INCOME TAX ACT, 1961

Section 145(3)

Accounting method - Rejection - Unverified purchases - Estimation of profit at unreasonably higher rate ignoring past results

As suppliers did not respond to notices issued under section 133(6), AO took the view that purchases claimed by assessee remained unverified and thus AO rejected assessee's books and estimating GP @ 30% of total unverifiable purchases made addition CIT(A) restricted GP rate of 25% of unverified purchases. Assessee challenged the addition as not reasonable. Held: Rejection of books of account by invoking section 145(3) would lead to estimation of income of assessee based on some reasonable and proper criteria. Once past year results had attained finality and were not in dispute, same could form the basis for estimating GP rate for the relevant year. In the instant case, a perusal of the past results showed that for assessment year 2012-13, assessee had shown GP rate at 2.9% on turnover of Rs. 3 crores and GP rate of 4.28% in assessment year 2014-15 on a turnover of Rs. 8 crores. Further, AO had not brought on record any comparable case as to what was the reasonable rate. Accordingly, adoption of GP rate of 4.5% on turnover was justified especially when assessee had substantiated the purchases by providing various documents such as purchase invoice, copy of ledger account, evidence for having made payment through banking channles, VAT return duly reflecting the said purchases, etc., and purchases from the same parties were accepted in preceding year and no reopening of assessment under section 147 or 263 had taken place.

REFERRED : M/s. Kedia Exports (P) Ltd. v. Asstt. CIT [ITA No. 1068/JP/2019, Order, dated 19-6-2020] : 2020 TaxPub(DT) 2611 (Jp-Trib)

FAVOUR : Partly in assessee's favour.

A.Y. : 2013-14

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