Income Tax Appellate Tribunal - Ahmedabad
Raghuvir Engineering Pvt.Ltd., Surat vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "B" AHMEDABAD
Before Shri N.S.SAINI, ACCOUNTANT MEMBER and
Shri MAHAVIR SINGH, JUDICIAL MEMBER
ITA No.1935/ Ahd/2010
Assessment Year:2006-07
Date of hearing:29.10.10 Drafted:1.11.10
ACIT, Circle-4, Room V/s. M/s. Raghuvir Engineering
No.223, Aayakar Pvt. Ltd. (now know as
Bhavan, Surat Marvel Engineering), 6-6-B,
GIDC, Schin, Surat
PAN No. AABCR1308Q
(Appellant) .. (Respondent)
Appellant b y :- Shri K. Madhusudan SR-DR
Respondent by:- Shri K.N. Bhatt, AR
ORDER
PER Mahavir Singh Judicial Member:-
This appeal by the Revenue is arising out of the order of Commissioner of Income-tax (Appeals)-IV, Surat in appeal No. CAS-IV/III/189/2008-09 dated 17-02-2010. The assessment was framed by ACIT, Circle-4, Surat u/s143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 21-11-2008 for assessment year 2006-07.
2. The only issue in this appeal of Revenue is against the order of CIT(A) in restricting the addition made by Assessing Officer on account rate of Gross Profit (GP for short) at 26% instead of GP applied by AO at 31.46%. For this, Revenue has raised the following ground No.1:-
"[1] On the facts and in the circumstances of the case and in Law, the Ld. CIT(A)-IV, Surat has erred in restricting the addition of GP @ 26% i.e. Rs.10,12,091/- instead of 31.46% i.e. Rs.18,87,846/- made by the AO."ITA No.1935/Ahd/2010 A.Y 2006-07
ACIT Cir-4 SRT v. Marvel Engineering Page 2
3. The brief facts leading to above issue are that the assessee is engaged in business activity of job work of parts of textile machinery and automobile components. The assessee declared a loss at Rs.13,64,439/- in the return of income filed by the assessee-company on 20-12-2006 for the relevant assessment year 2006-07. The Assessing Officer during the course of assessment proceedings required the assessee to give comparatively analysis of GP with respect to turnover for last three years. The assessee gave a complete chart, which reads as under:-
A.Y Turnover Gross Profit GP Margin
2006-07 1,60,39,477 31,57,625 19,69%
2005-06 57,87,536 21,12,776 36.51%
2004-05 20,21,992 7,72,256 38.19%
The Assessing Officer from the above chart noted that there is a steep fall in GP rate and accordingly he required the assessee to explain the reasons. The assessee filed GP ratio of last two years as under:-
Particulars A.Y.2005-06 A.Y 2006-07
Turnover Labour 5787536 2981879
Gross Profit 2093677 1083864
G.P. Ratio 36.18% 36.35%
Turnover Nil 13057598
Manufacturing
GP Manufacturing Nil 2027064
GP Ratio Nil 15.52%
Total TO 5787536 16039477
Total GP 2093677 3110928
Total GP Ratio 36.10% 19.40%
And submitted the reasons that there was no manufacturing in assessment year 2005-06, whereas the assessment year 2006-07 there was labour income as well as manufacturing activity and therefore comparing the GP of ITA No.1935/Ahd/2010 A.Y 2006-07 ACIT Cir-4 SRT v. Marvel Engineering Page 3 two years is not possible as the data is not comparable. The assessee also stated that there is increase in turnover at 200% from last two years as can be noticed from the chart given. The AO has not considered the assessee's explanation as general in nature and estimated the average GP at 31.46% by giving following finding in para-14:-
"14. The logical step after the rejection of the books is the estimation of the income and the G.P of the business of the assessee. In this regard, taking the average of back year's profit is the most common and easily accepted tool. However, before applying any statistical formula it would be judicious to look into every possible option so that arbitrariness of the estimation can be minimized. The option are:
• The assessee company has shown 36.51% gross profit in the last year and 19.69% this year. Hence, gross profit of 36.51% can be extended to this year also.
• The assessee company has shown 36.51% gross profit in the last year and 19.69% this year. If the average of gross profit of both years is taken then it comes to 28.10%. This 28.10% gross profit can be taken for this year also.
• The assessee company has shown 36.51% gross profit in the last year, 38.19% during the last to last year and 19.69% during the year under consideration. If the average of gross profit of three years is taken then it comes to 31.46%. This 31.46% gross profit can be taken for this year also."
4. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) restricted the GP rate at 26% instead of 31.46% applied by Assessing Officer by giving following findings in his appellate order:-
"I have considered the rival contents. The G.P rates are not static and they are always dynamic. The quantum of profit has increased substantially - which is the driving/guiding force for conduct of business. On the other hand the nature of business has remained the same. As pointed out by the A.O in A.Yr. 2004-05 and 2005-06 although turnover has increased by almost 3 times there is a marginal fall of 2% in gross profit. However when the current year is seen the turnover has increased only 2 ½ times the G.P has fallen by more than 50%. So the historical data of profit in appellant's own case does not lend much credence to appellant's argument for deletion.ITA No.1935/Ahd/2010 A.Y 2006-07
ACIT Cir-4 SRT v. Marvel Engineering Page 4 Still in the facts and circumstances of the case and keeping the quantum jump in net profit, it will be appropriate if a G.P rate of 26% is applied. This will take care of merit in rival arguments."
4. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has not challenged the rejection of books but it is a fact that the turn over of the assessee has increased during the year under consideration and this case cannot be compared with the earlier year because there was no manufacturing activity during the assessment year 2005-06, whereas in the present assessment year 2006-07 there was labour income i.e. job work charges as well as manufacturing activity. The assessee's gross profit deceased decreased due to manufacturing activity. But in any case, the Assessing Officer's estimation is on higher side as the CIT(A) has given substantial reasons as explained by the assessee with the help of tabularized chart that no manufacturing activity was taken at the last year. While both labour income and manufacturing activity was during the assessment year 2006-07 and thus comparing the gross profit of two years is not possible. The AO clarified the GP had decreased due to manufacturing activity which was low than the labour. If the GP of labour only is seen, there is no such fall in GP and GP of the current year is bifurcated in the labour and manufacturing activities. The assessee produced the comparative low GP of the three years regarding labour activity which is being reproduced as under:-
"If the total turnover is seen the same has increased by 200% from Rs.57,87,536/- in assessment year 2006-06 to Rs.1,60,39,477/- in assessment year 2006-07.
Particulars A.Y 2006-07 A.Y.2005-06
Total Turnover 16039477 5787536
Increase Rs. 10251941
Increase % 177%
The overall GP have increased in terms of rupees. The GP had also increased from Rs.2093677 in AY 05-06 to Rs.3110928 in AY 06-07. Thus, the business was increased overall, which is seen from the figures as under:-ITA No.1935/Ahd/2010 A.Y 2006-07
ACIT Cir-4 SRT v. Marvel Engineering Page 5 Particulars A.Y 2006-07 A.Y.2005-06 Gross Profit 3110928 2093677 Increase Rs. 1017251 Increase % 49% In this way he stated that the Net profit had also increased in terms of rupees from Rs.1211690 in AY 05-06 to Rs.1371185 in AY 06-07 (Before depreciation). Thus there is as such no fall in GP or even NP either in terms of rupees or in terms of percentage.
Particulars A.Y 2006-07 A.Y.2005-06
Total Net Profit 1371185 1211690
Increase Rs. 159495
Increase % 13.16%
The above facts have not been controverted by the Revenue but in any case the rejection of book results upheld by CIT(A) has not challenged. The CIT(A) has fairly estimated the GP at 26% and we confirm the same in view of the above reason.
5. In the result, Revenue's appeal is dismissed.
Order pronounced in Open Court on 19/11/2010 Sd/- Sd/-
(N.S.Saini) (Mahavir Singh)
Accountant Member Judicial Member
Ahmedabad,
Dated : 19/11/2010
*Dkp
Copy of the Order forwarded to :
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-IV, Surat
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad