SH. CHASVINDER SINGH,DELHI vs. ACIT, NEW DELHI

This appeal by the assessee is preferred against the order of the CIT(A) -12, New Delhi dated 03.11.2015 pertaining to A.Y 2010-11.

The solitary grievance of the assessee is that the ld. CIT(A) erred in confirming the disallowance of Rs. 22,17,692/- made by the Assessing Officer on account of low Net Profit ratio.

Briefly stated, the facts of the case are that the assessee is engaged in the business of manufacturing of auto parts under the name and style ‘Swiss Auto Products’. The return for the year under consideration was selected for scrutiny assessment and, accordingly, statutory notices were issued and served upon the assessee. During the course of scrutiny assessment proceedings, the A.O observed that on a total turnover of Rs. 17.53 crores, the assessee has shown g.p of Rs. 1.66 crores, which comes to 9.52%. The Assessing Officer noticed that in the immediately preceding year, the g.p. rate was 10.23% on a total turnover of Rs. 19.32 crores. The Assessing Officer further noticed that the n.p. rate for the year under consideration was shown at 0.67% as compared to 1.93% in the immediately preceding year. The assessee was asked to explain the reasons for decline in the trading results.

The Assessing Officer was not convinced with the contention of the assessee. The Assessing Officer further found that the assessee has claimed 35.69 lakhs as sales promotion material expenses. The Assessing Officer noticed that the sales promotion expenses claimed by three sister concerns of the assessee were lesser than that of the assessee. The Assessing Officer was of the opinion that since all three sister concerns are using the brand name “Swiss”, therefore, sales promotion expenses claimed by the assessee has to be partly borne by the sister concerns.

On these facts, the Assessing Officer made an addition of Rs. 22,17,692/- on account of low profit and addition of Rs. 8,34,544/- on account of sales promotion expenses.

The assessee strongly agitated the matter before the ld. CIT(A) and once again explained the reasons for fall in profit ratio.

After considering the facts and submissions, the ld. CIT(A) observed that since the Assessing Officer has made addition on account of decline in profit ratio, the addition on account of excess business promotion expenses cannot be made and, accordingly, deleted the addition of Rs. 8,34,544/- and confirmed the addition of Rs. 22,17,692/- on account of fall in g.p. rate.

The ld. counsel for the assessee reiterated what has been stated before the lower authorities.

The ld. DR strongly supported the findings of the Assessing Officer.

We have given thoughtful consideration to the orders of the authorities below. Page 3 of the paper book is the profit and loss account for the year under consideration. We find that the depreciation claimed during the year under consideration is Rs. 34.13 lakhs as against the same at Rs. 27.01 lakhs in the immediately preceding year. We further find that the financial charges for the year under consideration is at Rs. 10.73 lakhs as against 2.39 lakhs claimed in the immediately preceding year. We further find that decline in the G.P. rate is marginal, which is 0.71% and the fall in N.P. rate is only 1.26%. Pages 37 and 38 of the paper book are quantitative details of the principal items of raw material and finished products during the year under consideration which shows that the trading account of the assessee is fully quantified. A perusal of the assessment order shows that the Assessing Officer has not found any defect in the books of account. In our considered opinion, without rejecting the books of account, the Assessing Officer should not have rejected the book results. In our considered opinion, drop in the g.p. ratio was supported by a plausible reason and trading results are found to be quantified and no defect has been found in the books of accounts of the assessee. Therefore, the accounts of the assessee cannot be said to be defective or incomplete for sustaining the addition. We, accordingly, set aside the findings of the ld. CIT(A) and direct the Assessing Officer to delete the impugned addition.

In the result, the appeal of the assessee in is allowed.