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DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, DURGAPUR, DURGAPUR vs SRI GAYATRI MINERALS PVT. LTD., DURGAPUR | BharatTax

DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, DURGAPUR, DURGAPUR vs. SRI GAYATRI MINERALS PVT. LTD., DURGAPUR

ITA 1324/KOL/2023Status: DisposedITAT Kolkata06 February 2025AY 2011-12Bench: SHRI DUVVURU RL REDDY, VICE PRESIDENT (KZ), SHRI RAKESH MISHRA (Accountant Member)8 pages

AI SummaryDismissed

Facts

The Revenue appealed against the CIT(A)'s order deleting an addition of Rs. 2,92,99,460/- made by the AO for AY 2011-12. The AO had made the addition due to a shortfall in the Gross Profit ratio, rejecting the assessee's manufacturing accounts primarily for not producing certain documents filed with the bank, despite the assessee furnishing other details.

Held

The Tribunal affirmed the CIT(A)'s finding that a mere decline in GP ratio, when adequately explained by an increase in input costs (power and manganese ore) and an increase in profit per metric ton, cannot be a sole basis to reject books of account. The AO had also failed to invoke Section 145(3) of the Act or identify comparable cases to justify the addition.

Key Issues

Whether the CIT(A) was justified in deleting the addition made by the AO on account of estimated Gross Profit based on a decline in GP ratio, and whether manufacturing accounts could be rejected without invoking Section 145(3) of the IT Act.

Sections Cited

250, 143(3), 145(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA ‘D’ BENCH, KOLKATA

Before: SHRI DUVVURU RL REDDY(KZ) & SHRI RAKESH MISHRA

For Respondent: DR. Assessee represented by : H.S. Satapathy, A.R

PER RAKESH MISHRA, ACCOUNTANT MEMBER:

This appeal filed by the Revenue is against the order of the Commissioner of Income Tax (Appeals)- NFAC, Delhi [hereinafter referred to as ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2011-12 dated 03.10.2023, which has been passed against the assessment order u/s 143(3) of the Act, dated 31.03.2014. I.T.A. No.: 1324/KOL/2023 Assessment Year: 2011-12 Sri Gayatri Minerals Pvt. Ltd.

2.

The Revenue is in appeal before the Tribunal raising the following grounds of appeal:

“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC is justified in allowing the appeal of the assessee by deleting the addition amounting to Rs. 2,92,99,460/- on account of estimated Gross Profit made by the AO, when the assessee has failed to substantiate the increase of cost of production along with corroborative evidence i.e. bills and vouchers for the expenses pertaining to the year under consideration.

2.

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC is justified in allowing the appeal of the assessee by deleting the addition amounting to Rs. 2,92,99,460/- on account of estimated Gross Profit made by the AO, when assessee also failed to furnish details of stock and debtors which were submitted to bank for availing the loan.

3.

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC is justified in allowing the appeal of the assessee by deleting the addition amounting to Rs. 2,92,99,460/- on account of estimated Gross Profit made by the AO, stating that the decline in the GP rate in comparison to the immediately preceding assessment year cannot be a criteria to reject the books, when there is nothing on record in terms of comparative profits declared in similar line of business to show that there is substantial reduction in the gross profit ratio.

“2. The assessee is engaged in the manufacture of Ferro Alloys. During the year assessee has disclosed turnover of Rs. 155,84,81,950/- and the total cost of production/manufacturing expenses of Rs. 144,12,96,567/-. The main raw material used in the production is Silico Manganese and the power. Besides this, the assessee is also producing the finished products for Tata steel. The gross profit shown this year is Rs. 18,21,83,426/- after including the depreciation which gives gross profit ratio of 11.68%. The gross profit shown during the last year i.e. F.Y. 2009-10 is however shown at 13.56%, thus giving the G.P. ratio at a much higher value than the year under consideration. Thus the fall in gross profit ratio in this year is 1.88%. The complete breakup of raw material and no satisfactory justification for fall in gross profit has been furnished. Further, its pertinent to mention that assessee was asked to furnish the details of stock and debtors which were filed to the bank for availing the loans and those details were also not furnished. Therefore, in the absence of these details, the accuracy of manufacturing account can’t be accepted and relied upon. Therefore, fall in the gross profit ratio of 1.88% remained to be substantiated and satisfactorily explained and accordingly manufacturing accounts of the assessee are rejected. Therefore, an addition of Rs. 2,92,99,460/- made on account of short fall in G.P. Ratio. A.Y. 2010-11 A.Y. 2011-12 SALES Rs. 118,59,87,550/ Rs. 155,84,81,950/ Cost of Production Rs. 106,05,15,713/ Rs. 144,12,96,567/ Depreciation included Rs. 1,39,66,127/ Rs. 1,20,95,780/ Gross profit Rs. 14,69,40,441/ Rs. 17,00,87,646/ Add: Depreciation + 1,39,66,127/ + 1,20,95,780/ I.T.A. No.: 1324/KOL/2023 Assessment Year: 2011-12 Sri Gayatri Minerals Pvt. Ltd. GROSS PROFIT Rs. 18,33,66,568/ Rs. 18,21,83,426/ G.P. Ratio 13.56% 11.68% Fall in G.P. Ratio = 13.56% - 11.68% = 1.88% Addition on account of fall in G.P. Ratio =1558481950*1.88 /100 = 2,92,99,460/-”

5.

In the course of the appeal, the Ld. CIT(A) called for the remand report from the Ld. AO and has observed that during the remand proceeding, the Ld. AO had called for various details which include purchase invoices, sale invoices, purchase ledger, sale ledger etc. and it has been stated that these details were furnished by the assessee. The Ld. AO did not find any discrepancy in these evidences, therefore, there was no ground to reject the manufacturing account of the assessee. The Ld. CIT(A) also noticed that the Ld. AO had not raised any doubt on the completeness or correctness of the books of account of the assessee pointing out any defects or discrepancies therein. The sole reason taken by the Ld. AO for enhancing GP rate by 1.88% of the turnover was that the details of stock and debtors which were filed to the bank for availing loan were not furnished during the assessment proceedings. In the remand report, the Ld. AO had stated that the assessee did not furnish corroborative evidence i.e. bills/vouchers for expenditure incurred under various heads and there was substantive increase in cost price as compared to the immediately preceding previous year and the assessee also had not submitted the proof of stock statement and sundry debtors submitted to the bank; therefore, the addition made was requested to be confirmed as per the remand report. The Ld. CIT(A) has also observed that it is seen from the remand report that the overall profit of the assessee per Metric Ton of material produced for the I.T.A. No.: 1324/KOL/2023 Assessment Year: 2011-12 Sri Gayatri Minerals Pvt. Ltd. impugned assessment year is Rs. 5,208/- compared to Rs. 4,399/- of the immediately preceding assessment year, which being higher implied that there was no reason for the Ld. AO to reject the Manufacturing Account of the assessee. The Ld. AO had also stated that during the remand proceedings the assessee did not furnish corroborative evidence to substantiate the increase in cost of price. However, it was observed that all the possible evidence and supporting documents in relation to the manufacturing account were submitted during the assessment proceedings and the Ld. AO could not find any fault with any of the documents furnished by the assessee. Therefore, the finding of the Ld. AO that the assessee did not furnish corroborative evidence was perverse and contrary to the facts on record. The Ld. CIT(A) has also observed that the Ld. AO had not recorded any finding on the completeness or correctness of the books of account of the assessee pointing out any defects or discrepancies and had never invoked provisions of section 145(3) of the Act to reject the books of account of the assessee. As regards the drastic increase in cost of production from Rs.1.06 crore of previous year to Rs. 1.44 crores during the year which has resulted in decline in the GP ratio by about 1.30%, the Ld. CIT(A) has observed that the Ld. AO had ignored his own finding that during the financial year there had been increase in profit per metric tonne of material produced. Further it was not a case that the goods were sold at the price less than the cost of production and the assessee had suppressed sale price by showing sale of goods at a loss. He has held that the decline in the GP rate in comparison to the immediately preceding assessment year cannot be the criterion to reject the books of account. Since the assessee explained that cost of power and manganese ore, which form nearly 60% of the sales value, had increased I.T.A. No.: 1324/KOL/2023 Assessment Year: 2011-12 Sri Gayatri Minerals Pvt. Ltd. by almost 30% when compared to the previous year and this reason for the fall in GP of the assessee was not controverted by the Ld. AO during the assessment proceeding nor even during the remand proceeding. Therefore, there was no rational basis for estimating the GP rate by the Ld. AO when the books of account were not rejected.

6.

We have gone through the finding of the Ld. CIT(A) and also the submission made before us. The Ld. Sr. DR. repeated the argument that the documents filed before the bank were not filed before the Ld. AO nor the increase in the cost of production was substantiated and the Ld. CIT(A) has erred in para 6.6 to hold that the bills were provided. The Ld. AR countered by arguing that the Ld. CIT(A)’s order covers all the aspects of the assessment and the Ld. AO has not followed the provisions of section 145(3) of the Act. He also drew attention to the fact that the matter was remanded to the Ld. AO and no discrepancy was pointed out and the Ld. CIT(A) has given justification for the fall in the GP rate which is 1.30%. Having considered the facts of the case, we are of the considered view that mere decline in GP rate, when the cost of power and manganese ore, which formed nearly 60% of the sales value, had increased by almost 30% as compared to the earlier year and the assessee’s overall profit per Metric Ton of material produced had increased from Rs. 4,399/- of the immediately preceding assessment year to Rs. 5,208/- in the current assessment year, therefore not only the fall in GP rate was justified by the assessee but also the same cannot be uniform in all the years. The Ld. AO has not identified any comparable case in support of the addition made nor has he rejected the books of account as per the provisions of section 145(3) of the Act but has only rejected the manufacturing account, primarily for the reason of non-production of documents filed before the bank. Therefore, I.T.A. No.: 1324/KOL/2023 Assessment Year: 2011-12 Sri Gayatri Minerals Pvt. Ltd. we find no infirmity in the order of the Ld. CIT(A) which is a reasoned order based on the facts of the case and have no hesitation in confirming the same. Hence ground nos. 1, 2 & 3 relating to the addition of Rs. 2,92,99,460/- deleted by the Ld. CIT(A) are dismissed and ground no. 4 being general in nature does not require any separate adjudication.