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2012 (2) TMI 154 - AT - Income TaxCalculation of Profit - CIT relied on GP rate - Assessee carrying other business - - Books of account rejected - After considering additional income GP rate comes to 17.5% - Held That - Once the books of accounts of the assessee are rejected and a flat rate of GP is to be applied, some element of estimate is inevitable. In this case, there is no material on record to suggest that the GP rate of 17.5% was not justified. Unexplained Investments in sales outside the books - Held That - During the course of search no unaccounted sale bills, purchase bills and unaccounted value of debtors or creditors were found which could suggest that unaccounted working capital was utilised by the assessee for carrying out unaccounted turnover. - Thus CIT(A) rightly deleted the additions.
Issues:
1. Addition of Rs.1,15,000 on account of low GP rate for A.Y. 2004-2005. 2. Addition of Rs.52,54,143 on account of unexplained investment in sales outside the books of accounts for A.Y. 2004-2005. 3. Confirmation of addition of Rs.19,826 under section 37(1) of the Act for A.Y. 2004-2005. 4. Addition of Rs.85,000 on account of low GP rate for A.Y. 2005-2006. 5. Addition of Rs.13,72,733 on account of sales of finished goods outside the books of accounts for A.Y. 2005-2006. Analysis: Issue 1 - A.Y. 2004-2005 - Addition of Rs.1,15,000 on account of low GP rate: The Revenue contended that the assessee avoided statutory taxes by carrying out business outside the books, resulting in a higher GP. However, the CIT(A) deleted the addition, stating it was based on estimate only. The ITAT found that the difference in GP rates was marginal (0.5%) and held that the GP rate offered by the assessee was justified after considering additional income offered. The order of the CIT(A) was confirmed, and the Revenue's appeal was dismissed. Issue 2 - A.Y. 2004-2005 - Addition of Rs.52,54,143 on account of unexplained investment in sales outside the books of accounts: The Revenue claimed unexplained investment based on a ratio of total sales, but the CIT(A) deleted the addition, citing lack of supporting evidence. The ITAT upheld the CIT(A)'s decision, noting the absence of material suggesting initial working capital for unaccounted sales. The decision was supported by a case law, and the addition was deemed to be made on guesswork. The Revenue's appeal was dismissed. Issue 3 - A.Y. 2004-2005 - Confirmation of addition of Rs.19,826 under section 37(1) of the Act: The CIT(A) confirmed the addition under section 37(1) of the Act, which the assessee challenged in the CO. However, the grounds were not pressed by the assessee's counsel, leading to their dismissal. Issue 4 - A.Y. 2005-2006 - Addition of Rs.85,000 on account of low GP rate: Similar to the A.Y. 2004-2005 issue, the Revenue claimed an addition due to low GP rate, but the ITAT dismissed the ground, following the decision made for the previous assessment year. Issue 5 - A.Y. 2005-2006 - Addition of Rs.13,72,733 on account of sales of finished goods outside the books of accounts: The Revenue sought an addition for sales outside the books due to a shortage of raw material found during a search. However, the ITAT dismissed the addition, citing a lack of dispute regarding stock, purchases, and sales recorded by the assessee. The decision was supported by a previous case, and the addition was deemed to be made on presumption only. The Revenue's appeal was dismissed. In conclusion, all appeals by the Revenue for both assessment years and the CO by the assessee for A.Y. 2004-2005 were dismissed based on the findings and decisions of the ITAT, Ahmedabad.
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