TMI Blog2022 (9) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has not mentioned the job and scrap thereof and also the application of NP of 6% in the Pune Branch thereby making an addition - We observe the ld CIT(A) has passed a very reasoned and speaking order while deleted the addition and therefore we do not find any infirmity in the order of Ld. CIT(A) and accordingly upheld the same. Decided against revenue. - I.T.A. No. 572/Kol/2020 - - - Dated:- 30-8-2022 - Shri Rajesh Kumar , Accountant Member And Shri Sonjoy Sarma , Judicial Member For the Appellant : Shri Akshay Ringasia , CA Shri Taraknath Jaiswal , Advocate For the Respondent : Smt. Ranu Biswas , Addl. CIT DR ORDER Per Shri Rajesh Kumar , AM : This is an appeal preferred by the assessee against the order of the Commissioner of Income Tax(Appeals)-13, Kolkata [hereinafter referred to as CIT(A) ] dated 10.02.2020 for the assessment year 2011-12. 2. Though the Registry has pointed out that the appeal is time barred, however, in view of the decision of the Hon ble Supreme Court in the case of Miscellaneous Application No. 665 of 2021 in SMW(C ) No. 3 of 2020, the period of filing appeal during the COVID-19 pandemic is to be excluded for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l during the year vis- -vis preceding previous year is unreasonably high which was not explained satisfactorily in the assessment proceedings. The AO also noted that the payments were made in cash in many cases and reasons for higher quantity consumption were also not explained. The assessee filed written submissions before the AO dated 23.10.2013 submitting that increase in purchase cost of material was due to substantial increase in the cost of material. The AO was not convinced with the reply of the assessee and finally issued a show cause notice dated 26.09.2013 calling upon the assessee to show cause as to how the books of accounts should not be rejected and additions should not made by taking GP at 62.54% based on the last year GP. Finally the AO made an addition of Rs. 64,75,797/- to the income of the assessee. 6. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing as under: 5. Observations Discussion: 5.1. The appellant firm was engaged in the Trading and Supplying Iron Scrap (M.S) to Tata Motors at Jamshedpur through the Head office of the appellant at Kolkata. The appellant firm filed return of income on 30.09.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide of the appellant s balance sheet under the heading advance to supplier at Schedule D. Photocopy of the relevant schedule (which is a part and parcel of the appellants, Balance sheet). The appellant further argued that the AO alleged that payment made to Shrt Sant Prakash does not appear in the confirmation issued by Shri Prakash there was no discrepancy regarding the payment made. Shri Sant Prakash, a supplier at Durgapur who was paid a total sum of Rs. 20,81,865/- through four cheques bearing numbers 513116, 117118 119 cleared on 13.05.2010. It is also observed that the appellant vide his submission dated 20.06.2017 stated that the appellant operates its activities at Jamshedpur under two units i.e. Unit-I and Unit-II, and both the units were located inside a single shed. The appellant is carrying out job-work in Unit-I and carrying out manufacturing of M. S Ingots by using Sponge Iron and M.S scraps. The appellant has explained that in the month of May, 2010, electricity charges of Unit-II (Rs. 13,05,438/-) were claimed through mistake as electricity charges of Unit-I (Rs. 33,040/-) Similarly, in the month of October, electricity charges of Unit-II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case, the appellant is an individual whose accounts are statutorily audited and there are not adverse observations in this regard. No specific defects have been noticed by the AO. The appellant has further averred that the AO has not found or pointed out any discrepancy in the Books of accounts and not rejected the Books of accounts. The appellant has placed reliance on the judgment of Hon ble Calcutta High Court in the case of Swadeshi Commercial Co Ltd. vs. CIT (ITA No. 219 of 2001 dated 18.12.2008). The AO has produced the reply of the appellant made before him wherein the reasons for the decline have been explained. The explanation of the assessee has not been commented adversely by the AO. The primary requirement before the AO while estimating the profits is to demonstrate the unreliability of the Books and consequently the profit margin shown by the appellant. If the books of account are found to be correct and no flow has been detected, it would be incorrect on the part of the AO to reject the GP computed on the basis of such accounts. The Hon ble Chandigarh Bench has held in Universal Woolen Mills vs. CIT Ludhiana (ITA No. 616/Chd./ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relying various cases laws as discussed hereinabove, the addition of Rs. 64,75,197/- was deleted by holding that AO was not justified in rejecting the books of account without pointing out any reasons and defects herein. We have carefully perused the reasoning given by the ld CIT(A) s and find that Ld. CIT(A) has taken a correct view while deleting the addition as the AO has just taken the GP of receding previous year despite the assessee explaining the fall in GP. Besides we note that the Ld. CIT(A) has passed a reasoned order explaining as to how the order of AO cannot be sustained discussing various reasons such as increase in cost of raw material / purchase of raw material from the traders in the market which in the previous year was being done from the mines directly and similarly recorded finding various overheads expenses and job work income. In view of this fact, we are inclined to uphold the order of Ld. CIT(A) by dismissing ground no. 1 of the revenue. 8. Issue raised in ground nos. 2 and 3 are against the deletion of addition of Rs. 1,37,03,218/- as made by the AO on account of lower net profit rate shown by the assessee by taking inaccurate stocks in respect of Kolk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid the appellant through three cheques. The AO has not found any discrepancy in the sale except for the observation that sale proceeds were collected in cash. Therefore, there is no defect in the accounts as there were no unaccounted sales. The case of the AO is that the NP declared by the appellant is less and in the absence of qualitative records, and the instances of sales made in cash warranted the rejection of books of accounts and application of NP rate of 5.8%. In the Pune Branch, the business of the appellant is trading in Iron and steel scraps with the local companies/entities and while in the Head office, the appellant is engaged in Trading Iron Scrap purchased from third parties by weight including purchase from outside parties and sale of the same to Tata Motors, Jamshedpur. In respect of ground of Appeal No. 08, during the course of Assessment Proceedings, the AO has observed that single item of inventory has been mentioned as M/s Scrap ad quality wise details of goods traded has not been given. Accordingly, the AO is satisfied that the accounts and stock are found to be not proper and correct profit and correct value of stock is not determina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue on account of marginal decline in the GP rate. The AO has produced the reply of the appellant made before him wherein the reasons for the decline have been explained. The explanation of the assessee has not been commented adversely by the AO. The primary requirement before the AO while estimating the profits is to demonstrate the unreliability of the Books and consequently the profit margin shown by the appellant. If the books of account are found to be correct and no flow has been detected, it would be incorrect on the part of the AO to reject the GP computed on the basis of such accounts. The Hon ble ITAT Chandigarh Bench has held in Universal Woolen Mills vs. CIT Ludhiana (ITA No. 616/Chd./2013) that mere fact that the profits were low as compared to the earlier years, by itself is no ground to make addition against the appellant. The Judgments of M/s Swadeshi Commerical Co. Ltd. vs. CIT (ITA No. 219 of 2001) and CIT vs. Poonam Rani (2010) 326 ITR 223 (Delhi-High Court) have held that mere fail in the GP ratio, in the absence of any cogent reasons could not be a ground to hold that the proper income could not be deducted from the Audited Accounts. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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