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2020 (7) TMI 172 - AT - Income TaxRejection of books of accounts - estimation of gross profit - AO proceeded to estimate the gross profit of the assessee at 12.78% as against actual gross profit ratio of 11% claimed by the assessee in its books of account - HELD THAT:- Earning of GP/NP ratio at any business house is not a mechanical process to be consistent in all the years as it depends upon numerous factors prevailing during the particular assessment year. When we examine net profit ratio earned by the assessee during the AYs 2007-08 to 2011-12 as depicted in table in preceding para no.5 of this order, it has never been consistent and is at variance. Even during the year under assessment, assessee’s turnover has gone up and has shown GP ratio of 11% as against 8.22% of AY 2010-11. In case, we follow the decision rendered by coordinate Bench of the Tribunal in assessee’s own case for AY 2010-11 by taking average of current year and two consecutive years in order to estimate the net profit ratio, assessee’s own results would have come down. So action of AO/CIT(A) rejecting the books of account u/s 145 (3) is upheld. We are of the further considered view that GP ratio is required to be estimated keeping in view the historical background from AYs 2007-08 to 2011-12. So, we deem it fit to adopt the net gross profit ratio for the year under assessment by taking average of the current year as well as four preceding assessment years i.e. AYs 2007-08, 2008- 09, 2009-10 & 2010-11 which comes to 11.31%. AO is to quantify the gross profit ratio accordingly and to recompute the addition to be made in this case. We are of the considered view that since the Bench has preferred to proceed with GP addition on the basis of average of the current year and four earlier assessment years, the remaining other additions made by AO/confirmed by the ld. CIT (A) on account of disallowance of commission, on account of fines & penalties and on account of interest on FDR respectively do not call for any separate addition, hence deleted. - Appeal filed by the assessee is allowed.
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