Income Tax Appellate Tribunal - Ahmedabad
Balaji Formalin Pvt.Ltd.,, Ahmedabad vs Department Of Income Tax on 30 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD
"B" BENCH
Before: Shri D.K. Tyagi, Judicial Member and
Shri T.R. Meena, Accountant Member
I.T.A. No.3181/Ahd/2010
A.Y. 2007-08
Dy. C.I.T., Vs. Balaji Formalin Pvt. Ltd .
Central Circle 1(3), 1398, Villag e Motihoyan, Khatrej,
Ahmed ab ad Kalol Road , Tal: Kalol, Gandhinag ar
PAN-AABCB7062K
Appellant Respondent
Department by : Shri Y.P. Verma, Sr. D.R.
Assessee by : Shri S.V. Agrawal, A.R.
Date of hearing : 30.10.2012
Date of p ronouncement : 23.11.2012
आदे श/ORDER
PER : D.K. TYAGI, JUDICIAL MEMBER
This is Revenue's appeal against the order of ld. CIT(A)-1, Ahmedabad dated 13.10.2010.
2. Revenue is aggrieved by the action of ld. CIT(A) in deleting the addition of Rs.35,62,546/- made on account of estimation of gross profit by the A.O.
3. The A.O., during the assessment proceedings, noticed that the G.P. rate for the year under appeal was 9.55% compared to 3.35% in immediately preceding years. The A.O. also noticed that during the survey again it was found that there are unaccounted expenses of Rs.1,46,498/- which related to the year under appeal. This amount of Rs.1,46,498/- was treated as unaccounted income of the assessee by the A.O. and he further went to reject I.T.A. No.3181/Ahd/2010 A.Y. 2007-08 2 book results shown by the assessee and estimated the G.P. at the rate of 12% thereby making a further addition of Rs.35,62,456/-.
4. Assessee challenged this action of the A.O. before ld. CIT(A) by relying on the submissions which have been reproduced by ld. CIT(A) in para-5 of his order which is as under:-
"(a) The counsel brought to my notice, the submissions filed before the Assessing officer vide letter dated 11.12.2009. In the aforementioned communication, .the appellant explained the fall in the GP rate as under :-
"G.P. /N.P. Ratio for 3 years:
Details.o1 G.P. ratio & N.P. ratio for the last three A.Ys is as under:
AY. Turnover G.P. rate N.P. rate
(Rs.)
G.P. (Rs.) G.P. rate N.P.(Rs.) N.P. rate
(%) (%)
2007-08 145406357 13883026 9.55% 4580490 3. 15% 2006-07 61690699 6383211 10.35% 3428395 5.56% 2005-06 72516165 4328337 5.97% 1487826 2.05% Reasons for fall in G.P. in A.Y.2007-08 compared to earlier years.
(i) In A.Y.2007-08, G.P. has reduced by 0.80% from A.Y.2006-
07 but it has increased by 3.58% as compared to A.Y.2005-06. Therefore, marginal decrease compared to earlier year but 100% increase compared to year before earlier year justified the same.
(ii) In A.Y.2007-08, the turnover has exceeded by 3 times compared to A. Y.2006-07. This is one of the reasons that when turnover increases profit ratio decreases.
(iii) The assesses company has maintained day to day stock records of raw material as well as fin/shed goods.
(iv) The assesses company is subject to excise duty and has maintained day to day excise records.
I.T.A. No.3181/Ahd/2010 A.Y. 2007-08 3
(v) The assesses company is subject to 2 audits i.e.
(a) Company audit under Companies Act and
(b) Tax audit under income Tax Act.
And there is no qualification by auditors in respect of purchase, sales stock and its valuation.
In view of the above facts, the marginal reduction of G.P. by 0.80%, but in fact, 3.58% -increase over A. Y.2005-06 is justified and requires to be accepted."
(b) The counsel stated that during the year under consideration, the turnover of the appellant company is Rs.14.54 Crores as against Rs.6.169 Crores in the previous year relevant to A.Y.2006-07. The G.P. rate in A.Y.2005-06 was 5.97%, in A.Y.2006- 07 is 10.35% and in A.Y.2007-08, G.P. rate is 9.55%. It was contended that during the year under consideration, the turnover has more than doubled compared to the preceding Assessment Year.
(c) The counsel contended that the appellant's finished products are subjected to excise duty. The proper stock register and daily stock register is maintained and same was produced before the Assessing Officer.
(d) The counsel stated that during the year, the profit before deprecation is Rs.74.89 lacs compared to Rs.36.41 lacs in the preceding AY.
(e) It was stated that there is no production loss in the manufacturing process. The counsel stated that on the contrary, there is a gain in terms of the quantity of the materials in the production process. During the year under consideration, the total quantity material consumption is 59.29 lacs Kg. and total production of finished goods is 1.18,18 lacs kg. Thus, there is yield because of addition of water in manufacturing process and there is no process loss.
5. After taking into consideration these submissions of the assessee ld. CIT(A) allowed the appeal of the assessee by observing as under:-
"In the present case, the Assessing Officer has not pointed out any material defects in the books of accounts. The only relevant point mentioned by the Assessing Officer relates to detection of certain I.T.A. No.3181/Ahd/2010 A.Y. 2007-08 4 unaccounted expenses relating to the year under consideration, which have been surrendered by the appellant and offered to tax at the time of assessment proceedings. In the absence of finding as to specific defects, the Assessing Officer is not justified in invoking section 145(3) of the I.T. Act and made addition to appellant's income on account of decline in G.P. rate. The courts have consistently held that the rejection of the books of the assessee without recording any finding of the correctness and completeness of the account, was invalid assumption of the jurisdiction by the Assessing Officer. In the present case, the Assessing Officer has not pointed out any material defect about the completeness and accuracy of the entries made in the books of accounts. The appellant has regularly and consistently employed the same method of accounting. The book results declared by the appellant in the year under consideration are better than in A.Y. 2005-06 and comparable with A.Y. 2006-07. Considering the facts in totality, it is held that the Assessing Officer was not justified in rejecting the book results of the appellant on flimsy ground and thereby making huge addition of Rs.35,62,456/-. The same is directed to be deleted."
6. Before us ld. D.R. relied on the order of the A.O. while ld. A.R. relied on the order of ld. CIT(A).
7. After hearing both the parties and perusing the record we find that assessee, during the year under appeal, has shown G.P. rate of 9.55% compared to 10.35% in the preceding year. The explanation of the assessee before the lower authorities has been that G.P. was reduced by 0.8% in comparison to preceding year but it has increased by 3.58% as compared to year before earlier year. It was further submitted that turn over of the assessee has exceeded by three times compared to the earlier year and this has resulted in lower G.P. We further find that the A.O., while estimating the G.P. of the assessee @ 12%, has not given any basis for such estimation by way of comparing the same with other comparative cases in the same line. We also find that unaccounted expenses of Rs.1,46,498/- found at the time of survey have also been treated as unaccounted income of the assessee during I.T.A. No.3181/Ahd/2010 A.Y. 2007-08 5 the year under appeal. Keeping all these undisputed facts in view, we are of the considered opinion that it was not a fit case in which estimation of income by taking the G.P. at the rate of 12% was called for and therefore, addition so made by the A.O. has rightly been deleted by ld. CIT(A) and the order passed by him is hereby upheld.
8. In the result, Revenue's appeal is dismissed.
Order pronounced in open Court on 23.11.2012
Sd/- Sd/-
(T.R. Meena) (D.K. Tyagi)
Accountant Member Judicial Member
True copy
N.K. Chaudhary, Sr. P.S.
Copy of the Order forwarded to:
1. The applicant
2. The Respondent
3. The CIT Concerned
4. The Ld. CIT (Appeals)
5. The DR, Ahmedabad
6. The Guard File
By order
AR,ITAT,Ahmedabad