INCOME TAX ACT, 1961

Section 145(3)

Accounting method - Rejection - Decline in GP rate in comparison to immediately preceding assessment years - Assessee sold certain products at a price less than cost of acquisition

During year under consideration, assessee-company showed GP ratio at the rate of 1.47% of the turnover whereas the same was shown for the earlier two assessment years at 2.42% and 5.94% of the turnover respectively. Thus, the AO found that there was decline in the GP ratio declared by the assessee for the year under consideration. AO further, found that the assessee sold certain products at a price less than the cost of acquisition, which resulted in gross loss to the assessee. Therefore, the AO was of the view that the assessee suppressed sale price by showing sale of the goods at loss. Accordingly, the AO rejected books of account of the assessee and worked out under invoiced sale at Rs. 1,22,03,041 and made addition of the same. However, CIT(A) restricted such addition to Rs. 10,00,000. Held: It was undisputed that the assessee's books of account were subject to audit. Further, the goods were sold at a lower price due to their poor/inferior quality. Similarly, there was no allegation by the Revenue that the assessee by making the sale at a price lower than the cost of purchase had received some consideration without recording the same in the books of account. Further, the necessary details about the parties were available before the AO, but he did not conduct any enquiry from such parties. Similarly, the decline in the GP rate in comparison to immediately preceding assessment years could not be criteria to reject the books. Moreover, CIT (A) confirmed the addition of Rs. 10 lakhs on ad hoc basis without pointing out any specific material and such ad hoc disallowance was not permissible. Accordingly, the addition if Rs. 10 lakhs as confirmed by the CIT (A) was deleted.

REFERRED : Malani Ramjivan Jagannath v. Asstt. CIT (2009) 316 ITR 120 (Raj-HC) : 2009 TaxPub(DT) 0038 (Raj-HC) Awadhesh Pratap Singh Abdul Rehman and Brothers v. CIT (1994) 210 ITR 406 (All) : 1994 TaxPub(DT) 0868 (All-HC) Haridas Parikh. v. ITO (2008) 113 TTJ 274 (Jod-Trib) : 2008 TaxPub(DT) 1229 (Jod-Trib)

FAVOUR : In assessee's favour

A.Y. :

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