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As the assessee could not explain, Assessing Officer estimated profit ratio at 1.60% and added the same to returned income of the assessee. Aggrieved, assessee preferred appeal before CIT(A), who restricted the estimation of profit at 1% by giving following findings in his appellate order:
"6. The submission of the appellant has been duly considered in the light of material placed before me. The appellant disclosed gross profit of 0.56% on transportation receipts of Rs.5037.14 lakhs compared to last year's gross profit of 1.60% on a turnover of Rs.873.41 lakhs. The Ld. AR of the appellant though filed a statistic explaining that the appellant had paid higher rate of hire charges and received lesser rate of hire charges per MT compared to the last year but failed to mention under what circumstances the appellant was compelled to do so. This is precisely the point queried by the A.O. which the appellant failed to explain satisfactorily during the time of assessment and even during appeal proceedings. On the contrary, the A.O. though referred some cases where profit margin varied from 3.98% to 10.55%, but did not mention the turnover and nature of goods transported by them. In absence of these two vital points, the A.O. failed to establish that those were analogous cases. He ultimately preferred to apply the profit ratio of 1.60% disclosed by the appellant in the last year for estimation of current year's profit. However, while doing so, the A.O failed to consider that the turnover of the appellant for the current year has been increased by 5.73 times over last year. It is well established that with the increase of turnover, profit decreases. Thus, A,O's decision of application of last year's gross profit ratio on current year's turnover for estimation of profit cannot be considered reasonable. Considering all the issues as discussed above, in my opinion, it would be a fair and honest decision if the profit is estimated at 1% of the transportation charges receipts of Rs.50,37,14,220/-, equaling to Rs.50,37,142/-. The A.O. is directed accordingly. Thus, the appellant gets relief of Rs.30,22,.285/- (Rs.80,59,427/- minus Rs.50,37,142/-)."