Accounts

Determination of gross profit — Arriving at the gross profit and working out the GP to compare with the profit earned on transactions by considering sales to group concerns and others as a basis and giving credit for only purchases from such group concerns and others, respectively, is not a scientific method of comparison, as held by MumTrib in Prism Jewellery v ITO — In favour of: The assessee; ITA No 8709/Mum/2010: (AY 2006–2007).

Merely because the assessee has not reconciled the use of raw materials and the price at which its goods were sold, it cannot be held that the assessee has declared higher profits to claim the deduction under s 10A

Unexplained investment — The provisions of s 69 applies only when the investments were not recorded in the books of accounts and the assessee has not offered any explanation for the nature and source of the investments.

The question of the unexplained investment outside the books of accounts does not arise when the books itself have accounts purchases and payments through cheques.

When the assessee has recorded the transaction in the books of accounts, and the mistake in representing the caratage of diamonds purchased by the Tax Auditor was also properly reconciled, there is no scope for any addition of unexplained investment.

Decided on: 30 June 2011.