2016 (1) TMI 26 - AT - Income Tax

G.P. addition - CIT(A) reducing the G.P from 30% to 15% - Held that - CIT(A) and the A.O. have rightly rejected the books of account, because there were discrepancies in the books of account and the purchases were not found to be verifiable. We also in agreement with the ld. CIT(A) on the adoption of GP ratio of 15% as against 30% adopted by the A.O.in A.Y. 2006-07 and GP ratio of 28% as against 30% in A.Y. 2007-08 as against GP rate of 27.18% declared by the assessee based upon the working furnished by the assessee. Accordingly, we uphold the order of the ld. CIT(A) - Decided against revenue Disallowance of foreign export commission - CIT(A) deleted the addition - Held that - The ld. CIT(A) has concluded that the assessee has engaged foreign commission agent i.e. Sinar Mandiri and has paid foreign export commission under the regulations of RBI through banking channel @ 12% on which copies of invoices were furnished during the appellate proceedings. In our considered opinion, the ld. CIT(A) is quite justified in deleting the disallowance made by the A.O. We find no reason to interfere with the order of the ld. CIT(A) and accordingly we uphold the same - Decided against revenue

Summary

Issues:
1. Dispute over reduction of gross profit percentage and disallowance of foreign export commission.

Analysis:
The appeals by the Revenue were against two orders dated 7-12-2010 by the ld. CIT(A) for the assessment years 2006-07 & 2007-08. Common issues were involved, so they were heard together. The Revenue challenged the reduction of gross profit (GP) from 30% to 15% and the disallowance of foreign export commission. The assessee, engaged in textile fabric export, faced challenges from the Assessing Officer (A.O.) who rejected the books of account due to unverifiable purchases and discrepancies. The A.O. estimated GP at 30%, higher than the declared 11.11%, leading to a significant difference in profits. The ld. CIT(A) upheld the A.O.'s decision under section 145(3) but adjusted the GP ratio to 15% based on grey purchases data. The Revenue contested this adjustment, arguing for the higher 30% GP. The Tribunal supported the ld. CIT(A)'s decision, emphasizing the need for justifiable profit estimation.

In the second issue, the A.O. disallowed foreign export commission payments as fictitious expenses to evade tax. The assessee justified the payments to a specific agent, Sinar Mandiri, for export assistance and fashion guidance. The ld. CIT(A) accepted the explanation, noting payments were through regulated banking channels and based on RBI guidelines. The Tribunal upheld the ld. CIT(A)'s decision, dismissing the Revenue's appeal. The case highlighted the importance of proper documentation and compliance with regulatory requirements in expense claims.

The Tribunal's comprehensive analysis considered the factual and legal aspects of the case, ensuring fairness and adherence to tax laws. The judgment underscored the significance of substantiating expenses, maintaining accurate records, and complying with regulatory frameworks to avoid disputes and ensure tax compliance. The decision provided clarity on profit estimation methods and the acceptability of foreign commission payments under regulatory oversight. Overall, the judgment emphasized the need for transparency, diligence, and adherence to legal provisions in tax matters.