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2017 (2) TMI 507 - AT - Income TaxRejection of books of account - fall in the G.P rate - Held 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 that 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-ŕ-vis in the immediately preceding year. The assessee has given an additional “Note on Gross profit” before the AO which show that the average cost of raw material has increased from ₹ 40,932/- per MT to ₹ 56,535/- per MT resulting in an average net increase of ₹ 15,603/- per MT. However, the average selling price has increased from ₹ 52,960/- per MT to ₹ 67,153/- per MT resulting in a net increase of ₹ 14,192/- per MT. Thus there is mismatch of ₹ 1,411/- (Rs.15603/- less ₹ 14,192/-) between the net increase in purchase rate and selling rate. This difference of ₹ 1,411/- on the purchase of 1,04,952 MT of raw material has dented the Gross profit by ₹ 14.80 crores. The assessee has further submitted that other direct costs and depreciation have also increased during the year to the tune of ₹ 1.96 crores. Thus, we notice that the assessee has reconciled the fall in gross profit rate with facts and figures. However, we notice that the AO has simply rejected the same without finding fault with the explanations so given by the assessee. Thus CIT(A) was justified in holding that the AO has not made out a proper case for rejecting the books of accounts. On the contrary, we notice that the assessee has convincingly explained the reasons for the fall in G.P rate. Accordingly we uphold the order of Ld CIT(A) in setting aside the order of rejection of books of account. - Decided in favour of assessee
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