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Facts
The assessee is in appeal against the order of the CIT(A) for assessment year 2019-20. The AO had rejected the assessee's books of accounts and estimated the GP at 20.92% after observing that the assessee did not produce the required details. The assessee deals in sale and purchase of fruits, which are perishable in nature.
Held
The Tribunal observed that the AO did not provide specific reasons or comparable cases to justify the higher GP rate of 20.92%, especially considering the perishable nature of fruits and the increase in turnover. The Tribunal held that the AO was not justified in estimating the profit at 20.92% without proper justification.
Key Issues
Whether the Assessing Officer was justified in rejecting the assessee's books of accounts and estimating the profit at a higher GP rate without adequate justification, considering the nature of the business.
Sections Cited
145(3), 144, 234A, 234B, 234C, 143(2), 133A
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Income Tax Appellate Tribunal, JODHPUR
Before: SHRI RAJPAL YADAVSHRI MITHA LAL MEENA, ACCOUNTNT MEMBER
PER RAJ PAL YADAV, VP The assessee is in appeal before the Tribunal against the order of ld. CIT(A) dated 26.06.2024 passed for assessment year 2019-20. 2. In response to the notice of hearing, Shri Shrawan Kumar Gupta has applied for an adjournment, however, looking into the smallness of the issue involved in the appeal as well as facts and circumstances, we did not grant adjournment and proceed to decide the appeal on merit.
The assessee has taken four grounds alongwith one sub- ground in Ground No.
In brief, his grievance is that ld. CIT(A) has erred in confirming addition of Rs.13,02,567/- which was added by the AO after rejecting the books of accounts of the assessee and estimating a higher rate of GP. The other grievance of the assessee is that ld. AO has erred in charging the interest u/s 234A, B and C of the Act.
With the assistance of ld. DR, we have gone through the record carefully. It emerges out from the record that assessee has filed his return of income electronically on 31.10.2019 declaring total income of Rs. 10,33,450/-. There was a survey conducted upon premises of the assessee u/s 133A on 31.10.2018. The case of the assessee was selected for compulsory scrutiny and a notice u/s 143(2) was issued and served upon the assessee. The ld. AO has observed that assessee did not produce books of accounts and other details during the course of hearing, therefore, these accounts are to be rejected and profit is to be estimated as per Section 145 sub-section (3) of the Income Tax Act. The AO has, accordingly, rejected the book results and applied GP rate at 20.92% as against 14.22% declared by the assessee. This rate of 20.92% was declared in the immediately preceding assessment year.
The appeal to the CIT(A) did not bring relief to assessee.
We have duly considered the contentions of ld. DR and gone through the record carefully. A perusal of Section 145 would reveal that this Section contemplates that income chargeable under the head "Profit and Gains from Business or Profession" or "Income from other sources" shall, subject to the provisions of sub-section (2) be computed in accordance with either cash or mercantile system of accounting, regularly implied by the assessee. Sub-clause (2) of this Section further provides the method of accounting required to be implied by an assessee. Sub-clause (3) of this Section further contemplates that if the AO is unable to deduce true income of an assessee from the accounts, then he would reject the book results and determine the income on an estimate basis. When an income is to be quantified on estimate basis, then AO is required to follow the procedure contemplated in Section 144 of the Income Tax Act. In the present case, assessee has contended that he has been maintaining regular books of accounts which are audited also. This submission has been noticed by the AO in paragraph No. 4 of the assessment order but the ld. AO was of the view that books of accounts and other details have not been submitted in response to the Show Cause Notice dated 07.01.2021 as well as 05.02.2021. The assessee has filed reply qua notice dated 11.02.2021 which was issued for the reason as to why income be not determined u/s 144 of the Income Tax Act. The AO has rejected the book results and estimated the GP equivalent to the one declared by the assessee in assessment year 2018-19. Thus, in above situation, there was no sufficient details before the AO for computing the income on the basis of accounts. The reply was given at the fag end. Therefore, the ld. AO has rightly rejected the accounts of the assessee.
1 It is pertinent to note that assessee is engaged in sale and purchase of fruits. According to the assessee, fruits are perishable in nature and if he failed to sell fruits in time, then they will over-ripe and will be required to be sold at a lesser price. In this year, turnover of the assessee has been 1.5 times more than the last year and due to this increase in the turnover, GP rate might have fallen down. The AO has not pin-pointed as to why a higher rate of GP is to be applied. He has not given any information gathered from the area regarding this nature of business nor he has given any other comparable cases of this assessment year. The past history is a relevant factor for determining the income on an estimate basis but it is to be kept in mind the peculiar nature of trading activity carried out by an assessee. The fruits and vegetables are such items whose profit margin depends upon quality, demand and supply in a particular time. Say for example, there is a bumper crop of a particular item of fruit, price will fall down and profit margin will reduce. Thus, AO was not justified in estimating the profit at 20.92%. At the most, a variation could be one or two percent in the result declared by the assessee. Therefore, we are of the view that ends of justice would meet if we adopt the rate of GP at 16% and apply to the total turnover disclosed by the assessee. The AO is directed to re-determine the income of the assessee by taking GP rate at 16%.
2 In view of the above discussion, appeal of the assessee is allowed.
In the result, appeal of the assessee is allowed. Order pronounced on.....17..06.2025. (MITHALAL MEENA) ACCOUNTNT MEMBER (RAJPAL YADAV) VICE PRESIDENT 'Poonam' आदेश की प्रतिलिपि अग्रेषित / Copy of the order forwarded to : 1. अपीलार्थी/ The Appellant 2. प्रत्यर्थी / The Respondent 3. आयकर आयुक्त/ CIT 4. विभागीय प्रतिनिधि, आयकर अपीलीय आधिकरण, / DR, ITAT, JODHPUR 5. गार्ड फाईल / Guard File आदेशानुसार/ By order, सहायक पंजीकार/