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Facts
The Assessing Officer added Rs. 58,76,520 by enhancing the Gross Profit (GP) rate from 0.79% to 5.0%, based on information of suppressed sales from the Sales Tax Department and the GP being lower than similar businesses. The assessee appealed, arguing that the AO did not reject the books of accounts under Section 145 and failed to provide comparable cases to justify the GP enhancement.
Held
The Tribunal held that the AO's action was not sustainable as he neither doubted the book results (sales and purchases) nor relied on comparable cases for the GP rate enhancement. It was emphasized that an addition based on GP enhancement without rejecting the books of accounts under Section 145 lacked legal validity.
Key Issues
Whether the Assessing Officer can enhance the Gross Profit rate without rejecting the books of accounts under Section 145 of the Income Tax Act, and without providing comparable cases or doubting the recorded sales and purchases.
Sections Cited
250, 145
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Hitesh Trading Compnay, 10, B.R.B. Road, Kolkata - 700001 [PAN: AAFFH2800J] ……..…...…………….... Appellant vs. ITO Ward 34(3), Kolkata, Aayakar Poorva, 110, Shantipally – 700107 ................................ Respondent Appearances by: Assessee represented by : Ashish Rustagi, AR Department represented by : Amuldeep Kaur, Addl. CIT, Sr. DR Date of concluding the hearing : 18.08.2025 Date of pronouncing the order : 26.08.2025 O R D E R
PER SANJAY AWASTHI, ACCOUNTANT MEMBER
This appeal arises from order dated 30.07.2024, passed u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”) by the Ld. Commissioner of Income Tax (Appeals), (hereafter “the Ld. CIT(A)], National Faceless Appeal Centre (NFAC), Delhi.
1.1 In this case, the Ld. AO is seen to have added an amount of Rs. 58,76,520/- by enhancing the GP from 0.79% shown by the assessee to 5.0%. The logic given for such enhancement was that some information was received from the Sales Tax Department of West Bengal to the extent that there was suppression of sales by the assessee. Thereafter, the Ld. AO has mentioned that the GP shown by the assessee was on the lower side as compared to other businesses of similar nature. It is important to note Hitesh Trading Company at this stage that the Ld. AO did not mention any comparable case before arriving at an estimation of GP to the extent of 5%. Also, the Ld. AO has not rejected the books of accounts before making the impugned addition.
1.2 The assessee carried this matter in appeal where also he could not succeed on the ground of a cryptic finding in para 6.4 of the impugned order to the extent that the assessee should have presented better documents and should have established his claim on the basis of comparable GP of similar enterprises.
1.3 Further aggrieved, the assessee has filed the present appeal with the following grounds:
“1. That on the facts and in the circumstances of the case the order passed by the Ld. Commissioner of Income Tax (Appeal) NFAC U/S 250 of the Income Tax Act 1961 against the order appeal against vide DIN & Order No: ITBA/NFAC/S/250/2025- 25/1075574024(1) is bad in law.
That the Ld. Commissioner of Income Tax (A), NFAC had erred in confirming the enhancement of Gross Profit by the Ld. Assessing Officer without rejecting the books of accounts.
3. That the appellant craves leave to add, amend, alter, vary and/or withdraw any or all the above Grounds of Appeal
.”
2. Before us, the Ld. AR vehemently argued and stated that it was not the responsibility of the assessee to justify the GP rate shown by him rather it was incumbent on the Ld. AO to make out a case of low GP as compared to other similarly placed businesses. The Ld. AR also pointed out that the books of accounts were not rejected u/s 145 of the Act and hence the addition made had no legal validity. The Ld. AR also pointed out that the Ld. CIT(A) has given very confusing findings where at least in para 6.2 and 6.3 and even some part of para 6.4 it appears as if he is convinced by the assessee’s arguments and then suddenly he confirms the actions of Ld. AO.
2.1 The Ld. DR relied on the orders of authorities below.
We have carefully considered the rival submissions and have gone through the records before us. Right at the outset, it deserves to be held Hitesh Trading Company that the action of Ld. AO cannot be supported since he has not doubted the book results. The Ld. AO has not expressed any doubt on the sales and purchases shown by the assessee and he has also not relied on comparable cases for working out an appropriate GP rate over and above whatever was disclosed by the assessee. On this ground alone, the assessee deserves relief and the same is granted to him.
In result, this appeal is allowed.
Order pronounced on 26.08.2025