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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI R. S. SYAL & SMT SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed by the revenue against the order dated 10/02/2004 passed by CIT(A), Rohtak. 2. The grounds of appeal are as follows:-
“1. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in law and in facts by deleting the addition of Rs.99,44,401/- made by A.O by rejecting the books of accounts by invoking the provisions of Section 145(3) of the I.T. Act and applying the G.P rate of 19.59% as against 18.46% shown by the appellant as no sustainable documentary evidence explaining the fall in G.P or in support of the expenses debited in trading and in profit and loss account was furnished during assessment proceedings; the CIT(A) deleted the said addition without appreciating the facts of the case mentioned in details in assessment order.”
The assessee is engaged in manufacturing of precision turned parts mainly used in automobiles industry, generator sets and other allied industries. Goods are manufactured as per the specification given by the purchasers. As the assessee, the GP rate varied from item to item, no fix GP can be achieved by any businessman in any trade maintained day to day books of account. The GP rate in the case of the assessee itself from Assessment Year 2006-07 to 2010-11 were as under:-
Assessment Year Gross Profit Rate 2006-07 18.13% 2007-08 20.58% 2008-09 19.15% 2009-10 19.59% 2010-22 18.46%
The Assessing Officer issued notice u/s 142(1) along with questionnaire on 1/8/2012. Another notice u/s 143(2) was issued on 23/10/2012. For the year under assessment cost profit of Rs.14,33,32,730/- i.e. at 18.46% on the sales turnover of Rs.88 crore was declared as against this. The GP rate of 19.59% on sales turnover of Rs.65 crore was declared in the immediately preceding year. This decline in GP rate was explained by the assessee as under:-
Regarding fall in G.P rate which fell down to 18.46% as against 19.59% in F/y 2008-09 and 19.15% in F/y 2007-08. Sir, from the comparison of 3 years G.P your good self will appreciate that there is variation in GP rate in this line of trade. The main reason of all in GP rate was increase in sale which increased to over Rs.88 crores from Rs.65 crores in the previous year. Further the businessman is concerned with the amount of gross profit and not with the percentage of GP rate. The GP during the year under assessment was Rs.14,33,32,729.78 as compared to Rs.11,00,58,078.02 in the previous year. Similarly, the Net Profit was also increased during the year under assessment to Rs.7,67,93,526.96 as against 5,74,17,589.32 in the previous year. Keeping in view the above facts the minor fall in GP rate may kindly be accepted.
The Assessing Officer rejected the trading results by invoking Section 145(3) of the Income-tax Act, 1961 and adopted GP rate of 19.59% of the Assessment Year 2009-10 in the present assessment also and made an addition of Rs.99,44,401/-. The assessee filed appeal before the CIT(A). The CIT (A) allowed the appeal of the assessee.
The Ld. DR submitted that in the preceding Assessment Year 2009-2010, the GP rate adopted was 19.59% and the reasons recorded by the Assessing Officer for adopting the same in the present assessment year are correct and invocation of Section 145(3) of the Act for rejecting trading results was proper. The Ld. DR further submitted that the CIT(A) failed to look into this aspect and hence the order of the CIT(A) be set aside.
From the assessee side, none has appeared but all the relevant documents are before us.
We have heard Ld. DR and perused the documents. Variation in GP rate in a particular assessment year from its immediate preceding year is not a new situation in the assessee’s case. In fact, there was fall of almost 1 % in 2008-09 from the earlier preceding year 2007-08 and the same was accepted by the Department. The CIT(A) was correct in holding that the addition following the rejections of the books of accounts by the assessee and invoking the provisions of Section 145(3) of the Act was made without looking at the facts of the case. The assessee vide its explanation has clearly stated that the substantial increase in sales from Rs.65 crores in the previous year to Rs.88 crores in the present assessment year. Therefore, the ratio of GP was affected. The assessee also explained before the authorities that another reason for this fall was increase of purchase of semi-finished items from other manufacturers as appeared in the previous year to increase the sales. The assessee has submitted all the relevant details before the authorities. Books of accounts with all vouchers were produced along with written submissions on 16/8/2012 before the Assessing Officer. The Assessing Officer has not questioned or doubted the accounts. Therefore, rejection of books of accounts was not justified as there was no defective pointed out by the Assessing Officer in the assessment order. Merely on the ground that the GP rate has fallen from 1% from the immediate preceding year cannot be a sole reason for adopting GP rate as per Assessing Officer’s own convenience. Thus, we uphold the order of the CIT (A).
In result, the Revenue’s appeal is dismissed.
The order is pronounced in the open court on 29th of July 2016.