1989 (5) TMI 105 - AT - Income Tax

Tribunal Grants Partial Appeal, Affirms CIT(A)'s Decision on Weighted Deduction

The Tribunal partly allowed the appeal, directing the acceptance of sales at Rs. 33,20,587 and application of a gross profit rate of 44%. The Tribunal ... Method Of Accounting Issues Involved:1. Justification of the gross profit rate applied by the ITO.2. Treatment of counter sales at par with export sales for allowing weighted deduction u/s 35B of the IT Act.Issue 1: Justification of the Gross Profit Rate Applied by the ITOThe revenue contested that the CIT(A) was not justified in accepting the book results and the gross profit (g.p.) rate of 42% as against 44% applied by the ITO. The ITO had rejected the books of accounts applying the proviso existing u/s 145(1) of the IT Act, 1961, due to unverifiable valuation of closing stock and non-verifiable sales prices. The ITO made an addition by applying a g.p. rate of 44% on estimated effective sales of Rs. 34 lakhs against the sales of Rs. 33,20,587 shown by the assessee.The CIT(A) deleted the addition, noting that the ITO had not pointed out any omission or discrepancy in the sales and that the book results were accepted in the past under similar circumstances. The CIT(A) also observed that the comparable cases relied upon by the ITO were not relevant as the other firm had advantages that the assessee did not.The Tribunal, however, found the CIT(A)'s reasoning flawed, noting that there were specific defects in the assessee's trading results, such as non-verifiable sales prices and lack of details on opening and closing stock. The Tribunal concluded that some addition was justified but reduced the estimate, directing that the sales shown at Rs. 33,20,587 be accepted and a g.p. rate of 44% be applied.Issue 2: Treatment of Counter Sales for Weighted Deduction u/s 35BThe revenue also contended that the CIT(A) was not justified in treating counter sales of Rs. 11,25,829 at par with export sales of Rs. 20,60,612 for allowing weighted deduction u/s 35B of the IT Act. The Tribunal noted that this issue had already been decided against the revenue in similar circumstances by the ITAT, Delhi in the case of Subhash Emporium for the assessment years 1966-67 to 1978-79 and 1978-79 to 1979-80. Respectfully following the findings in those orders, the Tribunal declined to interfere.Separate Judgment by Accountant Member:The Accountant Member disagreed with the Judicial Member, arguing that the trading results shown by the assessee should be accepted. He emphasized that the ITO did not provide sufficient evidence to justify the addition and that the comparable case of Subhash Emporium was not relevant. The Accountant Member maintained that the book results should be accepted, and the order of the CIT(A) should be confirmed.Third Member Order:Due to a difference of opinion, the matter was referred to a third member. The third member agreed with the Accountant Member, concluding that the book results shown by the assessee should be accepted and the order of the CIT(A) confirmed. The third member noted that the assessment was not made u/s 145(2) on any finding that the accounts were incomplete or incorrect, and there was no material evidence to establish any suppression of sales, purchases, or stock.Final Decision:The appeal was partly allowed, with the Tribunal directing that the sales shown at Rs. 33,20,587 be accepted and a g.p. rate of 44% be applied. The Tribunal also declined to interfere with the CIT(A)'s treatment of counter sales for weighted deduction u/s 35B.