2009 (7) TMI 675 - HC - Income Tax

Assessment- The Company was a manufacturing company since 1974. The assessee furnished the return for the assessment year 1988-1989 declaring a gross profit at the rate of 30.77 percent. as against 26.72 percent. the Assessing officer made the addition on the ground that suppression of sales and commission payment. The Commissioner (Appeals) partly allow the appeal but upheld the major addition made by the Assessing Officer. The Tribunal deleted the three additions. Held that-the Tribunal had examined and given convincing, cogent and satisfactory reasons. The Tribunal had meticulously examined the evidence on record. There was no illegality or infirmity in the order.

Issues Involved:
1. Applicability of Section 145(1) proviso and Section 145(2) of the Income-tax Act, 1961.
2. Justification of applying a 22% net profit rate on the entire turnover.
3. Deletion of addition on account of commission on indirect export sales.
4. Deletion of addition on account of suppression in domestic sales and unaccounted local sales.
5. Deletion of addition relating to excise for earlier years.

Detailed Analysis:

1. Applicability of Section 145(1) proviso and Section 145(2) of the Income-tax Act, 1961:
The Tribunal concluded that neither the proviso to Section 145(1) nor Section 145(2) of the Income-tax Act, 1961, were applicable in this case. The Tribunal meticulously examined the evidence and found that the books of account maintained by the assessee were correct and complete, and the method of accounting followed was valid. The Tribunal noted that the correctness of the declared trading results was supported by regular books of account, which were audited as required by law. The Tribunal also observed that the Assessing Officer failed to find any instances of inflation of purchases or expenses or any specific instances of suppressed sales. Consequently, the Tribunal canceled the entire addition of Rs. 37,68,113 worked out by the Assessing Officer by applying a net profit rate of 22%.

2. Justification of applying a 22% net profit rate on the entire turnover:
The Tribunal found that the method of accounting adopted by the assessee had been consistently followed in all the previous years, and the gross profit rate and turnover had gradually increased. The Tribunal noted that the books of account were supported by purchase vouchers, vouchers for expenses, stock records, and excise records. It was observed that the turnover and gross profit rate declared by the assessee in the year under consideration were better compared to the preceding year. The Tribunal concluded that hypothetical and imaginary calculations of the gross profit rate could not be made unless specific mistakes in the accounts were pointed out. Therefore, the Tribunal upheld the correctness of the book results and rejected the application of a 22% net profit rate on the entire turnover.

3. Deletion of addition on account of commission on indirect export sales:
The Tribunal deleted the addition of Rs. 5,73,832 made by the Assessing Officer on account of commission on indirect export sales. The Tribunal observed that the commission was paid to recognized export houses, M/s. Kejriwal Enterprises and Chinar Exporter (P.) Ltd., at rates of 7% and 5%, respectively. The Tribunal noted that the commission payments were supported by documentary evidence and that the export houses were not related to the assessee. The Tribunal emphasized that the decision on who should claim the benefit under Section 80HHC was dependent on the terms mutually agreed upon between the assessee and the export houses. The Tribunal concluded that there was no justification for disallowing the commission paid by the assessee and deleted the addition.

4. Deletion of addition on account of suppression in domestic sales and unaccounted local sales:
The Tribunal deleted the addition of Rs. 15,99,158 made by the Assessing Officer on account of alleged suppression in domestic sales. The Tribunal found that the Assessing Officer had not provided any material or evidence to prove the existence of unaccounted local sales. The Tribunal noted that the sales declared by the assessee were of excisable goods, supported by regular books of account, and audited by auditors. The excise authorities had not doubted the correctness of the declared sales. The Tribunal concluded that the addition on account of alleged suppressed sales was unjustified and deleted the same.

5. Deletion of addition relating to excise for earlier years:
The Tribunal upheld the deletion of Rs. 96,663 made by the Commissioner of Income-tax (Appeals) relating to excise, although it pertained to earlier years. The Tribunal found that the addition was not justified based on the evidence and material available on record.

Conclusion:
The Tribunal meticulously examined the evidence and provided cogent and convincing reasons for its decisions on all the issues involved. The Tribunal's findings were based on an appreciation of the evidence and material available on record. The High Court found no illegality or infirmity in the order passed by the Tribunal and dismissed the appeal.

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