2019 (9) TMI 1069 - AT - Income Tax

Tribunal dismisses revenue's appeal, upholds CIT(A)'s decision for AY 2010-11 and AY 2011-12.

DCIT-15 (3) (1), Mumbai Versus M/s Tech Data Advanced Solutions (India) Pvt. Ltd. (earlier known as Avnet Technology Solutions (I) Pvt. Ltd.), Mumbai

DCIT-15 (3) (1), Mumbai Versus M/s Tech Data Advanced Solutions (India) Pvt. Ltd. (earlier known as Avnet Technology Solutions (I) Pvt. Ltd.), Mumbai - TMI Issues Involved:1. Rejection of books of accounts under Section 145(3) of the Income Tax Act.2. Estimation of Gross Profit (GP) rate by the Assessing Officer (AO).3. Deletion of GP addition by the Commissioner of Income Tax (Appeals) [CIT(A)].4. Reconciliation of service income and Tax Deducted at Source (TDS) figures.Issue-wise Detailed Analysis:1. Rejection of Books of Accounts under Section 145(3):The AO rejected the books of accounts maintained by the assessee, a corporate entity engaged in trading information technology products and providing maintenance services, citing discrepancies in the quantitative details of sales and purchases. The AO observed that the assessee sold hardware items at a price significantly below the purchase cost and failed to provide quantitative details for software items. The AO concluded that the assessee was claiming the purchase cost of computer peripherals on which it earned non-trading income, thus necessitating capitalization of the purchase cost against which depreciation would be admissible.2. Estimation of Gross Profit (GP) Rate by the AO:The AO estimated a GP rate of 18% based on the GP rates of 18.13% and 18.76% for the assessment years (AY) 2008-09 and 2009-10, respectively. This estimation led to a GP addition of Rs. 13.58 Crores for AY 2010-11. The AO's estimation was based on the figures reported in the financial statements without pointing out any specific defects in the books of accounts.3. Deletion of GP Addition by the CIT(A):The CIT(A) held that the rejection of books was not justified as the assessee maintained regular books of accounts, which were duly audited without any qualification or adverse remarks from the auditors. The CIT(A) noted that the assessee provided almost all sales and purchase invoices during the assessment proceedings, and no discrepancies were pointed out by the AO. The CIT(A) also found that the GP rates in earlier years, after excluding support services income, were in the range of 9.61% to 10.77%, thus making the AO's estimation of 18% without basis. Consequently, the CIT(A) deleted the GP addition made by the AO.4. Reconciliation of Service Income and TDS Figures:The assessee clarified that the service income of Rs. 57.71 Crores was included in the composite sales figures and subjected to tax withholding. The CIT(A) found no specific allegation of non-reporting of any income by the AO in the quantum assessment order, thus no adverse conclusion could be drawn regarding the reconciliation of service income and TDS figures.Conclusion:The Tribunal upheld the CIT(A)'s decision, finding no justification for the AO's rejection of books of accounts and estimation of the GP rate. The Tribunal noted that the assessee's accounts were audited, and no discrepancies were found in the sales and purchase invoices. The Tribunal also observed that the nature of the assessee's business made it impractical to report quantitative details in the desired manner. Consequently, the Tribunal dismissed the revenue's appeal for both AY 2010-11 and AY 2011-12, confirming the CIT(A)'s deletion of the GP additions.Order Pronouncement:Both appeals by the revenue were dismissed, and the order was pronounced in the open court on 16th September 2019.