INCOME TAX ACT, 1961

Section 145

Accounting method - Disallowance made in respect of estimated gross profit - Estimation of income -

AO observed that gross profit ratio for the year under consideration, i.e., assessment year 2011-12 was at 4.23%. That prior to this, for the assessment year 2010-11, the assessee had gross profit percentage of 6.64% and AO wanted to ascertain the reasons from assessee that gross profit percentage which is reduced from 6.64% to 4.23% in this year from last year and therefore, assessee should explain fall of gross profit percentage in terms by substantiating with filing submissions with copies of sale bills to show that sale price is reduced from last year which was ultimately affecting the fall in gross profit percentage terms. AO adopted average gross profit of 4 years of the assessee after considering the gross profit in percentage terms which comes to at 6.81% and by considering this as benchmark and the fact that assessee had shown gross profit at 4.23%, fall in gross profit percentage was calculated by the assessing officer at 2.53% which comes to Rs. 48,27,215 which was added to total income. Held: Method adopted by AO was not justifiable. It was decided to take the G.P. ratio, for the purpose of addition, as an average of the G.P. ratio for assessment years 2009- 10 and 2010-11, i.e., of 6.64% and 4.50%, which comes to be at 5.57%. Assessee already offered the G.P. ratio at 4.23%. In view to meet both the ends of the justice, it was decided to take addition in G.P. percentage of 1.34%. Thus, the addition made by AO was partly allowed and partly deleted.

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 40A(2)

SUBSCRIBE FOR FULL CONTENT