2008 (4) TMI 671 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 11,78,918 by invoking provisions of section 92 of the Income-tax Act, 1961.
2. Allegation of contracting at lower rates with related concerns.
3. Validity of the gross profit and net profit ratios.
4. Jurisdiction and legality of the Commissioner of Income-tax (Appeals) order.

Summary:

1. Addition of Rs. 11,78,918 by invoking provisions of section 92 of the Income-tax Act, 1961:
The assessee contested the addition of Rs. 11,78,918 made by the Assessing Officer (AO) u/s 92 of the Income-tax Act, 1961. The AO noted that the gross profit ratio was only 4.2% and net gross profit ratio was 2.93%, leading to an overall net profit ratio of (-) 0.45%. The AO invoked section 92, alleging that the assessee made sales to related concerns at lower rates. The Commissioner of Income-tax (Appeals) upheld this addition, but the Tribunal found no merit in the addition, directing the AO to delete it.

2. Allegation of contracting at lower rates with related concerns:
The AO alleged that the assessee contracted at lower rates with related concerns to show less than normal profits. The assessee argued that the purchases and sales were backed by proper vouchers and maintained as per Customs Act requirements. The Tribunal found that the AO failed to provide specific instances of sales/purchases at less than market price and directed the deletion of the addition.

3. Validity of the gross profit and net profit ratios:
The assessee maintained that the gross profit ratio of 4.2% was reasonable for the first year of operation. The Tribunal noted that the trading results for the succeeding year were accepted by the AO without any addition. The Tribunal found no basis for estimating the gross profit ratio higher and directed the AO to accept the gross profit rate shown by the assessee.

4. Jurisdiction and legality of the Commissioner of Income-tax (Appeals) order:
The assessee argued that the Commissioner of Income-tax (Appeals) confirmed the addition without jurisdiction. The Tribunal observed that the provisions of section 92 were applicable for the year under consideration but found no basis for invoking these provisions in this case. The Tribunal directed the deletion of the addition and allowed the appeal filed by the assessee.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the deletion of the addition of Rs. 11,78,918 made by invoking the provisions of section 92 of the Income-tax Act, 1961. The Tribunal found no merit in the allegations of contracting at lower rates with related concerns and upheld the gross profit rate shown by the assessee. The order was pronounced on April 23, 2008.