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TMI Blog2019 (2) TMI 1811X X X X Extracts X X X X X X X X Extracts X X X X ..... d the addition and allowed the appeal of the assessee, which does not need any interference on our part, therefore, we uphold the action of the Ld. CIT(A) on the issue in dispute and reject the ground raised by the Revenue. - I.T.A. Nos. 5305 & 5306/Del/2015 - - - Dated:- 27-2-2019 - Shri H.S. Sidhu, Judicial Member And Shri L.P. Sahu, Accountant Member Revenue by: Smt. Sulekha Verma, CIT(DR) Assessee by: Sh. P.C. Yadav, Adv. ORDER H.S. Sidhu : These appeals are filed by the Revenue against the respective impugned Orders both dated 10.6.2015 of the Ld. CIT(A)-24, New Delhi relevant to assessment years 2011-12 and 2012-13 respectively. Since the issues involved in these appeals are common and identical, hence the appeals were heard together and are being disposed of by this common order for the sake of convenience, by dealing with the facts of ITA No. 5305/Del/2015 (AY 2011-12) and the decision thereof will apply mutatis mutandis in other appeal i.e. in ITA No. 5306/Del/2015 (AY 2012-13) being identical facts and circumstances. 2. The grounds raised in ITA No. 5305/Del/2015 (AY 2011-12) read as under:- 1) The order of Ld. CIT(A) is not corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act ) was carried out on M/s Jaipuria group of cases on 27.3.2012. Accordingly, warrant of authorization u/s. 132 of the Act was also issued in the name of M/s Pearl Bottling Pvt. Ltd., 802, Ansal Bhawan, KG Marg, New Delhi. The case of the assessee is related to Sh. CK Jaipria Group in Jaipuria Group of cases. Notice u/s. 153A of the Act dated 8.4.2013 was issued to the assessee requiring it to file the return for the assessment year 2011-12. In response to notice u/s. 153A of the Act, the return of income for the assessment year 2011-12 was filed by the assessee on 31.5.2013 declaring loss of ₹ 8,01,64,285/-. Notices u/s. 142(1) 143(2) of the Act alongwith questionnaire dated 20.6.2013 was issued to the assessee requiring it to file necessary details. Notice u/s. 142(1) and 143(2) of the Act alongwith questionnaire dated 20.6.2013 were issued to assessee on 01.11.2013 requiring it to file necessary details and produce the books of accounts. Thereafter, vide several statutory notices and order sheet entries, the AR of the assessee were reminded of this questionnaire and were asked to produce the details as provided therein but the compliance has been unsatisfactory. During ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial year vis a vis the net profits of the immediately last 3 preceding years, AO observed that the net profit for the year under consideration is abysmally low. She further stated that assessee had not furnished any details whatsoever in reply to question no. 43 of the questionnaire dated 1.11.2013 regarding the details for expenses claimed in the P L account with documentary evidences, however, after repeated reminders, the assessee had furnished part details which also include only list of major expenses without any bills and vouchers to verify the same. Therefore, she stated that AO has rightly observed that assessee had not produced the books of accounts, as a result thereof, the assessee has not been able to substantiate the trading results in P L account by not producing any details of expenses, confirmations or ledger accounts of the parties. She also submitted that assessee has made willfully surrender on account of disallowance of expenses and others. Accordingly, the books of accounts of the assessee were rightly rejected u/s. 145(2) of the Act by the AO and therefore, the AO recomputed the income at ₹ 2,66,81,850/- on account of profits and gain of business and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee has relied upon the order of the Ld. CIT(A) and stated that he has passed a well reasoned order which does not need any interference. He submitted that assessee has submitted required details such as audited financial statements, tax audit report, detail of loans taken/ given, partywise sale and purchase, bank statements, debtor/ creditor, stock details, raw material consumption, major expenses, acknowledgement of TDS return, excise return and VAT return etc. before the lower authorities. However, the AO has failed to consider the above details and alleged that the assessee has not filed required details and also failed to produce the books of account for verification, while the assessee has submitted required details and produced books of account before the AO during the assessment proceedings. He further submitted that AO erred in rejecting the books of account by invoking section 145 of the Act and estimating book profit by net profit by applying average net profit rate of immediate preceding three years without bringing in any material or cogent evidence on record which were relied by the AO for such estimation. He further submitted that Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee against loss of ₹ 5,46,70,444/- as shown in the audited books of account without bringing in any material on record for such estimation and also failed to consider the fact that there has been gradual increase in cost of material and financial cost apart from increase in other expenses of the assessee company which resulting in fall in GP / NP of the assessee company even without affording an opportunity of being heard to the assessee. In view of above, he requested to uphold the order of the Ld. CIT(A) of deletion of addition in dispute and dismiss the appeal of the Revenue. 6. We have heard rival contentions and considered the records, especially the impugned order passed by the Ld. CIT(A) as well as the written submissions filed by the Ld. CIT(DR). We find that Ld. CIT(A) has elaborately discussed the issue in dispute vide para no. 4.1.5 to 4.1.23 at page no. 43-59 of the impugned order dated 10.6.2015. For the sake of clarity, we are reproducing hereunder the said relevant findings of the Ld. CIT(A). 4.1.5 I have considered the submission of the AR and the assessment order. Since a substantial addition was made by the A.O. by rejecting books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the immediately preceding financial year. In this regard, submission filed by the assessee before the Ld. CIT(A) and to prove the contention of the assessee company , a letter was sent by the undersigned to the Principal Officer, of the assessee company on 01.05.2015 to produce the evidence in respect of downfall in Net Profit in the F Y 2011-12, comparison with the immediate three preceding F Ys. In response to the letter issued, the assessee company has filed reply on 15.05.2015 and placed the reason for downfall alongwith books of accounts. The reason submitted by the assessee company is as under:- This has reference to the above mentioned subject enquiring about the reasons for fall in the Net Profit rates of the Company over the years. It is humbly submitted as under: 1. The Profitability chart for the financial year 2010 - 11 and last three financial years are as reproduced as under: Particulars Financial Year 2010-11 Financial Year 2009 - 10 Financial Year 2008 - 09 Financial Year 2007-08 Rs. Rs. Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,662,309 751,938,236 529,295,289 385,836,955 Gross Profit 197,490,370 227,509,002 184,456,502 139,431,088 Other Expenses Administrative Other Expenses 33,640,855 35,203,039 26,843,620 26,360,189 Repair Maintenance 34,595,241 26,074,024 21,752,749 16,990,517 Selling Other Expenses 52,548,446 55,183,838 43,158,306 36,534,542 Breakage Leakage Burst etc. 18,612,066 17,067,532 8,738,173 5,050,564 Finance Cost 55,876,756 26,541,119 28,977,303 25,216,148 Depreciation 60,006,312 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purchases of Traded Goods 117,329,314 165,746,063 Cost of Raw Material Consumed 480,526,067 231,289,436 Stores Consumed 22,114,116 12,019,752 Power Fuel 50.106,834 21.994,448 Employees Benefit Expenses 77,140,066 58,340.259 Transportation, Handling distribution cost 83,354,397 69,712,778 Total Manufacturing Expenses 822,662,309 555,690,160 Gross Profit 197,490,370 183,798,864 Other Expenses Administrative Other Expenses 33,640,855 29,468.949 Repair Maintenance 34.595,241 21,605,763 Selling Other Expenses 52,548,446 44,958,895 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 117,329,314 165,746,063 Cost of Raw Material consumed 480,526,067 231,289,436 Total Cost of Material 597,855,381 397,035,499 % of Cost of Material Purchase over Turnover 58.60% 53.69% % Growth of cost of material 4.91% It is important to note that further fall in GP rate of 0.58% is quite justified due to increase in expenses on Salary, Wages amenities and expenses on Repair maintenance keeping in view of the normal inflation in the economy over the years. 4. The decrease in GP rate is attributed mainly due to increase in cost price per unit of raw materials over the years. The percentage increase in cost per unit of major raw materials as per the audited financial statements of the appellant company is as under: Parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10 25.84 2010-11 23.23 7. On perusal of the above table, it is quite evident that historical data of the audited financial statements substantiated the fact that the constant fall in GP rate over the years is mainly due to increase in cost per unit of major raw materials over the years and therefore fall in GP rate is not abnormal. The fall in GP rate is quite explainable and justifiable from the audited financial statement prepared as per requirement of the Companies Act, 1956 and particulars already furnished in the tax audit report as per the provisions of section 44AB of the Income tax Act, 1961 and books of accounts being produced before yourself. 8. It is worth mentioning here that fall in NP rate in the financial year under consideration is mainly due to fall in GP rate by 5.49% as compared to Average GP rate of last three preceding financial years and increase in finance cost by 107.63% during the financial year under consideration as compared to Average finance cost of last three preceding financial years. Further the loan liability has almost doubled over the years and has been increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of financial charges over net turnover 5.48% 3.64% % increase in financial charges 1.84% Report of A O The Submissions of the assessee were examined and the contention of the assessee that the decrease in the NP ratio was mainly on account of increase in the Input cost, Fixed Costs along with the increase in the finance cost due to increased borrowings over the years, whereas there is no proportionate increase in the Selling price of the beverages as per the books of account produced. Financial Cost Chart for AY 2011-12 - S. No. Particulars Financial year 2010-11 Average Financial Charges of last three financial years 1. Oriental Bank of Commerce Cash Credit 61,776,118 Term Loan 20,292,037 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income tax Act, 1961 and applying average NP rate of three financial years only on the basis of doubt, suspicion, conjectures and surmises without bringing any material on record that the books of account of the appellant have not been maintained properly. We would like to submit that the learned assessing officer vide letter dated 01.05.2015 asked the appellant to produce the evidence in respect of downfall in Net Profit in financial year 2010 - 11, comparison with the immediate three preceding financial years during the course of remand proceedings. In response, the appellant submitted the detail reply to justify downfall in Net Profit in financial year 2010 - 11, comparison with the immediate three preceding financial years and also produced books of accounts before the learned assessing officer during the course of remand proceedings. We would further like to submit that the learned assessing officer has verified the books of account of the appellant company and stated that the contention of the appellant raised before Hon ble Commissioner of Income Tax (Appeals) as per the books of accounts produced. The learned assessing officer mentioned in the remand report th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed before the A.O. contains report of the auditors u/s 44AB of the Act. The auditors, who have audited the books of account, were fully satisfied that all the accounting standards have been followed and he did not make any adverse remarks in the audited report. The provisions of section 45 describes certain conditions for rejection of books of account but non furnishing of details is not one of the prescribed conditions for rejection of books of account. 4.1.9 Further all the details called for vide questionnaire dated 1.11.13 have been furnished. The AR submitted that there was some delay in submission of the details but the same was due to large number of cases being handled simultaneously by the AR before the same A.O. The delay was not on account of any design but was merely on account of huge work load. The AR has drawn attention to the fact that the A.O. has mentioned in the order itself that the details have been filed on 18.3.14. 4.1.10 As regards fall in net profit ratio, a comparative chart of financial results for the current assessment year and for the three preceding assessment years has been provided. The same is reproduced below for ready reference : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 83,354,397 96,003,364 65,140,513 47,994,459 Total Manufacturing Expenses 822,662,309 751,938,236 529,295,289 385,836,955 Gross Profit 197,490,370 227,509,002 184,456,502 139,431,088 Other Expenses Administrative Other Expenses 33,640,855 35,203,039 26,843,620 26,360,189 Repair Maintenance 34,595,241 26,074,024 21,752,749 16,990,517 Selling Other Expenses 52,548,446 55,183,838 43,158,306 36,534,542 Breakage Leakage Burst etc. 18,612,066 17,067,532 8,738,173 5,050,564 Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29,314 165,746,063 Cost of Raw Material Consumed 480,526,067 231,289,436 Stores Consumed 22,114,116 12,019,752 Power Fuel 50.106,834 21.994,448 Employees Benefit Expenses 77,140,066 58,340.259 Transportation, Handling distribution cost 83,354,397 69,712,778 Total Manufacturing Expenses 822,662,309 555,690,160 Gross Profit 197,490,370 183,798,864 Other Expenses Administrative Other Expenses 33,640,855 29,468.949 Repair Maintenance 34.595,241 21,605,763 Selling Other Expenses 52,548,446 44,958,895 Breakage Leakage Burst etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Kg 30 28 18 14 20 52.63 C02 Kg 14 13 14 13 13 6.95 4.1.15 The fall in net profit ratio has been attributed to fall G.P. rate which in turn was due to increase in cost of raw material and increase in purchase of credit goods. The net profit rate has been severely affected by increased financial cost by 107.63% during the current previous year as compared to average financial cost of last three preceding years. The loan liability has almost doubled over the years from 25.79% as on 31.3.08 to 44.72% as on 31.3.11. The break up of secured loans and the financial charges paid by the company during the previous year relevant to present assessment year is reproduced below for ready reference : S. No. Particulars Financial year 201011 Average Financial Charges of last three financial years 1. Oriental Bank of Commerce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sorted to rejection of books, all of a sudden without any indication to the assessee. No show cause notice has been issued to the appellant before rejecting the books of account. Further, even though the A.O. has noted the fall in N.P. ratio in the assessment order, no effort has been made by him to ascertain the appellant s version about the reasons for fall in GP/NP rates. The questionnaire dated 1.11.13 issued by him does not seek any clarification or explanation for the fall in N.P. rate. As noted in the previous paragraphs, the appellant did have its own justification for the fall in N.P. ratio. It has been submitted that the G.P. rate has been falling over the years and the same was attributable to the increase in the cost of raw material and cost of purchases of traded goods without commensurate increase in the selling price of beverages due to stiff competition . 4.1.18 Thus from the explanation given by the appellant, it is clear that the fall in G.P. is due to increase in cost of raw materials. It is also seen that over the years, the financial charges have seen a growth of 1.84% from average of 3.64% (for the past 3 years) to 5.48% during the current previous yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejection of books and estimation of income. The result of remand proceedings support the stand of the appellant. The appellant group have also honoured there declaration of surrender of income made during search seizure proceedings. As is evident from the detailed letter dated 28.02.2014, submitted before the AO. The group had surrendered ₹ 10 crore during the search and initially it had given the following breakup of the said surrender. Name of the assessee Amount (Rs.) Sh. C.K. Jaipuria 1000000 Sh. Ruchirans Jaipuria 2500000 M/s. Pearl Drinks Ltd. and others 91500000 M/s. Jaipuria Beverages Food Industries Pvt. Ltd. 5000000 Total 100000000 4.1.22 The above surrendered amount has been reworked out on the basis of study and analysis of the seized documents. In their letter dated 28.02.2014 submitted before the AO on 07.03.2014, a detailed explanation of surrendered income in hands of different entities and different asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been attributed to increase in cost of raw material consumed and purchases of traded goods. The balance fall in G.P. (5.49% (-) 4.91% - 0.58%), was attributable to increase in salary, wages, repairs maintenance expenses. The fall in net profit ratio has been attributed to fall G.P. rate which in turn was due to increase in cost of raw material and increase in purchase of credit goods. The net profit rate has been severely affected by increased financial cost by 107.63% during the current previous year as compared to average financial cost of last three preceding years. The loan liability has almost doubled over the years from 25.79% as on 31.3.08 to 44.72% as on 31.3.11. The increase in financial charges was 1.84% during the current previous year as compared to the average of previous three financial years. We further AO has not found any discrepancies in the books of accounts produced before him. During the assessment proceedings, AO has however, not sought any explanation nor confronted with the adverse evidences. It is also observed that the AO has resorted to rejection of books, all of a sudden without any indication to the assessee. No show cause notice has been issued t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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