Income Tax Appellate Tribunal - Ahmedabad
Canton Laboratories, Baroda vs Assessee on 14 September, 2011
आयकर अपीलीय अिधकरण, ए', अहमदाबाद ।
अिधकरण, अहमदाबाद Ûयायपीठ 'ए
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, "A" BENCH
सव[ौी ौी जी.
जी.डȣ.
डȣ.अमवाल,
अमवाल, माननीय उपाÚय¢,
उपाÚय¢, एवं मुकुल कुमार ौावत,
ौावत, Ûयाियक सदःय के सम¢ ।
BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND
MUKUL Kr. SHRAWAT, JUDICIAL MEMBER)
ITA No.3527/Ahd/2008
[Asstt. Year : 2005-2006]
M/s.Canton Laboratories बनाम/Vs. ACIT, Cir.2
110/B, GIDC Estate Vadodara.
Makarpura, Vadodara 390 010.
(अपीलाथȸ / Appellant) (ू×यथȸ / Respondent)
राजःव कȧ ओर से/ : Shri R.K. Vohra
Revenue by
िनधा[ǐरती कȧ ओर से/ : Shri M.K. Patel
Assessee by
Date of Hearing : 14th September, 2011
Date of Pronouncement : 16th September, 2011
आदे श / O R D E R
PER G.D. AGARWAL, VICE-PRESIDENT : This is assessee appeal against
the order of the Commissioner of Income-tax (Appeals)-II, Baroda dated
21.08.2008 arising out of the order of the Assessing Officer under Section
143(3) of the Income Tax Act, 1961.
2. The first ground of the assessee's appeal reads as under:
1. The Ld. AO erred in invoking the provisions of section 145(3) f the
Act and had made an addition of Rs.56,29,732/- being 5% of the
tur5nover. The CIT(A) has reduced the said addition by 3% of the
turnover and has finally affirmed the addition of 2% of turnover
being Rs.22,51,893/- which is really not required keeping in mind
the facts of the case and the circumstances under which the
appellant has been operating.
3. At the time of hearing before us, it is stated by the learned counsel that
the assessee derives income from manufacturing of chemicals, solvent and
derivatives. The AO has observed that the assessee's GP margin has decreased
from 40.26% to 39.19%. He also noticed that the assessee has not maintained
quantitative details in respect of the items which are non-excisable in nature.
ITA No.3527/Ahd/2008
He therefore rejected the assessee's books of accounts and enhanced the GP by
5% of the turnover. On appeal, the CIT(A) upheld the rejection of the books of
accounts, but reduced the GP addition to 2% instead of 5% made by the AO.
The learned counsel has stated that the AO made some mistakes in working out
the GP ratio. In fact, the GP rate of the year under consideration is 39.99%
and not 39.19% as computed by the AO. He also pointed out that the GP of the
assessee for the year under consideration is better than for A.Y.2003-2004.
That in the last year, the GP rate was 40.26%, thus, the GP of the year under
consideration is slightly less i.e. by 0.27% as compared to the last year, which
is negligible. That there was no justification for the CIT(A) to sustain the GP
addition at the rate of 2%. The learned DR, on the other hand, relied upon the
orders of the authorities below and he has stated that the AO has recorded clear
finding that the GP of the assessee for the year under consideration is 39.19%,
therefore, the assessee's contention that its GP ratio was 39.99% needs
verification.
4. We have carefully considered the arguments of both the sides and
perused the material placed before us. At the time of hearing before us, the
assessee has given the following chart of the sale and the GP for the year under
consideration and preceding two years:
Description A.Y.2003-04 A.Y.2004-05 A.Y.2005-06
Net Sales 6,65,91,129 9,60,96,265 11,25,94,645
Gross Profit 2,61,51,285 3,86,88,267 4,50,22,727
Gross Profit Ratio 39.27% 40.265% 39.99%
From the above chart, the GP of the year under consideration is better than the
A.Y.2003-2004 and slightly lower than A.Y.2004-2005. If we take the average
of GP rate of A.Y.2003-04 and 2004-05, then also the GP rate of the year under
consideration is better. Therefore, on these facts in our opinion, no addition
can be made to the gross profit, because the GP rate disclosed by the assessee is
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ITA No.3527/Ahd/2008
reasonable. However, still it remains to be verified whether the percentage of
the GP rate as given by the assessee is correct or as given by the AO is correct.
We therefore set aside the orders of the authorities below on this point and
restore the matter back to the file of the AO. We direct him to verify the
figures given in the chart by the assessee. If the GP rate worked out by the
assessee is correct, then no addition to the GP disclosed by the assessee is
required to be made. However, if it is not correct, then the AO will work out
the addition, if any, by taking the average GP of A.Y.2003-04 and 2004-05.
He will allow adequate opportunity of being heard to the assessee while giving
effect to this order.
5. Ground No.2 of the assessee's appeal reads as under:
"2. The CIT(A) has wrongly confirmed the action of the AO who
disallowed insurance premium under the Employees' Group Gratuity
Policy of LIC u/s.36(1)(v) of the Act. The said payment is not hit by
Section 36(1)(v) of the Act and hence it may please be allowed."
6. At the time of hearing before us, it is stated by the learned counsel that
the assessee has already applied for the approval of Employees Group Gratuity
Fund. However, the assessee's application is still pending with the concerned
CIT. He has stated that the assessee has done whatever was required on the
part of the assessee. Now the department on one side has not disposed of the
assessee's application and on the other side disallowed the assessee's claim on
insurance premium which is paid to the LIC. Thus, the assessee is being
penalised for no fault of its part and the department is being benefited for
inaction on their part. The learned DR, on the other hand, stated that the facts
stated by the assessee, needs verification i.e. whether the assessee has applied
for the approval of gratuity fund and made all compliances as per rules.
7. We have carefully considered the arguments of both the sides and
perused the material placed before us. In our opinion, this matter also needs
verification at the end of the AO. He will verify whether the assessee has made
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ITA No.3527/Ahd/2008
proper application for the approval of gratuity fund in accordance with law. If
the assessee has made application, he will also verify from the concerned
authority about the fate of such application. If the assessee has made proper
application in accordance with law and the same is not being disposed of by the
concerned authorities, then in our opinion, the assessee cannot be denied the
benefit of deduction under Section 36(1)(v) because the department cannot take
benefit of its inaction. What is required from the assessee is to make proper
application for approval of the fund. Thereafter, it is the duty of the concerned
Revenue authorities to either approve the fund or if the assessee is not entitled
to approval, then reject the same. But the Revenue cannot keep the assessee's
application pending and at the same time disallow the assessee's claim under
Section 36(1)(v) of the Act. Therefore, we direct the AO to re-adjudicate the
issue as per our above direction.
8. In the result, assessee's appeal is deemed to be allowed for statistical
purpose.
Order pronounced in Open Court the date mentioned on the first page of this
order.
Sd/- Sd/-
मुकुल कुमार ौावत /MUKUL KR. SHRAWAT)
(मु जी..डȣ
जी
(जी डȣ..अमवाल G.D. AGARWAL)
Ûयाियक सदःय /JUDICIAL MEMBER उपाÚय¢ /VICE-PRESIDENT
Copy of the order forwarded to:
1) : Appellant
2) : Respondent
3) : CIT(A)
4) : CIT concerned
5) : DR, ITAT.
BY ORDER
DR/AR, ITAT, AHMEDABAD
1. Date of dictation : 14-09-2011
2. Date on which the typed draft is placed before the : 15-09-2011 Dictating Member.
3. Date on which the approved draft comes to the :
Sr.P.S./P.S
4. Date on which the fair order is placed before the :
Dictating Member for pronouncement.
5. Date on which fair order placed before Other :
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