1997 (9) TMI 158 - AT - Income Tax

Tax appellate authority upholds audited books, rejects low gross profit addition where no specific defects found in records

ITAT Indore allowed the assessee's appeal and deleted the addition of Rs. 62,900 sustained by CIT(A) on account of alleged low gross profit. The Bench ... - Issues:1. Sustenance of addition of Rs. 62,900 by the CIT(A) based on gross profit rate discrepancy.Analysis:The appeal before the Appellate Tribunal ITAT Indore arose from the order of the CIT(A)-I, Indore, regarding the assessment year 1989-90. The sole grievance of the assessee pertained to the addition of Rs. 62,900 sustained by the CIT(A) based on a discrepancy in the gross profit rate. The assessee, a firm of three partners engaged in trading, disclosed a gross profit of 9.25% on total sales of Rs. 82,77,702 for a 17-month accounting period. The assessing officer (AO) noted a decrease of 1.5% in gross profit compared to previous years and, after examining specific sales instances, estimated sales at Rs. 82,80,000 with a gross profit rate of 10%, resulting in the disputed addition.Upon appeal, the CIT(A) upheld the addition, leading the assessee to approach the Tribunal. The assessee contended that no trading addition had been made in previous or subsequent assessment years, emphasizing the proper maintenance and audit of books of accounts. The assessee argued that maintaining detailed quantitative records for various types of cloth was impractical. Additionally, the assessee challenged the methodology of comparing gross profit rates based on random instances without providing details of comparable cases. The Departmental Representative supported the Revenue authorities' decision to reject the book results and make the addition.The Tribunal examined the submissions, reviewed the orders and documents, and acknowledged the assessee's regular bookkeeping and production of bills and vouchers. Despite a slight decrease in gross profit margin, the Tribunal found the explanation reasonable considering the business volume and nature. The Tribunal noted that the accounts were audited, inventory was provided, and the profit margin variations were justifiable due to the diverse nature of materials sold. It was observed that the alleged comparable cases' details were not furnished to the assessee. Ultimately, the Tribunal held that rejecting book results without identifying defects in audited accounts and solely based on a marginal profit decrease was unjustified. The Tribunal overturned the Revenue authorities' decision and directed the AO to accept the book results, leading to the allowance of the appeal.