COMMISSIONER OF INCOME TAX LDH vs. SATISH BALA MALHOTRA & ORS

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ITA/233/2012HC Punjab & HaryanaPHHC01099309201230 August 20163 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the determination of the G.P. rate in this case was essentially a question of fact. The Court noted that the assessee's books were of higher quality, the assessee gave greater discounts, and its cost of production was higher due to factors like paper quality, size, and the use of more colours in its publications compared to M/s Pardeep Publication. The ITAT had accepted these differences and also observed that the assessee's G.P. rate had varied between 21% to 24% in earlier years, with the current year's rate of 25.34% not being erroneous. The Court found no indication that the discretion exercised by the CIT(A) and the ITAT regarding the G.P. rate was perverse or absurd. Therefore, the issue raised by the revenue did not constitute a substantial question of law. The appeal was dismissed.

What were the facts?

This is an appeal by the Commissioner of Income Tax (Central), Ludhiana (the revenue) against an order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 2006-2007. The appeal concerns the deletion of an addition of Rs. 2,69,00,000/- made on account of a low Gross Profit (G.P.) rate. The Assessing Officer (AO) had rejected the assessee's books of account, a decision later upheld by the ITAT, but the Commissioner of Income Tax (Appeals) [CIT(A)] had initially deleted the addition. The AO had adopted a G.P. rate of 41.50% based on M/s Pardeep Publication, a similar business. The ITAT, however, accepted the CIT(A)'s decision to accept the assessee's G.P. rate of 25.34% despite upholding the rejection of books.

What were the issues?

1. Whether the Hon'ble ITAT is right in law in upholding the order of the Ld. CIT(A) deleting the addition of Rs. 2,69,00,000/- made on account of low G.P. rate, especially in view of its own decision of upholding the rejection of books of account in terms of section 145(3) of the Income Tax Act, 1961 and reversing the decision of the Ld. CIT(A) on this ground but not upholding the consequential estimation of income by the AO even though there are serious defects in assessee’s accounts? (Question of law) Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The revenue argued that the ITAT erred in upholding the deletion of the addition on account of low G.P. rate, particularly since the ITAT itself had upheld the rejection of the assessee's books of account under Section 145(3). The revenue contended that despite the defects in the assessee's accounts, the ITAT did not uphold the consequential estimation of income by the AO.

Which sections of the Income-tax Act were involved?

Section 145(3)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA-233-2012 (O&M) Date of decision:- 30.08.2016 Commissioner of Income Tax (Central), Ludhiana ...Appellant Versus Smt. Satish Bala Malhotra and others ...Respondents CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, CHIEF JUSTICE HON’BLE MR. JUSTICE DEEPAK SIBAL Present:- Mr. Rajesh Katoch, Advocate, for the appellant. Mr. Pankaj Jain, Senior Advocate, with Mr. Sachin Bhardwaj, Advocate, and Mr. Divya Suri, Advocate, for the respondents. * * * * S.J. VAZIFDAR, C.J. (ORAL) This is an appeal against the order of the Tribunal in respect of the assessment year 2006-2007. 2. The appellant has raised four questions of law. Questions (ii), (iii) and (iv) are liable to be dismissed in view of our order and judgement dated 11.08.2016 in ITA-232-2012 titled as Commissioner of Income Tax (Central), Ludhiana Vs Smt. Satish Bala Malhotra and others. That matter was also between the same parties. 3. The facts, however, leading to the proceedings in this case are the same as those in ITA-232-2012. The same have been referred to therein. 4. This brings us to question (i) raised by the appellant which reads as under:- “(i) Whether the Hon’ble ITAT is

right in law in upholding the order Amodh Sharma 2016.09.01 11:59 I attest to the accuracy and authenticity of this document chandigarh

ITA-233-2012 (O&M) 2 of the Ld. CIT(A) deleting the addition of Rs. 2,69,00,000/- made on account of low G.P. rate, especially in view of its own decision of upholding the rejection of books of account in terms of section 145(3) of the Income Tax Act, 1961 and reversing the decision of the Ld. CIT(A) on this ground but not upholding the consequential estimation of income by the AO even though there are serious defects in assessee’s accounts?”

5.

At the outset, it may be noted that the Assessing Officer rejected the books of account, but the CIT (Appeals) upset that finding. The Tribunal, however, accepted the Assessing Officer’s rejection of books of account. Despite the same, the Tribunal accepted the CIT (Appeal’s) decision to accept the assessee’s G.P. rate of 25.34%.

6.

The Assessing Officer had adopted a G.P. rate of 41.50%. This was on the basis of the G.P. rate of M/s Pardeep Publication. M/s Pardeep Publication are also involved in the similar business. That, however, cannot be the only ground for the purpose of determining the G.P. rate. The CIT (Appeals) has dealt with the case of M/s Pardeep Publication in considerable detail. There are substantial differences between the assessee and M/s Pardeep Publication. The publications of the two were also produced before the authorities. Some of the important differences are as follows. The assessee’s books are of a higher quality. This was accepted even by the Assessing Officer. The assessee had given greater discounts on its books than that given by M/s Pardeep Publication. Moreover, its cost of production would be higher as the size of the paper used by M/s Pardeep Publication in one of its book was less than that of the paper used by the assessee. The increase in the cost of paper itself was 60%. The quality of the paper was also Amodh Sharma 2016.09.01 11:59 I attest to the accuracy and authenticity of this document chandigarh

ITA-233-2012 (O&M) 3 different the assessee having used thicker paper. There were more colours in the assessee’s publication which would in turn increase the cost of publication. The Tribunal accepted this approach and the finding.

7.

The Tribunal also noted that in the earlier years, the assessee’s G.P. rate varied between 21% to about 24%. In the year in question, it was 25.34%. The Tribunal did not, therefore, find the G.P. rate to be erroneous.

8.

From the above facts it is clear that the determination of the G.P. rate in this case was essentially a question of fact. There is nothing to indicate that the discretion exercised in this regard by the CIT (Appeals) and the Tribunal was perverse or absurd.

9.

The issue raised by the appellant, therefore, does not constitute a substantial question of law.

10.

The appeal is, therefore, dismissed. (S.J. VAZIFDAR) CHIEF JUSTICE (DEEPAK SIBAL) JUDGE 30.08.2016 Amodh Whether speaking/reasoned Yes/No Whether reportable Yes/No Amodh Sharma 2016.09.01 11:59 I attest to the accuracy and authenticity of this document chandigarh

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