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2023 (9) TMI 1216 - AT - Income TaxGP estimation - non rejection of books of accounts - AO merely based on the comparison of previous year profit considered this year profit @ 4% - HELD THAT - As assessee has filed the detailed explanation for the difference in GP by submission dated 20.04.2022 and 08.08.2022 the same is neither discussed by the ld. AO nor by the ld. CIT(A) while dealing with the facts of the case. The books of accounts of the assessee is duly audited by an independent chartered accountant. The assessee in detailed explained the reason behind the fall in the profit rate. Even the quantitative details of the opening stock, purchases, sales and closing stock were given and the same is not disputed by the lower authorities. In spite of all these details placed on record and without finding fault on the record the action of the AO estimating the profit rate @ 4% and that too without rejecting the books of account is not in accordance with the law. Even the ld. CIT(A) has not given any finding on the merits of the case. For estimating the profit without rejecting the books the jurisdictional high court in the case of CIT Vs. Maharaja Shree Umaid Mills Ltd. 1991 (5) TMI 46 - RAJASTHAN HIGH COURT as held that question about the fall in gross profit rate cannot be looked into in this case because the Inspecting Assistant Commissioner has not rejected the books of accounts of the assessee and without making this as a base, it could not be said that the expenditure had been inflated, which is a question of fact and in view of the finding of the Commissioner which is confirmed by the tribunal, the same cannot be allowed. Assessee appeal allowed.
Issues Involved:
1. Jurisdiction and validity of additions and disallowances made under section 143(3). 2. Confirmation of trading addition due to low Gross Profit (GP) and Net Profit (NP). 3. Application of a higher NP rate by the Assessing Officer (AO). 4. Charging of interest under section 234D. Summary: Issue 1: Jurisdiction and Validity of Additions and Disallowances The assessee contested the additions and disallowances made in the order under section 143(3), claiming they were "bad in law and on facts of the case, for want of jurisdiction." The Tribunal noted that the appeal was delayed by 113 days, but condoned the delay, citing the Supreme Court's liberal approach in condoning delays to serve substantial justice (Collector, Land Acquisition vs. Mst. Katiji & Others, 167 ITR 471). Issue 2: Confirmation of Trading Addition Due to Low GP and NP The AO observed a significant reduction in GP and NP percentages compared to the previous year and applied an NP rate of 4% instead of the declared 1.75%. The assessee argued that the AO did not find any defects in the books of accounts, which were audited and maintained regularly. The Tribunal found that the AO made the addition without rejecting the books of accounts, which is contrary to the law. The Tribunal cited multiple precedents that emphasize the necessity of rejecting the books of accounts before making any additions (CIT vs. Maharaja Shree Umaid Mills Ltd., 192 ITR 565). Issue 3: Application of Higher NP Rate by AO The AO applied a higher NP rate of 4% based on the previous year's profit margin, without considering the detailed explanations provided by the assessee regarding the fall in profit rates. The Tribunal noted that the AO did not discuss these explanations in the assessment order and failed to find any fault with the books of accounts. The Tribunal held that estimating profit without rejecting the books of accounts is not permissible, aligning with the jurisdictional High Court's ruling in CIT vs. Maharaja Shree Umaid Mills Ltd., 192 ITR 565. Issue 4: Charging of Interest Under Section 234D The assessee denied liability for interest charged under section 234D, arguing it was contrary to the provisions of law. The Tribunal found this ground to be consequential and did not require separate adjudication. Conclusion: The Tribunal allowed the appeal, setting aside the additions and disallowances made by the AO and confirmed by the CIT(A). The Tribunal emphasized that without rejecting the books of accounts, no additions could be made, and the AO's application of a higher NP rate was unjustified. The order was pronounced in the open court on 24/08/2023.
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