Hitesh Trading Company Vs ITO (ITAT Kolkata)
The Income Tax Appellate Tribunal (ITAT) in Kolkata has ruled in favor of Hitesh Trading Company, allowing its appeal against an order that enhanced its Gross Profit (GP) rate. The ITAT’s decision effectively reverses the additions made by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals), or CIT(A). The central issue revolved around the validity of the AO’s arbitrary estimation of the assessee’s GP without providing a basis for comparison or rejecting the company’s books of accounts.
The case originated when the AO, based on information from the Sales Tax Department of West Bengal alleging sales suppression, decided to enhance Hitesh Trading Company’s GP. The company had reported a GP of 0.79%, which the AO deemed too low compared to similar businesses. Without citing any specific comparable cases or rejecting the company’s books of accounts under Section 145 of the Income Tax Act, 1961, the AO unilaterally estimated the GP at 5% and made an addition of Rs. 58,76,520.
The assessee challenged this addition before the CIT(A), but the appeal was unsuccessful. The CIT(A) confirmed the AO’s action, cryptically stating that the assessee should have provided better documentation and established its claim using the GP of comparable enterprises. This finding was a key point of contention for the assessee, who then appealed to the ITAT.
