Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2017 (2) TMI 507

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 03/- 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 - I. .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... actual data that price of imported raw material was increased substantially and there was no corresponding increase in sale price. Relevant explanation is reproduced as under : The main reason for decline in gross profit is due to increase in cost of raw material consumed The appellant imports Crude Palm Oil and Crude Palm Karnel 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 support, the appellant filed before the A.O. a) A statement showing the variation in gross profit rates during the year under consideration as compared to earlier year. b) The appellant also filed before the A0 a few invoices for purchase of raw material which clearly shows that the rate of oil consumed has increased during the year under considerati .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... f 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 records. The A.O. himself had also fairly mentioned that stock details were furnished along with a detail write up on the impact of the input price on profitability for the year (para 2.4 of assessment order). Moreover, tally of quantitative data was submitted before the A.O. wherein total quantity consumed under different heads of raw materials and final output as a whole was furnished (para 2.7 of assessment order). In given facts and circumstances, neither books of accounts can be rejected nor 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/suppre .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... is no wastage in the finished goods. He submitted that the wastage of 0.91% shown in the raw material consumption is well comparable in the earlier years, wherein 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 markets, which constitute major raw material of the assessee. He submitted that the cost of raw material has increased during the year under consideration and the assessee could not make corresponding increase in the selling rate due to acute competition. He submitted that the raw material cost accounted for 78.03% of the sales in the immediately preceding year, whereas the same has accounted for 81.64% during the year under consideration. Since the sales has increased from ₹ 522.76 crores to ₹ 726.82 crores during the ye .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... cordingly he stood by the order passed by the AO. 9. We heard the parties and perused the record. We have noticed that the AO has rejected the books of accounts mainly for the reason that there was fall in the G.P rate. However the contentions put forth by the assessee as well as the details furnished before the tax authorities would show 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- -vis in the immediately preceding year. 10. We further notice that the assessee has given an additional Note on Gross profit before .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates