2020 (7) TMI 249 - AT - Income Tax

Fall in GP rate - increase in cost of purchase due to appreciation of dollar rates - addition is made to plug the leakages in the gross under estimation of the gross profit and such addition is only about 1% of the total sales receipts since satisfactory explanation is not offered - HELD THAT - This could not be established that there was any advance price agreement with the buyers and therefore, the assessee could not increase the selling price. This is also very important fact of the present case that 95% of the assessee s sales is made to the sister concern - increase in cost is not only on account of increase in exchange rate of dollar but the purchase price in terms of dollar also has gone up because it is seen that the rate per meter was 1.33 US per meter during June to December 2007 and only in February to March 2008, the rate was 1.4 US per meter in the preceding year whereas in the present year, the purchase price was 1.4 US per meter up to September 2008 and during October to December 2008, it has further increased up to 1.54US per meter. When the purchase cost is rising both in terms of rate per meter in US as well as the conversion rate of US into Indian rupees and the sale is mainly to the sister concerns that too without any agreed sale price in advance, the small addition made by the AO in the range of about 1% of the total sale value is neither excessive nor unreasonable. Since no explanation was offered by the assessee before the AO regarding fall in GP rate AO has not estimated the income by totally disregarding the book results and he has only made an estimated addition because the assessee could not explain the reasons behind fall in GP rate particularly when the major sales to the extent of 95% are to the related parties Particularly this fact that 95% of sales were made to related parties at the old selling rate in spite of increase in purchase rate both in terms of price per meter in US and also the exchange rate of dollars, we hold that no interference is called for in the order of CIT(A). - Decided against assessee.

Summary

Issues:
1. Appeal against order of CIT(A)-7, Bengaluru for Assessment Year 2009-10.
2. Dispute over ad-hoc addition of ?25,00,000 to returned income.
3. Challenge to assessment under wrong status.
4. Dispute over interest charges under sections 244A and 234D.
5. Additional grounds raised by the assessee during the hearing.

Issue 1: Appeal Against CIT(A) Order
The appeal was filed by the assessee against the order of the learned CIT(A)-7, Bengaluru, dated 23.05.2019 for Assessment Year 2009-10. The grounds raised by the assessee challenged the legality of the order, claiming it was against natural justice, law, and the facts of the case.

Issue 2: Ad-hoc Addition Dispute
The main contention revolved around an ad-hoc addition of ?25,00,000 to the returned income by the Assessing Officer. The AO justified this addition due to the fall in gross profit margin, which the assessee failed to satisfactorily explain. The assessee argued that the increase in purchase cost was due to the rise in the exchange rate of the dollar, leading to lower profits. However, the Tribunal found that the assessee did not provide evidence of any agreed rate contract with buyers that prevented them from increasing selling prices despite the cost increase. The Tribunal upheld the AO's addition, considering the lack of a satisfactory explanation from the assessee.

Issue 3: Challenge to Assessment Status
The assessee disputed being assessed under the status of "FirmIndl," claiming it was a typographical error. However, the Tribunal did not find merit in this argument, as the status of assessment did not impact the substantive issues in the case.

Issue 4: Dispute Over Interest Charges
The appellant denied liability to be charged interest under sections 244A and 234D of the Income Tax Act. However, the Tribunal did not find grounds to waive the interest charges based on the facts and circumstances of the case.

Issue 5: Additional Grounds Raised
During the hearing, the assessee raised additional grounds related to the rejection of estimated additions without book rejection. However, the Tribunal dismissed these additional grounds as not pressed, focusing only on the substantive issues raised during the proceedings.

In conclusion, the Tribunal dismissed the appeal of the assessee, upholding the ad-hoc addition made by the Assessing Officer. The decision was based on the lack of satisfactory explanation provided by the assessee regarding the fall in gross profit margin, especially considering the significant sales made to related parties without evidence of agreed pricing arrangements. The Tribunal found no reason to interfere with the CIT(A)'s order based on the facts presented during the proceedings.