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TMI Blog2017 (9) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the assessee had made profit. He has not pointed any other mistake in the books of account which were duly audited and produced before him. We, therefore, find merit in the argument for the assessee that merely because there is fall in the GP ratio, the Assessing Officer cannot reject the books of account and go for estimation of profit. - Decided against revenue - ITA No.4197/Del/2014 - - - Dated:- 30-8-2017 - SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Department : Shri R. C. Danday, Sr. DR For The Assessee : Shri Sanjiv Sapra, FCA ORDER PER R. K. PANDA, AM : This appeal filed by the Revenue is directed against the order dated 08.05.2014 passed by the CIT(A)-V, New Delhi relating to assessment year 2010-11. 2. The only effective ground raised by the Revenue reads as under :- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of ₹ 41,47,663/- made by the AO by estimating gross profit when the GP declared was very much below the GP rate returned in earlier three years and the random checking of sample from each month revealed much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elected items and found that the average GP is 39.29%. He, therefore, asked the assessee to explain as to why the book results should not be rejected u/s 145 of the I.T. Act and GP rate of 30% should not be adopted. The assessee vide its reply dated 27.02.2013 submitted that the books of account were audited and no defect had been pointed out by the auditor. Further, there was stiff competition in market during the year. The assessee gave complete stock details and submitted that GP cannot be adopted on the basis of samples selected giving high profit margin and ignoring the loss making items. However, the Assessing Officer did not accept the above contention of the assessee and adopted 30% GP for the current year and consequentially made addition of ₹ 41,47,663/- to the total income of the assessee. 6. Before the CIT(A), the assessee reiterated the same arguments as made before the Assessing Officer. It was argued that the assessee maintains books of account which were audited and the Assessing Officer has not found any defect or discrepancy in the books of account. It was submitted that the assessee has furnished month-wise complete details of quantity and value of openi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected few samples of sales ( which constitute 3% of the total sales) from the stock register submitted by the assessee and has worked out the profit margin which has been extrapolated to the remaining sales. This approach of the AO is incorrect as profit margin cannot be derived from few samples. The profit margin may well differ from item to item as evident also from the samples selected by the Assessing Officer. The income is assessed for full assessment year hence all sales have to be considered to arrive at profit margin. The lower profit margin for the year under appeal or higher margin on selected samples cannot be reasons for rejecting books of account and estimating average profit at average gross profit of last three years or at average profit of selected samples of sales for the current assessment year. Additionally, I have observed from the assessment order that the AO has also not categorically rejected books of account of the assessee under section 145 of the Income Tax Act, 1961 before estimating profit @ 30% though he had issued show cause notice to do so. Thus placing reliance on the proposition laid down in the case laws cited by the appellant in ITO V GIRISH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding the decisions relied on by the assessee before the ld. CIT(A), he submitted that there is no justification for estimating the GP by the Assessing Officer. He submitted that the ld. CIT(A) has correctly deleted the addition. He accordingly submitted that the order of the CIT(A) be upheld and the ground raised by the Revenue should be dismissed. 12. Ld. DR in his rejoinder submitted that the various arguments made by ld. counsel for the assessee were not properly appreciated by the CIT(A). Therefore, matter may be restored to the file of the Assessing Officer for fresh adjudication. 13. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer on the basis of low GP rate declared by the assessee in the current year as compared to the average GP rate of 30% for the three preceding years rejected the book results and estimated the GP rate at 30% of the turnover and made addition of ₹ 41,47,663/-. We find the ld. CIT(A) deleted such addition made by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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