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of <h1>Tribunal Overturns Decision, Orders Removal of Net Profit Addition; Finds Assessee's Justification Adequate.</h1> <h3>M/s K.K. Fibers Pvt Ltd Versus The I.T.O Ward – 14 (1) Delhi</h3> M/s K.K. Fibers Pvt Ltd Versus The I.T.O Ward – 14 (1) Delhi - TMI Issues:The judgment involves the confirmation of addition to the net profit rate by the ld. CIT(A) and the subsequent appeal by the assessee against the order pertaining to Assessment Year 2012-13.Confirmation of Net Profit Rate Addition:The assessee, engaged in manufacturing, filed a return declaring income. During scrutiny assessment, details were requested, including balance sheet, audit report, and accounts. The Assessing Officer noted a decline in the net profit rate for the year under consideration compared to the previous year. Despite explanations provided by the assessee regarding the decline in net profit, the Assessing Officer applied the net profit rate of the previous year and made an addition. The ld. CIT(A) upheld this addition, prompting the assessee to appeal.Arguments and Findings:The assessee contended that the decline in profit was due to increased costs, specifically citing higher consumption costs and finance expenses. The ld. CIT(A) erroneously considered cash deposits instead of withdrawals, and the bank rate was incorrectly assessed. The increase in raw material consumption without a proportionate rise in sale prices was highlighted. The N.P. ratio for subsequent years, showing losses and eventual business closure, was also brought to attention. The Tribunal found that the decline in net profit was adequately explained by the assessee and that the comparison with the preceding year alone was unjustified. Considering the overall facts, the Tribunal concluded that the ld. CIT(A) had erred in not considering the reasons for the net profit decline properly, leading to the direction for the deletion of the addition based solely on the comparison with the previous year's profit.Conclusion:The Tribunal allowed the appeal of the assessee, setting aside the findings of the ld. CIT(A) and directing the Assessing Officer to delete the addition to the net profit rate. The judgment was pronounced in the open court on 20.07.2023.
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