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2020 (11) TMI 600 - AT - Income TaxRejection of books of accounts - GP estimation - CIT(A) to disregard their disclosed GP rate of 2.31% and GP rate of 1.80% respectively on their respective turnover and confirm GP of 3% on both their respective turnovers - HELD THAT - According to us, when the quantity of the paddy purchased and sold has not been disputed the AO could not have rejected the books of account only on the basis of surmises. We note that the assessee s accounts are audited and no discrepancies could be pointed out by the AO in both the cases. However, the assessee has not preferred any grounds of appeal. Estimation of profits in the first case the assessee has shown GP of 2.31% and in the second case the assessee has shown the GP of 1.8% in their respective accounts which are audited. Taking into consideration the contention of both the parties and since the revenue is not in appeal against the action of Ld. CIT(A), for the ends of justice, we direct the AO to compute the GP of both the assessee s at 2.5% of their respective turnovers. Thus, both the assessee s get partial relief.
Issues: Appeals against CIT(A) orders on GP rate discrepancy for AYs 2014-15.
Analysis: 1. Issue of GP Rate Discrepancy: The appeals were filed by two different assessee firms, a rice mill and a company, against the CIT(A)'s decision to disregard their disclosed GP rates of 2.31% and 1.80% on their respective turnovers and instead confirm a GP rate of 3% for both. The AO had initially made additions to the GP rates based on comparisons with industry standards from NABARD and other institutions, resulting in significant additional amounts being added to the turnovers of the assesses. 2. Facts of the Cases: In both cases, the AO rejected the books of account due to lack of details on purchases of paddy for cash. The AO then compared the GP rates with industry averages and made substantial additions to the turnovers of the assesses. The CIT(A) confirmed a GP rate of 3% after considering fifteen comparable cases, providing partial relief to the assesses. The assesses then appealed before the ITAT Kolkata. 3. ITAT's Analysis: The ITAT noted that the AO's rejection of books solely based on suspicions regarding cash purchases was unfounded, especially since the quantity of goods sold and purchased was not disputed. The ITAT observed that the assesses' audited accounts showed no discrepancies, and the AO's rejection of books was unjustified. The ITAT also considered the GP rates shown by the assesses (2.31% and 1.80%) and the industry standards cited by the AO (6.2% and 7%). After hearing both parties, the ITAT directed the AO to compute the GP rates at 2.5% for both assesses, providing them with partial relief and allowing their appeals partly. 4. Conclusion: The ITAT, in its judgment pronounced on 21st October 2020, partly allowed the appeals of the assesses, emphasizing the importance of considering audited accounts and justifying the estimation of GP rates based on factual grounds rather than mere assumptions or industry averages. This detailed analysis highlights the key aspects of the judgment, focusing on the issues raised by the assesses regarding the GP rate discrepancies and the ITAT's decision to provide partial relief based on a fair computation of GP rates.
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