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2015 (3) TMI 923 - AT - Income TaxEstimation of gross profit on sale of almonds - assessee is aggrieved by the decision of Ld CIT(A) in enhancing the income by peak credit amount of ₹ 45,01,668/- and also in confirming the gross profit addition by ₹ 1,13,69,590/- - Held that - There is merit in the contentions of the assessee. Before us, the assessee has furnished the order of assessment of tax made under MVAT Act (Value added Tax - Sales tax). We notice that the commercial tax authorities have accepted the turnover reported by the assessee. When the authorities who are mainly concerned with the amount of turnover/ sales have accepted, then, prima facie, the accounts appear to be correct. AO has applied the average gross profit rate of 16.05% on the entire cost of purchase of almonds. However, the Ld CIT(A) has noticed that the assessee has incurred loss only on the purchases made to the extent of ₹ 14.21 crores. Thus, the remaining sales have been made above the purchase cost. Hence, the Ld CIT(A) has taken the view that the estimated gross profit rate should be applied only the above said purchases of ₹ 14.21 crores. In our opinion, this approach of the Ld CIT(A) appears to be reasonable one., i.e., when the AO is suspecting about the claim of loss on sale of almonds, there is no reason to disturb the sales made with profit. Hence, in our view, the AO was not justified in applying the gross profit rate on entire cost of purchase of almonds and to that extent the view of the Ld CIT(A) stands justified. - Decided in favour of assessee. Rejection of books of accounts - Held that - AO has completely failed to disprove the claim of the assessee that it has to sell almonds at lower than the cost rate due to substandard quality. Under these set of facts, in our view, the AO has proceeded to reject the book results only on the basis of surmises and conjectures. It is a well settled proposition that the suspicion, howsoever strong it may be, cannot justify the action of the assessing officer. Hence, in our view, there is no enough material on record to warrant or justify the action of rejection of book results. Accordingly we are of the view that the Ld CIT(A) was not justified in upholding the action of rejection of book results.- Decided in favour of assessee. The view expressed by the AO on application of sec. 40A(2)(b), in our view, was not correct, since the assessing officer has not proved by way of any material that the purchase price paid by the assessee in excess of market rates.Since, we have set aside the decision of the tax authorities on rejection of book results, the consequent estimate of gross profit is also liable to rejected. Accordingly, we set aside the order of the Ld CIT(A) on the issue relating to addition of gross profit and direct the AO to delete the addition made on account of difference in Gross profit/sales amount. - Decided in favour of assessee. Assessment of peak credit balance in the bank accounts - Held that - We have earlier noticed that the AO did not make any addition on this account, since he has accepted that the said deposits have been made out of cash sales only. We notice that the Ld CIT(A) has also accepted the said fact, but he has entertained the view that the assessee has made certain gains in routing the cash sales proceeds through the bank account. We have earlier noticed that the sales effected in cash was shown as credit sales in the books of account. The cash realized on making the cash sales was deposited into the bank accounts of other persons and cheques were received. Those cheques were credited against the debtors. In our view, the above said procedure would not give rise to any gain as assumed by the Ld CIT(A). Accordingly, we are of the view that there is no justification in treating the peak credit of bank accounts as income of the assessee. Accordingly we set aside the order of Ld CIT(A) on this issue. - Decided in favour of assessee.
Issues Involved:
1. Estimation of Gross Profit on Sale of Almonds 2. Rejection of Book Results 3. Assessment of Peak Credit Balance in Bank Accounts Detailed Analysis: 1. Estimation of Gross Profit on Sale of Almonds: The primary issue in these appeals is the estimation of gross profit on the sale of almonds. The assessee, engaged in the business of importing and dealing in chemicals and almonds, reported a gross loss on the sale of almonds. The Assessing Officer (AO) computed the gross profit on the sale of chemicals at 27.71% and 27.20%, respectively, and inferred that the gross loss on almonds was unacceptable. The AO noted that the sales of almonds were made to unidentifiable parties at very low rates, suggesting the sales were not genuine. Consequently, the AO estimated the gross profit on almonds at 16.05% and reworked the gross sales, resulting in an addition of Rs. 7.33 crores to the assessee's income. The assessee contended that the AO's estimation was based on a few sale bills and did not consider the perishable nature of almonds, market conditions, and the inherent risks in handling and transporting almonds. The assessee also argued that the AO's approach was inconsistent, as he accepted the purchase prices while disputing the selling prices. The CIT(A) partially accepted the assessee's arguments, noting that the gross profit rate should not be uniformly applied across all sales. Instead, the CIT(A) estimated an 8% gross profit on purchases sold at a loss, resulting in an addition of Rs. 1,13,69,590/- along with the peak credit of Rs. 45,01,668/-. Upon review, the tribunal found merit in the assessee's contentions. It noted that the AO's rejection of the book results was based on conjectures without disproving the assessee's claims about the perishable nature of almonds and other factors affecting their sale. The tribunal concluded that the AO's estimation of gross profit was not justified and directed the deletion of the addition made on account of the difference in gross profit. 2. Rejection of Book Results: The AO rejected the book results, suspecting that the sales made at below-cost prices were incorrect. However, the tribunal observed that the AO did not bring any material evidence to disprove the book results or the assessee's claims about the factors affecting the sale of almonds. The tribunal emphasized that the AO's rejection of book results was based on surmises and conjectures, which is not permissible. Consequently, the tribunal set aside the CIT(A)'s decision to uphold the rejection of book results. 3. Assessment of Peak Credit Balance in Bank Accounts: The AO initially did not make any addition regarding the peak credit balance in the bank accounts, accepting the assessee's explanation that the deposits were from cash sales. However, the CIT(A) assessed the peak credit of Rs. 45,01,668/- as the assessee's income, suggesting that the assessee gained by routing cash sales through bank accounts. The tribunal disagreed with the CIT(A)'s view, noting that the procedure adopted by the assessee (depositing cash sales into bank accounts and receiving cheques) did not result in any gain. The tribunal found no justification for treating the peak credit as income and directed the deletion of this addition. Conclusion: In conclusion, the tribunal allowed the assessee's appeals and dismissed the revenue's appeals. It directed the deletion of the additions made on account of the difference in gross profit and the peak credit balance in bank accounts for both assessment years 2009-10 and 2010-11.
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