INCOME TAX ACT, 1961

Section 145

Accounting method - Rejection of books of account - Gross profit addition on basis of average of current year and four earlier assessment years -

Assessee was aggrieved by action of AO estimating gross profit of assessee at 12.78% as against actual gross profit ratio of 11% claimed by assessee in its books of account. Held: Earning of GP/NP ratio at any business house is not a mechanical process to be consistent in all years as it depends upon numerous factors prevailing during particular assessment year. When net profit ratio earned by assessee during assessment years 2007-08 to 2011-12 was examined, it was never consistent and was at variance. If decision rendered by coordinate Bench of Tribunal in assessee's own case for assessment year 2010-11 was to be followed, by taking average of current year and two consecutive years in order to estimate net profit ratio, assessee's own results would have come down. So action of AO rejecting books of account under section 145 (3) was upheld. It was deemed fit to adopt net gross profit ratio for year under assessment by taking average of current year as well as four preceding assessment years i.e. assessment years 2007-08, 2008- 09, 2009-10 and 2010-11, which came to 11.31%. AO was to quantify gross profit ratio accordingly and to re-compute addition to be made. Since Tribunal proceeded with GP addition on basis of average of current year and four earlier assessment years, remaining other additions made by AO on account of disallowance of commission, fines and penalties and on account of interest on FDR respectively, were not warranted.

Relied:Labo Tek v. JCIT 2019 TaxPub(DT) 7388 (Del-Trib)

REFERRED :

FAVOUR : Partly in assessee's favour

A.Y. :

SUBSCRIBE FOR FULL CONTENT