AO cannot take the position of Businessman to Replace his Strategy Irrationally: ITAT deletes Additions [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition made by the Assessing Officer without any justification or appealing basis in light of the Principal Tax Jurisprudence that the Assessing Officer cannot sit in the armchair of the businessmen irrationally substituting his strategy.

The bench of Pradeep Kumar Kedia and Chandra Mohan Garg said that they had decided not to challenge the findings of the Commissioner of Income Tax (Appeals)[CIT(A)] because they could not identify any ambiguity, perversity, or any good justification to do so.

The appeal was filed by the revenue department against the assessee Ashish Bansal against the order of the CIT(A).

Kanav Bali, the Department Representative submitted that the CIT(A) granted relief to the assessee without any justified reasoning and basis, therefore, the impugned order may be set aside by and the order of the Assessing Officer may be restored.

While supporting CIT(A)'s decision, the department representative noted that other market participants typically have GPs of around 1% in similar trades with nearly identical turnover, which unambiguously showed there was a leakage of revenue in the assessee's operations from a tax perspective.

It was challenging to estimate the precise amount of leakage, the AO was correct to apply the GP rate of 1% to the assessee's turnover, stated the representative of the department.

The counsel of the assessee submitted that the CIT(A) was correct to remove the addition made by the AO without any basis because, in this case, the AO proceeded to estimate the assessee's income under best judgement assessment by taking 1% of the total turnover as opposed to 0.41% as declared by the assessee, in violation of Section 145(3) of the Income Tax Act, 1961.

The bench observed that the Assessing Officer has not disputed the financial statements and books of accounts of the assessee which were duly audited by the competent auditor and there is no finding in the assessment order that the appellant has failed to submit requisition documentary evidence and explanation with respect to claims made in the return of income arising from books of accounts maintained by him.

The Assessing Officer's main argument for raising the GP rate from 0.41% to 1% of turnover is that, despite a large increase in the jewellery segment's turnover, the GP rate was unusually reduced.

The Tribunal stated that the AO's approach without any additional supporting information or evidence, only on a stand-alone basis, is not correct and justified. The AO only noted the abnormal decline in the Gross Profit rate of jewellery without pointing out any flaws or discrepancies in the assessee's audited books of accounts.

Advocate Ved Jain and Ms Supriya Mehta, CA appeared for the respondent-assessee.

To Read the full text of the Order CLICK HERE

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