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2021 (11) TMI 65
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....i. That the order of Ld. CIT(A) is against the law and facts of the case. ii. That in the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in conditional allowing section 80IC taking 40% G.P. Rate. iii. That in the facts and in the circumstances of the case and in law, the Ld. CIT(A) has wrongly restricted to G.P. percentage of 40% for allow ability u/s 80IC of the Income Tax Act though the appellant's G.T. 57.01%. Appellant in regularly assessed u/s 143(3) of the Income Tax Act since A.Y. 2007-08 and full Gross Profit had been allowed for deduction u/s 80IC of the Act. iv. That in the facts and circumstances of the case in in law, the Ld. CIT(A) has wrongly taken about G.P. and restricted to G.P. - 40% and wrongly stated that rest amount be taken for tax. v. That the appellant craves leave for the permission to add, delete or amend the grounds of appeal before or at the time of bearing of appeal." 4. Brief facts of the case as called out from the records are that the assessee is a partnership firm engaged in the business of running coke industries. The assessee is claiming deduction under section 80IC of the Act consistently....
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.... CIT(A) also rejected the books results u/s 145(3) of the Act and estimated gross profit @ 40% of the total turnover as against the gross profit rate disclosed by the assessee at 57.01% and directed to tax the difference amount as "Income from other sources". 8. Aggrieved the assessee is now in appeal before the Tribunal solely raising the issue that the Ld. CIT(A) erred in estimated the gross profit rate at 40%. Disregarding the fact that the assessee has been regularly assessed u/s 143(3) of the Act since A.Y. 2007-08 and gross profit disclosed has been accepted. The ld. counsel for the assessee also took us through the paper book running from 1 to 61 and also placed reliance on the decision of ITAT, Kolkata in the case of DCIT vs Goodcare Pharma Pvt. Ltd. ITA No. 2485 & 2486/Kol/2017 dated 05.04.2019. 9. Per contra, the ld. Departmental Representative submitted that the assessee has not raised any ground challenging the finding of the Ld. CIT(A) rejecting the books of account u/s 145(3) of the Act. Various discrepancies have been noticed in the financials of the assessee-firm. Books of accounts were not produced before the Ld. CIT(A) as well as the Assessing Officer. Docum....
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....jected. 22. On the other hand, I also find that the argument made by the ld. AR vis-à-vis the observations and the action of the ld. AO presents only a sketchy picture of the facts related to the appellant's business. It lacks the authenticity of incontrovertible facts and reliable data. When the ld. AR says that the increase in the GP% was because of a rise in sale price of finished products, he does not back it with any data at National level or with any data released by or related to a Government department or a Government undertaking. Coke is not a commodity the price of which can be erratically and arbitrarily determined by its producer. The prices will need to be kept at par with other players in the market in order to able to compete with them. What the ld. AR has tried to argue is based on simple arithmetical calculations based on its own statistics of purchase and sales recorded in its books. 23. The ld. AR has also stated that one of the factors contributing to the high rate of GP% is Transport Subsidy that the appellant receives from the Government. In a tabular presentation, he has furnished the details of GP and NP% calculated with and wit....
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....t that the reason for high GP and NP% in its case is that it receives transport subsidy. If the GP and NP% is taken without considering the transport subsidy, it comes to 82.04% and 15.44% in the AY 2013-14. The fact, however, is that the appellant has not yet received any transport subsidy from the government. It has claimed such subsidy and has made the required application but in none of the AYs has it physically received any relief in the form of subsidy. Therefore, the arguments related to high GP% being a product of transport subsidy does not help the appellant's case as of now. 24.1 The appellant has another sister concern with the name Kamrup Coke Industries. A comparison between GP and NP% without transport subsidy is made in the table below: A.Y Kamrup Coke Industries Sheo Shakti Coke Industries GP% NP% GP% NP% 2010-11 59.56 2.81 75.31 16.24% 2011-12 34.91 2.78 73.34 15.93% 2012-13 41.14 4.56 81.28 21.56% 2013-14 46.83 38.39 82.04 15.44% 2014-15 76.15 0.20 79.64% 2.10% 25. During the years under comparison, Kamrup Coke Industries has also....
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....ity of the persons to whom such sales were made. There is no way to link the exact amount of cash earned through sales to a specific person and its deposit in the bank account. Since the identities of the purchasers, who appear to be discreet individuals from far off lands with obscure addresses, cannot be established, the authenticity of cash sales itself comes under cloud. Suffice it to say that the sale transactions through cash leave more to be desired in terms of evidence and reliability of facts. 27.1 The ld. AR has argued that the sales are genuine as the appellant has filed its sales tax return and the same has been accepted by the Sales Tax Authorities. In my view, filling a Sales Tax Return and its acceptance by the Sales Tax Authorities has no bearing on the issues involved in this case. The Sales Tax Authorities have not looked into the genuineness of the sales reported by the appellant. Under the Income Tax Act, the ld. AO has examined if the appellant's sales were genuine. The question here is, has the appellant really earned those receipts or has it inflated those figures in order to push in higher amounts as tax free income? The question here was from ....
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....nbsp;FY 2013-14 3.93% FY 2014-15 2.67% 29.1 As can be seen from the above, the GP% is very high and the ratio between the consumption of raw material and manufacturing expenses is very poor. As break up Manufacturing Expenses reveals the following: PARTICULARS FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15 POWER & FUEL 6,46,411 7,17,629 7,42,818 7,74,634 5,59,593 WAGES 5,91,825 6,04,360 6,03,470 08,79,800 05,86,532 ELECTRICITY DUTY 06,089 05,838 05,212 04,746 03,250 SERVICE TAX ON RAW COAL TRANSPORTATION 15,35,127 22,83,280 23,40,781 36,30,514 07,08,424 FACROTY INSURANCE CHARGES 79,694 94,314 01,64,036 01,54,530 16,228 REPAIRS & MAINTENANCE CHARGES 98,975 20,609 01,260 - 16,580 01,42,949 01,16,109 02,25,276 02,53,236 02,53,242 29.2 The figures for wages appear to be abysmally low. In order to verify it, the website for the department of labour, Government of Assam was referred. The website of Govt. of Assam gives the details of basic minimum daily wages for skilled, semi-skilled an....
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.... processing more than 1,0 0,000 MT of raw material in a scenario when the machinery is old (the Id. AR has stated that no new machinery was purchased). The average daily pay assumed above is the basic minimum that the appellant would be paying going by the standard of minimum wages determined by the Government of Assam. The actual pay would be more, which in turn would mean that even lesser number of workers were employed by the appellant. In my view, the number of workers estimated to be working for the appellant is very less and it does not provide the correct picture of expenses. 29.9 The above analysis is taken as a sample and it should not be taken to be the only discrepancy in the statement of expenses. The overall manufacturing expenses as percentage of raw material consumed is poorly low and this has also been indicated above. 29.10 Another discrepancy is noted, but it pertains to the AY 2014-15 and not to the AY under reference in this appeal. I find it necessary to be highlighted so that an overall picture of the way the appellant's profits are declared, comes out clearly. The quantity of Raw Material consumed in FY 2014-15 is stated to be 791. 25 M....
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.... u/s 145(3) of the Act. 31.1 In order to estimate the income, certain facts need to be kept in mind. Contrary to the Id. AO's view that there was no purchase or sale in this case, or that there was no business at all, the evidences furnished by the Id. AR do establish that a business certainly was in existence. That, purchase and sales were also made, has been proved. What however remains unproved is the exact amount of sales and expenses. The explanations furnished by the Id. AR fails to authentically prove the case. Therefore, in the entire gamut of facts, considering that the yield percentage has been estimated at 45% and certain expenses have been 'underreported, in my considered view, the GP% should be taken at 40% and based on the resultant figure, the remaining part of the profit and loss should also be considered before calculating the net profit. The ld. AO is directed to compute the eligible net income for exemption u/s 80IC by taking the GP at 40% and taking into account the items in profit and loss account. The balance amount should be brought to tax as 'income from other sources'. These grounds of appeal are, therefore, partly allowed. For estimat....