BHUPINDER MACHINES PVT. LTD,AMRITSAR. vs. THE DY COMMISSIONER OF INCOME TAX, AMRITSAR.

I heard the parties and perused the record. The assessee is engaged in the business of manufacture of machines and components of tractor parts. During the course of assessment proceedings, the AO noticed that the gross sales and gross profits has fallen during the year under consideration when compared with the immediately preceding year. The GP ratio was shown at 14.13% during the year

The AO further noticed that the assessee has exported goods to M/s. Land Craft Industries Ltd. Nigeria on two occasions for a value of US $69700 and US $65000. The AO noticed that the assessee has accounted Rs.69,70,000/- as sale consideration at Indian rupee value in respect of the above said two invoices in its books of account. The AO noticed from the shipping documents furnished to the Custom authorities that the assessee has declared the sale value of above two exports at Indian rupee value of Rs.72,08,840/-. Accordingly the AO took the view that the assessee has suppressed the value of sales in its books of accounts and accordingly added the difference of Rs.2,38,840/- (Rs.72,08,840 less Rs.69,70,000/-) to the income of the assessee.

In the appellate proceedings, in respect of lump sum addition of Rs.5.00 lakhs on account of G.P difference, the Ld CIT(A) took the view that the AO was not justified in making addition on lump sum basis. He took the view that AO should have estimated gross profit by applying a gross profit rate. Accordingly the Ld CIT(A) adopted the GP rate of 14.21%, being the G.P rate shown by the assessee in the immediately preceding year, during the instant year also and calculated the gross profit. The difference between the gross profit amount worked

The first issue relates to the addition of Rs.76,649/- relating to the addition of gross profit. I noticed that the assessee has been following a consisting method of valuing of finished stock and the semi finished stock for the past several years. The Ld AR submitted that the gross profit margin of the assesee is taken at 14% for the purpose of valuation of stock. Accordingly, the finished stock is valued at 86% of the sale value of the machines. The semi finished stocks are classified into two categories according to the stage of completion of the machines. The first category is 75% and second category is 50% depending upon stage of completion of machines. Accordingly, in respect of 75% category, their value is computed at 75% of the 86% of the sales value of machines. In respect of 50% category, the value of semi finished stock is computed at 50% of 86% of sale value of machines. The Ld A.R further submitted that this valuation of method has been accepted by the Assessing Officer in the past. I noticed that the Assessing Officer, in the instant year, did not bring on record any material in not to show that the above said method of valuing closing stock followed by the assessee does not result in showing the correct amount of profit. It is well settled proposition that the method of accounting consistently followed by the assessee should be accepted unless the AO is able to show that the same is not resulting in determination of correct amount of profit. In the instant case, the AO has not demonstrated so. Accordingly, in the facts and circumstances of the case, I am of the view that the tax authorities are not entitled to reject the method of valuation adopted by the

The next issue relates to the addition made on account of suppression of sales. I noticed that the sales value shown in dollars terms is the same both in the sales invoice and in the shipping bills furnished to the Customs authorities. The difference pointed out by the AO has arisen on account of fluctuation in the rates of US $, i.e., due to the difference in the conversion rate of the dollar into rupee value. It is in the common knowledge of everyone that the value of dollar in rupee terms fluctuates day by day and also in between the day itself. Hence the difference pointed out by the Assessing Officer is on account of fluctuation of dollars and hence the same is “notional one”. Accordingly I am of the view that the said difference cannot be considered as suppressed sales value. Accordingly I am of the view that the Ld CIT(A) was not justified in confirming this addition. Accordingly I set aside the order passed by Ld CIT(A) and direct the AO to delete the addition relating to sales suppression.

In the result, the appeal filed by the assessee is allowed.