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2017 (2) TMI 507 - ITAT MUMBAI

2017 (2) TMI 507 - ITAT MUMBAI - TMI - Rejection 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. W .....

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ed 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 mater .....

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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 - I.T.A. No. 3151/Mum/2015 - Dated:- 8-2-2017 - Shri B.R. Baskaran (AM) and Shri Pawan Singh (JM) For The Assessee : Shri Vijay Mehta For The Department : Shri Pratap Singh ORDER Per B.R. Bas .....

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for various details from the assessee. The Assessing Officer noticed that the GP rate has come down to 6.80% during the year under consideration from 10% reported in the immediately preceding year. The Assessing Officer further noticed that the assessee has maintained quantity details for raw materials and finished goods, but did not maintain quantity details relating to inter process manufacturing. Hence, the Assessing Officer took the view that the assessee has failed to explain reasons for f .....

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ccount and also in estimating GP by taking GP rate at 9%. However, the learned CIT(A) made a lump sum addition of ₹ 1 crore on account of non-correlation of consumption of input and output material and for any leakages. For the sake of convenience, we extract below the operative portion of the order passed by Ld CIT(A):- I have carefully considered assessment order as well oral/written submissions of the Ld. AO and AOs report on Ld. AR's submission. It immensely transpires that the AO .....

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el Oil which are the major raw mater/al (about 70 to 75% for its finished products. The oil prices are very volatile and fluctuate on daily a basis. The appellant submit that, the cost of computation of raw material was 79.03% sales in A.Y 2010-11 whereas the same is 81,64% of sales during the year under consideration. The appellant submit that during the year under consideration there is a sharp increase in the oil prices of crude palm oil and crude palm karnel oil used as its raw material. In .....

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on in the business, the average rate of sale did not increase in the same proportion. The appellant therefore submit that due to increase in average rate of cost of raw material over and above the increase in average rate of sale, the net direct cost during the year under consideration has increased, which resulted in to lower gross profit percentage as compared to that of earlier year. From the comparative statement filed (refer page no. 129) it is evident that the average rate of raw material .....

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15,603.39/- per MT whereas the average rate of sale has increased only by ₹ 14,192.64/- per MT Hence, the net average cost of raw material has increased by ₹ 1,41075/- over and above the increase in average rate of sale which has resulted into increase in cost of raw material consumed and consequent reduction in percentage of gross profit (refer page no. 129). The explanation of the assessee could not be rebutted by the Assessing Officer either in assessment proceeding or remand proc .....

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ing or remand proceedings. It is undisputed that neither there is a inflated purchase or purchase price nor bogus/sham purchase. There is no instance of any bogus expenditure or inflated expenditure. Similarly, there is no instance or evidence of either suppression of any sale price or suppression of any sale. The stock register is also maintained. The excise records are also maintained. No quantitative or qualitative defect or infirmity could be detected either from excise records or regular re .....

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any estimation of profit on proceeding year's basis is justifiable. It is seen from the data provided by the Ld. A.R. that in past also, G.P. was to the extent of 4.40%, 4.8%, 5.5%, 6.86%, 6.78% etc. It is true that it was at 10.24% and 10.30% in two years. Thus, G.P is in variation and therefore, it cannot be basis for rejection of books of accounts in absence of any other vital defects like i.e. bogus/inflated purchases/expenses/suppressed sale/sale price, discrepancy in opening stock or c .....

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fficult to have any reasonable and determinable correlation of output vis a vis the input. He further admits that it is practically not feasible to tally the quantum of consumption and gross profit arising therefrom. However, such facts cannot justify huge quantum of addition made by the A.O. and rejection of books. Accordingly, rejection of books and estimation of GP @ 9% stand deleted. However a lump sum addition of ₹ 1 crore would meet the end of justice and would meet the A.O s concern .....

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ver of the assessee has increased by about 40% during the year under consideration, vis-à-vis the immediately preceding year. He submitted that the assessee has maintained proper records for the raw materials and also for finished goods. He submitted that the assessee has manufactured and sold the virgin oils and also Vanaspathi by mixing certain oils, fat etc. He submitted that the quantity details have been properly maintained for both the items. He submitted that the Tax auditor has ex .....

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herein higher wastage was shown and the same was accepted. Accordingly the Ld A.R submitted that there is no reason to suspect the books of accounts maintained by the assessee. 5. He submitted that the assessee has furnished a detailed note to the AO explaining the reasons for the fall in the G.P ratio. He submitted that the submissions made to the AO are placed at page 82-84 of the paper book. He submitted that the assessee imports crude palm oil and crude palm kernel oil from the international .....

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s to ₹ 726.82 crores during the year under consideration, the raw material consumption at higher rate was more during the year under consideration. Inviting our attention to page 86 of the paper book, the Ld A.R submitted that the assessee has furnished month wise details of raw material cost from April 2010 to March 2011 and compared the same with corresponding rates in April 2009 to March 2010. 6. The Ld A.R further submitted that the assessee has sold the Coconut oil, Corn/Maize oil and .....

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R further submitted that the assessee has maintained books of account and quantity records in the similar manner and the same was accepted by the AO in AY 2009-10 and he did not make any addition thereof. The Ld A.R further submitted that the assessee has furnished all the details before the AO as well as before the Ld CIT(A). Convinced with the details furnished by the assessee, the ld CIT(A) called for a remand report from the AO, but the AO did not make any submission except stating that thes .....

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dition to the extent of ₹ 1.00 crore and accordingly pleaded that the same should be deleted. 8. On the contrary, the Ld D.R submitted that the assessee has furnished quantity details on overall basis in the Tax audit report. He further submitted that the assessee has shown higher G.P. rate of 10% in the immediately preceding year and the reasons given by the assessee for fall in G.P rate were not convincing to the AO. Accordingly he stood by the order passed by the AO. 9. We heard the par .....

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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-à-v .....

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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 t .....

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