2015 (4) TMI 973 - AT - Income Tax

Addition on account of concealment of income - Rejection of books of account - AO observed Variation in the rates of bullion in a single day - Estimated the profit @ 0.5% of the total turnover of pure gold - Held that - We find that the average gross profit as a percentage of turnover of Pure Gold was less than 0.098% as returned by the assessee for the current A.Y except for the assessment year 2008-09 where the gross profit return was 0.1%. In view of the consistent profitability of the assessee is less than the percentage offered for this year (except for a marginal increase in the AY 2008-09), no specific circumstances was brought to our notice by the Revenue for adopting a higher rate of gross profit as adopted by the AO or the CIT (A). Therefore, we allow the cross objection filed by the assessee and dismiss the appeal of the Revenue. - Decided in favour of assessee.

Issues Involved:
1. Delay in filing the cross objection by the assessee.
2. Rejection of books of account by the Assessing Officer (AO).
3. Estimation of gross profit by the AO.
4. Admission of additional evidence by the CIT(A).
5. Reduction of profit margin by the CIT(A).
6. Comparison of gross profit ratios over the years.

Detailed Analysis:

1. Delay in Filing the Cross Objection:
The cross objection filed by the assessee was delayed by 234 days. The delay was attributed to several reasons, including the misplacement of the postal envelope, a heart attack suffered by the Chartered Accountant, and the frequent hospitalization of the assessee's mother. Considering these reasons, the tribunal condoned the delay and took up the cross objection for consideration along with the Revenue's appeal.

2. Rejection of Books of Account by the Assessing Officer (AO):
The assessee, engaged in trading pure gold and silver ornaments, had filed a return of income admitting a total income of Rs. 15,97,648. The AO observed discrepancies in the sales rates of pure gold, which varied within a single day. Despite the assessee's explanation that the bullion trade is volatile and rates change according to the international market, the AO found the explanation unsatisfactory. The AO noted that the assessee failed to provide detailed rate fluctuations and relied on a graph indicating international rate fluctuations. Consequently, the AO rejected the books of account and estimated the profit at 0.5% of the total turnover, resulting in an addition of Rs. 1,54,60,986 to the income.

3. Estimation of Gross Profit by the AO:
The AO estimated the gross profit at 0.5% of the total turnover of Rs. 309,21,97,256, resulting in a net addition of Rs. 1,24,22,672 after accounting for the already declared profit of Rs. 30,38,314. The AO's estimation was based on the rejection of the books of account due to discrepancies in the sales rates and the lack of detailed rate fluctuations provided by the assessee.

4. Admission of Additional Evidence by the CIT(A):
Before the CIT(A), the assessee filed a petition for the admission of additional evidence, including graphic details of rate fluctuations for the relevant period. The CIT(A) admitted the additional evidence and forwarded it to the AO for a remand report. The AO, in the remand report, maintained that the additional evidence did not corroborate the assessee's claims and reaffirmed the rejection of the books of account.

5. Reduction of Profit Margin by the CIT(A):
The CIT(A) observed that the assessee had a significant turnover and that the AO had valid reasons for rejecting the books of account. However, the CIT(A) noted that the margins in bullion trading are generally low and that the assessee's gross profit ratio was consistent over the years. The CIT(A) reduced the gross profit estimation from 0.5% to 0.2%, directing the AO to recompute the total income accordingly.

6. Comparison of Gross Profit Ratios Over the Years:
The assessee provided gross profit ratios for the years from AY 2007-08 to AY 2011-12, showing an average gross profit percentage of less than 0.098%, except for AY 2008-09, where it was 0.1%. The tribunal found that the consistent profitability of the assessee did not warrant a higher gross profit rate as adopted by the AO or the CIT(A).

Conclusion:
The tribunal allowed the cross objection filed by the assessee and dismissed the appeal of the Revenue. The decision to reduce the gross profit estimation to 0.2% by the CIT(A) was upheld, considering the consistent low margins in the bullion trade and the lack of specific circumstances justifying a higher rate. The appeal of the Revenue was dismissed, and the cross objection by the assessee was allowed.

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