2013 (2) TMI 421 - HC - Income Tax

Addition on account of low gross profit - Assessee filed its income by declaring the total income at Rs.32,69,385/-. On scrutiny assessment was finalized with addition of Rs.29,19,650/- on account of low gross profit Held that - There was drastic fall in the gross profit as compared to the previous years - this happened on account of increase in production cost and marginal increase in sale price of cloths Further Tribunal relied upon the orders of other persons in the group of the assessee firm where identical issue had arisen for its consideration and where it reduced the addition to 60% - In absence of any possibility of verification in connection with purchases, sales, consumption of material, it sustained the addition only upto 60% - The issue is purely factual in nature - There is hardly any question of law- Case dismissed. .

Summary

Issues:
Challenge to assessment order regarding low gross profit addition.

Analysis:
The Tax Appeal arose from the Tribunal's order regarding the assessment of the assessee engaged in the business of manufacturing and selling art silk cloth and yarn. The assessee declared total income at Rs.32,69,385 for the assessment year 2003-04, but the assessment finalized income at Rs.61,89,040 by adding Rs.29,19,650 on account of low gross profit. The CIT(Appeals) confirmed this amount, and the Tribunal later confirmed 60% of the addition. The appeal raised questions regarding the reduction of the addition, application of previous tribunal orders, and the reversal of the CIT(A) order without proper reasons.

The central issue revolved around the addition made by the Assessing Officer based on a drastic fall in gross profit compared to previous years. The assessee attributed this to increased production costs and slight sales price increments, but the Assessing Officer rejected the books of accounts and added Rs.29,19,650 based on an average gross profit of 16.79%. The Tribunal, considering similar cases in the assessee's group, reduced the addition to 60% due to various factors like post-survey gross profit fall and raw material price fluctuations. However, due to the inability to verify purchases, sales, and material consumption, the Tribunal limited the addition to 60%.

The issue was deemed factual, with the Tribunal providing sound reasoning for the 60% addition to the assessee's income. Both adjudicating authorities upheld a substantial addition based on gross profit, with the Tribunal sustaining 60% of the Assessing Officer's addition. As no substantial question of law arose, the appeal was dismissed.