2017 (1) TMI 179 - HC - Income Tax

Court overturns Tribunal's judgment, finding errors in gross profit rate estimation.

Kota Stone Syndicate, through its Partner Sanjay Garg Versus Asst. Commissioner of Income Tax, Ajmer

The High Court allowed the appeal in favor of the assessee, overturning the Tribunal's judgment. The Court held that the Tribunal erred in estimating the ... Estimation of income - GP addition - assessee engaged in the whole sale business of Stones - Held that:- Tribunal has committed serious error in estimating the income at ₹ 4 lacs, without any basis. Therefore, as such the addition of ₹ 4 lacs made by the Tribunal is arbitrary and without any basis. In the fact of the present case Tribunal has fallen into an error even the estimating GP rate @ 10.38% on the basis of retailer's turnover particularly looking to the assessee's turnover which has been shown to the 40 times to his capital, while in all other cases it ranges between 2.5 times to 7 times only. - Decided in favour of the assessee. Issues:Challenging judgment and order of Tribunal regarding estimation of gross profit rate and trading additions.Analysis:1. The appellant challenged the Tribunal's decision partially allowing the department's appeal and dismissing the appellant's appeal, which reversed the CIT (Appeals) order.2. The case involved the appellant engaged in wholesale stone business with excess stock found in 1991, leading to the Tribunal estimating the gross profit at Rs. 7,26,625.3. The substantial questions of law framed by the Court pertained to the justification of the GP rate estimation and the arbitrary nature of trading additions.4. The appellant's counsel highlighted the CIT (Appeal) observations regarding turnover ratios and declared incomes of the appellant compared to other cases.5. The CIT (Appeals) partly allowed the appeal, upholding additions to the assessee's income amounting to Rs. 7,26,625.6. The Tribunal, in its judgment, noted discrepancies in the appellant's record-keeping, rejected the books of account under section 145(2), and estimated the gross profit rate at 13.33%, resulting in the addition of Rs. 7,26,625.7. The Tribunal modified the lower authorities' orders, restricting the trading addition to Rs. 4 lakhs, providing relief to the assessee.8. The High Court found the Tribunal's estimation of income at Rs. 4 lakhs without basis as a serious error, deeming it arbitrary and unjustified.9. The Court held that the Tribunal erred in estimating the GP rate at 10.38% based on turnover ratios, favoring the appellant's arguments.10. Consequently, both issues were resolved in favor of the assessee, leading to the restoration of the CIT (Appeals) order and setting aside the Tribunal's decision.11. Ultimately, the High Court allowed the appeal in favor of the assessee, overturning the Tribunal's judgment.