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Issues Involved
1. Gross profit rate discrepancy 2. Inter-transfer of goods 3. Verifiability of sales 4. Disallowance of bad debts Detailed Analysis 1. Gross Profit Rate Discrepancy The assessee, a firm dealing in trucks and spare parts, disclosed sales of Rs. 17,12,123 with a gross profit of Rs. 1,02,473 (6%) for the assessment year 1980-81. In the preceding year, the sales were Rs. 6,64,186 with a gross profit of Rs. 1,22,250 (18%). The Income Tax Officer (ITO) questioned the significant decline in the gross profit rate despite increased sales. The assessee explained that increased purchases forced by their principal, M/s Tata Engineering & Locomotives Co. Ltd., necessitated a lower profit margin to boost sales and reduce stock-in-hand. 2. Inter-Transfer of Goods The ITO noted considerable transfers of goods worth Rs. 10,50,895 from branches to the Head Office. The assessee cited shortage of storage space and the need for quick turnover to avoid losses. The ITO scrutinized the sales and found discrepancies in the sales vouchers, including unsigned bills and the absence of dispatch challans. The ITO inferred that the assessee might be covering up premium sales out of books. 3. Verifiability of Sales The ITO and Inspecting Assistant Commissioner (IAC) found the sales to M/s Somani Enterprises and other dealers unverifiable. The IAC noted that the gross profit rate in Delhi was only 1.64%, compared to 12.7% in Sriganganagar. The ITO and IAC observed that the Delhi sales were likely at a premium, as evidenced by advance payments from dealers like M/s Somani Enterprises. The IAC suggested a reasonable gross profit rate of 16% for Delhi sales, leading to an addition of Rs. 86,720 to the assessee's trading results. The CIT (A) examined the evidence and upheld the rejection of the book results due to unverifiable sales and stock accounting issues. The CIT (A) applied a gross profit rate of 6% for Delhi sales, leading to a reduced trading addition of Rs. 5,000, providing the assessee relief of Rs. 36,720. 4. Disallowance of Bad Debts The CIT (A) disallowed the assessee's claim for bad debts amounting to Rs. 12,423 due to a lack of evidence. The CIT (A) noted that the assessee failed to produce relevant evidence before both the lower authorities and the appellate tribunal. Consequently, the disallowance was sustained. Conclusion The appellate tribunal upheld the CIT (A)'s order, agreeing that the account books and sales were not fully verifiable. The tribunal found no merit in the grievances of either the assessee or the Revenue. The tribunal also ignored new evidence submitted by the assessee post-CIT (A) decision, as no application under Rule 29 of the IT Tribunal Rules was made. Both appeals, by the assessee and the Department, were rejected.
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