IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH
ITA No: 1401/AHD/2011& C.O. No. 163/AHD/14 Assessment Year: 2007-08

DCIT (Appellant/Respondent) vs M/s. Mahavir Intermediates (Respondent/Appellant)
Date of Order: 30-10-2015

ORDER

PER ANIL CHATURVEDI, ACCOUNTANT MEMBER
1. This appeal of Revenue and C.O of Assessee are against the order of CIT(A)-II, Surat dated 22.02.2011 for A.Y. 2007-08.

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is a partnership firm stated to be engaged in the business of manufacturing of chemicals, job working of manufacturing of chemicals and its exports. Assessee filed its return of income for A.Y. 2007-08 on 26.10.2007 declaring total income of Rs. 1,51,88,120/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 24.12.2009 and the total income was determined at Rs. 1,65,41,300/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 22.02.2011 granted substantial relief to the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us and Assessee has also filed C.O. The grounds raised by the Revenue reads as under:-

1. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of low G.P. inspite of upholding the rejection of books of a/c by A.O. and assessee's failure to furnish supporting evidences to explain the reasons for fall in Gross Profit.
2. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of low G.P. inspite of confirming findings that the assessee had failed to reconcile the discrepancies for fall in G.P. from 30.55% in the immediate preceding year to 23.86% during current assessment year.
3. On the facts and in the circumstances of the case, the learned CIT (A) ought to have upheld the order of the Assessing Officer.
4. It is, therefore, prayed that the order of the CIT(A) may be set-side and that of Assessing Officer may be restored to the above extent.

4. On the other hand the grounds raised by the Assessee in C.O reads as under:-

1. On the facts and in circumstances of the case as well as law on the subject, the learned CIT (A) has erred in confirming the action of assessing officer in rejecting book results u/s 145(3) of I.T Act, 1961.
2. On he facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in partly confirming the action of assessing officer in making G.P addition by directing assessing officer to compute Gross Profit @ 24% on turnover as against GP @ 23.86% shown by the assessee.

We first take up Revenue’s appeal in ITA No. 1401/Ahd/2011.

5. Before us, ld. D.R. at the outset submitted that the only effective ground is with respect to the deletion made on account of fall in Gross Profit (G.P).

6. During the course of assessment proceedings, A.O noticed that Assessee has earned Gross Profit (GP) of Rs. 2.84 crore on the turnover of Rs. 11.91 crore which worked out at 23.86% of the turnover whereas in the immediate preceding year, the gross profit was 30.55% on the turnover of Rs. 3.44 crore. The Assessee was asked to furnish various details and to justify the fall in G.P. A.O noted that Assessee has failed to submit explanation with respect to consumption of chemicals and its corresponding production, stepwise losses occurred during the manufacturing process of a particular chemical. A.O noted that Assessee did not furnish the required details. He was therefore of the view that in the absence of the details called for, Assessee’s gross profit was not verifiable and the books results shown by the Assessee therefore could not be relied upon. He accordingly rejected the books of accounts u/s. 145(3) of the Act and thereafter estimated the gross profit of the Assessee by working out the average of the gross profit shown by the Assessee for the year under consideration and also the profits of the two immediate preceding years. The average of such profits was worked out by him at 25.44%. He thereafter considered the gross profit of 25% and applying it to the total turnover and after giving the credit of the gross profit of Rs. 2.84 crore that was shown by the Assessee made addition of the differential amount of Rs. 13,53,178/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who upheld the rejection of books of accounts but directed the A.O to compute G.P at 24% of the turnover and granted partial relief to the Assessee by holding as under:-

3.3.1 I have duly considered the submission of the appellant and do not find it acceptable for the reason that I have already dismissed the first ground of appeal of the appellant and upheld the rejection of books of accounts, therefore, to arrive at fair books results, the GP for the year under consideration is to be estimated. The assessing officer has taken the average of GP of 3 years. We find the said method reasonable and appropriate in the case of the appellant, however the assessing officer has also considered GP of A.Y. 2007-08 for determining the average GP of the last 3 years, which I find is not correct since books of accounts of the appellant for the year under consideration have been rejected u/s. 145(3) of the Act. Thus, the book results including GP of the year under consideration cannot be taken for any purpose. If the average of GP for A.Ys.2004-05 (15.48%), 2005-06 (24.90%) and 2006-07 (30.55%) is taken, the same comes to 23.64% as against which the appellant has shown GP of 23.86%. I therefore, considering the same and another factors, hold that in the case of the appellant, it will be more appropriate to adopt GP rate of 24% during the year under consideration, and, accordingly, direct the assessing officer to compute GP @ 24% on total turnover of Rs. 11,90,89,023/-. The addition made in this account is therefore confirmed to the extent of difference of GP between GP confirmed at 24% on total turnover and the GP declared by the appellant during the year. This ground of appeal is partly allowed.

7. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us.

8. Before us, ld. D.R. pointed to the various findings of A.O and submitted that in the absence o the details, A.O rightly rejected the books of accounts and once the books of accounts was rejected, A.O was fair enough in estimating the gross profit at 25%. He therefore submitted that the order of A.O needs to be upheld. Ld. D.R. on the other hand reiterated the submissions made before A.O and ld. CIT(A) and supported the order of ld. CIT(A).

9. We have heard the rival submissions and perused the material on record. Ld. CIT(A) upheld the rejection of books of accounts u/s. 145(3) for the reason that the discrepancies noticed by the A.O vis-à-vis the fall in G.P was not reconciled by the Assessee either before A.O or in appellate proceedings. Before us also ld. A.R. has not brought any material on record to controvert the findings of ld. CIT(A) on the issue of rejection of books. As far as the adoption of GP at 24% as against the rate of 25% considered by the A.O, we find that ld. CIT(A) had noted that the average rate of 25% of GP was considered by the A.O by including the GP of the impugned assessment year also. We agree with the observation of ld. CIT(A) that when the books of accounts have been rejected for a year, the book results including the G.P. for that year cannot be considered for working out the average G.P. Ld. CIT(A) therefore excluded the G.P of the impugned year and thereafter worked out the GP on the basis of 3 immediate preceding years and found the G.P to be at 24% which was considered to be an appropriate rate for estimation. Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A) or has demonstrated any fallacy in the order of ld. CIT(A). In view of these facts, we find no infirmity in the order of ld. CIT(A) and thus the ground raised by the Revenue is dismissed.

10.In the result, the appeal of Revenue is dismissed.

Now we take up C.O of Assessee.

11.The C.O of the Assessee has been filed on 17.07.2014. We find that the Registry vide its letter dated 08.08.2014 addressed to the Assessee has informed theAssessee that the C.O is time barred by 3 years. Before us, Assessee has not filed any application seeking condonation of delay nor has filed any affidavit to demonstrate that there is no delay in filing of C.O. In view of these facts, we dismiss the C.O in limine. Thus the C.O of the Assessee is dismissed.

12. In the result, the appeal of Revenue and C.O of the Assessee both are dismissed.

Order pronounced in Open Court on 30-10-2015.

 Sd/-                                                     Sd/-
(RAJPAL YADAV)                    (ANIL CHATURVEDI)
JUDICIAL MEMBER                ACCOUNTANT MEMBER