2017 (10) TMI 1159 - HC - Income Tax

GP determination - excluding certain items of turnover from the gross turnover of the assessee - Tribunal directed that ₹ 31,07,29,889/- be excluded from the total turnover and that the additional 0.44% be levied on ₹ 59,45,76,475/- - Held that - The turnover has been returned by the assessee itself and such returned turnover of the assessee included the items which are now ordered to be excluded by the Tribunal. Further, the assessee itself has no case that in the gross turnover for the previous years relied on by the first appellate authority, it had excluded the items which are now ordered to be excluded by the Tribunal. If that be so, the assessee could not have contended that for the assessment year in question, the Revenue should not have estimated its gross turnover including the items that are now ordered to be excluded. Yet another fallacy in the order of the Tribunal is that, the Tribunal has ordered that 0.44% be estimated on ₹ 59,45,76,475/-. According to us, if it is to be so estimated, firstly, the percentage of the gross profit should have been worked out on the reduced gross turnover applying the gross profit of ₹ 14,99,85,294/-. If it is so done, the percentage of gross profit for the Assessment Year in question would have been 25.23%, and if so, the average percentage of gross profit would have been 19.86%, as against 16.94% now adopted. Consequently, the addition to be made would also have been 3.36% as against 0.44% now ordered by the Tribunal. Similar exercise would have been needed for the other years as well. - Decided in favour of the Revenue and against the assessee.

Summary

Issues:
1. Interpretation of turnover for tax assessment
2. Exclusion of certain items from turnover
3. Calculation of gross profit percentage
4. Justification for excluding items from gross turnover
5. Burden of proof on the assessee

Interpretation of turnover for tax assessment:
The case involved a dispute over the interpretation of turnover for tax assessment purposes. The Tribunal had excluded certain items from the turnover of the assessee, leading to a challenge by the Revenue. The High Court referred to the definition of turnover in accounting and commercial terms, emphasizing that all components, regardless of nature, should be included in turnover. The Court noted that the returned turnover by the assessee already included the items now ordered to be excluded, and the assessee had not excluded these items in previous years. Consequently, the Court held that the Tribunal's exclusion of items from turnover was unjustified.

Exclusion of certain items from turnover:
The Tribunal had excluded specific expenses, such as reimbursements, from the turnover of the assessee. The Court analyzed this exclusion and found it to be erroneous. The Court highlighted that the Tribunal's exclusion of items without proper justification contradicted the standard accounting practice of including all components in turnover. The Court concluded that the Tribunal's decision to exclude certain items from turnover was unsustainable.

Calculation of gross profit percentage:
The Tribunal had calculated a 0.44% additional levy on a reduced gross turnover for the assessee. The Court critiqued this calculation methodology, stating that the gross profit percentage should have been recalculated based on the reduced turnover. By applying the correct gross profit percentage, the Court determined that the additional levy should have been significantly higher than the 0.44% ordered by the Tribunal. The Court found the Tribunal's calculation method flawed and unsustainable.

Justification for excluding items from gross turnover:
The Court addressed the arguments presented by both the Revenue and the assessee regarding the exclusion of certain items from the gross turnover. While the Revenue contended that all items should be included in turnover, the assessee argued that reimbursements should not be part of the turnover. The Court upheld the Revenue's position, emphasizing that all components, including reimbursements, should be considered in the turnover calculation.

Burden of proof on the assessee:
The Court examined whether the assessee had discharged the burden of proof in the case. The Court noted that the assessee had not provided sufficient evidence or justification for the exclusion of certain items from turnover. Consequently, the Court ruled in favor of the Revenue, holding that the Tribunal's decision to exclude items from turnover was incorrect. The Court set aside the Tribunal's order and ruled in favor of the Revenue, emphasizing the importance of including all components in turnover calculations.