MURLIDHAR RAMGOPALJI BHAIYA,MALEGAON vs. THE INCOME TAX OFFICER, WARD-1, MALEGAON

This appeal by the assessee arises out of the order dated 16-02-2023 passed by the CIT(A) in National Faceless Appeal Centre, Delhi u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2012-13.

The only issue raised in this appeal is against the confirmation of addition of Rs.9,30,643/- made by the Assessing Officer (AO) by enhancing the GP rate.

Succinctly, the facts of the case are that the assessee is an individual engaged in the business of Manufacturing and Trading of Grey Cloth. Return was filed declaring total income at Rs.4,40,435/-. During the course of assessment proceedings, the AO observed that GP rate of 0.63% for this year was low as against the immediately preceding year’s GP rate of 0.88%. He rejected the books of account on account of such fall in GP rate and applied the increased GP rate by 1.03%. No relief was allowed in the first appeal, against which the assessee has approached the Tribunal.

Having heard the rival submissions and gone through the relevant material on record, it is seen that the assessee has regularly maintained books of account, which is evident from the Audit report furnished before the Tribunal containing quantitative details of items. The AO has rejected the books of account simply on the ground that the GP rate was lower in the year under consideration. Such a course of action adopted by the AO cannot be countenanced. Mere fall or increase in the GP rate cannot be a reason to reject the books of account. Rather increasing the GP rate in assessment may be a consequence of a valid rejection of books of account not properly maintained. Here the position is entirely contrary wherein the AO has rejected the books of account simply on the ground that the GP rate in this year was low. When I consider the amount of turnover during the year at Rs.23.26 crore vis-à-vis the preceding year’s turnover at Rs.14.77 crore, it clearly emerges that there is an increase of around 50% of the turnover and the GP rate has declined marginally from 0.88% to 0.63%. I, therefore, overturn the impugned order and direct to delete the addition.

In the result, the appeal is allowed. Order pronounced in the Open Court on 16th May, 2023.