Profit ratio of previous years of the assessee can be compared without recourse to third party’s ratios – Raj HC


CIT v Jaimal Ram Kasturi [D.B. IT APPEAL NO.145 of 2006] – Rajasthan High Court

Background:

The assessee is engaged in liquor business and during the period relevant to assessment year 1991-1992, the income of the assessee was assessed at Rs.4,15,32,865/- as against the declared profit of Rs.3,87,66,937/- by adopting a net profit rate of 20.5% as against the declared rate of 19.13% after rejecting the books of accounts of the assessee, under Section 145 of the Act.

The AO held that the profit of the country liquor business of the assessee had to be determined in comparison with other analogous assessee engaged in the same line of business because considering the stiff competition for acquiring monopoly rights, it could be reasonably presumed that the assessees were likely to have profit comparable with each other. The AO compared the case of the assessee with a contractor of the adjoining area, M/s Malu Khan & Party, Bikaner, who had shown the net profit at 22.70% for the period in question; and assessed the assessee by taking 20.5% net profit instead of 19.13% as declared by him.

ITAT’s decision:

  • Business of the assessee has been totally controlled by the Department of Excise, Government of Rajasthan. Naturally there are no chances of suppression of sales/ purchases, rather the assessee has to suffer a compulsory deposit for not lifting the contracted amount of IMFL/BEER etc.
  • Be that as it may, no suppression of purchases or sales have been alleged by AO in this case.
  • The only suspicion is that the Assessee may have been charged more sale price than recorded.
  • From all the angles, be it gross profit on sales, net profit on sales or net profit on outgoings, the respective declared results are better than the assessed rates of GP, NP on sales, NP on outgoings in the past year.
  • The accepted past history is the best guide. And when the assessee has declared the better results from all angles as stated above, the declared results have to be accepted and no additions can be made therein.

HELD:

  • The CIT(A) has given cogent reason for not endorsing the approach of the AO in making assessment with reference to the case of another assessee after finding it to be not a directly comparable case and hence, not a safe guide more particularly, when assessee’s past history was available and there was no material difference in the facts pertaining to the relevant assessment year and the past history year.
  • The Tribunal cannot be faulted in accepting the profit rate as declared by the assessee while not approving the rate as applied by the AO.
  • The order as passed by the Tribunal does not appear suffering from any perversity or from the application of any wrong principle so as to call for interference.

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