TaxTMI 
TaxTMI 
2018 (4) TMI 135
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....GP can only be made if there is positive finding of the Income Tax Authorities that gross profit shown by the assesse is less or unreasonable and there exist similar comparable case for that assessment year for application of GP. (iv) Whether on the facts and circumstances of the case the Hon‟ble Tribunal and misdirected itself in law in applying 10% G.P. rate for assessment year 1986-87 sales by taking 12.5% GP rate of assessment year 1990-91 as the base when GP of a future year (four years later) is irrelevant for computation of GP of earlier year as trading conditions of each years are distinct and separate." In order to answer the aforesaid substantial questions of law, we set out the facts which are stated hereinafter. 2. The appellant firm is a partnership firm which was constituted for the purpose of execution of purchase contract of bulk timber worth over Rs. Three crores from Jammu and Kashmir State Forest Corporation (hereinafter referred to as „the Corporation‟). It entered into an agreement with the corporation on 19.10.1984. The main terms and conditions of the agreement inter alia were that the Corporation shall supply to the assesse the timber f....
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....arch, 1989 inter alia issued the directions that addition is not warranted in respect of the parties which are identifiable and which have confirmed the purchases from the appellant at the same price as shown in the sale voucher and in respect of other parties which are not identifiable or which have not confirmed the sales as shown by the appellant, the addition as proposed should be retained and the original amount surrendered by the appellant of Rs. 8,68,848 should be included in the total income of the assessee. By communication dated 27.03.1989, ITO directed the appellant that 16 parties be produced on 28.03.1989. The appellant supplied the available information as the time given to it was very short. The ITO passed an order of Assessment in March, 1989 by which income of the appellant was assessed at Rs. 32,29,482/-. Being aggrieved, the appellant filed an appeal before Commissioner of Income Tax (Appeals), hereinafter referred to as CIT(A). The appeal preferred by the appellant was allowed vide order dated 30.03.1990 and it was inter alia held that ITO had not brought on record any credible or convincing material to establish the case of under billing. It was further held t....
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....as to why gross profit rate of 14 % should not be adopted for ascertaining the true profit earned by the appellant. The CIT(A) by order dated 28.11.2003 applied the GP rate of 12.25 %. Being aggrieved, the appellant preferred an appeal before the ITAT, which by an order dated 31.01.2006 partly allowed the appeal of the appellant and reduced the GP rate from 12.5 percent to 10 percent. In the aforesaid factual background, this appeal has been filed. 7. Learned counsel for the appellant submitted that once purchases and sales shown by the appellant were accepted, no addition could be made and the profit cannot be determined on hypothetical basis. It is further submitted that the addition has been made on wrong premises without fulfillment of the conditions mentioned in Section 145(3) of the Act inasmuch as the ITO has neither doubted the correctness or completeness of the accounts of the assessee nor has recorded a finding that accounting standards have not been regularly followed by the appellant. It is submitted that in any case, while applying the gross profit rate, the returns of subsequent years could not have been taken into account and the burden was on the revenue to explai....
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....he ITAT in the order dated 31.08.1999 while remitting the matter to CIT (A), inter alia held as under: "We are of the opinion that this is a case where proper and reasonable G.P. rate or N.P. rate should have been applied. This exercise was not done by the Ld. CIT(A) we, therefore gibe finding that this is a case where books of accounts are not prone to verification but application of reasonable and proper gross profit or Net profit rate depending upon the facts and circumstances of the case and comparison with similar dealers at Jammu. We, therefore, refer this matter back to the file of the Ld. CIT(A) who will decide the proper gross profit rate to be applied after giving an opportunity of being heard to both the assessee as well as to the A.O. He will pass fresh order after deciding the issue of gross profit rate to be applied on the sale. While working the gross profit rate, he should include Rs. 8,68,848/- as part of the G.P. shown by the assessee in addition to the Gross profit reflected in the books of accounts. The appellant can explain reasonableness of Gross profit with positive evidence and not in generalistic manner." Thus, the burden of proof was on revenue to expla....
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....revenue by positive evidence. The ITO by the communication had informed the CIT(A) that the returns of income of Assessment Year 1986-87 were not made available by the Central Record Room and returns for Assessment Year 198990 to 1991-92 have been provided and the copies of the trading account of the parties were sent. Thus, it is evident that returns of income of Assessment Year 1986-87 were not available before the CIT(A). However, the Gross Profit rate was computed with reference to the returns of the subsequent Assessment years i.e. 1989-90 to 1991-92. Thus, there was no positive evidence before the CIT(A) to assess the Gross Profit rate. The ITAT however fail to appreciate the aforesaid aspect of the matter. The ITAT ought to have appreciated that only reasonable and proper gross profit rate was to be applied and the appellant was the only dealer who had entered into bulk purchases of timber with State Forest Corporation. Merely because M/s JaswantRaiArora deals in timber, it could not have been put in the category of similar dealers as it has not made bulk purchases of timber with State Forest Corporation. The returns of the subsequent years i.e. 1989-90 to 1991-92 could not ....