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| The Tax Publishers2020 TaxPub(DT) 2830 (Bang-Trib) INCOME TAX ACT, 1961
Section 145
Where AO had not estimated the income and made an estimated addition only because assessee could not explain the reasons regarding fall in GP rate and AO had not estimated the income by totally disregarding the book results and he had only made an estimated addition because assessee could not explain the reasons behind fall in GP rate particularly when the major sales to the extent of 95% are to related parties, therefore, appeal of assessee was dismissed.
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Accounting method - Fall in GP rate - Increase in cost of purchase due to appreciation of dollar rates -
AO noticed that the percentage difference for exchange rate change was only 10 to 15%, but actually dip in the gross profit margin is 44% and the actual net increase in the cost of materials was in the range of 29% to 34%. AO made additions on this basis that since assessee had not submitted satisfactory explanation for such fall in GP rate, this addition was made to plug the leakages in the gross under estimation of the gross profit and such addition was only about 1% of the total sales receipts since satisfactory explanation was not offered before him. Held: AO had not estimated the income and made an estimated addition only because the assessee could not explain the reasons regarding fall in GP rate. AO had not estimated the income by totally disregarding book results and he had only made an estimated addition because assessee could not explain the reasons behind fall in GP rate particularly when major sales to the extent of 95% are to related parties. Tribunal has followed the judgment of High Court rendered in the case of CIT v. Anil Kumar & Co., (2016) 386 ITR 702 (Karn) : 2016 TaxPub(DT) 1607 (Karn-HC) and AO had noticed in that case that Gross profit declared by the assessee in the earlier assessment years and in present assessment year were at variance and the GP were adopted at 4% of the total turnover. Hence, in that case, the book results were totally disregarded and the GP was estimated at 4% of turnover and hence, the income was assessed by AO after totally disregarding the book result whereas in book results were not totally discarded by AO and only an estimated addition was made by AO. Therefore, appeal of assessee was dismissed.
Relied:S.N. Namasivayam Chettiar v. CIT (1960) 38 ITR 579 (SC) : 1960 TaxPub(DT) 0120 (SC) Dhondiram Dalichand v. CIT (1971) 81 ITR 609 (Bom) : 1971 TaxPub(DT) 0134 (Bom-HC) DCIT v. Mandya District Co-Op. Milk Producers Societies Union Ltd. [ITA No.1512/Bang/2017 dated 20-2-2020]Distinguished:CIT v. Anil Kumar And Co. (2016) 386 ITR 702 (Karn) : 2016 TaxPub(DT) 1607 (Karn-HC)
REFERRED :
FAVOUR : Against the assessee
A.Y. : 2009-10
IN THE ITAT, BANGALORE BENCH
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