TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Dispute over Gross Profit Rate & Supporting Documentation Leads to Rejection of Books of Account</h1> The case centered on the application of a 33% gross profit rate by the Tribunal, leading to a dispute over the addition of Rs.4,13,015 due to a low gross ... Best Judgement assessment - Decision of apex court in M/s.Kachwala Gems Vs. JCIT (2006 -TMI - 3365 - SUPREME COURT) - It is well settled that in a best judgment assessment there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts - Held that: - it is apparent that the books of account of the assessee had to be rejected since there is no material on record, i.e., purchase vouchers to support the entries made in the books of account about the payments made to the sellers. Even the names and addresses of the sellers had not been entered whereby such entries could have been verified even in the absence of purchase vouchers. No proper stock registers were maintained. Hence the books of account were rightly rejected. The question as to what should be the percentage of gross profit is a pure question of fact and not a question of law. - Decided in favor of revenue. Issues:1. Application of rate of 33% imposed by the Tribunal.2. Addition of Rs.4,13,015/- on account of low gross profit rate.3. Rejection of books of account by the Assessing Officer.Analysis:1. The case revolved around the application of a 33% rate imposed by the Tribunal. The appellant, an assessee-firm dealing in herbs, declared an income of Rs.17,350/- for the assessment year 1996-97. However, the Assessing Officer assessed the income at Rs.11,80,590/-, primarily disputing the addition of Rs.4,13,015/- due to a low gross profit rate. The crux of the matter was the inability of the assessee to produce purchase vouchers and seller details, leading to the rejection of books of account by the Assessing Officer.2. The main issue was the addition of Rs.4,13,015/- by the Assessing Officer on account of a low gross profit rate. Despite the appellant declaring a gross profit of Rs.6,98,577/- on total sales of Rs.33,68,447/-, resulting in a gross profit rate of 20.73%, the Assessing Officer assessed it at 33% due to lack of supporting documentation like purchase vouchers and seller details. The Commissioner of Income Tax (Appeals) initially deleted this addition, but the ITAT upheld the Assessing Officer's decision based on the precedent set by the Apex Court in M/s.Kachwala Gems Vs. JCIT 2007.3. The rejection of books of account by the Assessing Officer was a critical aspect of the judgment. The Apex Court's ruling in M/s.Kachwala Gems' case emphasized the importance of maintaining proper records and evidence to support entries in the books of account. The appellant's failure to provide purchase vouchers, seller details, and maintain accurate stock registers led to the rightful rejection of their books of account. The court highlighted that in best judgment assessments, some degree of estimation is inevitable, and interference with such assessments is limited under Section 260A. Consequently, the appeal was dismissed, upholding the Assessing Officer's decision to reject the books of account and apply the 33% gross profit rate.
TaxTMI 
TaxTMI 
