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2010 (9) TMI 935 - AT - Income TaxRejection of the books of account - estimation of income - ad hoc addition - Bogus purchases - trading addition made by the Assessing Officer by invoking the provisions of section 145(3) - CIT (A) found that the addition made by the assessee is on the higher side, thus held that it would be reasonable and fair to make an addition of Rs. 20 lakhs which would give rise to gross profit rate of 14.34 percent which is reasonable and fair - HELD THAT:- In the present case there is no other independent enquiry from M/s. Manvi Exports or from M/s. Creative Gems as the Assessing Officer has drawn inference on the basis of enquiry made on some other cases. The assessee has filed confirmation from both the parties along with complete details of purchases mentioning description of items. Both the parties are assessed to tax and they are registered under the Sales-tax Act also. All these information were given to the Assessing Officer. However, no enquiry was made by the Assessing Officer directly. There was no cogent reason to attract the provisions of section 145(3) and hold that the purchases shown by the assessee are bogus. Undisputedly, the trading results shown by the assessee are better as in the immediately preceding year the gross profit rate shown by the assessee was 12.3 percent whereas in the year under consideration the gross profit rate shown is 13.03 percent, thus no basis to make any addition. Accepted past history is the best guide to consider the gross profit rate of the year under consideration. Past history reveals gross profit accepted by the Department at 12.08 percent and in the year under consideration the same is 13.03 percent, therefore, there was no reason to make any addition or sustain the addition in part. Commissioner of Income-tax (Appeals) has accepted the contentions of the assessee. However, without giving any reason, he sustained part addition of Rs. 20 lakhs - we delete the addition as sustained by the learned Commissioner of Income-tax (Appeals). The ground of the assessee is allowed. TP Adjustment - addition of the arm's length price in view of the provisions of section 92C - international transaction with M/s. Rawat Gems, New York which is an associated enterprise within the meaning of section 92A(2)(i) as the concern relates to the assessee's elder brother - AO noted that the assessee has not maintained the required details as provided under rule 10D(g) and 10D(h) - AO applying a profit rate of 15 percent on cost price against 14.89 percent shown by the assessee made an addition - HELD THAT:- We find that differential rate of sales made to associated concern, i.e., Rawat Gems and other concerns are below 5 percent and, therefore, the provisions of section 92C (2) are not applicable as the assessee's case falls under the exception clause where it was provided that if there is a difference up to 5 percent, then no addition is required to be made on account of the arm's length price. DR has fairly accepted that difference is less than 5 percent therefore, we delete the addition made and confirmed by lower authorities. In the result, the appeal of the assessee is allowed and the appeal of the Department is dismissed.
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