1973 (12) TMI 41 - AT - Income Tax

Summary

Issues:
1. Dispute over Gross Profit Rate Calculation for a registered firm manufacturing medicines during A.Y. 1974-75.
2. Validity of the addition of Rs. 50,000 by the ITO to raise the GP rate.
3. Acceptance of fresh evidence by the AAC in the form of manufacturing and stock registers.
4. Justification of the AAC's decision to delete the addition made by the ITO.
5. Dismissal of the cross objection filed by the assessee.

Analysis:
1. The dispute in this case revolves around the calculation of the Gross Profit (GP) rate for a registered firm engaged in the manufacture of medicines during the Assessment Year (A.Y.) 1974-75. The firm declared total net sales at Rs. 10,20,861 with a GP of Rs. 2,08,711, reflecting a GP rate of 20%. The Income Tax Officer (ITO) noted that in previous A.Ys., the firm had shown higher GP rates ranging from 21.6% to 31%. Consequently, the ITO made an addition of Rs. 50,000 to the declared trading results to achieve a GP rate exceeding 25%.

2. The firm appealed this decision, arguing that the ITO's assertion regarding the unavailability of closing stock details was inaccurate. The firm maintained various registers as required by the government, allowing for the verification of raw materials used and products manufactured daily. The Appellate Authority Commissioner (AAC) reviewed the firm's registers and accepted that the GP rate disclosed by the firm was reasonable, especially when compared to similar cases where GP rates between 20% to 22.3% were accepted. Consequently, the AAC deleted the ITO's addition of Rs. 50,000.

3. The Department challenged the AAC's decision, alleging that the AAC considered fresh evidence in the form of manufacturing and stock registers, violating Rule 46A of the IT Rules, 1962. However, it was clarified that the firm had provided these details to the ITO, and the AAC's examination of these registers did not constitute the introduction of new evidence. The AAC's scrutiny of the registers, which were maintained in compliance with government regulations, did not breach Rule 46A.

4. The Tribunal concurred with the AAC's decision, emphasizing that the firm's detailed accounts and verifiable transactions left no room for additional adjustments to the trading results. While past instances of agreed additions were noted, they did not justify rejecting the current year's results without specific deficiencies in the accounting system. The Tribunal upheld the AAC's deletion of the Rs. 50,000 addition by the ITO, affirming the validity of the firm's disclosed GP rate.

5. Consequently, the cross objection filed by the assessee was deemed moot and dismissed. Ultimately, both the Department's appeal and the assessee's cross-objection were rejected, affirming the AAC's decision to delete the ITO's addition and uphold the firm's declared GP rate for the A.Y. 1974-75.