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2020 (7) TMI 249 - AT - Income TaxFall in GP rate - increase in cost of purchase due to appreciation of dollar rates - addition is made to plug the leakages in the gross under estimation of the gross profit and such addition is only about 1% of the total sales receipts since satisfactory explanation is not offered - HELD THAT:- This could not be established that there was any advance price agreement with the buyers and therefore, the assessee could not increase the selling price. This is also very important fact of the present case that 95% of the assessee’s sales is made to the sister concern - increase in cost is not only on account of increase in exchange rate of dollar but the purchase price in terms of dollar also has gone up because it is seen that the rate per meter was 1.33 US$ per meter during June to December 2007 and only in February to March 2008, the rate was 1.4 US$ per meter in the preceding year whereas in the present year, the purchase price was 1.4 US$ per meter up to September 2008 and during October to December 2008, it has further increased up to 1.54US$ per meter. When the purchase cost is rising both in terms of rate per meter in US$ as well as the conversion rate of US$ into Indian rupees and the sale is mainly to the sister concerns that too without any agreed sale price in advance, the small addition made by the AO in the range of about 1% of the total sale value is neither excessive nor unreasonable. Since no explanation was offered by the assessee before the AO regarding fall in GP rate AO has not estimated the income by totally disregarding the book results and he has only made an estimated addition because the assessee could not explain the reasons behind fall in GP rate particularly when the major sales to the extent of 95% are to the related parties Particularly this fact that 95% of sales were made to related parties at the old selling rate in spite of increase in purchase rate both in terms of price per meter in US$ and also the exchange rate of dollars, we hold that no interference is called for in the order of CIT(A). - Decided against assessee.
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