2024 (10) TMI 917 - AT - Income Tax

Rejection of books of accounts - non-maintenance of the stock register - estimation of gross profit on trading of oil - HELD THAT - On perusal of the material on record, we find that the Appellant has offered to tax gross profits at the rate of around 27% which were in excess of profits of gross profit of 22.5% estimated by the Assessing Officer in relation the business of manufacture of wafer snack. Accordingly, we accept the contention of the Appellant that in the facts and circumstances of the present case no addition was warranted in respect of business of manufacture of wafer farsan. As regards, the business of trading in edible oil, the contention of the Appellant that the Appellant had offered to tax gross profits at the rate of INR 5.6% which were higher than the average industry gross profit rate of 3.25% was not disputed by the Assessing Officer. Thus, no addition was warranted in the hand of the Appellant. Our view draws support from the decision of Mohommad Haji Adam Co. 2019 (2) TMI 1632 - BOMBAY HIGH COURT We delete the addition made by the Assessing Officer. Ground raised by the Appellant is allowed.

Summary

Issues:
Challenge to order of Ld. CIT(A) dismissing appeal against Assessment Order under Section 143(3) of the Income Tax Act, 1961 for Assessment Year 2013-14. Grounds of appeal include rejection of books of accounts, addition of difference in gross profit, and estimation of gross profit on trading of oil.

Analysis:

1. The Assessee challenged the order of the Ld. CIT(A) which dismissed the appeal against the Assessment Order for the Assessment Year 2013-14. The Assessing Officer rejected the books of accounts and computed gross profit at 22.5% of aggregate turnover, resulting in an addition of INR 96,08,043. The Assessee contended discrepancies in the assessment and inconsistencies in the treatment of different business streams.

2. The Assessee raised three main grounds of appeal. Firstly, challenging the rejection of books of accounts, arguing that they were audited and discrepancies were not properly addressed. Secondly, disputing the addition of INR 96,08,043 based on the difference in gross profit estimation for the manufacturing business of wafers and trading in oil. Lastly, objecting to the estimation of gross profit on trading of oil, claiming it was unrealistic.

3. The Appellant's business involved manufacturing wafers/snacks and trading in edible oil, with different profit margins for each. The Appellant declared a higher gross profit margin than the Assessing Officer's estimation, particularly in the manufacturing business. The CIT(A) declined to grant relief, leading to the dismissal of the appeal.

4. The Appellant, before the Tribunal, reiterated the submissions made earlier, emphasizing the different profit margins for the two business streams. The Assessing Officer's application of a single gross profit rate to the entire turnover was contested, as it did not consider the distinct nature of the Appellant's businesses.

5. Upon review, the Tribunal found that the Assessing Officer's computation of gross profits was incorrect as it applied a single rate to the entire turnover, including trading in oil with a lower profit margin. The Tribunal accepted the Appellant's contention that no addition was warranted for the manufacturing business and that the declared gross profit for trading in oil was higher than the industry average. Citing a relevant Bombay High Court decision, the Tribunal deleted the addition of INR 96,08,043.

6. Consequently, the Tribunal allowed the appeal, deleting the addition made by the Assessing Officer. The grounds raised by the Appellant were upheld, rendering the initial rejection of books of accounts and the addition of gross profit difference irrelevant. The appeal was allowed in favor of the Assessee.

This detailed analysis showcases the key arguments, discrepancies in assessment, and the Tribunal's decision to delete the addition based on the distinct profit margins of the Appellant's businesses.