2017 (3) TMI 1231 - AT - Income Tax

G.P. estimation - Held that - We are of the view that in the totality of the facts as discussed above where assessee is doing manufacturing and providing job work, regular books of accounts are duly audited with almost double revenue as well as gross profit as compared to preceding Financial Year and turbulence faced in the business due to natural calamity in the form of floods which altogether lead to minor decrease in gross profit rate, no addition was called for by estimating gross profit rate at 23% and, therefore, book result of the assessee needs to be accepted. - Decided in favour of assessee Disallowance of loss suffered due to flood - Held that - As on one hand, assessee has claimed loss of ₹ 15,43,049/- and on the other hand, has not disputed the Surveyor s Report showing safe stocks of residual materials at ₹ 16,93,596/- and also accepting that the goods in question are chemicals which losses its value, if mixed with water, but certainly has some value, we find it justified to sustain the disallowance of loss due to flood at ₹ 1,50,000/- as against ₹ 15,43,049/- claimed by the assessee.

Summary

Issues Involved:
1. Rejection of book results and estimation of gross profit.
2. Disallowance of flood loss claim.
3. Additions under Sections 43B and 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Rejection of Book Results and Estimation of Gross Profit:
The Revenue challenged the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] who allowed the book results rejected by the Assessing Officer (AO) under Section 145(3) of the Income Tax Act, 1961, and restricted the gross profit addition from ?20,37,059 to ?11,78,612. The Tribunal dismissed the Revenue's appeal due to the low tax effect, as the tax effect was less than ?10 lakhs, in line with CBDT Instructions No. 21/2015. The Tribunal observed that the instructions have retrospective effect and apply to pending appeals. The Tribunal allowed the Revenue to approach it for recall of the order if, upon re-verification, the tax effect is found to be more or falls within the exceptions provided in the instructions.

2. Disallowance of Flood Loss Claim:
The assessee's appeal against the CIT(A)'s order sustaining the disallowance of flood loss claim at ?3,64,437 was considered. The assessee had claimed a total flood loss of ?15,43,049, which was disallowed by the AO based on the surveyor's report valuing safe stocks at ?16,93,596. The CIT(A) gave telescopic benefit against the addition sustained on account of gross profit estimation and sustained the disallowance of ?3,64,437. The Tribunal noted that the assessee did not dispute the surveyor's report and accepted the outcome. Considering the facts that the chemicals were water-soluble and had lost market value, the Tribunal found it justified to sustain the disallowance of flood loss at ?1,50,000 instead of ?15,43,049 claimed by the assessee.

3. Additions under Sections 43B and 68 of the Income Tax Act, 1961:
The assessee raised grounds against the CIT(A)'s order confirming the additions of ?3,00,088 under Section 43B and ?3,52,016 under Section 68 of the Income Tax Act, 1961. However, these grounds were not pressed at the time of hearing and were dismissed as not pressed.

Conclusion:
The Tribunal dismissed the Revenue's appeal due to the low tax effect and partly allowed the assessee's appeal by reducing the disallowance of flood loss to ?1,50,000. The other grounds raised by the assessee were dismissed as not pressed. The combined result was that the Revenue's appeal was dismissed and the assessee's appeal was partly allowed.