TaxTMI 
TaxTMI 
2018 (10) TMI 1637
X X X X Extracts X X X X
X X X X Extracts X X X X
....aw material (seeds) vis-à-vis yields, separately in respect of different types oils (cotton, mustard and ground nut, etc.) extracted from different seeds, when there is huge variation in the market price of these oils, and this being one of the major reasons for rejection of book result u/s 145." 2. The assessee has raised the following grounds of appeal:- "1. The Commissioner of Income Tax (Appeals) - 12, Mumbai, [hereinafter referred to as CIT(A)] erred in confirming the adhoc disallowance of Rs. 1,00,00,0007- following the predecessor's order. The Appellant submits that on the facts and circumstances of the case of the Appellant there is no non correlation or leakage of consumption material and hence, no adhoc disallowance of Rs. 1,00,00,0007- is called for in its case and addition confirmed by the CIT(A) shall be deleted." 3. The brief facts of the case are that the assessee is a private limited company engaged in the business of manufacturing, refining and trading in edible oils and vanaspati. The assessee has filed its return of income for AY 2012-13 on 28-09-2012 declaring total loss at Rs. 1,26,72,255. The case was selected for scrutiny and statutory notice....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hough there is a difference in gross profit declared for the year under consideration, when compared to previous financial year, the assessee failed to explain such difference with plausible reasons. The AO further observed that the assessee company has been consistently showing gross profit about 10% over the period and the sudden decline from 6.8% to 3.55% is not explained satisfactorily. The stock details and analysis submitted in support of the claim that the increase in input cost has eroded the gross profit margin is not satisfactorily established by the assessee. In view of the factual circumstances of the case and the peculiarities arising as a result of nature of business, the book results are not found acceptable and accordingly, rejected books of account u/s 145(3) of the Income-tax Act, 1961 and the income is determined on the basis of gross profit estimation. The AO further observed that in the last assessment year (AY 2011-12), the books of account of the assessee were rejected on account of defects found in the books of account and gross profit was estimated at 9% of the total sales / turnover. Similarly, during the year under consideration, various defects were foun....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... squarely covered in favour of the assessee by the decision of ITAT, Mumbai Bench "E" in assessee's own case for AY 2011-12 in ITA No.3151/Mum/2015, where under similar set of facts, the ITAT has deleted addition made by the AO towards estimation of gross profit. The Ld.AR further submitted that the AO has made similar addition towards estimation of gross profit for similar reasoning which has already been considered by the ITAT, therefore, for similar reasons, addition made by the AO should be deleted. The Ld.AR, further referring to the paper book filed, submitted that the assessee has explained reasons for fall in gross profit ratio when compared to previous financial year by filing a reconciliation statement and the AO has ignored complete evidences filed by the assessee merely for the reason that a similar addition has been made in the preceding financial year. The Ld.AR further submitted that the assessee has maintained books of account and such books of account were audited u/s 44AB of the IT. Act, 1961 and the tax auditor has issued a clean report without any adverse comments on books of account or stock registers. Therefore, there is no reason for the AO to reject book....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s assessment order has detailed the reasons for rejection of books of account and estimation of gross profit and hence, the addition made by the AO should be upheld. 10. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The AO has rejected books of account u/s 145(3) of the Act, and estimated gross profit at 9% on total sales turnover and determined difference of Rs. 45,97,12,103. The AO has given reasons for estimation of gross profit as per which, the books of account maintained by the assessee are not reliable as the assessee failed to explain fall in gross profit with plausible reasons. The AO has taken 9% gross profit which is based on gross profit declared for AY 2010-11 and then compared such gross profit rate to the gross profit declared for the year under consideration which is at 3.55%. According to the AO, the assessee has declared over and above 10% G.P. over the years, but there is a sudden decline in gross profit ratio to 3.55% for the year under consideration for which the assessee has not offered any proper reasons. It is the contention of the assessee that the gross profit ratio cannot be int....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... before the tax authorities would show that the assessee has given proper reason for the fall in the G.P rate, i.e., there was increase in the raw material cost and the assessee could not make corresponding increase in the selling price due to acute competition. The above said submission of the assessee is corroborated by the fact that the sales turnover of the assessee has increased by about 40% during the year under consideration. We notice thai the assessee has given detailed notes to the AO explaining the reasons for the fall in the G.P rate. We notice that the assessee has also substantiated the explanations by furnishing the copies of purchase invoices to prove that the raw material cost has increased during the year under consideration vis-a-vis in the immediately preceding year. 10. We further notice that the assessee has given an additional "Note on Gross profit" before the AO and the same is placed at pages 127-128 of the paper book. A perusal of the same would show that the average cost of raw material has increased from Rs. 40,932/- per MT to Rs. 56,535/- per MT resulting in an average net increase of Rs. 15,6037- per MT. However, the average selling price has increas....