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TMI Blog2013 (11) TMI 1797X X X X Extracts X X X X X X X X Extracts X X X X ..... G.P chart of three years are as under: A.Y. Turnover Gross Profit GP rate (in %) 2009-10 43,34,24,620/- 59343513 13.69% 2010-11 (year under consideration) 57,39,56,743 (excluding disclosure) 42625902 (excluding disclosure) 7.43% Declared G.P. rate during the year under question is much lower side in comparison to immediately preceding year. Reason of low G.P. was asked from the assessee and he replied that the assessee has prepared separate trading accounts for each activity and during the year G.P. ratio has come down in each division. He further argued that the cost of goods sold has increased disproportionately as compare to the average sale realisation and he also furnish comparative statement of purchase price and sale price of the major items where sale realisation has been decreased and purchase price has increase in comparison to last year. He further stated that in the pre search period the G.P. ratio comes to 5.88% and in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 512 11.06 13.67 21.05 1.74 - - 7.43 From the above, the AO observed that in A.Y.2009-10 there was machinery trading turnover is Rs.85,00,000/- which is not in the current year. Similarly, cloth trading turnover is also drastically reduced in A.Y.2010-1 to Rs.9,50,477/- from Rs.1.36 crores in A.Y.2009-10 and GP also increases in A.Y.2010-11. So for better comparison of last year data it is to justify to reduce such turnover and their respective gross profit and then to compare this data. After considering this facts, comparative figures are also under: A.Y. Total turnover (excluding machinery and cloth trading turnover) Total gross profit (excluding machinery and cloth trading turnover) GP % 2009-10 394321591 52853870 13.40 2010-11 559355825 42425806 7.58 From the above table it can be seen that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptable because on one hand the CIT(A) sustained the action of the A.O. applying provision of section 145(3) and other hand he deleted the entire addition made by the A.O. Hence, both the facts are contradictory to each other. Even the A.O. has considered reply of the assessee on the issue of machinery sales and after excluding said machinery sales and the cloth trading business (in which G.P.rate is same in this year and last year) he make G.P rate comparison of both years and he found that G.P. rate during the year under question comes to 7.58% as against 1340% declared in immediately preceding years. While deciding the appeal said comparison is totally ignored and he did not giving any working on the basis of which the CIT(A) came to the conclusion that cost of the material has been increased in comparison to last year which adversely affected the G.P. rate for the year under question. 4. Before us, the learned DR supported the order of the AO, whereas, the learned AR of the assessee fully justified the order of the CIT(A). 5. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the AO rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period. The unit wise G.P. working has been filed by applying G.P. rate of assessment year 2009-10 which is more than the average G.P. rate of 10.49% applied by the Assessing Officer. The appellant has made disclosure of Rs.2,09,67,770/- during the search and the same has been offered in the return of income for taxation. The fall in G.P. by applying earlier year's G.P. rate comes to Rs.227.45 lacs as against the disclosure of additional income of Rs.209.68 lacs. The fall in G.P. of Rs.17.77 lacs, the appellant ahs filed working of increase in purchase prices of various items in the assessment year 2010-11 in comparison to A.Y.2009-10. The increase in purchase price comes to Rs.90,63,202/- on total purchases of Rs.13.58 crores in A.Y.2010-11. Similarly, the appellant has decrease in purchase rate in various items which has positive effect on gross profit. The total decrease in purchase value conies to Rs.61,95,227/- on total purchase of Rs.10.67 crores in A.Y.2010-11. So, the net negative effect on G.P. comes to Rs.28,67,975/- [Rs.90,63,020 - Rs.61,95,227] which is more than the balance fall in G.P. of Rs,.17.77 lacs. In view of the above factual position of disclosure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. I n view of the above facts and the circumstances of the case and the working submitted by the appellant, it is held that the Assessing Officer was not justified in making the addition of Rs.1,62,77,255/- by estimating G.P. rate at 10.49% and by further applying the ratio laid down in the case of M/s.Whiteline Chemicals vs ITO. Thus, the addition of Rs.1,62,77,255/- is accordingly deleted. 7. No specific error in the order of the learned CIT(A) could be pointed out by the learned DR. The Revenue in the statement of facts quoted above in this order, pointed out that in pre-search period the GP ratio comes to 5.88% and in the case of post-search period the GP ratio comes to 13.24% as compared to the GP ratio of 13.82% for the full year pertaining to last year. The learned CIT(A) observed that low GP ratio during pre-search period is covered by the disclosure of ₹ 2.10 crores made during the course of search and inspite of slight decline in the GP rate in the postsearch period compared to the last year, the CIT(A) found that proportionate increase in the cost of raw material was more than the proportionate increase in the sale price, and therefore, slight decline w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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