2008 (6) TMI 258 - AT - Income Tax

Tribunal Upholds CIT(A) Decision on Revenue's Appeals, Grants Deductions for Export Business Profits

The Tribunal upheld the CIT(A)'s decision in dismissing the Revenue's appeals. The trading additions on account of low Gross Profit rate were deleted as ... Fall In G.p. Rate Issues Involved:1. Deletion of trading addition made by the AO on account of low GP rate by invoking provision of s. 145 of IT Act.2. Allowance of deduction under s. 10BA on account of DEPB and DDB receipts.Detailed Analysis:1. Deletion of Trading Addition on Account of Low GP Rate:The first issue pertains to the deletion of trading additions of Rs. 5,00,000 and Rs. 3,00,000 made by the AO for the assessment years 2004-05 and 2005-06, respectively, due to a low Gross Profit (GP) rate by invoking s. 145 of the IT Act.Facts and Arguments:- The AO rejected the books of account citing a fall in the GP rate and the absence of stock records, making ad hoc trading additions.- The learned CIT(A) deleted these additions, noting that the AO did not present material defects, omissions, or unauthorized trading activities. The CIT(A) emphasized that the nature of the business, involving numerous distinct wooden handicraft items, made it impractical to maintain detailed stock records.- The assessee maintained regular, audited books of account with fully vouched and verifiable purchases, sales, and manufacturing expenses. The AO did not find specific defects in these records.- The assessee argued that the low GP rate alone could not justify the rejection of books and that various judicial judgments supported this view.Decision:- The Tribunal upheld the CIT(A)'s decision, finding no error in the well-reasoned decision. The Tribunal noted that the AO failed to provide material evidence of suppression of income or activities outside the books. The remand report also found no discrepancies in the assessee's records. Consequently, the Tribunal rejected the Revenue's grounds for all related appeals.2. Allowance of Deduction under s. 10BA on DEPB and DDB Receipts:The second issue concerns the allowance of deductions under s. 10BA for Duty Entitlement Pass Book (DEPB) and Duty Drawback (DDB) receipts, which the AO argued were not derived from the export of eligible articles or things.Facts and Arguments:- The learned CIT(A) allowed the deduction, considering DEPB and DDB as reimbursements of customs and excise duties, thus part of the export business profits.- The Departmental Representative contended that DEPB and DDB were incentives not directly linked to the export of eligible articles, and thus should not be included in the deduction.- The assessee argued that DEPB and DDB reduced the cost of production, making them integral to the export business. The assessee cited various judicial decisions supporting the inclusion of such incentives in business profits for deduction purposes.Decision:- The Tribunal analyzed the provisions of s. 10BA, noting that the profits derived from the export of eligible articles or things should proportionally relate to the profits of the business of the undertaking.- The Tribunal found that the legislative intent was to include such incentives in the profits of the business, as evidenced by their inclusion under s. 28 of the IT Act.- The Tribunal distinguished the present case from other cases cited by the Departmental Representative, noting that the specific language and context of s. 10BA supported the inclusion of DEPB and DDB in the profits of the business.- The Tribunal upheld the CIT(A)'s decision, allowing the deduction under s. 10BA for DEPB and DDB receipts, and rejected the Revenue's appeals.Conclusion:The Tribunal dismissed all the appeals of the Revenue, upholding the CIT(A)'s decisions on both issues. The trading additions made on account of low GP rate were deleted, and the deductions under s. 10BA for DEPB and DDB receipts were allowed.