AO cannot alter Gross Profit Rate applied by Assessee without objecting to Books of Accounts under Income Tax Act: Allahabad HC [Read Order]

In a recent case, the Allahabad High Court has held that under Income Tax Act, 1961, the Assessing Officer ( AO ) cannot change Gross Profit Rate applied by the assesee once the acceptance of books of accounts by the Commissioner of Income Tax (Appeals) [CIT(A)] has not been objected to by the Assessing Authority before the Income Tax Appellate Tribunal ( ITAT ).

The books of accounts of the assessee-respondent, the Mahabir Jute Mills Ltd was rejected by the Assessing Authority tinkered with the gross profit rate as declared by the assesee. The Assessing Authority held that certain expenditures were not disclosed in the books of accounts and accordingly, the books of accounts were held to be unreliable. Based on the gross profit rate of previous 3 years, the Assessing Authority made addition of Rs. 3 crores in the gross profit rate of the petitioner for the assessment year in question.

The Commissioner of Income Tax (Appeals) allowed the appeal and the order was confirmed by the Income Tax Appellate Tribunal. The Tribunal held that the vouchers of cash expenses were produced before CIT(Appeals) and only expenses under the heads ‘mess expenses’ and ‘travelling expenses of directors’ which were less than Rs. 1 lakh were not accounted for. Since all other cash expenditures were duly vouched, the addition of Rs. 25,48,011/- made by Assessing Authority was deleted.

The order of the ITAT was challenged before the High Court. The Court observed that based on the vouchers of cash expenses CIT(Appeals) had deleted the additions and no material had been placed to dispute the findings of the CIT(Appeals) which were affirmed by the Tribunal (the last fact-finding authority).

The division bench comprising of Justice Saumitra Dayal Singh and Justice Donadi Ramesh held that in the absence of any other objection found in the books of accounts of the assessee as may have been pressed before the Tribunal, there survives no room to reject the books of accounts of the assessee.

The court viewed that there is no intrinsic evidence to enhance the gross profit rate. “Once the books of accounts of an assessee are found accepted the Assessing Officer may have remained within the confines of his powers ad not disturbed the gross profit rate as that would remain in the nature of the result of the book entries and not an original entry by itself.” the court held.

The Court held that the finding of CIT (A) upholding the books of accounts of the assesee  were never challenged before the Tribunal. Accordingly, the appeal filed by the Department was dismissed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates