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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER :
The captioned appeal has been filed at the instance of the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-3, Rajkot, dated 05.03.2018 arising in the matter of assessment order passed under Section 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2011-12.
The assessee has raised the following grounds of appeal:
“1. The Ld. CIT(A) has erred on facts as well as in law in confirming estimation of GP as much high at 38% and making additions amounting to Rs.16,61,725/-. Th same needs deletion.
Assessment Years: 2011-12 Page 2 of 6
2. Without prejudice, the Ld. CIT(A) has erred on facts as well as in law in confirming estimation of GP as much high at 38% and making additions amounting to Rs.16,61,725/-. The same needs substantial reduction.
3. Taking into consideration legal, statutory, factual and administrative aspects addition/disallowance of Rs.16,61,725/- ought to have been confirmed. The same needs cancellation.
4. Taking into consideration legal, statutory, factual and administrative aspects addition/disallowance of Rs.16,61,725/- ought to have been confirmed. The same needs substantial reduction.
5. Without prejudice, the assessment proceedings are bad in law deserves annulment.
Without prejudice, no reasonable opportunity has been given by the Ld. A.O. while completing assessment. The same needs annulment.
7. Without prejudice, no reasonable opportunity has been given by the Ld. CIT(A) while completing appeal proceedings. The same needs annulment.
8. Without prejudice, the assessment is based on the notices which are not served legally and the same being invalid. The assessment needs annulment.”
The only issue raised by the assessee is that the learned CIT-A erred in estimating the gross profit at 30% of the turnover which is quite high and resulting the addition of ₹ 16,61,725 only.
The facts in brief are that the assessee in the present case is a partnership firm and engaged in the business of manufacturing of DC motors and trading of spare parts of the motors. The assessee is carrying out its manufacturing activity from the SEZ and eligible for exemption under section 10A of the Act at the rate of 50% of such manufacturing activity. However, the AO during the assessment proceedings observed certain facts as detailed below: i. There was decline in the gross profit ratio in the year under consideration in comparison to the immediate preceding year. The gross profit ratio for the current year is 17.05% whereas the GP ratio of the immediate preceding year stands at 54.78%. It was explained by the assessee that there was high wastage of material which has reduced the Assessment Years: 2011-12 Page 3 of 6
gross profit ratio but the same was not substantiated based on the documentary evidence. ii. The assessee was not claiming the reimbursement of airfare charges from its customers. The reasons for the same were not explained satisfactorily by the assessee. iii. There was no satisfactory explanation furnished by the assessee with respect to the prior period expenses debited in the year under consideration. iv. There were certain defects and infirmities in the salary registers which was not maintained properly. Likewise, there were also mismatch in the signatures on the vouchers prepared by the assessee for the payment of salary.
Based on the above, the AO concluded that the actual profit of the assessee cannot be deduced and therefore he invoked the provisions of section 145(3) of the Act for rejecting the books of accounts. The AO further estimated the gross profit taking the average of last 2 years and the year under consideration which was worked out at 38% of the turnover. Accordingly the gross profit amounting to ₹ 60,28,939.00 was worked out being 38% of the turnover of ₹ 15865628 whereas the assessee declared the gross profit at Rs.27,05,489.00. Accordingly the differential amount of gross profit at Rs.33,23,450.00 (6028939-2705489) was worked out on which exemption to the tune of 50% was allowed. As such the balance amount of Rs.16,61,725 was added to the total income of the assessee.
6. Aggrieved assessee preferred an appeal to the learned CIT-A who dismissed the ground of appeal raised by the assessee by observing as under:
7.3 The additional ground raised by the appellant is regarding matter of estimation of gross profit @ 38%. It is fact that Para 7 of assessment order indicates that AR has agreed to substitution of declared Gross Profit @ 17.05% by estimated Gross Profit Rate @ 38%. It is also a fact that AO has also granted deduction proportionate u/s.10A on the addition arrived at by substituting Gross Profit Ratio. The only issue in contention is whether the underlying turnover of appellant should be reduced by the item of “Sales Return of Rs.29,59,826/-. The AO has objected to this submission which was raised for the 1st time before CIT(A) and was never raised before the AO. Thus the AO is not disputing the veracity of Debit note, he is only objecting to its admissibility of this new claim of altering the figure of Gross Turnover by adding back the figure of “Sales Return”. I d o not agree with the AO that this Assessment Years: 2011-12 Page 4 of 6 issue cannot be raised now. I allow this issue to be raised and to be considered. 7.4 What was agreed between the appellant and the AO was to substitute declared Gross Profit @ 17.05%to @ 38%. The declared Gross Profit of 17.05% was computed by the AO after excluding the Debit note of Rs.29,59,826/- from the Gross turnover of appellant. Gross turnover of appellant was Rs.1,88,25,454/- which was reduced to Rs.1,58,65,628/- as net turnover by the AO for computing the declared Gross Profit Ratio of 17.05%. On this very net turnover he applied the Gross Profit Ratio on 38% to arrive at the addition on account of Gross Profit estimation. Thus the Debit note of Rs.29,59,826/- remained outside the computation of Gross Profit before as well as after the substitution of Gross Profit Ratio. It is pertinent to note that expense of this Debit note has already been claimed by the appellant in its Profit and Loss account and AO has also not disturbed the same. The AO has arrived at the new Gross Profit Rate of 38% by taking average of last 3 years of Gross Profit Ratio including current year Gross Profit Ratio. In earlier 2 years there was no item of Debit note meaning thereby that declared Gross Profit Ratio of those years where on the actual turnover and they were comparable to net turnover of current year. Therefore AO’s exclusion of Debit note from Gross turnover in order to find out the comparable turnover was absolutely correct. The Ld. AR is not right in raising this new ground of altering the Gross turnover. Accepting this demand will result into disturbance of comparable items because in that case turnover of current year will no longer be comparable to earlier year’s turnover. This additional ground is dismissed.”
Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
The learned AR before us has filed the written submissions which are reproduced as under:
“The only issue involve after the decisions of Ld. A.O. regarding withdrawal of exemption granted by himself u/s.10A is discussed at para 9 page 4 of the Assessment order and also confirmed by the Ld. CIT Appeal. This issue had already been considered by the Hon. ITAT Rajkot Bench in the case of assessee for A.Y. 2009-10 in (Copy Enclosed). Considering this it is humbly prayed that the appeal may kindly be allowed granting deduction u/s.10A by the Ld. A.O. and then withdrawn by himself the same amounting to Rs.1,38,597/-“ 9. On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the learned DR and perused the materials available on record. On perusal of the grounds of appeal raised by the assessee, we note that the Assessment Years: 2011-12 Page 5 of 6 assessee was aggrieved for estimating the gross profit at the rate of 38% of the turnover. But there was no contention raised by the learned counsel for the assessee in the written submission filed him qua the grievance raised in the grounds of appeal. In the written submission the assessee has sought the relief/ exemption under section 10A of the Act with respect to the profit arising to it from the trading of spare parts of the DC motors. The learned AR in support of assessee’s claim has also filed the order of the ITAT in the own case of the assessee which is placed on record. However, we note that the learned CIT-A has already allowed the relief to the assessee with respect to the profit arising to it from the trading activities of spare parts by allowing the exemption under section 10A of the Act. Accordingly, we hold that there was no grievance to the assessee with respect to the trading activities as contended in the written submissions.
Besides the above we also note that AO in his order dated 28th February 2014 11. has categorically recorded as under:
“The AR vide letter dated 27/02/2014 submitted that the assessee firm is ready to accept the GP estimation @ 38% but the firm should be allowed proportionate exemption under section 10A as per the law.
From the above submission before the AO and the written submission filed by the learned AR for the assessee which are available on record, we note that there is no grievance to the assessee with respect to the gross profit estimated by the AO at the rate of 38% of the turnover. Accordingly, the appeal filed by the assessee is not maintainable. Thus we dismiss the same as infructuous.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open Court on this 8th day of June, 2022.