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2021 (3) TMI 114 - AT - Income TaxRejection of books of accounts - Trading addition - GP estimation - AO estimated G.P. rate of 0.69% on declared turnover as against G.P rate of 0.38% declared by the assessee and made a trading addition in the hands of the assessee - HELD THAT:- Once the books of accounts are rejected, the AO has to estimate the profits based on his best judgment and either the past year results or comparative profits declared in similar line of trade in commodities could be a guiding factor. Regarding past year results, it is an admitted position of Revenue that past year results cannot be made a guiding factor and the assessee has also contended that given the exceptional circumstances where the turnover has increased by almost 130 times, the past year results are not reflective of state of affairs of current year. There is nothing on record in terms of comparative profits declared in similar line of trade in commodities. As assessee has explained the substantial fall in G.P rate due to fall in prices of cardamom where the prices have reduced by almost half the rate at the end of the year as compared to beginning of the year. Therefore, we find that there is no rational basis for estimating the gross profit rate by the AO even where the books of accounts are rejected. In fact, in the remand report submitted to the ld CIT(A), the AO has admitted that there is no specific reason mentioned in the assessment order to estimate the gross profit rate of 0.69% as against declared gross profit rate of 0.38%. Further, the AO has acknowledged the fact that turnover has increased substantially during the year and the trading results are duly supported with documentary evidences. Regarding commodity and cardamom trading losses CIT(A) has also recorded a finding that these are speculative losses and are not part of trading account of the assessee and thus, doesn’t effect the trading results so declared by the assessee. In the results, the trading additions so made by the AO and confirmed by the ld CIT(A) is hereby directed to be deleted.
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