2008 (4) TMI 355 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of addition of Rs. 42,94,482 by CIT(A) based on GP estimation @ 30% for purchases from Picker International.
2. Non-consideration of 35.93% GP rate for CT accessories by CIT(A).

Summary:

Issue 1: Confirmation of Addition Based on GP Estimation @ 30%

The assessee filed a return declaring income of Rs. 25,58,891, but the AO assessed the total income at Rs. 2,73,06,237, making additions under s. 92 of the IT Act, 1961. The AO added Rs. 2,02,34,946 on account of GPs of the assessee's business, citing a close connection between the assessee and Picker International (PI). The AO compared the GP rates of the assessee's products and found discrepancies, particularly noting a GP rate of 5.8% for CT scanners and 35.93% for CT accessories. The AO used a 30% GP rate from a comparable case, M/s Bentley Venture One LLC, to justify the addition. The CIT(A) reduced the addition to Rs. 42,04,482 but upheld the application of a 30% GP rate for purchases from PI.

Issue 2: Non-Consideration of 35.93% GP Rate for CT Accessories

The assessee argued that the average GP rate for products from PI was 19.86%, not 9.09% as adopted by the AO. The assessee contended that the AO did not provide an opportunity to explain the difference in GP rates and that the comparison with M/s Bentley Venture One LLC was inappropriate. The CIT(A) confirmed the addition but provided relief by reducing the amount. The Tribunal found that the AO did not establish what constituted 'ordinary profits' in the assessee's line of business and failed to provide comparable data from relevant competitors. The Tribunal held that the addition based on a 30% GP rate was unjustified and accepted the profit as disclosed by the assessee.

Conclusion:

The Tribunal concluded that the AO and CIT(A) did not have sufficient grounds to apply a 30% GP rate and make the disputed addition. The appeal of the assessee was allowed, and the profit as disclosed by the assessee was accepted.