2017 (8) TMI 1410 - HC - Income Tax

High Court Adjusts Profit Rate, Classifies Interest for Deduction

Garment Crafts, F-4, Malviya Industrial Area, Jaipur Through Shailendra Garg S/o Late Shri Bhimsen Garg, Aged About 31 Years, (Proprietor) Versus Assistant Commissioner of Income Tax, Circle 6, JAIPUR

Garment Crafts, F-4, Malviya Industrial Area, Jaipur Through Shailendra Garg S/o Late Shri Bhimsen Garg, Aged About 31 Years, (Proprietor) Versus ... Issues:1. Estimation of gross profit rate for the assessment year.2. Classification of interest receipt as 'business income' for deduction u/s 80HHC.Estimation of Gross Profit Rate:The appellant challenged the Tribunal's decision approving the estimation of gross profit at 32% instead of 28.86% for the assessment year. The Assessing Officer noted a significant fall in the gross profit rate, attributing it to various factors such as exchange rate differences and duty draw back ratios. The appellant's historical data showed a steep decline in the gross profit rate compared to previous years. The Tribunal upheld the GP rate at 25% considering the increase in purchase costs and turnover. The appellant argued for a higher GP rate based on previous assessments and deductions allowed by the AO. Ultimately, the Court modified the Tribunal's decision, accepting the appellant's disclosed GP rate of 20.33% and adjusting it to 40.78% after accounting for excise duty, contrary to the Tribunal's estimation.Classification of Interest Receipt:Regarding the interest receipt of Rs. 9,52,067, the issue was whether it constituted 'business income' for deduction u/s 80HHC. The Court referred to a previous decision where it was clarified that profits of the business must be computed under the head 'Profits and Gains of Business or Profession' as per specified provisions. The Court emphasized that only receipts included in the profits of the business could be deducted under the relevant clause. The Court relied on interpretations of similar provisions and held that the interest receipt should be considered as part of the business profits for deduction purposes. Consequently, the Court ruled in favor of the appellant on this issue as well.In conclusion, the High Court modified the Tribunal's decision on both issues, adjusting the gross profit rate and classifying the interest receipt as business income for deduction u/s 80HHC. The appellant's contentions regarding historical data and deductions allowed by the Assessing Officer played a crucial role in the Court's decision-making process.