TaxTMI 
TaxTMI 
TaxTMI 
2021 (7) TMI 584
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....evenue relating to deletion of addition of Rs. 1,88,80,279 out of total addition of Rs. 2,28,55,077 after providing opportunity to both the parties to present its case." 3. The appeal of the Revenue was thus recalled for a fresh hearing and accordingly, the same has come up for adjudication before us. 4. The Revenue in its appeal has taken the following grounds of appeal. "1. On the facts and in the circumstances of case, the ld. CIT(A) has erred in deleting addition of Rs. 1,88,80,279/- out of total addition of Rs. 2,28,55,077/- made by the AO after rejecting of books of accounts u/s 145(3) without appreciating the facts discussed by the AO in the assessment order." 5. Briefly the facts of the case are that the assessee company is engaged in the business of processing of oil seeds and refining of crude oil for edible use. The assessee has filed its return of income on 30th September, 2015 declaring total income of Rs. 4,26,55,330/-. During the scrutiny assessment, the AO noted that the assessee has shown GP at 2.57% on total turnover of Rs. 496,84,95,171/- as against GP at 3.16% declared for the assessment year 2014-15. The AO proceeded to examine the reasons of low GP declar....
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.... has relied upon the decision of Hon'ble Jurisdictional High Court in case of CIT vs. Gupta KN Constructions, 371 ITR 325 (Raj.) and Clarity Gold Pvt. Ltd. vs. PCIT, 102 taxmann.com 421. It was submitted that the GP rate adopted by the AO for estimation of income is very reasonable and proper. He has referred to the comparative details of GP declared by the assessee for last 3 years and submitted that if the average of the last 3 years is computed, it will be 3.03% which has been duly applied by the AO as against 2.57% declared by the assessee. Thus the ld. D/R has contended that the ld. CIT (A) has reduced the GP to 2.65% as against GP of 3.03% determined by the AO and deleted the addition of Rs. 1,88,80,279/- without giving any reason and basis for reducing the GP to 2.65% and therefore, the order of the ld CIT(A) may be set-aside and the order of the AO be confirmed. 7. Per contra, the ld. A/R of the assessee has submitted that even after rejection of books of account under section 145(3), it is not mandatory on the part of the AO to make the trading addition but the AO has to make an honest estimation of income keeping in view the material available on record, local knowledge ....
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....and the additional cost of Husk incurred this year, which is also explained by way of a chart placed on record showing the figures in absolute terms based on the Tax Audit Report and Audited Accounts. It was submitted that there has been a decrease in the sales realization to the extent of Rs. 13.92 crore. However, since there was also a reduction in the purchase cost by Rs. 11.67 crore, after reducing the same, there is still a net reduction in the sales realization by Rs. 2.23 crore which explains the fall in GP of 0.45% (out of 0.60%) declared this year. That apart, this year the assessee had also incurred additional cost of Rs. 1.64 crore on Husk which has further resulted in the decrease of the GP and considering this total reduction comes to 0.78%. It may be clarified that the figures of cost and sale price have been taken on average basis and some other minor items were also there (not considered here being not material) hence, this broadly and sufficiently explains the entire fall of 0.60% in the GP rate this year. This strongly supports the contention that the past history and in particular the last year results, was not comparable and therefore the AO seriously erred in t....
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....e Assessing Officer and no evidence has been brought on record as to how the Assessing Officer was justified in applying the net profit rate at 13.7 per cent....." Again thereafter the Hon'ble Rajasthan High Court in para 18 of the above decision, referred to the case of CIT v. Inani Marbles (P.) Ltd. [2009] 316 ITR 125/ [2008] 175 Taxman 56 (Raj.) and also the Delhi High Court in the case of Action Electricals v. Dy. CIT [2002] 258 ITR 188/ [2003] 132 Taxman 640 and thereafter observed that: "We have already referred to hereinabove that the Assessing Officer has failed to bring on record any comparable case so as to justify any estimation/addition...." 10. It was submitted that similar is the view taken by the Hon'ble Rajasthan High Court in the case of Clarity Gold (Supra). It is well settled that only a similar can be compared with the similar. It is said that an apple can be compared with an apple but not with an orange. The same principle is applied on fair estimation as well. Further, reliance was placed on the commentary of Chaturvedi & Pithisaria's, Seventh Edition, 6th Volume, Pg no. 9065, which reads as under: "Other things being equal, profits estimated during an e....
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....hallenge by the assessee then the discrepancies as pointed out by the AO and ld. CIT (A) are sufficient for leading to the conclusion that the book results of the assessee are not presenting a correct state of affairs and business results. Since the issue is not involved in this appeal therefore, we do not go into the merits of the rejection of books of account. Thus after the rejection of books of account, the AO is duty bound to frame the assessment on best judgment under the provisions of section 145(3) read with section 144 of the IT Act. 13. It is settled proposition of law that the best judgment assessment has to be framed by considering the material on record and the income has to be estimated on a reasonable and proper basis. The Courts have held that either the past history of the assessee or history of similar situated assessee in the same line of business could be considered as a reasonable and proper guidance for estimation of income. Further, the Courts have also held that the past history can have relevance where the conditions in which the business activity of the later period is conducted are similar to those of earlier period in which case it would be reasonable t....
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....conomic conditions as compared to earlier years gross profit of 4.56% in A.Y 2012-13 and 4.96% in A.Y 2011-12 but at the same time, has not accepted gross profit of 2.57% for the year under consideration which clearly shows inconsistency on part of the AO in terms of comparability of past year results without factoring in sluggish business environment as duly pointed out by the assessee. Another distinguishing feature, which we have noticed, is increase in average cost of purchase by Rs. 19.47/- mainly on account of purchase of soya husk for the first time during the year under consideration which again makes the past years data not exactly comparable. We therefore, find that the said approach of the AO in blindly applying the past year history cannot be held to be reasonable and appropriate for estimating the profits. Further, there is no discussion and finding of the AO regarding past years or even current year data of other assessees in the similar line of business operating under same and/or similar business environment with which the results of the assessee could have been compared. 16. The ld. CIT (A) while deleting the addition made by the AO has however appreciated the fac....