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2015 (6) TMI 644 - ITAT DELHI

2015 (6) TMI 644 - ITAT DELHI - TMI - Addition on fall in G.P. rate - CIT(A) deleetd the addition - Held that:- Working of gross profit must necessarily take into account the opening and closing stock, and direct expenses, and not only be based on comparison of purchase prices of raw material and sale prices of finished products. That the Assessing Officer has based the addition of ₹ 4,31.41,035/- entirely on the fall in gross profit rate, without bringing any other material on record, and .....

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s not justified. We find considerable cogency in the finding of the Ld. CIT(A) in the impugned order that the mere fact that there was a less rate of gross profit declared by an assessee as compared to the previous year would not by itself be sufficient to justify the addition. See Aluminium Industries (P) Ltd. Vs. CIT (1995 (2) TMI 437 - GAUHATI HIGH COURT). - Decided against revenue. - I.T.A. No. 2792/DEL/2013 - Dated:- 11-6-2015 - Shri H.S. Sidhu and Shri J.S. Reddy, JJ. For the Petitioner : .....

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unds of appeal before or during the course of the hearing of the appeal. 2. The brief facts of the case are that the assessee firm filed its return of Income for the Assessment Year 2009-10 on 23.09.2009 disclosing loss of ₹ 3,63,85,885/-. The assessee is engaged in the business of manufacturing of enamelled wire, submersible wire, bare copper wire, etc. During scrutiny assessment proceedings, the Assessing Officer examined the claim of gross loss of (-) 3.65% against the total turnover of .....

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of order whereas the prices had fallen substantially by the time delivery was taken. The assessee also incurred heavy losses where forward contracts had been booked at higher prices than those prevailing on the date of delivery. The assessee also stated that direct expenses had increased, and higher depreciation had been debited on account of investments in new plant. The Assessing Officer held that the fall in the rate of copper was not an acceptable reason for incurring loss as monthwise detai .....

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te concern, and at ₹ 160 to 200 per kg. to M/s KG Metal and Alloys, another sister concern. The Assessing Officer disallowed the claim of gross loss of ₹ 2,15,80,361/-, and estimated the gross profit at 3.65% for the year under consideration, at ₹ 2,15,60,678/- and completed the assessment u/s. 143(3) vide order dated 19.12.2011 wherein he computed the gross profit @ 3.65% (2/3rd of last year gross profit rate of 5.48%) of the immediately preceding previous year and after disal .....

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on of Rs. ₹ 4,31,41,039/-. 4. Aggrieved by the aforesaid order dated 27.2.2013, Revenue is in appeal before the Tribunal. 5. At the time of hearing Ld. Departmental Representative has relied upon the order of the Assessing Officer and reiterated on the contentions raised in the grounds of appeal filed by the Revenue. 6. On the other hand, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A) and submitted that the order of the Ld. CIT(A) may be upheld. In support of his conte .....

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ance made by the A.O. The assessee is maintaining proper books of accounts. The books of accounts of the assessee are based on actual state of affairs and not based on any adhoc G.P.rate basis. The accounts of the assessee are duly audited u/s 44AB of Income Tax Act. The assessee is maintaining proper records (both, quantity wise and amount wise) of opening stock, purchase, sales and closing stock. All the details in relation thereto had been furnished before the A.O. The books of accounts were .....

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screpancy in any of the expenses claimed by the assessee has been pointed by A.O. Under the circumstances, there was no rationale for the A.O. to make the addition. The A.O. has made the addition in an arbitrary manner without appreciating the facts of the case. It is a settled law that A.O. cannot make any addition based on estimated G.P. if the books of accounts have not been rejected by him. In fact, the various courts have held that merely fall in G.P. rate cannot be a ground for rejection o .....

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High Court) CIT v UP State Food & Essential Commodities (2013) 39 Taxmann.com 106 (Allahabad) ACIT v Hitech Grain processing Pvt. Ltd. (ITAT, Delhi) ITA No. 2885/De1l2011 ACIT v Ercon Composites (2014) ITAT Jodhpur 49 taxmann.com 489 Century Tiles Ltd v JCIT (2014) 51 taxman.com 515 (Ahd. ITAT) ITO v Sani Trade Agency (Ahd. ITAT) ITA No. 3524/Ahd/2007 ACIT v. Rushabh Vatika (Rajkot Bench) ITA No. 51 (RJK) 0[2013] The CIT(A) in para 4 to para 4.4 (page No. 15 to Page No. 18 of her order) afte .....

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and tax audit report for the year during the course of assessment proceedings along with other details called for from time to time. The assessee is a partnership firm engaged in the manufacture of enamelled and submersible wire, bare copper wire, etc. During the course of assessment proceeding the AO had raised query as to the gross loss on operations amounting to ₹ 21580361/- calculated to be 3.65% of the turnover of ₹ 590703526/- as compared to a gross profit of 5.48% and 5.47% de .....

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the AO on the issue nor was any show cause given to the assessee that the arguments advanced by it explaining the loss incurred was not acceptable to the AO thereafter. The AO then framed the assessment order under section 143(3) of the Act on 19.12.2011 wherein he computed the gross profit @ 3.65% (2/3rd of last year gross profit rate of 5.48%) of the immediately preceding previous year and after disallowing gross loss declared of ₹ 2,15,80,361/- by the assessee and making his own calcula .....

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unt the value of opening and closing stock as also of direct expenses. The assessee has shown that merely comparing the difference of sales and cost of sales and inventories would show a nominal profit of ₹ 82,04,274/-, but after including the manufacturing expenses, the assessee incurred a gross loss of ₹ 2,15,80,361/-, which is evidenced by the audited accounts. The assessee has also pointed to the fact that in the immediately succeeding year, the Assessment Year 2010-11, with the .....

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3749.75. The assessee has pointed out that, as compared to the earlier year, its sales increased in quantity from 15,27,065/- kgs to 16,40,902 kgs but in value fell from ₹ 64,44,74,892/- to ₹ 59,07,03,526/- due to fall in prices. 7.2 We note that the CIT(A) observed that the assessee's contention regarding loss incurred on account of forward contracts entered into for purchase of copper has also been verified with reference to the booking orders placed and the corresponding purch .....

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he suppliers M/s Sterlite Industries and M/s Hindalco have been filed by the assessee. The excess price paid on account of forward contracts alone works out to ₹ 2,45,85,874/-. The assessee has also furnished evidence of cancellation of a forward contract for purchase of 25 MT of copper which was cancelled without delivery resulting in a loss of ₹ 38,70,047/-. 7.3 The observation of the Assessing Officer that profit may have been diverted to sister concerns is also found to be unsubs .....

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rties, and the Assessing Officer has not shown that the sale price of copper scrap prevailing at the time was lower than the rate charged from the sister concerns. 7.4 The counsel for the assessee has submitted that the gross loss is also on account of the opening stock of 88,692 kgs. of copper valued at ₹ 445 per kg. The purchase quantity of 1552.210 MT is less than the sale quantity of 1640.90 MT which could only have come out of the opening stock. Hence the finding of the Assessing Offi .....

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