1978 (10) TMI 61 - AT - Income Tax

Summary

Issues:
1. Whether the purchases of yarn by the assessee are genuine.
2. Whether the Gross Profit (G.P.) shown by the assessee is satisfactory.

Detailed Analysis:

1. The issue regarding the genuineness of the yarn purchases by the assessee was the primary concern in this case. The Income Tax Officer (ITO) raised doubts about the purchases made by the assessee from six different parties, suspecting the authenticity of the transactions. The ITO, after conducting inquiries and examining witnesses, concluded that only one purchase from Shakti Trading Co. was genuine, amounting to Rs. 7,105. For the remaining purchases totaling Rs. 27,453, the ITO added this amount to the assessee's income, as three parties could not be served with summons and two individuals denied any transaction with the assessee. The Appellate Assistant Commissioner (AAC) reduced the addition to Rs. 2,750, stating that the ITO erred in disallowing the entire purchase price paid for the yarn and restricted the addition to 10% of the amount.

2. The second issue revolved around the Gross Profit (G.P.) shown by the assessee, which the ITO found unsatisfactory. The ITO invoked the proviso to section 145 of the Income Tax Act, indicating discrepancies in the G.P. The ITO also highlighted concerns about the lack of proper accounts, absence of day-to-day consumption records, and doubts regarding the genuineness of transactions with certain parties. However, the Tribunal disagreed with the ITO's assessment, finding the G.P. of 8% reasonable considering the increased labor charges from 14 NP to 34 NP per meter. The Tribunal also noted the satisfactory production levels for the year under consideration and compared the G.P. figures from previous years, where similar percentages were accepted. Ultimately, the Tribunal concluded that there was no justification for making an addition based on the G.P. shown by the assessee.

In conclusion, the Tribunal partially allowed the Department's appeal, upholding the addition of Rs. 3,450 for one specific transaction while rejecting the additions related to other parties based on the lack of evidence and inability to serve summons. The Tribunal also found the G.P. shown by the assessee to be reasonable, considering the increased labor charges and satisfactory production levels.