1977 (2) TMI 56 - AT - Income Tax

Summary

Issues:
1. Assessment of gross profit in the case of a dealer in handloom goods for the assessment year 1975-76.
2. Consideration of turnover, gross profit, and accounting practices by the Income Tax Officer (ITO).
3. Appeal to the Appellate Assistant Commissioner (AAC) regarding the addition made by the ITO.
4. Decision of the AAC to sustain an addition of Rs. 6,000.
5. Appeal by the assessee against the addition sustained.
6. Arguments presented before the Appellate Tribunal ITAT MADRAS-D.
7. Analysis and decision of the Appellate Tribunal ITAT MADRAS-D regarding the addition sustained by the AAC.

Analysis:
The judgment involves an appeal by a registered firm of nine partners, engaged in the business of handloom goods, for the assessment year 1975-76. The Income Tax Officer (ITO) raised concerns about the gross profit shown by the assessee, considering it lower compared to the preceding year. The ITO found discrepancies in the accounts, particularly related to purchases and stock maintenance, leading to an addition of Rs. 11,200 to the gross profit. The assessee contended that the purchases were recorded as and when sales were made due to the festival season and quick turnover.

Upon appeal to the Appellate Assistant Commissioner (AAC), it was argued that the fall in profit was due to a general slump in the cloth trade, and the purchases were supported by 'chittai' as evidence. The AAC sustained an addition of Rs. 6,000, stating that the fall in profit was not adequately explained. The assessee then appealed against this addition.

Before the Appellate Tribunal ITAT MADRAS-D, the counsel for the assessee presented historical data showing consistent gross profit percentages in previous years and highlighted the specific circumstances leading to the lower profit in the current year. The Tribunal noted that the excess of sales over purchases occurred only during a specific period and that all transactions were duly recorded. Considering the supporting 'chittai' accounts and the overall trade conditions, the Tribunal concluded that the nominal fall in gross profit did not justify the addition of Rs. 6,000. Therefore, the Tribunal allowed the appeal and deleted the sustained addition.

In summary, the Appellate Tribunal ITAT MADRAS-D allowed the appeal by the assessee, overturning the addition of Rs. 6,000 made by the AAC. The Tribunal emphasized the proper recording of transactions, the specific circumstances leading to the lower profit, and the absence of any material omission, ultimately ruling in favor of the assessee.