DCIT, Patan Circle, Patan V. Shri Gauravkumar Jayantilal Patel , Mehsana

ITA 1133/AHD/2018

AI Insights

The case involves an appeal by the Revenue against the decision of the CIT(A) which had deleted an addition made by the AO on account of low gross profit reported by the assessee, Shri Gauravkumar Jayantilal Patel, for the assessment year 2013-14. The AO had initially made the addition based on discrepancies in the gross profit figures reported in two annexures of the tax audit report, attributing the differences to the classification of expenses as direct and indirect. The CIT(A) found that the AO had not considered the business circumstances of the assessee, who is engaged in exporting cotton garments, where profit margins can vary significantly from year to year. The Tribunal upheld the CIT(A)'s decision, noting the lack of specific defects in the books and the adhoc nature of the addition made by the AO.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133533 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-06-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 03-05-2018
• Other Referred Cases: CIT vs Symphon Comfort Systems Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Tax effect; Tax effect; Set aside

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘B’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SMT. MADHUMITA ROY, JUDICIAL MEMBER, JUDICIAL MEMBER ITA No.1133/AHD/2018 Assessment Year :2013-14 DCIT, Patan Circle Patan. Vs. Shri Gauravkumar Jayantilal Patel Sonipur, 180, Patel Vas Sangpura Vijapur, Dist. Mehsana 382870 PAN : AKDPA 0128 N 0 अपीलाथ / (Appellant) यथ /(Respondent) Assesseeby : None Revenue by : Shri Atul Pandey, Sr.DR स ु नवाई क तार ख/Date of Hearing : 05/06/2023 घोषणा क तार ख /Date of Pronouncement: 09/06/2023 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the Revenue against order of the ld.Commissioner of Income-Tax (Appeals), Gandhinagar, Ahmedabad [hereinafter referred to as “the ld.CIT(A)”] dated 15.02.2018 passed under section 250(6) of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] pertaining to Asst.Year 2013-14. 2. This is a recalled matter. Earlier the appeal of the Revenue was dismissed on account of low tax effect. Subsequently, on Misc. Application No.47/Ahd/2020, appeal of the Revenue was recalled, when it was pointed out that the department’s appeal fell in the ExceptionNo.10(f) clause in the CBDT circular 3/2018 dated 11.7.2018 and 2.8.2018 and also circular No.19/2019 dated ITA No.1133/AHD/2018 2 8.8.2019 which dealt with the withdrawal of appeal on account of low tax effect, due to prosecution under section 276C of the Act being launched against the assessee in the present case. Order in the MA of recalling the appeal for hearing is dated 12.10.2022. Thereafter, the appeal of the Revenue was fixed for hearing from time to time i.e. on 10.1.2023, 11.1.2023, 15.2.2023, 27.2.203, 6.3.2023, 5.4.2023, 15.5.2023 and lastly on 5.6.2023. However, in none of the occasions, the assessee or his authorized representative appeared in the matter. On 15.5.2023, the Bench passed the following order giving last opportunity to the assessee to appear in defense in the Revenues appeal on 5.6.2023. “Matter was recalled for hearing vide order in MA No.47/Ahd/2020 dated 12.10.2022 being earlier dismissed on account of Low Tax Effect involved. It was pointed out that the Department's appeal fell in the exception clause to the CBDT Circular in dealing with withdrawal of appeals on account of low tax effect, on account of prosecution u/s 276C being launched in the present case. Since then the assessee's Counsel has been seeking adjournment on one pretext or other on all occasion, 7 in all, when the matter came up for hearing after recall. Even today, adjournment has been sought on a cryptic application seeking adjournment due to social reason. It appears that the Id. Counsel is adopting tactics to avoid arguing the matter. The appeal is therefore adjourned one last time for 05.06.2023. Last opportunity being given to the assessee. No further adjournment will be given. Today also nonecame present on behalf of the assessee. Therefore, we are constrained to adjudicate the appeal of the Revenue ex parte qua the assessee-respondents. 3. The grounds raised by the Revenue are as under: “i) The ld.CIT(A) has erred in law & on facts in deleting the addition made by the AO on account of low GP of Rs.98,66,323/- ii) It is, therefore prayed that the order of the ld.CIT(A) may be set aside and that of the AO be restored.” 4. Sole grievance of the Revenue, as transpires from the grounds raised before us as above, is against the deletion of addition made on account of low gross profit amounting to Rs.98,66,323/-. The ITA No.1133/AHD/2018 3 contention of the ld.DR before us was to the effect that the assessee had not furnished any specific explanation for fall in GP and the ld.CIT(A) despite the said fact had deleted the addition made. 5. We have gone through the orders of the authoritiesbelow. A perusal of the order of the AO at para-2.4 reveals that during the course of assessment proceedings, the AO had noted that two Annexure-I were attached to tax audit report revealing different figures of gross GP earned by the assessee during the year, and both were signed by the tax auditors; that while one annexure revealed GP of Rs.2.65 crores against turnover of Rs.49.33 crores, the other annexures revealed GP of Rs.1.42 crores against the same turnover i.e. Rs.49.33 crores. When the assessee was confronted with the same, the assessee submitted that the difference in GP was on accountof the difference in treatment of expenses as direct and indirect in both annexures for calculating GP, while NP remained the same. Thatthis difference in presentation of GP was only account of different classification of expenses as being direct and indirect. The relevant portion of the order of the AO bringing out this fact is as under: ITA No.1133/AHD/2018 4 m 6. Considering the reply of the assessee as above, we have noted, the AO thereafter took note of the GP returned by the assessee in the preceding year and found it to be 11.14% of the turnover. He compared the previous year’s GP with percentage GP of the impugned year, and took the higher figure of GP of 2.65 crores from two different annexures i.e.Rs.2.65 crores arriving at GP of 5.37%. He thereafter took note of the assessee’s explanation of difference of opinion in direct and indirect expenses, and concluded that the assessee had prepared two annexures to inflate GP ratio. The AO thereafter rejected the books of the assessee under section145(3) of ITA No.1133/AHD/2018 5 the Act and made addition of 2% of turnover of Rs.49,33,16,158/-, amounting to Rs.98,66323/-. The relevant portion of the assessment order holding so has been reproduced above. 7. Aggrieved by the same the assessee carried the matter in appeal before the Ld.CIT(A) where he reiterated his contentions made before the AO and further stated that in the absence of any specific adverse finding there was no reason to reject the books of the assessee and make addition on account of GP. The ld.CIT(A)found merit in the contention of the ld.counsel for the assessee, and accordingly deleted the addition made holding at para- 8.2 of his as under: “8.2 I have carefully considered the facts of the case, assessment order and submission made by the appellant. The AO made the impugned disallowance by holding that there was a difference of Rs.1,22,09835/- in the figures of gross profit as pr Annex.1, Part-B filed by the appellant in the audit report. It was also held by the AO that there was a fall in GP of 5.77% during the year under consideration and that 2 annexures had been prepared by the appellant to inflate the gross profit. The AO therefore, disallowed 2% of the turnover i.e. Rs.98,66,323/- and added it to the total income of the appellant. The appellant on the other hand has contended that there was no difference or discrepancy in the accounts submitted by the him and that there was difference only in categorizing Direct and Indirect Expenses. I find from a perusal of the assessment order and the submissions of the appellant that the AO has nowhere considered the circumstances which have led to fall in GP ratio during the year under consideration. The appellant is in the business of exporting of cotton hand manufacturing of garments and it is a fact that the export market varies from year to year and there cannot be a consistency in profit margins. Moreover, it is not explained why the AO has made the addition of 2% of the total turnover and what is the basis of taking this figure for the said addition. The appellant's case is also squarely covered by the decision of Hon'ble Gujarat High Court in the case of CIT vs Symphon Comfort Systems Ltd 216 Taxman 225 (Guj). Considering the discussion above, addition of Rs.98,66,323/- is deleted. Ground of appeal no.7.” 8. Having gone through orders of the authorities below, we find that there is no coherence in the order of the AO. The defect found by the AO and the addition made by him, we find has no connection at all. As noted above, the AO had found that there were two ITA No.1133/AHD/2018 6 annexures attached to the tax audit report reflecting two figures of GP for the year. However, he went to reject the books of the assessee and made GP addition on account of absence of any justification given by the assessee for fall in GP ratio in the impugnedyear, which was 5.7% as opposed to the GP shown by the assessee in the preceding year i.e. 11.14%. Therefore, there is no cause and effect relationship between the defect found by the AO and the additionmade by him. Even if considering that taking note of the two figures of GP and the fall in GP as compared to preceding year, the AO rejected the book results as unreliable, but as rightly pointed out by the Ld.CIT(A) no specific defect has been pointed out by the AO in the books of the assessee. Also as rightly pointed out by the Ld.CIT(A) the AO has failed to take note of the business circumstances in which the assessee operates, being an exporter of cotton garments wherein he has noted there is wide variation in margins. We therefore agree with the Ld.CIT(A) that the book results of the assessee could not have been treated as incorrect merely on account of fall in GP . Even otherwise the Ld.CIT(A) has rightly found no basis with the AO for making GP addition @ 2%, which is purely adhoc. In view of the same we see no reason to interfere in the order of the ld.CIT(A) deleting the GP addition of Rs.98,66,323/- .Grounds of appeal of the Revenue aredismissed. 9. In the result, appeal of the Revenue is dismissed. Order pronounced in the Court on 09 th June, 2023 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad,dated 09/06/2023 vk*