2024 (1) TMI 911 - AT - Income Tax

Deduction u/s 80IC - late filing of the return - eligible reasons for delay - CIT(A) deleted the addition - HELD THAT - In the present case, the reason for the late filing of the return was indubitably beyond the control of the assessee for the reasons contained in the affidavit furnished by the Managing Director of the assessee company, that following the instructions of their Tax Consultants and the late filing of the Income Tax Return was not due to any fault of any of the officers of the assessee company, but due to their Tax Consultants. That being so, in the light of the findings of the Tribunal in the assessee's own case for the immediately preceding assessment year, we find no hesitation in reiterating that the provisions of Section 80AC of the Act are machinery provisions which are directory in nature and not mandatory, due to which, the delay in filing the return of income as a condition contained in the provisions of Section 80IC of the Act can be considered for being condoned, we have done above. As in the present case, the delay in question was incurred for reasons beyond the control of the assessee. Otherwise too, we are covered by Ambey Developers 2017 (12) TMI 1008 - PUNJAB AND HARYANA HIGH COURT which has been rendered qua the assessee and it is, therefore, binding, which holds that if substantial compliance is established, a minor deviation would not vitiate the very purpose for which the deduction was being made available. Still further, as noted hereinabove, the CBDT Circular No.37 of 2016, dated 02.11.2016, a copy whereof has been filed with us, states that the Board has clarified that no appeal shall be filed by the Revenue in cases where disallowance relating to business activity was made by the AO, but deduction under Chapter VI-A is allowable to the assessee. In the present case, the real deduction under Section 80IC of the Act has been held to be allowable to the assessee and has been so allowed by the Tribunal. The Department s appeal against the said Tribunal order for assessment year 2013-14 has attained finality. There is no change whatsoever in the facts and circumstances for the year under consideration. Therefore, the said CBDT Circular is squarely applicable to the facts of the case and it is binding on the taxing authorities. On this count also, the addition is liable to be deleted. Considering the above elaborate discussion and finding force in ground Nos. 1 to 3, these grounds are rejected. The order under appeal is found to be well versed, requiring no interference whatsoever at our hands on this score. Accordingly, the deletion of disallowance is confirmed. Addition made on account of low gross profit declared by the assessee - as per DR here was a fall in gross profit from 16.61% in assessment year 2013-14 to 14.11% during the year under consideration - CIT(A) deleted the addition - HELD THAT - The stand taken by the assessee for the fall in GP during the year is not a totally unpalatable stand. Assessee has maintained, as noted by both the authorities below, that the major reason for fall in GP was a substantial increase in turnover by almost 50% from Rs. 60.71 Cr during the earlier year to Rs. 90.74 Cr during the year under consideration; that to achieve such an increase in turnover, a business has to decrease its margins to obtain much higher sales; that the primary reason for the decrease in gross profit rate was the increase in the cost of material consumed; that there was a increase of 4.28% in the consumption of raw material as a percentage of sales compared to the earlier year and that on the other hand, other manufacturing expenses were comparable; that the cost of the raw material is beyond the control of the assessee as most of the raw material used is to be imported from other countries; that has resulted, the NP rate during the year under consideration fall by only 1.07%, even though the GP rate had decreased by 2.50%; that this shows that there was better management of resources and no trading expenses decreased as a percentage of sales. As rightly observed by the ld. CIT(A), the AO had not controverted, in the assessment order, any of these submissions of the assessee. Neither had these submissions been shown to be false, nor was any reason for disbelieving the explanation offered by the assessee given by the AO in the assessment order. Before us also, the position remains the same. The Department has brought nothing on record to controvert the specifics laid bare by the assessee before the AO and maintained through out. Again, as correctly observed by the CIT(A), in the light of the case laws discussed, mere decrease in gross profit as compared to the earlier year is not a ground sufficient for making an addition and that too, without finding any specific defect in the books of account regularly maintained by the assessee - The action of the ld. CIT(A) in deleting the addition made on account of low gross profit by the AO is confirmed. Decided against revenue.

Summary

Issues Involved:
1. Disallowance of Deduction under Section 80IC.
2. Addition due to Low Gross Profit.

Summary:

1. Disallowance of Deduction under Section 80IC:
The Department challenged the CIT(A)'s deletion of the disallowance of Rs. 1,43,23,507/- made by the AO under Section 80IC of the Income Tax Act, 1961. The AO disallowed the deduction citing that the return was filed beyond the due date specified under Section 139(1). The assessee argued that the delay was due to reasons beyond their control and that all necessary audit reports were filed in time. The CIT(A) deleted the disallowance, referencing the Tribunal's order for the previous assessment year (2013-14), which allowed the deduction despite a similar delay. The Tribunal upheld the CIT(A)'s decision, emphasizing that the delay was due to reasonable cause and that the provisions of Section 80AC are directory and not mandatory. The Tribunal also noted that the Department failed to show any difference in facts between the current and previous assessment years and that the Department's appeal against the Tribunal's order for AY 2013-14 was withdrawn.

2. Addition due to Low Gross Profit:
The Department contested the CIT(A)'s deletion of the addition made by the AO due to a fall in the gross profit rate from 16.61% to 14.11%. The AO made an addition of 2% without pointing out any defects in the books of account. The CIT(A) deleted the addition, noting that the AO did not reject the books of account and that the fall in gross profit was explained by the increase in turnover and raw material costs. The Tribunal confirmed the CIT(A)'s decision, citing case laws that mere decrease in gross profit does not justify an addition without finding specific defects in the books of account.

Conclusion:
The Tribunal dismissed the Department's appeal, confirming the CIT(A)'s deletion of both the disallowance under Section 80IC and the addition due to low gross profit. The Tribunal emphasized the importance of reasonable cause for delay and the necessity of finding specific defects in the books of account before making additions.