Income Tax Appellate Tribunal - Chandigarh
Dcit, Ludhiana vs Sharman Udyog Pvt. Ltd., Ludhiana on 1 March, 2017
I N T H E I N C O M E T A X AP P EL L AT E T R I BU N A L
D I VI S I O N B EN C H , C H AN D I G A R H
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND Ms. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No. 679/CHD/2016
Assessment Year: 2011-12
The DCIT, Vs M/s Sharman Udyog Pvt.Ltd.,
Central Circle-III D-43, Phase-V, Focal Point,
Mandi Gobindgarh. Ludhiana.
PAN: AACCS5208F
(Appellant) (Respondent)
Appellant by : Shri Sushil Kumar,CIT-DR
Respondent by : Shri Ashwani Kumar,CA
Date of Hearing : 15.02.2017
Date of Pronouncement : 01.03.2017
O R D E R
PER BHAVNESH SAINI,JM This departmental appeal has been directed against the order of ld. CIT(Appeals)-5 Ludhiana dated 18.03.2016 for assessment year 2011-12 challenging the deletion of addition of Rs. 35,24,925/- on account of fall in GP.
2. This issue pertains to rejection of the books of account by Assessing Officer and making of addition by applying higher gross profit rate. The Assessing Officer has mentioned that the assessee has surrendered 2 additional income of Rs. 250 Lacs u/s 132(4) under various heads, however, the return was filed at Rs. 2,08,19,701/-. The AO accordingly issued a show cause notice to the assessee to justify the returned income being less than surrendered income. In the reply, the main reason mentioned by the assessee was the addition to fixed asset during the year which has resulted in increase in depreciation claim by Rs.2,10,83,260/- in this assessment year. It was also explained that financial expenses too have increased, and due to these two factors, the returned income was less than the surrendered income. The AO considered the reply but the justification was not found acceptable. As per AO the main reason for fall in income was a fall in GP rate at 35.75% compared to 37.1% for the last year. The AO also noticed that power and fuel consumption has also increased more as compare to increase in sale. The AO also mentions that quantity wise detail of purchases and detail of closing stock has not been filed and accordingly, a show cause notice was given to the assessee for rejection of the books. After considering the reply of the assessee, the books were rejected and the gross profit was determined by applying a GP rate of 37% resulting in addition of Rs. 35,24,925/-. Further, the AO made disallowance of 15% out of total vehicle expenses on account of personal use, resulting in addition of Rs. 2,01,830/-
3
3. The ld. CIT(Appeals), however, deleted the entire addition. His findings in paras 3.1.1 to 3.1.3 are reproduced as under :
"3.1.1 The facts of the case, the basis of assessment and additions made by the A.O. and the submissions/arguments of the AR during the appellate proceedings have been considered. The AR has submitted that additional income of Rs. 250 Lacs surrendered during search has been duly reflected in the books of account; Rs. 220 lacs as additional income under the head miscellaneous income and Rs. 30,00,000/- declared in computation as Unexplained Expenses/Income u/s 132(4). The AR submitted that out of the above; Rs. 140 Lacs was towards undisclosed/unrealized sale/debtor and Rs. 30,00,000/- towards difference in stocks/materials thus totaling 170 lacs, which is more than addition of Rs. 35,24,925/- made towards fall in GP rate. Further, Rs. 30,00,000/- was surrendered towards unexplained documents/expenses which is more than the disallowance of Rs.2,01,830/- for personal use of vehicles by the director 3.1.2 The AR has also submitted that the GP rate during the year is 35.75 % against 37.10% of earlier year and decrease is only by 1.3%. The assessee maintained regular books of accounts supported by purchase and sales bills and vouchers for expenses and no defect was pointed by the AO in this regard. All the quantitative details were available and supplied to the AO vide reply dated 18.01.2013. The books are duly audited. The reason for increase in power and fuel expenses is due to the increase in power rates and electricity cut resulting in more use of generator and consumption of more diesel. The net gross profit for the year is Rs. 10,11,34,992/- as against Rs.8,73,16,675/- of the earlier year. Hence, there is a progression in gross profit which cannot remain constant year after year in realistic situation. The AR contended that the AO has not pointed out any defect or fault in books of account or bills or vouchers etc. Only on account of fall in GP or increase in one expense cannot be a basis for rejection of books of accounts. The AR has quoted case laws also in his favour.
3.1.3 After examination the documents filed with the submissions it is seen that vide letter dated 18.01.2013 quantitative and value wise details of opening and closing stock and basis of valuation was given to the AO.4
Also month wise details of purchases and sale (value wise) and yearly sales & purchase quantity wise was also given. During the appellate proceedings, a copy of the same has been filed and placed on record. The AR has given a detailed analysis of power and fuel consumption for the current year compared with last year along with its relation with the production/sale. After examination of the facts relating to the case and the documents filed by the AR including the reply filed before the AO during assessment, the contention of the assessee appears acceptable that the AO was not correct in rejecting the books without pointing out specific defects, only on the basis of fall in GP. Therefore, the action of the AO is not found sustainable as per law. The rejection of the books is therefore, held unjustified and the resultant addition, of Rs. 35,24,925/- by applying GP rate @37% is accordingly deleted."
4. After considering rival submissions, we do not find any merit in this ground of appeal of the revenue. There is only small decrease in the gross profit rate as compared to the earlier year. The assessee has maintained regular books of account supported by purchase and sale bills and vouchers of expenses. No specific defects have been pointed out in maintenance of the books of account and vouchers. All the quantitative details were supplied to the Assessing Officer. Books are audited. Net gross profit has increased as against earlier year. It is admitted fact that assessee had already surrendered additional income during the course of search which was towards the discrepancy found during the course of search and for fall in GP which were more than sufficient to meet the above addition. Since no specific defects have been pointed out in the maintenance of the books of account, therefore, 5 Assessing Officer was not justified in enhancing the profit rate of the assessee for the purpose of making the addition. The ld. CIT(Appeals) after properly analyzing the facts and material on record, correctly deleted the addition. This ground of appeal of the revenue is dismissed.
5. In the result, departmental appeal is dismissed.
Order pronounced in the Open Court.
Sd/- Sd/-
( ANNAPURNA GUPTA) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 1st March,2017.
'Poonam'
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT,DR
Assistant Registrar,
ITAT/CHD