INCOME TAX ACT, 1961

Section 145

Accounting Method - Addition being 5% of turnover - Inflation of expenses -

AO, while completing the assessment under section 143(3), made an observation that it was seen from financials submitted by assessee that profit declared for assessment year 2013-14 was 26.80% of total turnover; whereas, the same was declared at 19.82% for assessment year 2014-15, which according to AO, was by inflating the expenses. However, assessee was not able to give a convincing reply. Therefore, AO added 5% of the turnover over and above the income already declared. However, CIT(A) deleted the addition made by AO on appeal filed by assessee. Held: The order passed by AO was wholly erroneous in adopting 5%, pointing out that it was on higher side and directed AO to adopt 2.5%. A low gross profit rate could at best be a reason for making an enquiry, but it could not be a sole basis for making an addition. AO could not make addition merely by comparing the expenditure with preceding year's expenditure. Thus, CIT(A) had rightly deleted the addition.

Relied:Taparia Tools Ltd. v. Jt. CIT (2015) 372 ITR 605 (SC) : 2015 TaxPub(DT) 1438 (SC)Followed:<./i>Asstt. CIT. v. Ashima Syntex Limited. (2009) 310 ITR 1 (Adh) : 2009 TaxPub(DT) 946 (Adh-Trib)