Altret Biotech Ltd., Surat V. Assistant Commissioner of Income Tax, Circle1(1)(1), Surat

ITA 514/SRT/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 7906 (ITAT-SURAT)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-03-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 25-07-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Rejection of books of accounts; Capital asset converted into stock in trade; Condonation of delay
• Section: 144; 143(3); 250; 143(2); 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.514/SRT/2023 Assessment Year: (2015-16) (Physical Hearing) Altret Biotech Ltd., Income Tax, ‘Altret House’, 12/2881, Saiyedpura Main Road, Surat Vs. The ACIT, Circle – 1(1)(1), Surat èथायीलेखासं./जीआइआरसं./PAN/GIR No: AAFCA9180P (Appellant) (Respondent) Appellant by Shri Mehul Shah, CA Respondent by Shri Vinod Kumar, Sr. DR Date of Hearing 21/03/2024 Date of Pronouncement 10/04/2024 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2015-16, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT(A)”], Surat, National Faceless Appeal Centre (in short ‘the NFAC’), dated 28.07.2022, which in turn arises out of an assessment order passed by Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 07.12.2017. 2. The grounds of appeal raised by the assessee are as follows: “1. On the facts and circumstances of the case as well as law on the subject the learned Assessing Officer has erred in making addition of Rs.1,06,954/- on account of disallowance of interest payment to NBFCs u/s 40(a)(ia). 2. On the facts and circumstances of the case as well as law on the subject, the learned Assessing Officer has erred in rejecting the book results of the assessee u/s 145(3) of the Act. 2 541/SRT/2023/AY.2015-16 Altret Biotech Ltd. 3. On the facts and circumstances of the case as well as law on the subject, the learned Assessing Officer has erred in making addition of Rs.12,89,872/- on account of low gross profit ratio. 4. On the facts and circumstances of the case as well as law on the subject, the learned Assessing Officer has erred in taking returned income at NIL while working out the total income although assessee claimed the loss of Rs.57,39,188/- in the audited accounts.” 3. The appeal filed by the assessee for the assessment year 2015-16, is barred by limitation by 281 days. The assessee moved a petition, requesting the Bench to condone the delay. The contents of the petition for condonation of delay are as follows: “THE APPELLANT ABOVE NAMED MOST RESPECTFULLY SHEWETH: 1) That I beg to prefer this application for condonation of delay in relation to appeal filed against the order of the Ld. CIT(A) passed on 28.07.2022. If the date of order passed by Ld. CIT(A) is considered, there is a delay of 281 days in filing the appeal before Honorable Tribunal against the order passed by the Ld. CIT(A)(NFAC) on 28.07.2022. 2) That the Honourable Tribunal, Surat Bench vide order dated 09.11.2021 ruled that “The assessee availed benefit of VSV-2020 scheme only in the matter of penalty levied under section 27IE. The Ld. NFAC has wrongly treated that assessee settled the addition in quantum assessment. Therefore, we restore the matter back to the file of Ld. NFAC who decide the appeal of assessee on merit. The Ld. NFAC is further directed to grant opportunity of hearing by serving proper notice of hearing to the assessee, before passing order in accordance with law”. 3) That it is to state that on the Income tax Department portal of the assessee, the e-mail address i.e. [e-mail] was mentioned as primary email address. However, no notice was issued by NFAC for fresh hearing on the said e-mail id. Further, I did not receive any e-mail from Income Tax Department with regard to the order u/s. 250 being passed by Ld. CIT(A). 4) That it never occurred to me that in spite of clear direction given by Honourable Tribunal, again an incorrect order would be passed by NFAC on the basis that the assessee has opted for DTVSV Scheme, 2020 even though assessee has not opted so in respect of this appeal. 5) That the delay in filing of the second appeal before the Honorable Tribunal was due to lack of knowledge of the fact of dismissal of appeal by the Ld. CIT(A) as the order was never served on e-mail address [e-mail]. 6) That it was only when I opened the Income tax Department portal on 03.07.2023 just to check if any new notice was issued in respect of other assessment years, it was discovered that an ex-parte order was passed by the 3 541/SRT/2023/AY.2015-16 Altret Biotech Ltd. Ld. CIT(A). Therefore, the date of service is written as 03.07.2023 in Form 36. The Legal Counsel advised me to file second appeal before the Honorable Tribunal immediately and hence the appeal was filed in Form 36 on 26.07.2023. 7) That this case should not be treated as delay in filing of appeal as the order was never served on e-mail address [e-mail] and even if it is treated as delay in appeal, the delay should be condoned because of the above reason. 8) That therefore, in the facts and circumstances of the case, I pray to this Honorable Income Tax Appellate Tribunal: a. To condone the delay of 281 days in filing the appeal in ITA No. 514/SRT/2023 and to extend the time for filing the same inclusive and upto the date of filing the appeal;” 4. Based on the contents of the petition for condonation of delay, the Ld. Counsel for the assessee argued that assessee has explained the sufficient cause/reason in the petition for condonation of delay and therefore, in the interest of justice, the delay may be condoned. 5. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the Revenue submitted that assessee has failed to explain the sufficient cause/reason for condonation of delay and on such flimsy reasons, the delay should not be condoned, for that, ld. Sr. DR for the Revenue relied on the judgment of the Hon`ble Supreme Court in the case of Majji Sannemma @ Sanyasirao vs. Reddy Sridevi & Ors., in Civil Appeal No.7696 of 2021, dated 16.12.2021 6. We have heard both the parties on this preliminary issue. We note that the main reason of delay in filing of the appeal before this Tribunal was due to lack of knowledge of the fact of dismissal of appeal by the Ld. CIT(A), as the order was never served on e-mail address [e-mail] of the assessee. When the assessee opened the Income tax Department portal on 03.07.2023 just to check if any new notice was issued in respect of other assessment years, it was discovered that an ex-parte order was passed by the Ld. CIT(A). Therefore, the date 4 541/SRT/2023/AY.2015-16 Altret Biotech Ltd. of service is written as 03.07.2023 in Form 36. Then after the Legal Counsel advised assessee to file the appeal before the Tribunal immediately, hence the delay in filing the appeal has occurred. 7. We note that the reasons given in the affidavit for condonation of delay were convincing and these reasons would constitute reasonable and sufficient cause for the delay in filing this appeal. We, therefore, condone the delay and admit this appeal for hearing. 8. At the outset, Learned Counsel for the assessee, informed the Bench that assessee does not wish to press ground no.1 and ground number 4 raised by it, therefore, we dismiss ground no. 1 and ground no. 4 raised by the assessee, as not pressed. 9. Now, the effective grounds before us are the ground Nos. 2 and 3 both relate to addition of Rs.12,89,872/-, made by the assessing officer on account of low gross profit ratio. The ground Nos.2 and 3 are interlinked and mixed; therefore we shall adjudicate them together. 10. Brief facts qua ground Nos. 2 and 3 are that the assessee before us is a limited company and filed the return of income for Assessment Year 2015-16, showing total income of Rs. Nil/- on 28.03.2017. The assessee`s case was selected far scrutiny assessment and a notice under section 143(2) of the I.T. Act, dated 19.09.2017 was issued and duly served on the assessee. The assessee`s case was selected for scrutiny assessment. Further, for the purpose of assessment, notice under section 142(1) of the Income Tax Act, 1961 along with questionnaire dated 25.10.2017 calling certain details were duly served upon the assessee. The assessing officer noted that during the year under consideration, the 5 541/SRT/2023/AY.2015-16 Altret Biotech Ltd. assessee has shown the following trading results, for the last three years, which are as under: A.Y. Turnover Gross profit G.P. ratio 2015-16 48,47,378 67,43,251 47.33% 2014-15 1,21,12,733 1,20,06,480 66.11% 2013-14 1,79,09,970 99,73,031 55.68% On perusal of details submitted by the assessee, it was noted by the assessing officer that there is a drastic fall in Gross Profit ( in brief G.P.) i.e. 47.33% in comparison to A.Y.2014-15 G.P. and A.Y.2013-14 i.e. 66.11% and 55.68% respectively. Prima facie, it was observed by the assessing officer that undervaluation of closing stock may be one reason for short fall of G.P. Therefore, the assessee was asked to explain the reasons for fall in the gross profit ratio with documentary evidences, vide AO letter dated 24.11.2017. 11. In response, the assessee submitted the following reply before the Assessing Officer: “Sir, G.P. ratio has fallen drastically from 66.11 last year to 47.33% (18.82 short fall) in current year because there is deterioration in quality of Jathropka seeds and also production is very less as compared to previous year. The Stock turnover ratio in 31-03-2014 is 0.50 and 31.03.2015 is 1.94 so considering the above we request you not to make addition on ground of GP fall.” 12. The assessee submitted further reply before the Assessing Officer, which is reproduced below: “Sir G.P, ratio has fallen drastically from 66.11 last year to 47.33% (18.82% short fall) in current year because there is deterioration in quality of Jathropha seeds and also production is very less as compared to previous year Sir we can't explain the reason for such drastic fall in G.P. ratio.” 13. However, the assessing officer rejected the contention of the assessee and noted that assessee`s argument`s to the effect that “there is deterioration in quality of Jathropha seeds and also production is very less as compared to previous year” is not acceptable. The assessing 6 541/SRT/2023/AY.2015-16 Altret Biotech Ltd. officer also noted that since the assessee-company is engaged in seed and sapling sales of Jhatropha Seeds developed by using special technology which gives maximum yield and quality. The Assessing Officer also noted that assessee failed to furnish the details of valuation of closing stock with supporting documents. The Assessing Officer noted that in these circumstances, the gross profit cannot be estimated at normal market rate but an appropriate rate should be substituted, hence, the assessing officer is left with no other alternative but to reject the books of accounts u/s.145(3) of the I.T. Act. Further, Assessing Officer noted that in the case of assessee- company's business, the assessee has shown G.P. ratio for A.Y.2015-16 is 47.33%, A.Y.2014-15 is 68.11% and 2013-14, i.e. 55.68% in its books of accounts. Since, the assessee has failed to explain the reason for shortfall in G.P. as compared to last preceding years with supporting documents. Therefore, the Gross Profit ratio is estimated the average of last three years GP ratio shown by the assessee i.e. 56.38% (Average of 47.33%, 66.11% and 52.68%). (Note- The GP% computed by the AO is wrong, it should be 55.37% average) Hence considering the facts and circumstances of the case of the assessee, gross profit rate of 56.38% was estimated by Assessing Officer as fair and reasonable. Therefore, the estimated G.P. works out to Rs.80,33,123/- and the difference in G.P. estimated and G.P. comes to Rs.12,89,872/- (Rs.80,33,123 – Rs.67,43,251). In view of these facts, the difference is G.P. of Rs.12,89,872/- on account of low G.P. shown was added to the total income of the assessee- company. 14. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has dismissed the appeal of the assessee. Aggrieved by the order of ld. CIT(A), the assessee is in further appeal before us. 7 541/SRT/2023/AY.2015-16 Altret Biotech Ltd. 15. The Ld. Counsel for the assessee submitted that there is no variation in the gross profit, for that Ld. Counsel for the assessee submitted following chart: 16. The Ld. Counsel for the assessee also submitted that during the assessment proceedings by mistake the assessee has submitted wrong ratio of gross profit, which may be ignored. The ld Counsel submitted the calculation of the gross profit ratio for assessment year 2015-16, which is reproduced below: 8 541/SRT/2023/AY.2015-16 Altret Biotech Ltd. 17. The Ld. Counsel therefore contended that rejection of books of accounts based on GP ratio was wrong; hence addition made by the assessing officer may be deleted. 18. The ld. Sr. DR for the Revenue submitted that the ld. NFAC vide order dated 12.04.2021 inadvertently considered that the assessee has obtained VsVs-2020 scheme in the matter of quantum assessment and dismissed the appeal of assessee by treading as withdrawn for statistical purpose. Aggrieved the order, the assessee preferred appeal before Hon'ble ITAT. The Hon'ble ITAT vide order dated 09.11.2021 directed the Ld. NFAC/CIT(A) to grant opportunity to the assessee and considering the same, the Ld. NFAC passed the order on 28.07.2022 whereby the appeal filed by the assessee against the order dated 07.12.2017 passed u/s. 143(3) of the Act is deemed to have been withdrawn in term of VSVS and accordingly dismissed and withdrawn. 19. On merit, ld DR for the revenue submitted that assessee has failed to explain the gross profit ratio, therefore, the addition made by the assessing officer based on the difference of the gross profit ratio may be upheld. 20. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that the assessee’s appeal in ITA No.42/SRT/2021 for AY.2015-16 were remitted back to the file of the NFAC/CIT(A) to decide the appeal on merit, however, the ld CIT(A) again dismissed the assessee`s appeal, as if, it was withdrawn under vivad se viswas, and did not adjudicate the assessee`s appeal on merit. Now, the assessee is in appeal before us again. On merit, we note that 9 541/SRT/2023/AY.2015-16 Altret Biotech Ltd. assessee has explained the sufficient cause of variation in the gross profit and therefore books results cannot be rejected merely on the issue of gross profit as the assessee has explained the sufficient reasons for variation in gross profit, by way of chart, as noted above. We note that gross profit derived by the assessee seems to be correct and hence the Assessing Officer should not have rejected the books of accounts of the assessee under section 145(3) of the Act. The Assessing Officer should have adjudicated the issue on merit, instead of comparison of gross profit ratio, which the Assessing Officer has failed to do so. Therefore, we note that addition made by the Assessing Officer to the extent of Rs.12,89,872/- is not justifiable. We note that during the assessment proceedings, before the assessing officer, the assessee submitted the return submission and gross profit chart for assessment year 2015-16, wherein the assessee has shown turnover to the tune of Rs.48,47,378/- and the gross profit on such turnover to the tune of Rs.67,43,251/-, which is absolutely wrong, because the gross profit Rs.67,43,251/- cannot be more than the sales of Rs. 48,47,378/-, hence these figures are inconsistent and cannot be relied on. 21. We note that section 145(3) of the Act provides that where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee or where the method of accounting provided in section 145(1) or 145(2) have not been regularly followed by the assessee, the Assessing Officer may make an assessment u/s 144 of the Act. However, we note that in assessee`s case under consideration, the assessment has been framed by the assessing officer under section 143(3) of the Income Tax Act 1961.We note that Hon`ble Supreme Court in the case of CIT v. Padamchand Ramgopal, [1970] 76 ITR 719 (SC) it was held that insignificant mistakes noticed in the 10 541/SRT/2023/AY.2015-16 Altret Biotech Ltd. accounts of one year, like one item of interest not brought into account or one item of receipt having been incorrectly recorded, cannot form the basis for rejecting the accounts of the other years. Therefore, based on these facts and circumstances and taking into account the legal position, as narrated above, we delete the addition of Rs.12,89,872/-. 22. In the result, the appeal filed by the assessee is allowed. Order is pronounced on 10/04/2024 in the open court. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 10/04/2024 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat