2015 (3) TMI 404 - HC - Income Tax

GP rejection - ITAT rejecting the assessee s accounts on the footing that quantitative tally of the ingredients and raw materials were not maintained and proceeded to arrive at an improper GP Rate as well as the turn-over figures - Held that - The assessee categorically appears to have submitted that a quantitative tally of all the raw materials consumed in the making/preparation of the final marketable product was being maintained. Even though CIT(Appeals) noticed this contention as a matter of fact, the said authority did not render any finding. The ITAT instead went by the findings of the lower authority and merely based its conclusion on the interpretation of Section 145(2) of the Income Tax Act, 1961. In fact, there is an assumption in para 9 that the assessee did not maintain quantitative details of ingredients such as mixing gum, starch and oil. Considering assessee s stand that such details were forthcoming both by way of books as well as through a quantitative tally, the CIT (Appeals) should have addressed himself to the issue and rendered clear findings. Failure to have done so has prejudiced the assessee. Consequently, the impugned order is hereby set aside. The matter is remitted back to the CIT (Appeals) for fresh examination of the books of accounts - Decided in favour of the assessee.

Summary

Issues:
1. Whether the ITAT and lower authorities erred in rejecting the appellant's accounts due to the lack of maintained quantitative tally of ingredients and raw materials.

Analysis:
The appellant, engaged in the preparation and trading of Hing, filed its return for AY 2010-11, declaring an income of Rs. 3,15,210. The Assessing Officer (AO) rejected the turn-over figures and G.P. Rate, directing a higher rate, resulting in an addition of Rs. 39,54,014. The CIT(Appeals) partially accepted the contentions, applying a G.P. Rate of 6.55% and confirming an addition of Rs. 21,21,220. The ITAT upheld the lower authorities' decision, leading to the present appeal.

The appellant argued that the authorities erred by not considering the availability of a quantitative tally of ingredients and raw materials in the records. It was contended that the AO's decision was influenced by the claimed G.P. Rate of 3.57% against the total turn-over. The appellant highlighted inconsistencies in previous years' figures and asserted that the authorities did not assess the evidence of raw material procurement. The Revenue countered, emphasizing the rejection of the appellant's contentions after due consideration.

The High Court reviewed the submissions and found that the appellant maintained a quantitative tally of raw materials, which was not adequately addressed by the CIT(Appeals) and ITAT. The Court noted a lack of findings on this crucial aspect, leading to prejudice against the appellant. Consequently, the impugned order was set aside, and the matter remitted to the CIT(Appeals) for a fresh examination of the books to determine if a quantitative tally of raw materials was conducted. The Court ruled in favor of the appellant, partially allowing the appeal and reserving all rights and contentions of the parties.

In conclusion, the High Court's judgment favored the appellant, emphasizing the importance of considering the quantitative tally of raw materials in assessing the accounts. The decision highlighted the necessity for authorities to thoroughly examine all relevant evidence before making conclusions, ensuring a fair and just outcome in tax matters.