TMI Blog2013 (7) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... and if none of the variables on debit side and credit side are disturbed, the gross profit also cannot be disturbed. While coming to the conclusion of application of gross profit rate of 6.5%, he has made observation that the traders in steel industries generally disclose gross profit rate between the range of 6% and 9%. This conclusion is without any material on record or based on any comparable case. Thus, the application of such a gross profit rate cannot be upheld & under these circumstances, once the books of account have not been rejected, sales have been accepted, no addition on account of gross profit rate or any addition on account of unexplained purchases can be made, thus delete the addition made in the for by the CIT (A). - Decided in favor of assessee. Addition being sundry creditor for goods u/s 68 - CIT(A) deleted the addition - Held that:- Revenue on account of addition made u/s 68 for the amount shown under the sundry creditors of goods, also cannot be sustained for the reason that firstly, sales made on account of the purchases made from the said party has been accepted, secondly, in the next year, the payment has been made to this party by account payee cheq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industry' and adding the difference in the Gross Profit margins of the Appellant as against the presumed Rate of Gross Profit without considering the facts circumstances of the case. 4. The Learned CIT(A) erred in adding the sum on account of Gross Profit on the entire Sates without appreciating the fact that the entire Purchases were not even doubted by the AO." Grounds raised by the Department for assessment year 2004-05. "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in deleting the addition of Rs. 5,01,88,500!-, being sundry creditor for goods, made uls. 68 of the Act ignoring his own conclusion that the assessee was not reporting true and correct state of affairs particularly when assessee had no delivery details, lorry receipts and the alleged creditors had admitted that the transaction were only on paper." "2. On the facts and in the circumstances of the case, and in law, the CIT(A) was not justified in deleting the addition of Rs. 5,01,88,500!-, being sundry creditor for goods, made u!s. 68 of the Act without appreciating that the creditor did not confirm the balance and further in the remand proceedings no evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciating that the creditor did not confirm the balance and further in the remand proceedings no evidence as regards the movement of goods between sale I purchase party was furnished. We first take up assessee's appeal in ITA no.7744/Mum./2010, for assessment year 2004-05. 2. The sole issue arising out of the aforesaid assessee's appeal is with regard to the direction of the learned Commissioner (Appeals) in confirming the addition on account of gross profit rate on total turnover, whereas the issue arising out of the Revenue's appeal is against the deletion of addition made under section 68 of the Act on account of unexplained balance in the account of sundry creditors for the goods. 3. Facts in brief:- A search and seizure operation under section 132 of the Act was conducted on 22nd November 2006 in the case of Orbit Corp. Ltd. The assessee company being one of the group concerns of Orbit Group, was issued noticed under section 153C of the Act. The assessee had filed original return of income on 3rd October 2007, declaring income of Rs. 6,37,860. In response to notice under section 153C also, some income was shown. During the year, the assessee had purchased materials l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to verify the actual facts. The Assessing Officer, vide remand report dated 13th May 2010, however, did not refer to any such addition made on account of Epsilon Industries Ltd. in assessment year 2004-05 but restricted his comment to the addition made in assessment year 2005-06. He also objected to the filing of fresh evidence. Again the remand report was called for from the Assessing Officer to clarify same point, however, this time also, the Assessing Officer did not make any comment on account of addition made in the assessment year 2004-05. 5. The learned Commissioner (Appeals) accepted the entire assessee's contentions, however, upheld the addition after applying gross profit rate of 6.5% to the total turnover and confirmed part of the addition after observing and holding as under:- "9. I have considered the submissions of the appellant and the order of the A.O. The appellant has made total purchase in this year of 3571.647 MT valued at Rs. 9,51,58,794. The exact quantity was sold for Rs. 9,56,34,588 deriving a gross profit of Rs. 4,75,794. The GP ratio is only 0.50%. This is in line with the GP shown by the appellant in the past years. The AO has not rejected the books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the same AO has allowed the same and made addition only on account of the outstanding amount of Phoenix Aluminum Foils and Allied Products and Medigold Global Limited. The appellant and the two parties from whom the purchases were made have shown the transactions in the Sales Tax Return and the tax on the same has also been paid. There is no instance of cash being withdrawn and returned to the appellant and vice versa. 11. The following facts show that the appellant is also not reporting the true and correct state of affairs for the following reasons: The appellant does not have the delivery details, particularly the lorry receipt, etc. The appellant has shown GP of only 4.98% There are some instances of cash withdrawal but the same cannot be tracked back to the appellant. 12. Therefore, the stand of the A.O. needs to be amended and cannot be sustained in the present form. 13. In view of the above, the GP shown by the appellant was compared to the GP shown by the Traders in the steel Industry and it is gathered that the average GP in case of pure trader ranges between 6-9%. Considering the facts of this case and taking judicious view, the appellant should have shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f addition after applying gross profit rate of 6.5% on the entire turnover. The assessee is basically engaged in trading of various items like H.R. Coils, M.S. Angles, M.S. Bars, M.S. Pipes, M.S. Round, etc. The purchase and sales are made on the same day and during the year, the assessee had made total purchase of 3571.647 MTs valued at Rs. 9,51,58,794. The same quantity has been sold for Rs. 9,56,34,588, from which gross profit of Rs. 4,75,794, has been derived which in terms of percentage comes to 0.5%. As per the own findings of the learned Commissioner (Appeals), this gross profit rate was in consonance with the gross profit rate shown by the assessee in the earlier years. It is also not disputed that the Assessing Officer has not rejected the books of account or the sales turnover and even the learned Commissioner (Appeals) has also not rejected the books of account. Once the learned Commissioner (Appeals) has accepted that the sales and purchases are verifiable for the reasons that firstly, the entire purchase and sales have been made through account payee cheques and are fully verifiable from the bank statements and pass books, secondly, the confirmation letters which were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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