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TMI Blog2018 (10) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... r the sake of completeness, we would refer to the said submissions, which have been noted by the Commissioner of Income Tax (Appeals) in tabular form:- " S.No. Observations made by Ld. AO Our submission Remarks 1. The assessee was specifically asked to explain the reason for fall in profitability` Specific factors which caused loss of Rs. 16,41,966 during A.Y. 2007-08 against the profit of Rs. 1,34,71,291 during previous A.Y. 2006-07 The financial year 2006-07 (relevant year for the A.Y. 2007-08) was very tough year for the company. During this year the company has achieved a turnover of Rs. 53.43 crores against the turnover of Rs. 34.36 crores in the immediate preceding year 2005-06 registering a huge growth of 52% over the previous year. This phenomenal has put pressure on the margins of the company as more infrastructure, working capital & men power was required to achieve this. However the company .somehow maintained the operating margins but could not prevent losses due to the reasons/factors explained here above. A summary of the major factors which caused dentin the profitability of the company during the year is given hereunder: Therefore the surprise con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock are not correctly justified. We are relying on the following judgments with regards to consistency & continuity 1. Radha Swami Satsang Vs. CIT. Supreme Court.100 CTR 267 2. CIT Vs. ARJ Security Prints High Court 183 CTR 323 3. CIT Vs. Neo Polypack Pvt. Ltd High Court 245 ITR 492 Also we are enclosing comparative chart for the above-mentioned Assessment years showing that there is no opening stock, closing stock & WPI. Refer Annexure-1 3. Further on perusal of other income details disclosed by the assessee, it is seen that substantial amount of Rs. 1.13 crores has been shown as provisions written back as against the corresponding amount of Rs. 1.46 crores disclosed in the last year. During the course of the assessment, all the details of provision written back along with the nature of these provisions written back was filed with the Ld. AO. However it is reproduced again for your reference. The Company Ibilt has acquired an Informatic Divison (Division) of the company M/s Crompton Greaves Ltd. with the objective of consolidating similar types of business under one company effective from 1st July 2005. Sales consideration as agreed between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned the purposes for which traveling were under taken: Foreign travels were made for business purpose and all the details of foreign travel were filed with the Ld.AO along with the purpose for which it was made during the course of the assessment. The Ld AO was specifically requested vide letter dated 07.12.2009 that if anything still is required or to be explained. But the Ld AO kept mum and did not ask anything further. However it is again attached herewith you for your kind reference. Refer Annexure-3 Therefore the contention of Ld AO is justified in the eyes of the Law 5. It is further observed that the assessee has claimed provision for doubtful advances of Rs. 17,90,884/ which has not been added back to the total income of the assessee, since the same represents unascertained liability. Considering all the above facts discussed above and the circumstances of the case. I am of the view that the assessee has failed in disclosing its true and correct income in its return filed in this office. The assessee has remained silent throughout the proceedings for the reasons for a fall in its profitability as a result of which the loss return has been filed. It may further be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be rejected and assessee's total income should not assessed at 4% of the total turnover. Therefore, the contention of the Ld. AO is justified in the eyes of the Law. We are relying on the follow judgments: Sh. Pyare Lal Mittal V/s ACIT (2007) 197 Taxation 186 (Gauhati) Dhakeshwari Cotton Mills V/s. CIT 26 ITR 775 (SC) Puspanjali Dying & Printing Mills (P) Ltd. 72 TTJ 886 (AHD) Raghubar Mandal Harihar Mandal V/s State of Bihar 8 STC 770 (SC) Aluminium Industries (P) Ltd. V/s CIT GLR 216 (GAU) Calcutta Discount Pvt. Ltd.V/s 91 ITR 8 (SC) 6. Rejection of books of accounts u/s 145 (3) of the Act Therefore the contention of the Ld AO to reject the book of accounts and invoke the Sec145(3) is not justified. S.No. Observations made by Ld. AO Our submission Remarks 1. The assessee was specifically asked to explain the reason for fall in profitability Specific factors which caused loss of Rs. 16,41,966 during A.Y. 2007-08 against the profit of Rs. 1,34,71,291 during previous A.Y. 2006-07 The financial year 2006-07 (relevant year for the A.Y. 2007-08) was very tough year for the company. During this year the company has achieved a turnover of Rs. 53.43 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crease in the turnover from Rs. 34.36 crore in the last year to Rs. 53.43 crore in the current year, and the respondent-assessee had explained that to meet the commitments, they had recruited employees. The respondent-assessee had produced books of accounts including cash book and ledgers, going into nine volumes along with the vouchers. To justify and explain drop and decrease in operating profits the respondent-assessee had produced and furnished details as is apparent from the chart/table quoted above. 4. Learned counsel for the Revenue states that the respondent-assessee had not declared any opening and closing stock. He relies on the assessment order. However, the Assessing Officer did not examine and deal with the contention and plea raised by the respondent-assessee, duly taken into consideration by the Commission of Income Tax (Appeals), that supply orders were directly placed with the OEM, who had then made the supplies to the customers. Accordingly, the respondent-assessee did not keep or maintain stock-in-hand. In this manner, the respondent-assessee had cut down on their inventory costs, to ensure better profitability. 5. The Assessing Officer should have verified and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible to deduce profit and gains from the method deployed. The Assessment Order is silent and does not comment and state that the books of accounts were incomplete, incorrect or unreliable. 9. If there is fall in the gross profit ratio, reasons and grounds given by the respondent/assessee have to be examined objectively, fairly and in a non-partisan manner. Past results could be a good reason to conduct detailed verification, albeit would not be the only ground and reason to make addition by rejecting the books of accounts. Good and cogent reason why the financial results should be rejected has to be given. Books of accounts cannot be rejected as the respondent-assessee has suffered losses, where as in the immediate earlier year profit was made. Fall in gross profit ratio could be due to various reasons, and cannot be the sole and only ground to reject the book results in entirety and frame best judgment assessment [see Commissioner of Income Tax-XII v. Poonam Rani (2010) 326 ITR 223, Action Electricals v. Deputy Commissioner of Income Tax (2003) 180 CTR 62]. The reasoning given in the assessment order to compute income on hypothetical basis by applying gross profit ratio of 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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