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2016 (7) TMI 444 - ITAT MUMBAI

2016 (7) TMI 444 - ITAT MUMBAI - TMI - G.P. addition - addition on fall in the gross profit ratio - Held that:- The assessee is maintaining books of accounts which are audited. The assessee has duly met all the adverse reservations of the AO in remand report/appellate proceedings before learned CIT(A) as set out above. No cogent material has been brought on record to prove that the assessee has manipulated its accounts to suppress profits. Therefore, there are no reasons or justification in law .....

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iberate attempt to inflate cost of material or other expenses on the part of the assessee or to suppress sale price of products sold by the assessee. The allegations of the AO were duly met by the assessee in remand report/appellate proceedings as set out above. The Revenue is not in appeal before the Tribunal with respect to the relief’s granted by the learned CIT(A). Our view is consistent with the decision of Hon’ble Delhi High Court in the case of CIT v. Smt Poonam Rani (2010 (5) TMI 57 - DE .....

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countant Member This appeal, filed by the assessee company, being ITA No. 999/Mum/2014, is directed against the appellate orders dated 23-12-2013 passed by the learned Commissioner of Income Tax (Appeals)-21, Mumbai (Hereinafter called the CIT(A) ), for the assessment year 2008-09, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 10-12-2010 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3)(ii) of the Income Tax Act,1961 (He .....

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y is engaged in the business of manufacturing of equipments/machineries which are used by Pharmaceuticals and allied industries. 4. The A.O. observed from the Profit and Loss Account for the previous year relevant to the assessment year 2007-08 that the assessee company has sales of ₹ 20.58 crores and gross profit of ₹ 6.55 crores , whereas for the previous year relevant to the assessment year 2008-09, the assessee has sales of ₹ 19.01 crores and gross profit of ₹ 2.6 cro .....

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crores, the sales to the tune of ₹ 9.67 crores were made to the sister concern M/s Pharmalab India Private Ltd.. The assessee was called upon to submit complete details of transactions with sister concern for the entire year to verify that the same were made at arms length price. The assessee submitted details on which the AO observed from purchase and sale register that the assessee has shown sale price inclusive of excise duty, freight and transport charges with respect to the sales mad .....

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by the AO that the assessee has manipulated the sales prices in the last quarter of the previous years to nullify the profits made in first three quarters. The assessee has made sales of ₹ 7.22 crores in the last quarter to its sister concern to make the stock NIL while purchases are ₹ 72.02 lacs during the last quarter of the previous year. The assessee has booked sales of ₹ 7.22 crores to sister concern excluding ₹ 13 lacs as sale of spares without giving description a .....

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e also contended that in respect of some items, the sale price to outside parties is inclusive of installation and commissioning whereas in the case of sister concern, the installation and commissioning was carried on by the sister concern itself. The AO rejected the contentions as the same were not based upon documentary evidences. It was also held by the AO that with respect of sales of spare parts at the fag-end of the previous year to its sister concern , thereby reducing the stock to Nil, t .....

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n the impugned assessment year under appeal, the sales to sister concern was ₹ 9.67 crores on which no sales commission would be payable. It was observed by the AO that the assessee has claimed commission of ₹ 99 lacs on sales of ₹ 9.34 crores to outside parties . No details of sales commission were submitted by the assessee including the names and address of the parties to whom sales commission is payable, nor the assessee paid sales commission during the previous year and the .....

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ss profit rate of 31.82% on a total sales of ₹ 19.01 crores i.e. the same gross profit rate shown by the assessee in the immediately preceding assessment year 2007-08. Thus, addition of ₹ 3,45,63,127/- was made by the AO on sales of ₹ 19,01,35,203/- after giving credit of Gross Profit of 13.67% declared by the assessee in the Profit and Loss Account, vide assessment orders dated 10.12.2010 passed by the AO u/s 143(3)(ii) of the Act. It is pertinent to mention here that the AO m .....

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lief granted by the learned CIT(A) in first appeal filed by the asessee. 5. Aggrieved by the assessment order dated 10.12.2010 passed by the AO u/s 143(3)(ii) of the Act, the assessee filed first appeal before the learned CIT(A). 6. The learned CIT(A) called for remand report from the AO. The AO submitted remand report and accepted that the invoices raised to the sister concerns does not included excise duty and sales tax(for exports), whereas the invoice to outsiders included excise duty and sa .....

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roceedings. It was also verified by the AO in remand report proceedings and found to be correct by the AO , whereby it was observed by the AO in remand report proceedings that the AO has taken only material cost in his computation of gross profit margin in the assessment proceedings and hence gross profit margin is higher. The AO in remand report proceedings submitted that with respect to issue regarding the inclusion of other cost as described above for arriving at the gross profit, the same ma .....

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ufacturing unit, managed and run by professionals. The Revenue has not made any such additions in the assessment orders for preceding years . The accounts of the assessee are audited and its manufacturing process was subject to supervision and checking by Central Excise department and there is no justification for rejecting book results. The books of accounts are complete, properly maintained and correct and there is no justification in rejecting the audited book results without investigations a .....

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n cost basis, hence , the gross profit margin of the impugned assessment year is lower. The details were called by the learned CIT(A) from the assessee for the financial year 2006-07 and 2007-08 to include the transfer of components which are sold at cost price only and only to include manufacture item as to show the gross profit which is reproduced below:- F.Y.2006-07 To Opening 1.80 By Sales 20.58 To Purchase & Direct expenses 15.53 By Closing Stock 3.30 To Gross Profit 6.55 23.88 23.88 Gr .....

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of financial year 2007-08 after excluding transfer of components and spares to Pharmalab India Private Limited at cost of ₹ 6.49 crores , the sales from manufacturing products comes to ₹ 12.52 crores. The learned CIT(A) observed that there is a huge difference between the gross profit margin of the two years whereby gross profit margin in financial year 2006-07 was 31.82%, while for financial year 2007-08 it was 20.67% and there is a huge difference between these two on similar busi .....

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ate orders dated 23.12.2013 passed by the learned CIT(A) , the assessee filed second appeal with the Tribunal. 8. The learned counsel for the assessee reiterated the submissions as made before the authorities below. It was submitted that the learned CIT(A) has made additions of ₹ 1,38,47,120/- to the income of the assessee by making addition of gross profit margin of 11.06% on sales of manufactured products made to outsider whereby gross profit margin of the impugned assessment year was ca .....

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g gross profit margin of 31.82% on total sales of the instant assessment year under appeal based on the gross profit margin of 31.82% of preceding assessment year. The learned counsel drew our attention to the orders of the authorities below. It was submitted that the learned CIT(A) called the remand report from AO which is placed at paper book filed with the Tribunal at page 44-46. It was submitted that while computing gross profit margin, the AO erred in not included manufacturing costs like l .....

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r. It was submitted that in remand report proceedings, the AO accepted this contention of the assessee. He drew our attentions to the invoices placed in paper book at page 13-17. It was accepted by the AO in remand report that there is no discrepancies and while computing gross profit margin the AO has not included other manufacturing costs such as labour, carriage inwards, power and fuel. It was submitted that no discrepancy has been noted in the audited books of accounts. The learned counsel r .....

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ve observed that the assessee is a company engaged in the business of manufacturing of equipments/machineries which are used by Pharmaceuticals and allied industries. The AO has made additions on the grounds that the gross profit margin earned during the year being lower than the gross profit margin of immediately preceding year and the additions were made to the income of the assessee by applying the gross profit margin of 31.82% to the sales of the previous year relevant to the assessment year .....

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not based upon documentary evidences , while the assessee had duly submitted all the details before the authorities below. No particular defect was pointed out by the AO in the remand report proceedings with respect to this contention of the assessee. The submissions made before the AO with this regards are placed in paper book page 18-22. It was also explained by the assessee that the sale price to the sister concern was lower because excise duty and sales tax(against H form) was not included i .....

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e AO in arriving at gross profit margin while framing assessment u/s 143(3) of the Act. With respect to the sale of spares components to sister concern of ₹ 6.49 crores at cost owing to assessee merger , the same were accepted of being sold at cost by learned CIT(A) and consequent relief was given by learned CIT(A) in the first appellate proceedings vide orders dated 23.12.2013 and the Revenue is not in appeal before the Tribunal against the said relief granted by the learned CIT(A) . It w .....

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the said addition after calling remand report from the AO whereby the AO accepted that the commissions expenses were duly verified. It is not brought on record by the Revenue that the second appeal has been filed with the Tribunal by the Revenue challenging the relief granted by the learned CIT(A) in his appellate orders. In our considered view, merely because gross profit margin is lower in the instant assessment year under appeal vis-à-vis preceding assessment year cannot be a ground o .....

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