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TMI Blog2017 (3) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,50,000/- as against ₹ 15,43,049/- claimed by the assessee. - ITA No. 996/Ahd/2012, ITA No. 1224/Ahd/2012 - - - Dated:- 21-3-2017 - Shri S. S. Godara, JM and Shri Manish Borad, AM. For The Appellant : Shri R. B. Shah, AR For The Respondent : Shri Sitaram Meena, Sr.DR ORDER PER Manish Borad, Accountant Member . These cross appeals for Asst. Year 2007-08 are directed against the order of ld. Commissioner of Income Tax(A)-XIV, Ahmedabad, dated 26/03/2012 vide appeal no.CIT(A)- XIV/Wd.8(1)/316/2009-10 arising out of order u/s 143(3) of the Income-tax Act, 1961 (in short the Act) framed on 23/12/2009 by ITO, Wd-8(1), Ahmedabad. Following grounds have been raised by assessee and the Revenue:- 2. Revenue s appeal in ITA No.1224/Ahd/2012 1) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in allowing the book results rejected by the Assessing Officer by invoking the provisions of Section 145(3) of the Act by restricting the addition of ₹ 20,37,059/-,on account of Gross Profit, to ₹ 11,78,612/-. 2) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in allowi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above, the appeal of the Revenue is dismissed. 7. In the result, appeal of the Revenue is dismissed. 8. Now we take up assessee s appeal in ITA No.996/Ahd/2012. 9. Briefly stated facts as culled out from the records are that assessee is Private Ltd. company engaged in the business of manufacturing and trading chemicals. Return of income for Asst. Year 2007-08 was filed on 31.10.2007 declaring loss of ₹ 3,62,380/-. Case was selected for scrutiny assessment and notice u/s 143(2) followed by notice u/s 142(1) of the Act were issued and duly served on the assessee. Assessee filed copies of audited balance sheet, computation of income and other details including gross profit rate chart for three years and note on manufacturing activities. Ld. Assessing Officer raised question on the downfall of gross profit rate vis a- vis the previous years to which assessee replied that on account of increase of turnover and manufacturing activities as against job work charges and due to flood gross profit has marginally decreased. However, ld. Assessing Officer was not convinced with the submission of assessee and rejected the books of account u/s 145(3) of the Act and estimated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent of ₹ 3,64,437/- in respect of flood loss. 4) On the facts in the circumstances of the case it is most respectfully submitted that the Hon'ble CIT(A) has erred in law and on facts by confirming the addition of ₹ 3,00,088/- u/s 43B of the I. T. Act, 1961. 5) On the facts in the circumstances of the case it is most respectfully submitted that the Hon'ble CIT(A) has erred in law and on facts by confirming the addition of ₹ 3,52,016/- u/s 68 of the !.T. Act, 1961 12. At the outset ld. Authorised Representative requested for not pressing ground no.1. Therefore, the same is dismissed as not pressed. 13. Now we take up ground no.2. Ld. Authorised Representative submitted that ld. Commissioner of Income Tax(A) erred in sustaining rate of gross profit @ 23% as against 20% shown by assessee by ignoring the facts that assessee s turnover has increased to approx. ₹ 3.80 crores as compared to ₹ 1.56 crores in immediately preceding year and job work charges increased to 49.27 lacs as compared to ₹ 37.28 lacs in preceding year. In totality total gross profit of the company has increased to ₹ 8693532 in the year under appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A. O. has based his estimation on the ground that the G. P. ratio of the immediate previous year was worked out at ₹ 34,02% in-the report submitted by the insurance surveyor, whereas the appellant had shown the G. P. rate @ 25% in that year. He accordingly applied the G. P. rale by taking the average of last two years G. P. The appellant has submitted that' there was an error in the report given by the surveyor by working the G. P. at 34.2%. The surveyor had taken the manufacturing expenses at ₹ 11,59,195/- instead of actual manufacturing expenses of ₹ 22,92,944/-:and, .therefore; the G. P. ratio for F. Y. 2005-06 would be 25,42% instead of 34.02%. Further, the appellant has also submitted that the G. P. on the own sales and job work sales are different. In job work sales, the G. P. is higher whereas in own manufacturing sales, the G. P. is lower. In the current A. Y., there were less job work sales as compared to preceding years. The details of own production and job charges of the last three years submitted by the appellant are as follows; Sr. No Assessment Year Own Manufacturing Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income Tax(A) we observe that mere estimation has been made by ld. Commissioner of Income Tax(A) by replacing 23% as against 25% applied by Assessing Officer. We find that ld. Commissioner of Income Tax(A) has ignored some important facts which needs consideration in adjudicating this issue:- (1) Turnover of the assessee has more than doubled in Asst. Year 2007-08 reaching to 3.80 crores as against 1.56 crores in preceding Financial Year; (2) Gross job work charge income has increased, but decreased in terms of percentage of total revenue; (3) Gross profit amount has also doubled reaching to ₹ 86.94 lacs as against ₹ 49.16 lacs in the preceding year; (4) There was a flood in the town due to which assessee s manufacturing activities were hindered for some period and suffered losses. 17. The above stated facts clearly shows that there were sufficient reasons for lowering down of gross profit rate which were further added by the fact that manufacturing activities increased more in percentage as compared to its job work charges activities as evident from the chart forming part of ld. Commissioner of Income Tax(A) order showing that job work revenue whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as ld. Commissioner of Income Tax(A) gave telescopic benefit against the addition sustained on account of gross profit estimation and accordingly sustained the disallowance of flood loss claim at ₹ 3,64,437/-. 20. Aggrieved, the assessee is now in appeal before the Tribunal. 21. Ld. Authorized Representative vehemently argued reiterating the submissions made before the lower authorities. He further added that the surveyor s report was not challenged because it could have been a futile exercise and it is well known fact that insurance companies normally pass lower claims than what is actually claimed. It happened so in the case of the assessee where even when the stock was almost damaged, still the surveyor has shown safe stocks of ₹ 16,93,596/-, which was hardly having any market value and further requested for allowing the claim of flood loss at ₹ 15,43,049/-. 22. On the other hand, ld. Departmental Representative relied on the order of both the lower authorities and added that the surveyor s report was a concrete evidence that the assessee was having safe stocks of ₹ 16,93,596/- and the alleged loss of ₹ 15,43,049/- has been claimed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stake has been observed in the statutory record of Excise and VAT returns. We also find that the assessee is dealing in chemicals and there are fair chances that due to flood the alleged safe stocks shown by the surveyor may not be that fit for being saleable in the open market, but coupled with above facts, we also find that the assessee had not disputed the surveyor s report at any stage and has accepted the outcome of the report. 25. We are, therefore, of the view that, in the given circumstances and totality of facts, wherein, on one hand, assessee has claimed loss of ₹ 15,43,049/- and on the other hand, has not disputed the Surveyor s Report showing safe stocks of residual materials at ₹ 16,93,596/- and also accepting that the goods in question are chemicals which losses its value, if mixed with water, but certainly has some value, we find it justified to sustain the disallowance of loss due to flood at ₹ 1,50,000/- as against ₹ 15,43,049/- claimed by the assessee. 26. In the result, this ground of the assessee is partly allowed. 27. Ground nos. 4 5 of assessee s appeal reads as under:- 4. On the facts in the circumstances of the case i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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