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2014 (12) TMI 1418 - AT - Income TaxRejection of books of accounts - GP Estimation - AO estimated the G.P. at 12.34% on sales of dolomite and 10% G.P. on job work - On appeal the CIT(A) adopted G.P. @ 10% in respect of sale of dolomite and @ 8% in respect of job work. HELD THAT - It is true that G.P. rate cannot be uniform in all the years and it varies from year to year depending on several factors such as local market condition fluctuation in rates etc. It is also observed that the A.O. has not cited any comparable case while estimating G.P. in respect of sale of dolomite. As regards the job work undertaken by the assessee it is stated that this is the first year for the assessee to undertake this work and the AO failed to cite any comparable case while applying 10% G.P. on job work. It is seen that the ld. CIT(A) has sustained the addition of Rs. 3, 82, 023/- which appears to be on higher side particularly considering the facts and circumstances of the present case. Nature of the business carried out by the assessee we think it proper to restrict the addition on both counts.
Issues involved:
1. Rejection of audited report under section 44AB 2. Estimation of gross profit under section 144 3. Consideration of facts in the right perspective 4. Sustaining addition to returned income Analysis: Issue 1: Rejection of audited report under section 44AB The assessee's appeal was directed against the order of the ld. CIT(A) relating to A.Y. 2006-07, primarily challenging the rejection of the audited report under section 44AB. The appellant contended that the assessing officer (A.O.) erred in estimating the gross profit without considering the facts accurately, leading to the addition of a significant amount to the returned income. The appellant argued for the acceptance of the disclosed Gross Profit rate and the deletion of the additional amount imposed. Issue 2: Estimation of gross profit under section 144 The facts of the case revealed that the assessee was engaged in the business of mining and sale of dolomite chips, transportation, and handling work. The A.O. rejected the book results due to the absence of produced books of account and invoked section 145(3) of the Act. Consequently, the A.O. calculated the gross profit at a higher amount compared to the one declared by the assessee, resulting in a substantial addition to the returned income. On appeal, the ld. CIT(A) restricted the addition, emphasizing the necessity for the A.O. to conduct thorough enquiries and consider local market conditions before estimating the gross profit. Issue 3: Consideration of facts in the right perspective The appellate tribunal highlighted that the gross profit rate cannot be uniform across all years and varies based on factors such as local market conditions and rate fluctuations. It was noted that the A.O. did not provide any comparable cases while estimating the gross profit, raising concerns about the accuracy of the assessment. Additionally, the A.O. failed to consider the unique circumstances of the appellant undertaking job work for the first time, further emphasizing the need for a fair and honest estimation as per legal precedents. Issue 4: Sustaining addition to returned income After a detailed analysis of the case, the tribunal decided to partially allow the appeal, reducing the addition to the returned income from the initially imposed amount. The tribunal considered the peculiarities of the case and the nature of the business to arrive at a more reasonable addition, providing the appellant with significant relief. In conclusion, the judgment addressed the issues of audited report rejection, gross profit estimation, consideration of relevant facts, and the sustainability of the addition to the returned income, ultimately resulting in a partial allowance of the appeal with a reduced additional amount.
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