INCOME TAX ACT, 1961

Section 145(1) Section 145(3)

Acounting method - Rejection - Estimation of GP rate -

Trading addition was made by AO adopting GP rate at 12% as against the GP rate of 11.06% declared by the assessee. The assessee had submitted that during the financial year the assessee had declared GP rate of 11.06% which was better than the GP rate of 10.79% declared in the last year. He had thus contended that the rejection of books of account would not ipso facto result in addition if the assessee had declared a better result or in line with the past history of GP declared by the assessee.Held: There was no dispute that after rejecting the books of account under section 145(3) the income of the assessee was required to be estimated on some reasonable and proper basis. The past history of GP declared by the assessee was a proper guidance for estimation of income in pursuant to the rejection of books of account. In the present case, the assessee had declared GP at 11.06%. The assessee had also furnished comparative details of GP declared for preceding years including current year. Even if taking the average of preceding two years which comes to 11.05%, the GP declared by the assessee at 11.06% cannot be said to be at the lower side or any significant decline in GP. When the assessee had declared the GP in line with the past history of the assessee which had attained the finality, the adoption of GP rate by the AO without any basis therefore, cannot be accepted. The trading addition made by the AO was thus, deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2010-11 to 2012-13

INCOME TAX ACT, 1961

Section 37(1)

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