TaxTMI 
TaxTMI 
2019 (2) TMI 1811
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....s and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 2,66,81,850/- on account of increased profit after invoking provision of section 145(2) of the I.T. Act, 1961. 3) In the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating the facts that books of accounts were not rejected merely because of low profit rate, rather they were rejected because the assessee did not furnish any documentary evidence to explain the abrupt fall in net profit rate. 4) On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,66,81,850/- on the grounds of non-following the principle of natural justice, when it has co terminus power as of AO. 5) The appellant craves leave to add, amend any / all the grounds of appeal before or during the course of hearing of the appeal. 3. The grounds raised in ITA No. 5306/Del/2015 (AY 2012-13) read as under:- 1) The order of Ld. CIT(A) is not correct in law and on facts. 2) On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 3,82,42611/- on account of increa....
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....ation, the assessee is deriving income from business and profession. During the year under consideration, the assessee company is engaged in the business of manufacturing and trading in soft drinks under the brand name Pepsi, Mirinda, 7up etc. and deriving income from business and profession. On examination of the net profits of the assessee for the relevant financial year vis a vis the net profits of the immediately last 3 preceding years, AO observed that the net profit for the year under consideration is abysmally low. AO observed that assessee had not furnished any details whatsoever in reply to question no. 43 of the questionnaire dated 1.11.2013 regarding the details for expenses claimed in the P&L account with documentary evidences, however, after repeated reminders, the assessee had furnished part details which also include only list of major expenses without any bills and vouchers to verify the same. AO further observed that assessee had not produced the books of accounts. Hence, he observed that it is clear that the assessee has not been able to substantiate the trading results in P&L account by not producing any details of expenses, confirmations or ledger accounts of th....
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....rence. In support of her contention, she stated that following decisions may kindly be considered with regard to addition on account of rejection of books of accounts and estimation of profit:- 1. M/s Punjab Sind Dairy Products Pvt Ltd Vs DCIT 2017-TIQL-83-SC-IT (Supreme Court) rejection of books was sustainable, where the Assessee had failed to produce the Registers indicating Production, Issuance and Consumption. It also upheld the estimation of income on the basis of the material on record and the statements made by the employees and directors during search and survey proceedings 2. M/s Punjab Sind Dairy Products Pvt Ltd Vs DCIT 2016-TIQL-3116-HC-MUM-IT (Bombay High Court) 1. rejection of books is sustainable, where the Assessee failed to produce the Registers indicating Production, Issuance and Consumption. 2. estimation of income on the basis of the material on record and the statements made by the employees and directors during search and survey proceedings is not arbitrary 3. Smt Dayawanti Vs CIT f20161 75 taxmann.com 308 (Delhi)/[2017] 245 Taxman 293 (Delhi/[2017] 390 ITR 496 (Delhi)[2016] 290 CTR 361 (Delhi) (Copy Enclo....
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....red in rejecting the books of account by invoking section 145 of the Income tax Act, 1961 while the books of account of the appellant company were statutorily audited in compliance of the provisions of the Companies Act, 1956 and also tax audit under section 44AB of the Income tax Act, 1961 was conducted by chartered accountant and the auditors have reported the about correctness and completeness of the books of account and also not qualified their reports. It was further submitted that AO has neither pointed out any defect or discrepancy in the books of account nor mentioned his dissatisfaction regarding correctness and completeness of the books of account. So, the conditions prescribed under section 145 of the Income tax Act, 1961 for rejection of books of account has not been satisfied in the case of the assessee and the books of account of the assessee have been wrongly rejected arbitrarily and capriciously. It was further submitted that AO has erred in alleging that the assessee has failed to furnish the required details and to produce the books of account which has been corroborated from two facts. Firstly the AO framed assessment under section 153A read with section 143(3) o....
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.... of low N.P.ratio and for non submission of details it was found appropriate to seek the report from the A.O. on the AR's submission. Therefore, the submission of the AR alongwith paper book was forwarded to the A.O. seeking his comments on various submissions of the AR. The contents of the letter seeking A.O's report is reproduced below In the above case the AO has made NP addition of Rs. 2,66,81,850/- on the ground that the NP declared by the appellant was very much on the lower side. The appellant has made a detailed written submission and filed paper book substantiating the financial results declared by them. The AO is hereby given an opportunity to offer his comments, if any, on the various submissions made during the appeal proceedings. 4.1.6 The A.O. has submitted his report through his JCIT. The relevant contents of the report are as under: The case of above named assessee has been centralized in CC-12 (Now Central Circle 07), New Delhi consequent to search in the case of assessee on Jaipuria Group of cases. The assessee has taken ground of appeal before CIT(A) that:- "On the fact and circumstances of the appellant's case, the le....
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....292 Less: Excise Duty 77,409,475 57,121,520 69,156,708 59,086,249 Total Turnover 1,020,152,679 979,447,238 713,751,791 525,268,043 Other Income 3,118,862 16,270,390 9,042,139 6,683,740 Total Income 1,023,271,541 995,717,628 722,793,930 531,951,783 EXPENDITURE Increase/ Decrease in stocks (8,701,407) (4,300,694) (156,707) (5,169,627) Excise Duty on Op/ Closing FG Stock 792,922 (572,721) (487,898) 449,916 Purchases of Traded Goods 117,329,314 232,283,485 149,608,038 115,346,667 Cost of Raw Material Consumed 480,526,067 315,939,248 224,553,873 153,375,188 Stores Consumed 22,114,116 15,743,774 12,627,492 7,687,991 Power & Fuel 50,106,834 29,623,318 20,881,508 15,478,518 Employees Benefit Expenses 77,140,066 67,218,464 57,128,470 50,673,843 Transportation, Handling & distribution cost 83,354,397 96,003,364 65,140,513 47,994,459 Total Manufacturing Expenses 822,662,309 751,938,236 529,295,2....
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....stribution cost 83,354,397 69,712,778 Total Manufacturing Expenses 822,662,309 555,690,160 Gross Profit 197,490,370 183,798,864 Other Expenses Administrative & Other Expenses 33,640,855 29,468.949 Repair & Maintenance 34.595,241 21,605,763 Selling & Other Expenses 52,548,446 44,958,895 Breakage Leakage & Burst etc. 18,612,066 10,285,423 Finance Cost 55,876.756 26,911,524 Depreciation 60,006,312 40,437,699 Loss on Sale of Fixed Assets - - Total Other Expenses 255,279,676 173,668,253 Net Profit (54,670,444) 20,796,034 GP Ratio on Total Sale 19.36% 24.85% NP Ratio on Total Sale -5.36% 2.81% 3. On perusal of the above table, it is quite evident that GP rate of the appellant company has fallen by 5.49% and NP rate by 8.1 7% as compared to average GP / NP rate of last three preceding financial years. The fall in GP rate as compared to average GP rate of last three preceding years is just because of increase in cost of purchase / cost of raw material consumed. The cost of purchase / cost of raw materi....
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.... 5. On analysis of the above table, it is quite evident that the decrease of GP rate during the financial year under consideration as compared to Average GP rate of last three financial years are due to increase in cost of raw materials over the years and not due to any deliberate inflation of expenses claimed by the appellant as alleged by the learned assessing officer in the impugned order. The GP rate of the appellant company has been decreasing over the years and not due to any deliberate inflation of expenses claimed by the appellant as alleged by the learned assessing officer in the impugned order. 6. The GP rate of the appellant company has been decreasing over the years and the Ld. AO himself has accepted the said facts in the assessment framed under section 153A read with section 143(3) of the Income tax Act, 1961 for the last three assessment years i.e. 2008 - 09, 2009 - 10 and 2010 -11. The GP rate has been decrease gradually from 26.54% to 23.23% in the last three assessment years. Detail of GP rate of the last three assessment years is as under: Assessment year GP rate (%age) 2008 - 09 26.54 2009-10 25.84 2010-11 23....
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.... Total Secured Loan 447,235,794 Financial charges 55,876,756 26,911,524 Net Turnover 1,020,152,679 73,94,89,024 % of financial charges over net turnover 5.48% 3.64% % increase in financial charges 1.84% Report of A O The Submissions of the assessee were examined and the contention of the assessee that the decrease in the NP ratio was mainly on account of increase in the Input cost, Fixed Costs along with the increase in the finance cost due to increased borrowings over the years, whereas there is no proportionate increase in the Selling price of the beverages as per the books of account produced. Financial Cost Chart for AY 2011-12 - S. No. Particulars Financial year 2010-11 Average Financial Charges of last three financial years 1. Oriental Bank of Commerce Cash Credit 61,776,118 Term Loan 20,292,037 ....
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....r 2010 - 11, comparison with the immediate three preceding financial years and also produced books of accounts before the learned assessing officer during the course of remand proceedings. We would further like to submit that the learned assessing officer has verified the books of account of the appellant company and stated that the contention of the appellant raised before Hon'ble Commissioner of Income Tax (Appeals) as per the books of accounts produced. The learned assessing officer mentioned in the remand report that: The learned assessing officer in his Remand Report stated that "The submissions of the assessee were examined and the contention of the assessee that the decrease in NP ratio was mainly on account of increase in the Input cost, Fixed Costs along with the increase in the finance cost due to increased borrowings over the years, whereas there is no proportionate increase in the Selling price of the beverages as per the books of account produced. " In this regard, we would like to submit that the learned assessing officer in his remand report submitted that the contention of the assessee in respect of decrease in NP ratio was mainly....
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.... the same was due to large number of cases being handled simultaneously by the AR before the same A.O. The delay was not on account of any design but was merely on account of huge work load. The AR has drawn attention to the fact that the A.O. has mentioned in the order itself that the details have been filed on 18.3.14. 4.1.10 As regards fall in net profit ratio, a comparative chart of financial results for the current assessment year and for the three preceding assessment years has been provided. The same is reproduced below for ready reference : Particulars Financial Year 2010-11 Financial Year 2009 - 10 Financial Year 2008 - 09 Financial Year 2007 - 08 Rs. Rs. Rs. Rs. INCOME Sales 1,097,562,154 1,036,568,758 782,908,499 584,354,292 Less: Excise Duty 77,409,475 57,121,520 69,156,708 59,086,249 Total Turnover 1,020,152,679 979,447,238 713,751,791 525,268,043 Other Income 3,118,862 16,270,390 9,042,139 6,683,740 Total Income 1,023,271,541 995,717,628 722,793,930 531,951,783 EXPENDITURE ....
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....3,118,862 10,665,423 Total Income 1,023,271,541 750,154,447 EXPENDITURE Increase / Decrease in stocks (8,701,407) (3,209,009) Excise Duty on Op/ Closing FG Stock 792,922 (203,568) Purchases of Traded Goods 117,329,314 165,746,063 Cost of Raw Material Consumed 480,526,067 231,289,436 Stores Consumed 22,114,116 12,019,752 Power & Fuel 50.106,834 21.994,448 Employees Benefit Expenses 77,140,066 58,340.259 Transportation, Handling & distribution cost 83,354,397 69,712,778 Total Manufacturing Expenses 822,662,309 555,690,160 Gross Profit 197,490,370 183,798,864 Other Expenses Administrative & Other Expenses 33,640,855 29,468.949 Repair & Maintenance 34.595,241 21,605,763 Selling & Other Expenses 52,548,446 44,958,895 Breakage Leakage & Burst etc. 18,612,066 10,285,423 Finance Cost 55,876.756 26,911,524 Depreciation 60,006,312 40,437,699 Loss on Sale of Fixed Assets - - Total Other Expenses 255,279,676 173,668,253 Net Profit (54,6....
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....bsp; Cash Credit 19,727,647 Working Capital Demand Loan 80,000,000 Term Loan 240,000,000 3. Pepsico India Holding Private Limited 10,061,298 4. Limited Companies against Vehicles 15,378,695 5. Interest accrued but not due Total Secured Loan 447,235,794 Financial charges 55,876,756 26,911,524 Net Turnover 1,020,152,679 73,94,89,024 % of financial charges over net turnover 5.48% 3.64% % increase in financial charges 1.84% 4.1.16 The increase in financial charges was 1.84% during the current previous year as compared to the average of previous three financial years. 4.1.17 From the explanation/ justification for fall in GP/NP ratio as above, it is clear that the appellant did have some explanation/justification for such fall. During remand proceedings AO has examined the same and has not found any....
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....the A.O. But that itself cannot be a ground for rejection of books of account. 4.1.20 This is a search & seizure case and the Previous year of the present assessment year falls within the block period of 6 years. A.O. has not brought on record any adverse material. He has rejected the books of account merely on the basis of fall in N.P. ratio. There is no rule of law that an enterprise cannot incur losses or it cannot declare lesser net profit that what is shown in the previous year. The same is permissible as long as the same is supported by proper books of account, bills and vouchers. During the remand proceedings, the A.O. has examined the justification for fall in net profit submitted by the appellant and has not reported any discrepancies nor taken any counter arguments. I have also noted that this is not a fit / case for rejection of books of account and estimation of profits as the search has not thrown up any specific discrepancies in the accounts regularly maintained by the appellant. The A.O. has rejected the books of account and estimated the profits of the business only based upon NP ratio without confronting the same to the appellant. This is completely in vio....
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....escribes certain conditions for rejection of books of account but non furnishing of details is not one of the prescribed conditions for rejection of books of account. We also find that all the details called for vide questionnaire dated 1.11.13 have been furnished. As regards fall in net profit ratio, a comparative chart of financial results for the current assessment year and for the three preceding assessment years has been provided. The fall in G.P. and Net profit ratio has been attributed to increase in cost of purchases and raw material and due to increase in financial cost. The fall in G.P. by 5.4% (24.85% to 19.36%) and net profit rate by 18.17% (i.e. 2.81% to (-) 5.36%) was on account of increase in cost of purchase and cost of raw material consumed. It is further noted that there is a fall in G.P. by 5.49%. Out of 5.49%, 4.91% fall in G.P. has been attributed to increase in cost of raw material consumed and purchases of traded goods. The balance fall in G.P. (5.49% (-) 4.91% - 0.58%), was attributable to increase in salary, wages, repairs & maintenance expenses. The fall in net profit ratio has been attributed to fall G.P. rate which in turn was due to increase in cost ....