DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI vs. TVM EDIBLE OIL REFINERIES, GUMMIDIPOONDI

आदेश / O R D E R

PER PADMAVATHY.S, A.M: These appeals by the Revenue are against the separate orders of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") both dated 09.12.2025 for Assessment Years (AYs) 2022-23 & 2023-24.

ITA Nos.414 & 415/Chny/2026 TVM Edible Oil Refineries :- 2 -: for scrutiny and the statutory notices were duly served on the assessee. The assessee has submitted various details as called for by the A.O. The A.O issued the show cause notice with regard to the reduction in the gross profit percentage. The assessee submitted that there is no fixed margin in the business of edible oil and the profitablility is subject of heavy fluctuation in prices due to various reasons such as government policies on taxes, import duty, forex fluctuations etc. With regard to the query on the submission of stock register, the assessee furnished the quantitative details of stock which the A.O rejected. The A.O proceeded to estimate the income of the assessee by holding that: “4.2.3. Further, in the tax audit report of the assessee, noQuantitative details of principal items ofgoods traded orraw material aswell as finishedgoods havebeen reported.At the fag end of March, the assessee has furnished quantitative details of principal items of goods traded which cannot be verified at this point of time. In this regard, the inference is hereby drawn that the assessee has not maintained proper stock register and has not submitted the same. Therefore, non-maintenance of proper stock register is sufficient ground to reject the books of accounts of the assessee and recalculate the gross profit of the assessee. The relevant column of the audit report with regard to details of principal items of goods traded or raw material is not reported and found blank. This contention finds support from auditor’s from audit report. 4.2.4. The assessee was specifically asked to furnish the details related to net profit ratio and gross profit ratio vide issuance of notice u/s 142(1) of the Act on 14.03.2024. However, the assessee has not furnished any proper/authentic information/details related to net profit ratio and gross profit ratio with the stipulated time. Therefore, in the absence of any submission from the assessee, the average of gross profit ratio of two previous Financial Years have been compared to arrive at average of gross profit to turnover ratio which has been tabulated below: Particulars AY 2021-22 AY 2020-21 Average in percentage Gross 3.16 1.91 2.535% Profit/turnover (%)

ITA Nos.414 & 415/Chny/2026 TVM Edible Oil Refineries :- 3 -: “06. Analysis and Adjudication:- 6(a). I have carefully considered the facts and circumstances of the case. I have also considered the assessee’s submissions. The appellant is a partnership firm engaged in the business of trading and refining of edible oils, mainly Palmolein Oil. For the assessment year 2022-23, the return of income was filed declaring total income of Rs.1,82,52,700/-. The case was selected for scrutiny under CASS and during assessment proceedings, notices u/s.143(2) and 142(1) were issued and several details such as audit report, financial statements, bank statements, purchase register and stock details were furnished. The Assessing Officer noted that the PBDIT ratio for the relevant year was 1.81% as compared to average of 2.535% for two preceding years and held that the assessee failed to justify the decline. Further, the AO observed that quantitative details were furnished at a later stage and were not verifiable. Accordingly, the books of accounts were rejected and gross profit was recomputed by applying an average GP rate of 2.535%, resulting in an addition of Rs.4,15,89,178/-. Aggrieved, the appellant has challenged the rejection of books of accounts and the consequent addition. 6(b). The appellant contended that: • The rejection of books is arbitrary and not in accordance with law; • No specific defect or discrepancy was pointed out in the audited books of accounts; • Quantitative details were furnished within a reasonable timeframe and mere timing cannot be a ground for rejection; • The Learned AO failed to invoke or satisfy the conditions laid down u/s.145(3) of the Act; • The fall in PBDIT ratio was due to normalization of business conditions after a year of abnormal windfall profits during the pandemic period; • Comparison with an extraordinary year having inflated margins is not justified; • Additions were made purely on the basis of surmises, suspicion and business strategy difference, without any incriminating evidence. The appellant relied upon several judicial precedents to contend that low GP alone, without defects in books, cannot justify rejection and estimation of income. 6(c). The issues arising for adjudication are:

ITA Nos.414 & 415/Chny/2026 TVM Edible Oil Refineries :- 4 -: (i) Whether the Assessing Officer was justified in rejecting the books of accounts of the appellant? (ii) Whether the addition made on account of recomputation of gross profit on the basis of average PBDIT ratio is sustainable in law?

6(d). On careful consideration of the assessment order and submissions, it is observed that the Learned AO rejected the books primarily on the ground that quantitative details were furnished at the fag end of the assessment proceedings and were allegedly not verifiable. However, it is not disputed that the books of accounts were duly audited and regularly maintained. It is also not the case of the AO that any specific discrepancy, error or manipulation in purchases, sales, stock or expenses was detected during the course of assessment.

Section 145(3) of the Income Tax Act, 1961 mandates that rejection of books can be made only when the Assessing Officer is not satisfied about the correctness or completeness of the accounts or accounting standards are not followed. In the present case, the AO has neither recorded a clear dissatisfaction nor brought on record any tangible defect so as to invoke the provisions of section 145(3). Mere delay of few days in furnishing quantitative details, especially when the details were ultimately produced, cannot be treated as sufficient ground to discard the entire books of accounts maintained by an assessee.

Judicial precedents have consistently held that non-maintenance of day-to-day stock register is not by itself a legal ground for rejection of books, particularly when the accounts are audited and no discrepancies are found. Therefore, the rejection of books of accounts in the instant case is found to be not in accordance with law.

6(e). The Assessing Officer has re-computed the gross profit merely by applying the average of PBDIT ratios of two preceding years. It is evident that one of the years reflected extraordinary profit margins due to exceptional market conditions during the Covid-19 pandemic, resulting in windfall profits. The appellant has effectively demonstrated that the PBDIT ratio for FY 2019-20, which represents a normal business year, was 1.91%, which is closely comparable to 1.81% for the year under appeal.

It is settled law that the Assessing Officer cannot substitute the business strategy of the assessee with his own perception and force a higher margin merely because profits appear low. Unless there is material evidence of suppression of sales or inflation of expenses, mere fluctuation in profit margin cannot justify estimation of income. The action of the AO is thus purely based on suspicion and presumption rather than concrete evidence.

ITA Nos.414 & 415/Chny/2026 TVM Edible Oil Refineries :- 5 -: Further, it is well established that low GP, without rejection of books in a lawful manner and without pointing out defects, cannot be a ground for making additions. In view of the facts and judicial position, the addition made by the Assessing Officer on this count is found to be unsustainable. 6(f). In view of the above discussion and considering the facts, circumstances and judicial precedents, it is held that: • The rejection of books of accounts by the Assessing Officer is unjustified and bad in law; • The recomputation of gross profit based purely on average PBDIT ratio of preceding years is arbitrary and lacks legal foundation; • The addition of Rs.4,15,89,178/- made on account of alleged low PBDIT is hereby deleted. Accordingly, the addition made by the Assessing Officer stands deleted. In the result, the appeal of the assessee is FULLY ALLOWED.”

ITA Nos.414 & 415/Chny/2026 TVM Edible Oil Refineries :- 6 -: 6. The Ld. Authorized Representative (AR) of the assessee, on the other hand, submitted the following table with regard to gross profit margins declared by the assessee for the earlier and subsequent years:

ITA Nos.414 & 415/Chny/2026 TVM Edible Oil Refineries :- 7 -: proportionate to the increase in the turnover. Further, the assessee before the A.O has submitted that a windfall profit percentage for year ended 31.03.2021 is due to the exceptional market conditions during Covid-19 pandemic. It is noticed from the assessment order that the assessee has furnished the quantitative details of the items traded which has not been considered by the A.O for the reason that it is submitted at the fag end of March and that the assessee has not maintained the regular stock register. It is further noticed that the books of accounts are rejected solely on the ground that the assessee has not submitted the stock register. It is relevant to mention here that the A.O has not considered the fact that the assessee's books of accounts are subject to audit. From the perusal of the overall findings of the A.O, we notice that the main reason for estimating the income is that the profit percentage as compared to AY 2021-22 has come down from 3.16% to 1.81% percent. However, the A.O while doing so has not considered the fact that the assessee's profit for the year ended 31.03.2020 stood at 1.41% which the A.O himself has considered for averaging the estimated profits. The CIT(A) while deleting the addition has given an elaborate finding that with regard to the A.O estimating the profit without considering the business exigencies and the market conditions. In view of these discussions, we are of the considered view that there is no infirmity in the decision of the CIT(A) in deleting the addition made by the A.O on estimation basis merely on the basis that there is reduction in the GP percentage of the assessee. Therefore, we reject the ground of the revenue raised in this regard. 9. From the perusal of the facts pertaining the AY 2023-24, we notice that the A.O has made the addition on the same ground as in AY 2022-23 and has arrived at the estimated GP percentage on the same basis i.e., average GP percentage of earlier two AYs. Therefore, in our considered view our decision in AY 2022-23 based on the reasons as elaborated herein above is mutatis

ITA Nos.414 & 415/Chny/2026 TVM Edible Oil Refineries :- 8 -: mutandis applicable to AY 2023-24. Accordingly, we see no reason to interfere with the decision of the CIT(A) in deleting the addition made by the A.O for the same reason as mentioned in his order for AY 2022-23.

Sd/- Sd/- (जॉज� जॉज� के) (पदमावती यस) (Padmavathy.S) (George George K) उपा�� / Vice President लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य चे�नई/Chennai, �दनांक/Dated: 10th July, 2026. EDN, Sr. P.S EJTADA Digitally signed by EJTADA DURGA आदेश क� �ितिल�प अ�े�षत/Copy to: DURGA NARESH 1. अपीलाथ�/Appellant Date: 2026.07.15 NARESH 11:31:52 +05'30' 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF