ACIT-1(1), INDORE vs. ANANT COMMODITIES PVT LTD, INDORE

आदेश / O R D E R

Per Paresh M Joshi, J.M:

This is an appeal filed by the assessee Under Section 253 of

the Income Tax Act, 1961 (hereinafter referred to as the “Act” for

sake of brevity) before this Tribunal. The Revenue is aggrieved

by the order bearing No.ITBA/NFAC/S/250/2024-25/

1069510246(1) dated 08.10.2014 passed by the Ld. CIT(A) u/s

250 of the Act which is hereinafter referred to as the “Impugned

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 order”. The relevant Assessment Year is 2017-18 and the

corresponding previous year period is from 01.04.2016 to

31.03.2017.

2.1 That as and by way of an assessment order passed u/s.

143(3) r.w.s. 144B of the Act, the assesee’s total income was

computed and assessed at Rs.2,07,17,064/-. The assessee

had filed its Return of Income showing total income of

Rs.16,38,620/-. The case of the assessee was selected for

complete scrutiny through CASS mainly on the basis of (1)

Capital Gain loss on the sale of property and (2) Foreign

remittance. The assessee company is engaged in merchant

export of agri-commodities mainly soyabean meal and Indian

yellow maize. The assessee has also exported commodities like

Rape seed meal, sugar etc. The assessee company procures

these commodities from the local market and exports the same.

The account of the assessee company are audited and tax audit

report (TAR) is filed. The addition of Rs.1,90,78,444/- has

been made to the Returned income of Rs.16,38,620/-. The total

income exigible to tax comes to Rs.2,07,17,064/- (Rs.

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 16,38,620/- + 1,90,78,444/-). The addition is on account of

low Gross Profit.

2.2 That during the course of the assessment proceedings the

Ld. A.O asked to the assessee to show cause as to why there is a

fall in Gross Profit from 13.1% to 0.23%. Various queries were

raised and the assessee replied every query and explained the

reasons for fall in Gross Profit. The major submissions were

made vide letter dated 01.04.2021 and 03.05.2021. That it

suitably explained to the Ld. A.O that the assessee is dealing in

the export of agro based commodities and that the international

prices fluctuate very often. Thus owing to this fact the margin

of profit cannot be the same from year to year. It was also

pointed out to the Ld. A.O that during the earlier year (Page 66 of

paper book) there was a credit of service tax of Rs.85,17,314/-

and that duty drawback was of Rs.17,16,997/- which is not

there (absent) during the year under consideration. It was also

explained to the Ld. A.O (page 69 of paper book) that major sale

during the year under consideration was that of wheat of

Rs.17.61 crores while in the earlier years there was no sale of

wheat. The sale on account of soya bean stands reduced from

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 Rs.18.31 crores to Rs.97 lakhs only. In brief it was explained to

the Ld. A.O by the assessee company through their replies dated

01.04.2021 and 03.05.2021 (Page 66 and 69 of paper book) that

there was indeed a difference in the sale of commodity and no

comparison of gross profit can be made for sale of the different

commodities. It was also asserted and explained to the Ld. A.O

that there was a cancellation of a contract and increase in

exchange rate, a loss of Rs.1,07,02,222/- was incurred and on

that account there is a reduction in the gross profit. That

above all proper books of accounts are maintained which are

audited and all the purchases and sales are fully accounted

for and vouched. The Ld. A.O’s assessment order bears

No.ITBA/AST/S/143(3)/2021-22/1032781337(1) and that same

is dated 05.05.2021 which is hereinafter referred to as the

“impugned assessment order”. In the said assessment order

gross profit of average of last 3 years which was calculated

@8.23% per annum was estimated and the addition of

Rs.1,90,78,444/- was made to the Return of Income.

2.3 That the assessee being aggrieved by the aforesaid

“impugned assessment order” prefers first appeal u/s 246A of

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 the Act before the Ld. CIT(A) who by the “impugned order” has

allowed the appeal of the assessee on the grounds and reasons

stated therein. The core ground for allowing the first appeal of

the assessee company can be summed up as under:-

(1) That the gross profit ratio is not much less than

compared to the earlier year. The net profit has been

reduced to 0.51% from 0.67% which is 0.16%.

(2) That the assessee is maintaining books of accounts

which are audited.

(3) Merely because GP margin is lower as compared to the

preceding year which cannot be a ground for addition to the

income unless the assessing officer points out to particular

defect or discrepancies in the books of accounts maintained

by the assessee. In order to reject the books, the AO should

bring out that there has been a clear infringement of any

accounting standard or accounting principles and prove the

same by way of concrete and material evidence and not

merely on the basis of some assumptions and

presumptions. The law is clear that suspicion however

strong cannot take place of evidences and proofs and

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 addition can be made on the basis of relevant material and

concrete evidence.

2.4 That the revenue being aggrieved by the “impugned order”

has preferred the instant appeal before this Tribunal and has

raised following grounds of appeal in Form No.36 against the

“impugned order” which are as under:-

“1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is justified in law in deleting the Addition of Rs. 1.90 crores without appreciating the facts that Ld.AO has rejected the books of assessee after pointing out various serious defects in the books of the assessee. 2. The appellant craves leave to add to or deduct from or otherwise amend the above grounds of appeal”

3.1 The hearing in the matter took place before this Tribunal on

15.07.2025 when the Ld. DR for and on behalf of the revenue

appeared before us and interalia contended that the “impugned

order” is bad in law, illegal, not proper and deserves to be set

aside by this Tribunal in exercise of its appellate jurisdiction at

the instance of the Revenue who is aggrieved by it. The ground of

appeal in Form 36 was repeated and reiterated by the Ld. DR at

the outset of hearing. It was submitted to this Tribunal that the

Ld. A.O in the “impugned assessment order” has correctly

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 estimated the gross profit by taking entire facts and

circumstances of the case including turnovers and gross profit

percentage of last three years. It was sought to be contended

that the Ld. A.O has in fact rejected the books of accounts of

the assessee company. That the case of the assessee was

selected for complete scrutiny. The “conclusion” of Ld. A.O in

the “impugned assessment order” was relied upon in support of

appeal of the Revenue and it was finally prayed that the

“impugned order” of Ld. CIT(A) should be set aside and that the

“impugned assessment order” should be upheld as it is

correctly passed without there being any infirmities therein. Per

contra Ld. AR has supported the “impugned order” of Ld.

CIT(A) and has stated that the same is in accordance with law

and no interference is called for by this Tribunal. The core

ground of appeal of the Revenue is that the Ld. CIT(A) ought not

to have allowed the first appeal as the Ld. A.O has rejected the

books of accounts of the assessee after pointing out various

serious defects in the books of accounts of the assessee which

fact is not true as there is no express finding in the

“impugned assessment order” that the Ld. A.O has rejected

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 books of accounts of the assessee. It was then contended by

the Ld. AR for the assessee company that there is a plausible

justification for Forex loss and relied upon page 52 & 53 of paper

book. It was then contended that the preceding year’s sales

contract which matters in the current year, the Ld. A.O has taken

this loss. If this loss is factored which Ld. A.O has done, the

gross profit would be more. Reliance was placed on paper book

page 69 which is a reply dated 03.05.2021 of assessee’s CA to Ld.

A.O wherein complete reply was filed. It was emphasized that

components have changed. It tallies with page 51 & 52 of paper

book. It was contended that comparison should be with

comparable’s. Land is not considered as there is no nexus with

sales. Purchases and sales tally. Purchases are local only it is a

matter of common sense. The purchase and sales are not

questioned whereas books are doubtful but are not rejected

expressly. Previous year figures cannot become binding

guidelines. Previous years gross profit cannot be relied upon

(There are no finding of Ld. A.O on purchases and sales). The Ld.

AR then placed reliance on the judgment of Hon’ble Allahabad

High Court dated 30.04.204 in case of PCIT v/s The Mahabir

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 Jute Mills Ltd in ITA No.35 of 2024 – 2024:AHC:76350 – DB

and interalia contended that on facts no question of law was

framed by the High Court. Our attention was invited to para 5 of

the judgment to contend that gross profit rate of previous 3 years

cannot be made basis of addition. Reliance was also placed on

the judgment of Hon’ble Delhi High Court dated 07.05.2010

in ITA No.406/2009 in case titled CIT- XII V/s Smt Poonam

Rani to contend that a low rate of gross profit in the absence

of any material pointing towards falsehood of accounts

books, cannot by itself be a ground to reject the account

books u/s 145(3) of the Act. Reliance was also placed on the

judgment of this Bench in ITA Nos.339/Ind/2017, 439/Ind/

2018 & 440/Ind/2018 in case titled DCIT V/s Shri Om

Prakash Dhanwani order dated 06.110.2023 to contend that

it is well settled principle that before rejecting the book results,

discrepancies should be pointed out in the regular books of

accounts by Assessing Officer. Addition on ground of low gross

profit cannot be made (Para 12 & 13 relied upon). Hearing was

concluded.

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 4. Observations,findings & conclusions.

4.1 We now have to decide the legality, validity and the

proprietery of the “impugned order” basis records of the case

and rival contentions canvassed before us.

4.2 We have carefully perused the records of the case as

presented to this Tribunal by both Ld. DR & Ld. AR to determine

the legality, validity of the “impugned order” basis law and by

following due process .

4.3 We basis records of the case and so also after hearing and

upon examining the rival contentions are of the considered view

that the “impugned order” has rightly set aside the

“impugned assessment order” on well merited grounds and

reasoning and we find no infirmities in it. It is rightly observed in

the “impugned order” that all the documents required were

provided to the Ld. A.O by the assessee. The Ld. A.O has made

addition merely on the basis of assumption and presumption that

since the gross margin of previous assessment years were higher

than the year under assessment which in our considered view is

wrong way to make additions. In order to make addition first of

all there should be sufficient material on record to justify the

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 additions. In the present case there is none and Ld. CIT(A) has

rightly observed the same and has correctly deleted the addition

so made in the “impugned assessment order”.

The Ld. CIT(A) basis snapshot margin summary which is as below:-

Particulars A.Y 2015-16 A.Y 2016-17 A.Y 2017-18 Sales 1256274379.00 228525235.00 185856404.00 Add: Closing 191939242.00 9710265.00 0.00 stock 1448213621.00 238235500.00 185856404.00 Less: Opening 10681126.00 191939242.00 9710265.00 stock 1350139447.00 34748319.00 169855000.00 Add: Purchase 1360820573.00 226687561.00 179565265.00 Gross Profit 87393048.00 11547939.00 6291139.00 GP Ratio 6.96 5.05 3.38

The Ld. CIT(A) has observed that the gross profit ratio for

Assessment Year 2017-18 was 3.38% which is much lesser than

previous year gross profit. That basis Chart below:-

Particulars A.Y 2015-16 A.Y 2016-17 A.Y 2017-18 Net Profit 21991502.00 1615156.00 1226819.00 NP Ratio 1.51 0.67 0.51

The Ld. CIT(A) has rightly held that the net profit has reduced

to 0.51% i.e. a reduction of 0.16% despite a substantial reduction

in sales in Assessment Year 2017-18. We hold that Ld. DR has

not controverted above tables/chart basis any material on record

whatsoever in any manner.

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 4.4 The Ld. CIT(A) in the “impugned order” has rightly held

that the assessee is maintaining books of accounts which were

audited. Merely because gross profit margin is lower in the year

under consideration vis-à-vis preceding assessment years cannot

be a ground of additions to the income of the assessee unless the

Assessing Officer points out a particular defect or discrepancies

in the books of accounts maintained by the assessee.

4.5 We further hold that the Ld. A.O in the “impugned

assessment order” has not expressly rejected the books of

accounts. A mere observation that the assessee has lost the

credibility on maintenance of proper books is not rejection of

books in law. In this context the Ld. CIT (A) has rightly observed

and held as under:-

“In order to reject the books, the AO should bring out that there has been a clear infringement of any accounting standard or accounting principles and prove the same by the way of concrete and material evidences and not merely on the basis of some assumptions and presumptions. The law is clear that suspicion, however strong cannot take place of evidences and proofs and addition can be made only on the basis of relevant material and concrete evidences and not on the basis of mere surmises, conjectures, suspicion, presumptions or assumptions”.

4.6 The Ld. CIT(A) has rightly held as follows in para 6.1:-

“6.1 In the case of Dhakeshwari Cotton Mills -vs.- CIT (1954) 26 ITR 775 (SC) Hon'ble Apex Court held that AO cannot make any addition on the account of his guess work without having any

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 material evidence on record. The relevant extracts of the said judgement is reproduced as under.....that in making the assessment under sub-section 3 of section 23 of the Income Tax Act, 1922 [corresponding to the section 143(3) of the Income tax Act, 1961], the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3)" 4.7 We hold that the commodities in the earlier years and the

year under consideration are different and gross profit cannot be

compared. The Ld. AR has rightly contended that comparison

should be of comparable’s and not un-comparable’s. We accept

the proposition so canvassed. Therefore we hold that Ld. A.O

ought not to have averaged the gross profit rate of preceding

years to arrive at gross profit rate for the year under

consideration as commodities were different and were not

comparable’s. We further hold that neither purchases nor sales

have been disputed by the Ld. A.O in the “impugned

assessment order”. The Ld. AR has made a grievance of it in the

hearing and we concur with his contentions.

4.8 We also hold that less gross profit consequently less gross

profit rate vis-à-vis earlier years ipso facto cannot be a ground to

make addition by averaging the gross profit rate of last preceding

years in the absence of any adverse material against the

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18 assessee. Basis this casting aspersions (credibility) on books but

without rejecting it expressly is not sufficient in law to make

addition basis averaging of gross profit rate of preceding years.

4.9 We hold that in zeal for doing averaging of gross profit rate

of preceding years, the year under consideration is too taken into

consideration as is reflected in the table below:-

Sl.No. Assessment Year Turnover Gross Profit Gross Profit % 1 2015-16 14779393385 169557867 11.47 2 2016-17 242011324 31483771 13.01 3 2017-18 238463272 547083 0.23

We therefore find such an approach not in consistent with

fair play and law. We hold that averaging gross profit rate at

8.23% for the year under consideration as wrong.

4.10 We hold that the sole ground of serious defects in the

books of accounts of assessee which led the Ld. A.O to reject the

books is wrong when admittedly addition is done basis averaging

of gross profit rate of preceding years @8.23%. Revenue though

has raised this sole ground to assail the “impugned order” but

basis records they have failed to establish with any tangible

material/evidence to substantiate the said ground.

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Anant Commodities Pvt Ltd ITA No.857/Ind/2024 - A.Y 2017-18

5.1 In the premises set out herein above we reject the appeal of

the Revenue.

5.2 In result we reject the appeal of the revenue and upheld the

“impugned order”.

Order pronounced in open court on 21.07.2025.

Sd/- Sd/-

(B.M. BIYANI) (PARESH M JOSHI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Indore िदनांक / Dated : 21/07/2025 Dev/Sr. PS

Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order COPY Senior Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore

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