Tribunal confirms 2% gross profit rate estimation, dismisses assessee's appeal. Order pronounced 01/10/2021.

The tribunal upheld the decision of the CIT(A) and the AO, rejecting the books of accounts and confirming the estimation of the gross profit rate at 2% of the gross sales. The appeal of the assessee was dismissed, and the order was pronounced in the open court on 01/10/2021.

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Issues Involved:
1. Legitimacy of the order passed by the CIT(A).
2. Justification of the arbitrary addition made by the AO.
3. Rejection of the books of accounts by the AO.
4. Estimation of gross profit rate by the AO.

Issue-wise Detailed Analysis:

1. Legitimacy of the Order Passed by the CIT(A):
The assessee challenged the order dated 18.09.2017 by the CIT(A), arguing that it was based on "surmises, suspicion, and conjectures." The CIT(A) upheld the arbitrary addition made by the AO, which the assessee contended was against the law, especially given the AO's own admission that "no comparative GP rate of such trading in Tobacco is available in any other case."

2. Justification of the Arbitrary Addition Made by the AO:
The AO made an addition of Rs. 1,44,13,587.00, which the CIT(A) upheld. The assessee argued that the CIT(A) ignored the comparative chart of margins in the same trade and did not consider the settled principles of law that estimates should be legitimate, just, and cogent based on the material available on record. The AO observed that the assessee showed a gross profit of only 0.13% of the purchases, which appeared meager compared to the turnover. Notices issued to sundry debtors and creditors returned with adverse comments or no response, leading the AO to doubt the transactions' authenticity.

3. Rejection of the Books of Accounts by the AO:
The AO rejected the books of accounts under section 145(3) of the Income Tax Act, 1961, after noting discrepancies in the addresses and responses from sundry debtors and creditors. The AO found that the sales and sundry debtors were not confirmed by the respective parties, with one party, Vandana International Export (Jaipur), categorically denying any transactions with the assessee. The CIT(A) concurred, stating that the non-confirmation or partial confirmation of accounts by sundry debtors/creditors justified the rejection of the books of accounts.

4. Estimation of Gross Profit Rate by the AO:
The AO estimated the gross profit rate at 2% of the gross sales, citing the lack of comparative data for wholesalers in tobacco products. The AO referenced manufacturers like Kothari Products Limited and Tirupati Fragrances Limited, whose profit margins were 2.39% and 3.65%, respectively. The CIT(A) upheld this estimation, stating that the assessee did not provide any comparative data for wholesalers. The CIT(A) emphasized that the AO's estimation was justified given the circumstances and the lack of reliable sales figures provided by the assessee.

Conclusion:
The tribunal upheld the decision of the CIT(A) and the AO, rejecting the books of accounts and confirming the estimation of the gross profit rate at 2% of the gross sales. The appeal of the assessee was dismissed, and the order was pronounced in the open court on 01/10/2021.

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