9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 781 - AT - Income TaxAddition made on account of gross profit - AO passed assessment order exparte u/s.144 in absence of any plausible reason for low G.P -CIT(A) deleted addition - HELD THAT - On perusal of financial statements we find that the revenue from operations consists of sale of products amounting INR. 157.35 Lakhs and sale of services amounting to INR. 610.22 Lakhs. Whereas for the immediately preceding AY 2013-2014 the revenue from sale of products stood at INR. 157.35 Lakhs and the revenues from sale of services stood at INR. 460.53 Lakhs. The aforesaid supports the contention advanced by the Assessee before the CIT(A) that for the relevant previous year there was change in the line of business the sale of products fell and service income increased. Therefore the gross profit of the earlier year was non-comparable with the gross profit of the relevant previous year. There is nothing on record to controvert aforesaid findings returned by the CIT(A). Therefore we declined to interfere with the order passed by the CIT(A) deleting the addition on account of gross profits. Addition u/s 68 - share premium was received by the Assessee from its holding Company which is tax resident of Japan - HELD THAT - AO did not find any infirmity in the above documents furnished by the Assessee during the remand proceedings. As admitted position that share premium was received by the Assessee from its 99.99% holding company which is not resident in India. The inward remittance was made after making proper disclosure with the RBI. Thus the nature and source of the transaction stands explained. Assessee had discharged the onus cast upon the Assessee in terms of Section 68 - CIT(A) has after considering the above documents was satisfied that addition u/s 68 could not be made in the hand of the Assessee. Therefore CIT(A) deleted the addition made by the AO u/s 68. No infirmity in the approach adopted by the CIT(A). Revenue appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in the appeal preferred by the Revenue against the order of the National Faceless Appeal Centre (CIT(A)) under Section 250 of the Income Tax Act, 1961, for the Assessment Year 2014-2015, are as follows: (a) Whether the CIT(A) was justified in deleting the addition made on account of gross profit, particularly when the Assessing Officer (AO) passed the assessment order ex-parte under Section 144 of the Act, without any plausible reason for the low gross profit declared by the Assessee. (b) Whether the CIT(A) was justified in deleting the addition made on account of unexplained credits under the head securities premium amounting to Rs. 56,09,248/- under Section 68 of the Act. (c) Whether the CIT(A) was justified in admitting additional evidence produced by the Assessee during the appellate proceedings without giving opportunity to the Revenue, allegedly in violation of Rule 46A of the Income Tax Rules, 1962. 2. ISSUE-WISE DETAILED ANALYSIS Issue (c): Admission of Additional Evidence in Violation of Rule 46A of the IT Rules Relevant Legal Framework and Precedents: Rule 46A of the Income Tax Rules, 1962, governs the procedure for admission of additional evidence during appellate proceedings. It requires that when additional evidence is sought to be admitted, the opposing party must be given an opportunity to comment or object. Court's Interpretation and Reasoning: The Tribunal noted that the Assessee furnished additional evidence during the appellate proceedings, which was not available during the assessment stage due to unavoidable circumstances. The Assessee explained in a letter dated 31/08/2017 that medical issues faced by the auditors between August 2016 and January 2017 caused communication gaps, preventing timely submission of evidence. The CIT(A) admitted the additional evidence after calling for a remand report from the AO, who opposed the admission. However, the Tribunal found that the CIT(A) complied with Rule 46A by allowing the AO to submit the remand report and considering it before passing the appellate order. Key Evidence and Findings: The letter explaining the delay and the remand report submitted by the AO were crucial. The AO acknowledged receipt of additional documents during remand but opposed their admission on procedural grounds. Application of Law to Facts: The Tribunal held that the Assessee was prevented by reasonable cause from filing evidence during assessment proceedings. The CIT(A)'s approach in admitting the evidence and giving the AO an opportunity through the remand report was consistent with the procedural safeguards under Rule 46A. Treatment of Competing Arguments: The Revenue's contention that admission violated Rule 46A was rejected due to the procedural compliance and reasonable cause demonstrated by the Assessee. Conclusion: Ground No. 3 raised by the Revenue was dismissed as the CIT(A) did not violate Rule 46A in admitting additional evidence. Issue (a): Deletion of Addition on Account of Gross Profit Relevant Legal Framework and Precedents: The AO made an addition under Section 143(3) read with Section 144 by estimating profits based on the average gross profit rates of two preceding years (25.73%) as the Assessee declared a lower gross profit (11%) without plausible explanation. The legal principle is that the AO can estimate income if the declared income is not believable or is not supported by evidence. Court's Interpretation and Reasoning: The CIT(A) rejected the AO's method of estimating gross profit by averaging prior years' rates, holding that such comparison was not feasible due to a change in the Assessee's business composition. The Assessee demonstrated that during the relevant year, sales of services increased substantially while sales of products decreased, altering the gross profit margin. The Tribunal examined the audited financial statements showing revenue from sale of products and services for the relevant and preceding years, confirming the Assessee's explanation. Key Evidence and Findings: The Assessee's letter dated 09/02/2018 explained the change in business mix and the resulting variation in gross profit margins. Audited financial statements corroborated this explanation, showing increased service revenue and decreased product sales. Application of Law to Facts: The Tribunal found the AO's approach of applying an average gross profit rate from prior years to be incorrect due to non-comparability. The CIT(A) rightly accepted the gross profit as declared by the Assessee supported by audited accounts. Treatment of Competing Arguments: The Revenue's argument that the AO was justified in estimating profits ex-parte was rejected because the Assessee had provided a reasonable explanation and supporting evidence for the lower gross profit. Conclusion: The addition of Rs. 2,03,15,923/- made by the AO on account of gross profit was rightly deleted by the CIT(A). Ground No. 1 was dismissed. Issue (b): Deletion of Addition on Account of Unexplained Share Premium under Section 68 Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. When a share premium is received, the Assessee must explain the nature and source of such credits. The Revenue can make additions if the source is not satisfactorily explained. Court's Interpretation and Reasoning: The CIT(A) found that the share premium amounting to Rs. 56,09,248/- was received from the Assessee's holding company, a Japanese resident entity holding 99.9% shares. The transaction was supported by compliance with Reserve Bank of India (RBI) regulations, including approval and filing of Foreign Currency-Gross Provisional Return (FCGPR). The valuation of shares was based on the Discounted Cash Flow (DCF) method, a recognized valuation technique. The AO did not dispute the valuation or genuineness of the transaction in the remand report but made the addition solely because the documents were not furnished during assessment proceedings. Key Evidence and Findings: The Assessee furnished various documents during appellate proceedings, including:
Application of Law to Facts: The Tribunal held that the Assessee discharged the onus under Section 68 by satisfactorily explaining the identity, creditworthiness, and genuineness of the share premium transaction. The CIT(A) correctly deleted the addition as the source was fully explained and supported by documentation. Treatment of Competing Arguments: The Revenue's contention that the addition was justified due to non-furnishing of documents during assessment was rejected since the documents were produced during appellate proceedings and the AO did not dispute their authenticity or adequacy. Conclusion: The addition of Rs. 56,09,248/- under Section 68 was rightly deleted by the CIT(A). Ground No. 2 was dismissed. 3. SIGNIFICANT HOLDINGS The Tribunal upheld the CIT(A)'s order in all respects, dismissing the Revenue's appeal. The significant legal principles and determinations include: On admission of additional evidence: "The Assessee was prevented by reasonable cause from filing evidence during the assessment proceedings... the CIT(A) has also complied with the provisions contained in Rule 46A of the IT Rules by calling for a remand report from the Assessing Officer." On estimation of gross profit: "Estimating the gross profit based on previous years' ratios is not feasible to arrive at the correct income... the gross profit should be taken as declared by the appellant and has been brought out in its audited accounts." On unexplained share premium under Section 68: "The identity of the remitter is disclosed, its creditworthiness and therefore the genuineness of the transaction cannot be doubted... the share premium was received by the Assessee from its holding company which holds 99.9% of the shares... the addition under Section 68 could not be made." Accordingly, the Tribunal concluded that the additions made by the AO on account of gross profit and unexplained share premium were not sustainable and the CIT(A)'s order deleting these additions was affirmed. The procedural compliance in admitting additional evidence was also upheld.
|
