INCOME TAX ACT, 1961

Section 145(3)

Accounting method - Rejection - Estimation of GP -

Assessee had filed its return of income declaring loss which was processed under section 143(1). Subsequently, assessment was completed under section 147 read with section 143(3). As per the AO, the assessee had made bogus purchases of Rs. 50,79,735 as per the information gathered by investigation wing, Mumbai. Accordingly, the assessee's books of accounts were rejected under section 145(3) and 25% of purchases were disallowed and addition was made in the hands of the assessee-company. CIT(A) who had upheld the rejection of books of accounts and had estimated GP rate of 11.5% . Accordingly, the addition was restricted to Rs. 4,62,549 as against Rs. 12,69,933 made by the AO and partial relief was allowed to the assessee.Held: Once the past year results have attained finality and not in dispute, the same can form the basis for estimating the GP rate for the current year. It is clear from the details of the GP declared by the assessee for the preceding three years that the average of past three years of GP declared by the assessee comes to 10.22% and the assessee had undisputedly declared GP for the year under consideration at 10.04%. The GP declared for the year under consideration at 10.04% was lower than the average GP declared by the assessee in preceding three years by 0.18%. Since the average of past history of GP declared by the assessee was considered as a proper and reasonable basis for estimation of income for the year after rejection of books of account. Differential trading addition equivalent to GP rate of 0.18% on declared turnover was, therefore, upheld and the appeal of the assessee was partly allowed. In respect of assessee's appeals, for assessment year 2012-13, the assessee had declared GP of 10.5%. If one consider the average GP for past 5 years which had been declared and accepted by revenue and had attained finality. It comes to 10.15%. Thus, the GP declared by the assessee was more than the average GP of past years and even where the books of accounts were rejected, no trading addition called for. For assessment year 2013-14, the assessee had declared GP of 9.01% which was lower than the average GP for past 5 years which comes to 10.15% and differential trading addition equivalent to GP rate of 1.14% on declared turnover was upheld. In resepct of assessee's appeal for assessment year 2014-15, the assessee had dclared GP of 9.5% and one consider the average GP for past 5 years, it comes to 10.15% and differential trading addition equivalent to GP rate of 0.61% on declared turnover was upheld and the appeal of the assessee was partly allowed.

REFERRED : Dy.CIT v. Gehlot Motors (P) Ltd. [ITA No. 1165/JP/2019, dated 29-11-2019 and Sunder Das Sonkia v. ITO [ITA No. 1126/JP/2018, dated 15-4-2020] : 2020 TaxPub(DT) 2197 (JKP_Trib).

FAVOUR : In assessee's favour (Partly).

A.Y. : 2009-10 & 2012-13 to 2014-15

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