Addition based on GP Rate: ITAT reduces addition from 2.26 Crore to 2 Lakh

Raj Auto Wheels (P) Ltd Vs ACIT (ITAT Jaipur)

Introduction: In the recent case of Raj Auto Wheels (P) Ltd vs. ACIT (Income Tax Appellate Tribunal, Jaipur), the Tribunal carefully examined the facts, arguments from both parties, and relevant legal precedents. The case primarily revolves around the addition of advances received from customers in the assessment years 2010-11 to 2013-14, totaling Rs. 2,19,27,275/-. The assessing officer enhanced the declared sale amount of Rs. 40.48 crore by 12.15%, resulting in an impugned addition of Rs. 2,06,46,689/-.

Suppression of Sale Allegation: The Tribunal found that the enhancement made by the assessing officer was not justified, as it was based on a grossly insufficient sample size of 113 cases out of a total of 1459 customers. The assessee argued that there was no suppression of sale, citing differences in the representation of sale considerations in invoices and ledger accounts. The Tribunal agreed, stating that the minor variations presented did not substantiate the substantial enhancement made by the assessing officer. The authorities failed to provide strong evidence to support the claim of suppression of sales.

Deferment of Sale: The Tribunal rejected the contention of the revenue regarding the deferment of sales, citing previous findings in the appeal for the assessment year 2010-11. It emphasized that the mere suspicion of such deferment, without substantial evidence, was not sufficient to support the revenue’s case.

Application of Gross Profit (GP) Rate: The assessing officer applied a GP rate of 3.25% based on the declared GP rate of 0.05% and a case of Rellan Motors Pvt. Ltd for AY 2013-14. The Tribunal found the application of a subsequent year’s result unjustified and, even in that case, the assessee was not confronted with the material used against them. The Tribunal supported the assessee’s claim of a revised GP rate of 4.20%, considering target incentives, turnovers, cash discounts, warranty, etc. The GP rate declared by the assessee was considered justified, and the enhanced rate of 3.25% was rejected.

Please become a Premium member. If you are already a Premium member, login here to access the full content.