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2021 (3) TMI 114 - AT - Income Tax


Issues Involved:
1. Validity of assessment order under section 144 due to improper service of notices.
2. Opportunity of being heard and ex parte order.
3. Consideration of remand report by CIT(A).
4. Rejection of books of accounts and application of a higher GP rate.
5. Trading addition made by AO and sustained by CIT(A).

Issue-wise Detailed Analysis:

1. Validity of Assessment Order under Section 144:
The assessee argued that the assessment order passed under section 144 was invalid due to improper service of notices under sections 142(1) and 142(2)/144. However, during the hearing, the assessee chose not to press this ground, leading to its dismissal as not pressed.

2. Opportunity of Being Heard and Ex Parte Order:
The assessee also did not press the ground related to the lack of an opportunity to be heard and the passing of the order ex parte. Consequently, this ground was dismissed as not pressed.

3. Consideration of Remand Report by CIT(A):
The CIT(A) admitted additional evidence under Rule 46A due to the assessment being ex parte. The AO, in the remand report, accepted the trading results and found the supporting documents satisfactory. However, the CIT(A) rejected the remand report, stating that the AO did not analyze the documents properly. The CIT(A) did not provide specific defects in the additional evidence or the remand report, leading to the conclusion that the rejection was unjustified.

4. Rejection of Books of Accounts and Application of a Higher GP Rate:
The AO rejected the books of accounts and applied a GP rate of 0.69% against the declared 0.38%, resulting in a trading addition of ?49,56,217. The CIT(A) upheld this rejection, citing discrepancies and the substantial increase in turnover. However, the Tribunal noted that the AO did not provide a rational basis for the higher GP rate, especially given the exceptional increase in turnover and the fall in cardamom prices. The Tribunal found the AO's estimation of the GP rate to be baseless.

5. Trading Addition Made by AO and Sustained by CIT(A):
The AO's trading addition was primarily based on unverified payments of duties and taxes and speculative losses. The Tribunal highlighted that once books are rejected, profits should be estimated based on best judgment, considering past results or comparative profits in similar trades. The Tribunal found no rational basis for the AO's estimation and noted that the speculative losses did not affect the trading results. Consequently, the Tribunal directed the deletion of the trading addition.

Conclusion:
The Tribunal concluded that the trading addition made by the AO and confirmed by the CIT(A) lacked a rational basis and directed its deletion. The appeal was partly allowed.

 

 

 

 

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