2016 (11) TMI 799 - HC - Income Tax

Addition made on account of low gross profit rate - rejection of the books of account - ITAT deleted addition - Held that - AO adopted a gross profit rate of 41.50 per cent on the basis of the gross profit rate of M/s. Pardeep Publication involved in the similar business. That, however, cannot be the only ground for the purpose of determining the gross profit rate. CIT(Appeals) has dealt with the case of M/s. Pardeep Publication in considerable detail and found substantial differences between the assessee and M/s. Pardeep Publication. The publications of the two were also produced before the authorities. The assessee s books are of a higher quality. This was accepted even by the Assessing Officer. The assessee had given greater discounts on its books than that given by M/s. Pardeep Publication. Moreover, its cost of production would be higher as the size of the paper used by M/s. Pardeep Publication in one of its books was less than that of the paper used by the assessee. The increase in the cost of paper itself was 60 per cent. The quality of the paper was also different the assessee having used thicker paper. There were more colours in the assessee s publication which would in turn increase the cost of publication. The Tribunal accepted this approach and the finding. The Tribunal also noted that in the earlier years, the assessee s gross profit rate varied between 21 per cent. to about 24 per cent. In the year in question, it was 25.34 per cent. The Tribunal did not, therefore, find the gross profit rate to be erroneous. - Decided against revenue

Summary

Issues:
Appeal against Tribunal's order for the assessment year 2006-07 raising four questions of law.

Analysis:
1. The judgment deals with an appeal against the Tribunal's order for the assessment year 2006-07. The appellant raised four questions of law, out of which questions (ii), (iii), and (iv) were dismissed based on a previous judgment involving the same parties. The facts leading to the proceedings were similar to another case between the same parties.

2. The main issue in question (i) was whether the Income-tax Appellate Tribunal was correct in upholding the deletion of an addition of ?2,69,00,000 made on account of low gross profit rate. The Assessing Officer had rejected the books of account, but the Commissioner of Income-tax (Appeals) disagreed. However, the Tribunal accepted the Assessing Officer's rejection of the books but also accepted the Commissioner's decision on the gross profit rate.

3. The Assessing Officer had used a gross profit rate of 41.50%, based on another entity's rate in a similar business. However, the Commissioner of Income-tax (Appeals) analyzed the differences between the appellant and the other entity, including higher quality books, greater discounts, and different production costs due to paper quality and colors used. The Tribunal agreed with this analysis and the gross profit rate of 25.34% for the appellant.

4. The Tribunal found that the appellant's gross profit rate in previous years varied between 21% to 24%, making the 25.34% rate for the year in question reasonable. The judgment emphasized that the determination of the gross profit rate was a question of fact, and there was no indication of any perverse or absurd exercise of discretion by the Commissioner of Income-tax (Appeals) and the Tribunal.

5. Ultimately, the Court concluded that the issue raised by the appellant did not amount to a substantial question of law. As a result, the appeal was dismissed based on the analysis of the facts and legal interpretations presented in the judgment.