Mere fall in net profit rate by itself no ground to increase profit rate as compared to the preceding assessment years as profit cannot be static each year – ITAT
ABCAUS Case Law Citation:
ABCAUS 2598 (2018) (10) ITAT
The appellant assessee was aggrieved by the order of the CIT(A)
The assessee was a proprietor who derived income from business or profession. The assessee furnished various details in respect of computation of income and other relevant documents as called for which were verified by the A.O.
The AO noted that the assessee had shown only 1.34% net profit in assessment year under appeal as compared to 3.39% in the immediately previous year, thus there was a decline of 2.05% in the net profit sharing ratio.
The AO also noted that though the gross receipts/turnover of the assessee had increased by 3.87 times of the previous year and also there was an expenses increase of 1.65%, therefore, assessee was issued show cause notice as to why the assessment order should not be passed after increasing the net profit sharing ratio by 2.05% of the gross receipts/turnover.
The AO being not satisfied with the explanation of the assessee, increased the profit by 1% and made the addition.
The CIT(A) reduced the addition by 50% and restricted the addition.
The Tribunal opined that the addition was wholly unjustified.
The AO had recorded that assessee filed required documents and responded to the queries raised. The AO had not pointed out any defect in the documents submitted by the assessee in respect of income declared in the return of income. The books of account of the assessee have not been rejected by the A.O. No specific defects have been pointed-out in maintenance of the books of account by the assessee.
The Tribunal opined that mere fall in the net profit rate by itself is no ground to increase the net profit rate as compared to the preceding assessment year. The profit cannot be static each year. Therefore, there was no justification for the authorities below to increase the profit rate for the purpose of making the addition against the assessee.
The Tribunal set aside the Orders of the authorities below and deleted the entire addition.