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Income-tax Officer Versus Sai International

2013 (11) TMI 133 - ITAT DELHI

Addition on account of low Net profit ratio – Held that:- It is well-settled law that merely on the ground of low gross profit ratio, the addition to the assessee's returned income cannot be made - the Assessing Officer merely referred to the discount of 10 percent offered by retailers on the printed price but did not demonstrate as to how that affected the gross profit declared by the assessee. He had not brought on record any comparable case, wherein, the net profit declared by a tax payer in .....

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from – Decided against Revenue. - ITA No. 1406/Del/2012 - Dated:- 28-9-2012 - Order The order of the Bench was delivered by S. V. Mehrotra (Accountant Member).-This appeal filed by the Department is directed against the order of the learned Commissioner of Income-tax (Appeals) dated January 5, 2012 for the assessment year 2007-08. The assessee, in the relevant assessment year, was manufacturing foot wear and supplying its products to the retailers at the lower end of the market. It had filed its .....

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f books, the assessment was finalised on the basis of written submissions. He noted that the gross profit ratio was 18.49 percent and the net profit ratio was 0.71 percent He pointed out that the gross profit ratio and the net profit were very low as the retail trader generally allows 10 percent discount on maximum retail price printed on the packet of footwear. He pointed out that precisely for this reason the authorised representative was compelled not to produce the so called audited books. I .....

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ax (Appeals) at page 3 of his order as under: Assessment is made in contravention of section 145(3). The assessee was never asked to produce books of account. No comparable study has been done. No specific defects were pointed out. No empirical evidence was in possession of the Assessing Officer against the appellant. The learned Commissioner of Income-tax (Appeals) deleted the addition observing as under : After careful consideration of the facts of the case, the Assessing Officer has estimated .....

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rned Commissioner of Incometax (Appeals), the Department is in appeal before us and has taken following grounds of appeal : 1. On the facts and circumstances of the case, the Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs.17,48,874 made by the Assessing Officer on account of low net profit ratio. 2. Set aside the order of the Commissioner of Income-tax (Appeals) and restore the matter back to the Assessing Officer to reexamine the fresh evidence in a holistic manner. T .....

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but did not call for books of account. He further referred to page 15 of paper book, wherein extracts from Manual of Office Procedure, Volume-II (Technical), February, 2003, issued by the Directorate of Income-tax (Organisation and Management Services), Central Board of Direct Taxes, Department of Revenue, Government of India is contained. He pointed out that it has specifically been provided in the assessment procedure that the Assessing Officer is to call for the books of account. He submitted .....

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n account of low gross profit ratio. We have considered the rival submissions and have perused the record of the case. It is well-settled law that merely on the ground of low gross profit ratio, the addition to the assessee s returned income cannot be made. Even if, the assessee s profit and loss account is discarded by the Assessing Officer, it has to be examined whether the Assessing Officer adopted the rational basis for making the addition. In the present case, we find that the Assessing Off .....

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es. The hon ble Allahabad High Court in the case of CIT v. Ballabh Das and Sons has also observed as under : It may be mentioned that the Assessing Officer has rejected the books of account solely for the reason that the assessee have shown the lower net profit rate. During the assessment year under consideration, no other defect was mentioned. It may also be mentioned that the lower profit shown by the assessee by itself cannot be a ground for rejection of the books of account results, as per t .....

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