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2019 (3) TMI 685 - AT - Income TaxGP estimation - rejection of books of accounts - estimation of income - invocation of Section 145(3) - true or correct income of the assessee’s business - assessee has not maintained proper records - non maintenance of stock separately for different types and varieties of skins and hides, i.e., of cows, goats and buffaloes, dealt in - HELD THAT:- defects in the assessee’s accounts observed by the Revenue are, thus, on examination, found valid. Section 145(3) stands, accordingly, rightly invoked by the Revenue in the facts and circumstances of the case. The gross profit as per books, even assuming a correct valuation of raw material, or the raw material cost of the processed goods, gets justified at ₹ 206.27 lacs. If the under-valuation in the opening stock is to be similarly taken into account for determining the profit for the year, the data on the conversion cost for the preceding year would be required. For the sake of discussion, assuming a 20% increase therein, i.e., for the current year vis-a-vis the preceding year, yields a per unit cost of ₹ 102.80, which results in a net increase in the gross profit by ₹ 30,01,615 (94,79,818 – 64,78,203), or at 8.48%, i.e., very close to do that estimated. We may hasten to add that we are not in any manner suggesting an increase in or disturbing the valuation of the closing stock; the same having penalty implications as well, but only that, other things being equal, an increase to this extent gets validated. That is to say, that the profit as estimated by the Revenue is reasonable and merits being upheld. In the present case, the accounts as not correct and complete in-so-far as they relate to the manner of accounting for the various direct costs and revenues that go into the working of the gross profit. Net profit cannot be computed or arrived at independent of or de hors the gross profit, being only derived there-from. The AO may also estimate some indirect costs and/or revenues as well, i.e., along with estimating the gross profit; the whole purport being to estimate those areas of income determination for which the assessee’s accounts are not regarded as reliable. At the same time, he, finding no defect therein, may not consider it necessary to disturb the indirect income/cost. How, therefore, we wonder, the invocation of sec. 145(3) be impugned on the basis that the assessee’s income is estimated by estimating the gross profit alone, allowing other costs and revenues as claimed? There are decisions galore where income estimated thus, have been upheld. - Decided against assessee.
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