Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI B. RAMAKOTAIAH
PER B. RAMAKOTAIAH, A.M. :
This is an appeal by Revenue against the order of the Commissioner of Income Tax (Appeals)-2, Hyderabad, dated 30-03-2016.
Condonation of delay:
The appeal was preferred by the Revenue with a delay of 172 days. The Assessing Officer (AO) filed an affidavit stating that the order of the CIT(A) was received on 11-05-2016, but the authorization from the CIT for preferring the second appeal
ITA No. 1747/Hyd/2016 :- 2 -:
was received on 12-12-2016 due to absence of Pr.CIT on account of transfer and also busy work schedule due to income declaration Scheme, 2016. Considering the affidavit and reasons stated therein, we hereby condone the delay as there is sufficient cause for preferring the appeal belatedly.
The only issue raised by the Revenue in the appeal is with reference to relief granted by the CIT(A) in the order.
Briefly stated, while completing the assessment, AO was of the view that assessee did not substantiate the Administrative Expenditure which has increased manifold during the year and based on the assessment completed in the case of sister concern, he estimated the income at 4% of the turnover, rejecting the books of account.
Before the Ld.CIT(A), it was contended that AO did not find out any mistakes in the books of account nor has given any reasons why the book results are to be rejected. Just because some of the Administrative Expenditure could not be verified, it was contended that the books of account cannot be rejected. Further, it was submitted to the Ld.CIT(A) that assessee has increase in the turnovers year after year and the profit margins also were increasing and made various submissions which are extracted in the order by the CIT(A) in para 3. Ld.CIT(A) considered the issue and agreed with the contentions of assessee by stating as under:
“5.2. Also, during the appeal proceedings, the present incumbent, AO, Smt. Neeju Gupta, IRS., DCIT, Cir-2(1), Hyderabad
ITA No. 1747/Hyd/2016 :- 3 -:
attended and supported the action of the AO in estimating the income @4% of total turnover.
5.3. I have perused the above and I find that the action of the AO is not justified in estimating the income @ 4% of total turnover for the following reasons.
i) The AO observed that the net profit shown by the assessee @ 2.16% is low when compared to the general profit margin of @ 4% in this line of business. However, the AO has not substantiated his observation with any comparable cases. Instead, the AO compared the assessee's case with its group case wherein the assessment was made estimating income by adopting the profit at 4%. As the assessed incomes cannot be equated with returned income, comparing the assessee's case with its group case is not correct.
ii) The AO has observed that assessee has incurred administrative expenditure of Rs.3,45,21,513/- when compared to previous year of Rs.2,12,28,413/- which according to him is very high. In this regard I have perused the details of expenditure on the two new show rooms and I find that the assessee has opened up new show rooms at Nellore & Tirupathi and hence, the expenditure under the head has gone up this year.
iii) The AO has observed that the travel expenditure of Rs.20,04,291/- was found to be excessive. On perusal of the complete monthwise details of the expenditure and I find that most of the payments are by cheques and hence, genuineness of the said expenditure cannot be doubted.
iv) It is to be mentioned that the AO has accepted the gross profit of @15% declared by the assessee, but AO pointed out on the low net profit shown. In this regard, AR has elaborately given the reasons in the relevant paras of the submissions. On perusal of the same, I am of the view that the reasons adduced by the AR are based on facts and hence, the AR’s contentions do contain merit.
v) It is to be noted that the purchases/sales are vouched and quantitative details of trading account are tallied and the AO has not made any specific finding with regard to any insufficiency on this score. The books of account have been audited and during the scrutiny, the AO has verified the books of account and has not found or made any adverse remark on their completeness and correctness. In the absence of any specific finding, the books of account cannot be rejected and therefore, the AR's contentions in this regard deserve to be considered favourably. Hence, the case laws relied upon by the AR, are thus applied to the assessee's case. In other words, it is to be
ITA No. 1747/Hyd/2016 :- 4 -:
mentioned that the AO has not made out a case for rejecting the books of account. 5.4. In view of the above, the books results returned by the assessee merit consideration. Therefore, the AO is directed to accept the profit margin i.e., 2.16% shown by the assessee. As a result, the addition of Rs.3,99,68,296 (Rs.7,55,41,596-3,55,73,300/-) made by the AO is hereby directed to be deleted. Thus, the grounds raised are allowed”.
It was the DR’s submission that Ld.CIT(A) entertained fresh evidence and hence there is violation of Rule 46A and AO was not given an opportunity. She relied on the order of AO and rate of estimation of income to submit that income at 4% was correctly assessed.
In reply, Ld. Counsel relied on the detailed submissions made before the CIT(A) and the orders of CIT(A).
Having considered the rival contentions and perusing the Paper Book placed on record, we are of the opinion that the order of CIT(A) is reasonable on the facts of the case. Just because certain vouchers could not be verified, it cannot be considered that books of account maintained are not proper. AO has not made out any case why the books of account are to be rejected. Moreover, acceptance of 4% of estimation in sister concern case, does not give an indication that assessee also earned the same profit margins as the business profile may vary. It was submitted that this assessee has showrooms in various parts of Andhra Pradesh and Telangana and increase in expenditure was due to opening of two new showrooms during the year. Moreover, the issue of violation of Rule 46A also does not arise as CIT(A) has given a finding that he himself
ITA No. 1747/Hyd/2016 :- 5 -:
has examined, as stated in para 5.3(ii) and (iv). Since the CIT(A) has coterminous powers as that of AO and further the new incumbent AO also has attended before the CIT(A) (as stated in Para 5.2 0f the order), we are of the opinion that the ground raised by the Revenue regarding violation of Rule 46A has no merit. Since AO has resorted to rejection of books of account without any reason, the order of the CIT(A), not accepting the same is to be upheld on the facts of the case. There is no merit in the grounds raised by the Revenue on this appeal. Accordingly, the appeal is dismissed.
Order pronounced in the open court on 11th April, 2018
Sd/- Sd/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 11th April, 2018 TNMM
ITA No. 1747/Hyd/2016 :- 6 -:
Copy to : 1. Deputy Commissioner of Income Tax, Circle-2(1), Hyderabad.
M/s. Kalanikethan Silks Pvt Ltd., #8-2-293/82/A/1149, Road No. 36, Jubilee Hills, Hyderabad.
CIT(Appeals)-2, Hyderabad
Pr.CIT-2, Hyderabad.
D.R. ITAT, Hyderabad.
Guard File.