appellant/assessee. Both substantial questions of law were answered in favor of the assessee, highlighting the lack of proper basis for the additions made by the assessing officer and the Tribunal.
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