ITAT refuses Estimation of GP Enhancement made by AO without Considering comparable case [Read Order]

Hitesh Trading Company,appellant-assessee, challenged an addition of Rs. 58,76,520/- made by the AO by increasing the GP from 0.79% reported by the assessee to 5%. The AO relied on information from the Sales Tax Department of West Bengal indicating possible suppression of sales and noted that the GP was lower than that of similar businesses.

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However, he did not refer to any comparable cases or reject the books of accounts before making the addition. The assessee appealed, but the appeal was dismissed, with the authority observing that the assessee should have provided better documentation and demonstrated the claim through GP of comparable enterprises.

The assessee counsel argued that the assessee was not required to justify the GP rate declared and that it was for the AO to prove that the rate was low compared to similar businesses. It was pointed out that the books of accounts were not rejected under section 145 of the Act, making the addition legally invalid.

The counsel also noted that the Commissioner of Income Tax (Appeals)[CIT(A)] gave inconsistent findings, as parts of the order appeared to agree with the assessee but ultimately upheld the addition.

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The Departmental counsel supported the orders of the lower authorities.

The two member bench comprising Sonjoy Sarma (Judicial Member) and Sanjay Awasthi (Accountant Member) considered the submissions and records and held that the AO’s action could not be sustained since the books were not questioned. It noted that the AO had not doubted the sales or purchases and had not used comparable cases to justify a higher GP rate.

The tribunal therefore granted relief to the assessee and allowed the appeal.

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