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2017 (2) TMI 999 - AT - Income TaxDisallowance of 20% of the purchases and 10% of labour charges - assessee has not produced books of accounts, cash book, bills, vouchers, stock register etc though specifically called for - CIT (Appeals) restricted the gross profit to 10% and no separate additions were made towards purchases and labour charges on account of non production of details - Held that - No infirmity in estimating the gross profit by the Ld. CIT (Appeals) concluding that there is short disclosure of profit to the extent of ₹ 11,38,320/- which is liable to be assessed in the hands of the assessee on account of low GP, non production of books of accounts and absence of verification of purchase bills and vouchers of labour expenditure. Since the GP percentage have been applied which takes care of direct cost on purchases as well as labour expenses, no separate adhoc addition for purchases and labour expenses are required. As we observe that there is a wide gap in gross profit percentage declared by the assessee during the assessment years 2006-07 and 2009-10, therefore, the average gross profit rate arrived by the Ld. CIT (Appeals) at 12% and further reduction of 2% granted for fall in profits due to competitive prices for increasing the turnover may not be sufficient. Therefore, we are of the view that a further reduction of 2% should be allowed to the assessee. Therefore, we direct the assessing officer to estimate the gross profit at 8% on the turnover and recompute the income accordingly. We make it clear that there should not be any adhoc disallowance towards purchases and labour charges separately. - Decided party in favour of assessee
Issues Involved:
Assessment of disallowed purchases and labour charges based on non-production of required documents by the assessee. Estimation of gross profit by the Ld. CIT (Appeals) and subsequent reduction for competitive prices. Determination of further reduction in gross profit percentage. Adhoc disallowance towards purchases and labour charges. Analysis: Issue 1: Assessment of Disallowed Purchases and Labour Charges The assessing officer disallowed 20% of purchases and 10% of labour charges due to the assessee's failure to produce essential documents. The Ld. CIT (Appeals) considered the submissions but estimated the addition based on the average gross profit, reducing it by 2% for possible profit fall due to competitive prices. The Ld. DR supported this approach, emphasizing the lack of information provided by the assessee. Issue 2: Estimation of Gross Profit The Ld. CIT (Appeals) based the gross profit estimation on past years' performance, noting a substantial fall in gross profit percentage. The Ld. CIT (Appeals) rejected the book results due to missing documents and made a best judgment assessment. The average gross profit of 12% was further reduced by 2% for competitive prices, resulting in a 10% gross profit rate. This adjustment led to a short disclosure of profit, requiring an assessment of the additional amount. Issue 3: Determination of Further Reduction in Gross Profit Percentage Upon review, the Tribunal found the reduction in gross profit percentage by the Ld. CIT (Appeals) insufficient. A further reduction of 2% was directed, leading to an 8% gross profit estimation on the turnover. The Tribunal emphasized no adhoc disallowance for purchases and labour charges separately, aligning with the overall assessment approach. Issue 4: Adhoc Disallowance Towards Purchases and Labour Charges The Tribunal partly allowed the assessee's appeal, adjusting the gross profit percentage and directing the assessing officer to recompute the income accordingly. The decision aimed to address the discrepancies in the gross profit estimation and ensure a fair assessment without additional adhoc disallowances for purchases and labour charges. This detailed analysis highlights the assessment process, gross profit estimation methodology, adjustments made by the Ld. CIT (Appeals), and the Tribunal's decision to further refine the gross profit percentage for a more accurate income computation.
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