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of <h1>Revenue appeal dismissed on low gross profit addition & PF disallowance. CIT(A) & Tribunal ruled for assessee.</h1> The Revenue's appeal challenging the deletion of an addition on account of low gross profit and the disallowance related to employees' PF contribution was ... - Issues Involved:1. Deletion of addition on account of low gross profit.2. Deletion of disallowance related to employees' PF contribution.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Low Gross Profit:The Revenue challenged the deletion of an addition of Rs. 43,40,397/- made by the Assessing Officer (AO) due to low gross profit (GP). The AO noted a decline in the GP rate from 29.25% in the preceding year to 18.98% in the assessment year 2006-07. The AO compared the assessee's GP with other similar manufacturers, which showed GP rates between 22% to 28%. The AO applied a GP rate of 24% on the assessee's gross sales, resulting in the addition.On appeal, the CIT(A) deleted the addition, noting that the assessee provided a detailed explanation for the decline in GP, including increased costs of raw materials, transportation, and the introduction of new products causing heavy wastage. The CIT(A) found no defects in the assessee's books of accounts and stated that merely a fall in GP does not justify rejecting the books. The CIT(A) highlighted that the AO did not reject the books of accounts before making the GP estimate and that the reasons for the fall in GP were satisfactorily explained.The Tribunal upheld the CIT(A)'s decision, emphasizing that no defects were pointed out in the books of accounts, and there was no justification for invoking section 145 of the Income-tax Act. The Tribunal cited precedents, including the Gujarat High Court's decision in CIT Vs. Amitbhai Gunwantbhai, which held that without defects in the books, the apparent state of affairs should be accepted. Consequently, the Tribunal dismissed the Revenue's ground on this issue.2. Deletion of Disallowance Related to Employees' PF Contribution:The AO disallowed Rs. 1,26,279/- (correct amount Rs. 1,31,162/-) for the belated deposit of employees' contribution towards the Provident Fund (PF), invoking section 36(1)(va) of the Act. The CIT(A) deleted the disallowance, noting that the amount was paid before the due date for filing the return.The Tribunal referred to various judicial precedents, including the Hon'ble Delhi High Court's decision in CIT v. P.M. Electronics Ltd., which held that contributions made after the due date under the PF Act but before the due date for filing the return are allowable under section 36(1)(va) read with section 43B of the Act. The Tribunal also cited the Supreme Court's decision in CIT vs. Alom Extrusions Ltd., which clarified that the omission of the second proviso to section 43B operated retrospectively from April 1, 1988.The Tribunal concluded that the employees' contribution towards PF, if made before the due date of filing the return under section 139(1), is admissible. Therefore, the Tribunal upheld the CIT(A)'s findings and dismissed the Revenue's ground on this issue.General Grounds:Grounds 3 and 4, being general in nature and mere prayers, did not require separate adjudication and were dismissed.Conclusion:The appeal by the Revenue was dismissed in its entirety, with the Tribunal upholding the CIT(A)'s decisions on both the deletion of the addition on account of low gross profit and the deletion of disallowance related to employees' PF contribution. The order was pronounced on 22-03-2011.
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