2023 (8) TMI 955 - AT - Income Tax

Rejection of books of accounts - Assessee failed to give valid explanation for fall in GP ratio from 24.40% last year to 2.21% this year and the explanation of the Assessee that nature of business has changed is found misleading because same business of meat sales is continued in local and foreign markets - HELD THAT - Though we are in agreement with the contention of the ld. AR that the AO has not pointed out any ambiguity in the reply of seven parties out of 29 parties, however, it is an undisputed fact that maximum parties to whom notices have been issued u/s. 133(6) of the Act were not served as the notices sent were returned back with the remarks left or no such person etc. AO rightly drew the presumption against the Assessee s claim. Consequently, on the aforesaid reasons, the Assessing Officer rejected the books of accounts of the Assessee and the ld. Commissioner has also rightly affirmed the rejection of books of account, invoking the provisions of section 145(3) - Hence, we are inclined not to interfere in the decision of the Ld. Commissioner in confirming the rejection of books of account by invoking the provisions of section 145(3) of the Act. GP estimation - Though AO considered the aforesaid two cases, but found the same not comparable to the case of the Assessee, however, while determining the GP rate considered the GP of the said two comparable cases and the fact that the sales are verified and not found questionable. Therefore, considering the peculiar facts and circumstances in totality, we deem it appropriate to apply the GP ratio by considering the average of GP ratio declared by the Assessee @ 2% in the F.Y. 2012-13 and 1.03% and 3.99% respectively declared by M/s. Al-Nasir Agro and Mr. Salahuddin Prop. of MDA Exports, whose GP ratio have also been taken into consideration by the AO in determining the GP Ratio and consequently result would come to 2.34% (2% 1.03% 3.99% 7.02/3). Hence the AO is directed to recompute the GP rate accordingly.

Summary

Issues Involved:
1. Unsecured loans
2. Other expenses claimed in the profit & loss account
3. Low net profit or loss
4. Loss from currency fluctuations

Summary:

Unsecured Loans:
The Assessee declared a total income of Rs. 20,66,940/- for the assessment year 2015-16, which was accepted under section 143(3) of the Income-tax Act, 1961. However, the Principal CIT exercised Revisionary Powers under section 263, directing the Assessing Officer to examine the issue of low profit by calling for details on purchases, packing material charges, processing and freezing charges, and sundry creditors.

Other Expenses Claimed in the Profit & Loss Account:
The Assessing Officer initiated proceedings under section 143(3) read with section 263, asking the Assessee to produce details of purchases, packing material charges, and processing and freezing charges. The Assessee provided some documents but failed to substantiate its claims fully. Consequently, the Assessing Officer rejected the books of account under section 145(3) due to the inability to substantiate purchases, lack of valid purchase invoices, and unverified sundry creditors.

Low Net Profit or Loss:
The Assessing Officer noted a sharp fall in the Gross Profit (GP) ratio from 24.4% in the preceding year to 2.21% in the concerned year. The Assessee's explanation that the nature of business had changed was found misleading. The Assessing Officer determined the GP rate at 3% and made an addition of Rs. 1,59,87,516/- to the income of the Assessee.

Loss from Currency Fluctuations:
The Assessee argued that it operates in an unorganized sector and provided various documents during the assessment proceedings. However, the Assessing Officer concluded that many of the suppliers and creditors were unverified, leading to the rejection of the Assessee's books of account.

Judgment:
The Tribunal upheld the rejection of the books of account by invoking section 145(3) of the Act. However, regarding the GP rate, the Tribunal noted that the turnover in the F.Y. 2013-14 was significantly lower than in the years under consideration. The Tribunal decided to apply an average GP ratio of 2.34%, considering the GP ratios from comparable cases and the Assessee's own past performance.

Conclusion:
The appeal filed by the Assessee was partly allowed, directing the Assessing Officer to recompute the GP rate accordingly. The order was pronounced in the open court on 29/03/2023.