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2012 (2) TMI 64 - AT - Income TaxTrading addition CIT determined Net Profit @ 10.5 % against 12.5% determined by A.O - dis-allowance u/s 40A(3) & Section 37 by A.O. deleted by CIT assessee contesting for determination of net profit @ 10% - Held that - Once net profit rate has been applied, no other addition is warranted in the profit & loss account as held in the case of CIT Vs. Banwari Lal Bansidhar(1997 - TMI - 17366 - Allahabad High Court). Order of the CIT(A) in deleting the addition made u/s 40A(3) & 37 is confirmed in this regard Decided against the Revenue. Regarding trading addition sustained by the CIT (A) by applying net profit rate at 10.5%, we find that the provisions of section 145(3) are applicable as certain defects were there. The assessee itself has shown net profit rate at 10%. The A.O. applied net profit rate at 12.5% which has been reduced to 10.5% by the CIT (A). We see no unreasonableness in the order of the CIT (A) Decided against the assessee.
Issues:
1. Appeal against the order of CIT (A) relating to assessment year 2002-03. 2. Objection to net profit rate of 10.5% instead of 10% declared by the assessee. 3. Deletion of additions made under section 40A(3) and u/s 37(1). 4. Application of net profit rate @ 10.5%. Analysis: 1. The appeal filed by the Revenue and two C.Os by the assessee are directed against the order of the CIT (A) for assessment year 2002-03. The assessee objected to the net profit rate of 10.5% against the declared 10%. One C.O. was dismissed as a mistake, leaving one C.O. for consideration. 2. The AO rejected the books of account due to defects and applied a net profit rate of 12.5% instead of the declared 10%. This resulted in total income assessed at Rs.21,98,100/- compared to the declared Rs.9,49,560/-. The CIT (A) reduced the net profit rate to 10.5% and deleted the disallowances made under section 40A(3) and u/s 37(1) based on the trading addition. 3. The department appealed against the deletion of additions under section 40A(3) and u/s 37(1), while the assessee objected to the application of net profit rate @ 10.5%. The Tribunal found that previous decisions supported the deletion of these additions and upheld the CIT (A)'s order, citing the principle that once a net profit rate is applied, no other addition is warranted. 4. Regarding the trading addition, the Tribunal found the application of net profit rate at 10.5% justifiable under section 145(3) of the Act, considering defects in the accounts. The Tribunal referenced a similar case where a net profit rate of 8.5% was confirmed. Therefore, the order of the CIT (A) to apply a net profit rate of 10.5% was upheld. In conclusion, the appeal of the Department and C.Os of the assessee were dismissed, confirming the CIT (A)'s orders on the issues of additions under section 40A(3) and u/s 37(1), as well as the application of net profit rate at 10.5%.
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