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Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
Before: SHRI K. NARASIMHA CHARY, JM & DR. A.L.SAINI, AM
O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the revenue, pertaining to the assessment year 2009-2010, is directed against an order passed by ld. Commissioner of Income Tax (Appeals)-8, Kolkata in Appeal No.17/CIT(A)-8/Ward-29(2)/Kol/14-15, dated 01.04.2015, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section143(3) of the Income Tax Act 1961, (in short the ‘Act’), dated 30.12.2011.
The facts of the case qua the assessee are that the assessee filed her electronic return of income on 30.09.2009 declaring net loss of Rs.13,58,284/-. The return was proceeded U/s.143(1) of the I.T.Act. Later on the case was selected for scrutiny U/s.143(3) of the Act and the Assessee Officer has completed the assessment by making the addition of Rs.36.05 lakhs. The AO made the addition observing that it was reasonable to adopt the turn over at Rs.482 lakhs and having regard to the past results of comparative G.P.% as explained , he adopted GP percentage at 20% for the year under consideration and worked out the addition of Rs.36.05 lakhs.
Aggrieved from the order of AO, the assessee filed an appeal before the CIT(A), who has reduced the GP% to 7% from 20%, observing the followings :-
“6.2. The rival submissions on the matter have been considered and analyzed. I find that the whole issue is on the estimate of GP @ 20% on the estimated turnover of Rs.482.00 lakhs as against the assessee's reported turnover of Rs.480.51 lakhs resulting in the addition of Rs.36.05 lakhs. This is a case where the appellant's accounts have been audited u/s 44AB of the Act. It is reported by the AO that as per the Tax Audit Report u/s 44AB in Form 3CD, the GP shown was Rs.53,93,828/- as against the GP of Rs.29,86,822/- shown in the Trading Alc filed during the course of appellate proceedings. In the remand proceedings the matter has been explained by the accountant of the appellant as to how substantial loss was incurred during the year under consideration which led to low GP rate. It is the contention of the appellant that the raw materials were sold by Govt. Organizations like SAIL through tender bids under specified terms and conditions and that there was no scope of appointing outside technical experts to verify the quality of the materials as well as there was no point in making correspondences with the suppliers as the complaints would never be entertained. Further there was no guarantee that the sample inspected prior to participating in the tender would be similar to the product which would get dispatched. However, the fact remained that the loss due to heavy sludge in Light Creosote Oil purchased from Roukella Steel Plant was not verifiable. In such circumstances the AO was correct in estimating the gross profit from this business based on the past trends. The AO had computed the income applying 20% as GP margin. However from the documents submitted and remand report it is seen that the GP margin in the past years was in the range of 6.22% to 17%. Thus the estimate of income at 20% is not fair. Keeping in mind the possibility of the submission of the appellant that there was heavy sludge in the raw material I am of the view that the estimate of income should be done @ 7% Gross Profit Margin. I therefore direct the AO to estimate the income applying gross margin of 7% instead of 20%.
The AO is directed to treat the turnover at Rs.480.51 Lakh instead of Rs.482 Lakh, as there is no material to substantiate the increase in turnover.”
This way, the ld CIT(A) has reduced the GP% to 7% from 20%. Before the ld CIT(A), the assessee apart from the submissions made before the AO, submitted the explanation about the GP% as to how it has decreased.
Not being satisfied with the order of ld. CIT(A), the revenue is in further appeal before us and has taken the following grounds of appeal :-
1. That the Ld. Commissioner of Income Tax(A) has erred in lowering the Gross profit estimated by the Assessing Officer from 20% to 7% of turnover.
2. That the Ld. CIT(A) erred in lowering the Gross profit without verifying any evidence contrary to the findings of the Assessing Officer.
From the above cited grounds of appeals, it appears to us that the solitary grievance of the revenue is that the Learned Commissioner of Income Tax (Appeal) has reduced the gross profit percentage from 20% to 7% of turnover.
6. Ld. DR for the revenue has vehemently stated that the ld. CIT(A) has reduced the gross profit ratio from 20% to 7% without bringing any cogent material on record. The reduction of a gross profit form 20% to 7% by the ld. CIT(A) is based on surmise, conjecture and guess. He did not give the weightage of the findings of the AO and he did only guess work.
Apart from this, there is difference of gross profit ratio worked out in tax audit report and the gross profit ratio submitted by the assessee.
However, later on the tax auditor of the assessee has submitted a rectification letter admitting that there was a mistake in the tax audit report. Ld. DR pointed out that the tax audit report being a statutory document, therefore, the figures contained in the tax audit report should be relied on. The argument of the assessee that he has purchased inferior quality of the raw materials and the purchase price of the raw materials are supported from the public bid is not tenable. Ld. DR also pointed out that the ld. CIT(A) did not assign any reasons to reduce the gross profit ratio from 20% to 7%.
Ld. AR for the assessee has submitted that during the year under consideration the assessee has purchased raw material which is of inferior quality. Ld. AR also submitted that there was huge processing loss and more waste/sub-standard goods were being generated through the manufacturing process, therefore, the gross profit and the net profit has come down. Merely because the sales/turnover has increased, does not mean that gross profit and the net profit would increased simultaneously, because in the year under consideration the assessee has incurred more operating loss, more operating expenses, process loss etc. In the remand proceedings, the matter has been explained by the Accountant of the assessee as to how substantial loss was incurred during the year under consideration, which led to low gross profit rate. The assessee submitted that raw materials were sold by the Government organizations like SAIL through tender bids under specific terms and conditions and that there was no scope of appointing outside technical experts to verify the quality of material as well as there was no point in making correspondences with the suppliers as the complaints would never be entertained. Further, there was no guarantee that the sample inspected prior to participating in the tender would be similar to the product which would get dispatched.
Having heard the rival contentions and perused the material available on record, we are of the view that there is merit in the submissions of the assessee, as the propositions canvassed by the ld. AR of the assessee has supported by the facts narrated above. As the ld. AR for the assessee has pointed out that how substantial loss was incurred during the year under consideration which led to low gross profit ratio. The raw materials purchased by the assessee are not disputed by the AO because the same have been purchased through tender bids under specified terms and conditions. When the Government agencies is involved then there is not point to appoint outside technical experts to verify the quality of the material as well as there is no point in making correspondence with the suppliers as the complaints would never be entertained. Besides, there was no guarantee that the sample inspected prior to participating in the tender would be similar to the product which would get dispatched. The AO has computed the income applying 20% as gross profit ratio, however, from the documents submitted and the remand report, and based on the other documents, ld.CIT(A) observed that gross profit margin in the past years was in the range of 6.22% to 17%.
Therefore, estimating income by applying the 20% gross profit ratio is not fair. Therefore, based on the above cited factual position, we do not find any reason to disturb the order of ld. CIT(A). Accordingly, we confirm the order passed by the ld. CIT(A). 9. In the result, the appeal filed by revenue is dismissed. Order pronounced in the open court on this 21/10/2016.
Sd/- Sd/- (NARASIMHA CHARY) (DR. A.L.SAINI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक Dated 21/10/2016 �काश �म�ा/Prakash Mishra,�न.स/ PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant –ITO, Ward-29(2), Kolkata 2. ��यथ� / The Respondent.-Nirmala Porwal 3. आयकर आयु�त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु�त / CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. 6. गाड� फाईल / Guard file. स�या�पत ��त //True Copy// आदेशानुसार/ BY ORDER,