M/S BHARAT INDUSTRIES,KOLKATA vs. ACIT,CIRCLE-48, KOL, KOLKATA

The only issue to be decided in this appeal is as to whether the ld CITA is justified in upholding the addition made towards net profit in the sum of Rs.2,38,719/- in the facts and circumstances of the case.

Brief facts of this issue are that the assessee is a partnership firm engaged in the business of manufacturer of fasteners. The return of income for the AY 2009-10 was filed electronically on 16.09.2009 disclosing taxable income of Rs.19,37,489/-. The assessee had reported gross turnover of Rs.12,43,54,759/-; gross profit of Rs.89,87,993/- which works out to 7.24% of gross turnover and net profit of Rs.19,37,489/- which works out to 1.56% of turnover. The assessee produced the books of account and relevant bills and vouchers before the AO which were test checked. The AO made a comparison of the gross profit and net profit declared by the assessee vis-à-vis immediately preceding previous year and found that net profit during the year had dropped by .09% and accordingly resorted to estimate the net profit at 1.75% as against 1.56% of the total turnover thereby making an addition of Bharat Industries, AY 2009-10 Rs.2,38,719/- in the assessment, which action was also upheld by the Ld. CIT(A) in first appeal. Aggrieved, assessee is in appeal before us on the following sole effective ground: “2. For that the appellant had explained the trading result and had contended that the addition made by the AO of an amount of Rs.2,38,719/- was totally uncalled for and that the Ld. CIT(A) ought to have properly appreciated the contentions raised by the appellant and ought to have deleted the addition as the same was totally uncalled for.”

The Ld. AR argued that the books of account were produced before the AO which were not rejected and in such a scenario resorting to estimation of net profit is not warranted. In response to this, the Ld. DR vehemently relied on the order of Ld. CIT(A).

We have heard the rival submissions and perused the materials available on record. We find lot of force in the argument of the Ld. AR that without resorting to rejection of books of account by pointing out any specific defect thereon the AO cannot resort to any estimation of profits and accordingly, we are declined to accept the action of AO. We hereby direct the AO to delete the addition made towards estimation of net profit. Accordingly, the ground raised by assessee is allowed.

In the result, the appeal of the assessee is allowed.