DCIT, New Delhi V. M/s. AVL India Pvt. Ltd., New Delhi

ITA 648/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0737 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 03-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ALKA GAUTAM
• Keywords: Gross profit estimation; Rejection of books of accounts; Corroborative evidences
• Section: 14A; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 648/DEL/2017 : ASSTT. YEAR : 2012-13 DCIT, CIRCLE-3(2), NEW DELHI VS M/S AVL INDIA PVT. LTD., CSC, C/9, VASANT KUNJ, NEW DELHI-110070 (APPELLANT) (RESPONDENT) PAN NO. A A ACA0382J ASSESSEE BY : SH. VED JAIN, ADV. REVENUE BY : MRS. ALKA GAUTAM, SR. DR DATE OF HEAR ING: 29 . 0 6 .20 2 1 DATE OF PRONOUNCEMENT: 14 .07 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A GAINST THE ORDER OF LD. CIT(A)-I, NEW DELHI DATED 04.11.20 16. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENU E: 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING ADDITION OF RS.5,28,11,537/- MADE BY THE AO INVOKIN G U/S 145(3) OF THE INCOME TAX ACT, 1961. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELE TING ADDITION OF RS.1,99,354/- MADE ON ACCOUNT OF DISALLOWANCE U/S 14A R.W.R. 8D. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTU RING OF SMOKE METERS, DI-GAS ANALYZER, DYNAMOMETERS & CUSTO M BUILT ITA NO. 648/DEL/2017 AVL INDIA PVT. LTD. 2 SYSTEM, DYNO SYSTEMS, DI-CHECK, DYCON, FUEL CONSUMP TION METER AND AC SYSTEM. 4. THE AO HELD THAT THE ASSESSEE HAS SHOWN ABNORMAL LY VERY LOW GROSS PROFIT RATE FOR THE YEAR UNDER CONSIDERAT ION IN COMPARISON TO THE GROSS PROFIT RATES SHOWN IN EARLI ER YEARS AND ALSO FAILED TO SUBSTANTIATE THE REASONS THEREOF. TH E AO HELD THAT THE ASSESSEE FAILED TO JUSTIFY THE DECLINE IN GROSS PROFIT RATE WITH SUPPORTING EVIDENCES, THEREFORE, REJECTED THE BOOKS OF THE ASSESSEE U/S 145(3) OF THE INCOME TAX ACT, 1961. 5. THE LD. CIT (A) EXAMINED IN DETAIL THE REASONS G IVEN BY THE ASSESSEE VALIDATING THE FINANCIALS AND THAT OF THE ASSESSING OFFICER FOR REJECTION OF BOOKS OF ACCOUNTS. 6. THE ONLY REASON GIVEN BY THE ASSESSING OFFICER W AS THAT THE GROSS PROFIT WAS LESS COMPARED TO THE EARLIER Y EARS FROM 26.6% TO 18.9% AND ALSO HAS NOT BROUGHT ANY DEFECT IN THE BOOKS OF ACCOUNT OR ANY BOGUS NATURE OF EXPENDITURE OR SUPPRESSION OF RECEIPT. 7. ON THE OTHER HAND, THE LD. CIT (A) EXAMINED THE VARIOUS REASONS FOR CONTRACTION OF THE PROFITS. THE LD. CIT (A) HELD THAT WITH REGARD TO DISTRIBUTION OF GOODS FREE OF COST T O THE CUSTOMERS IS KIND OF BUSINESS PROMOTION ACTIVITY WH ICH CREATES A SENSE OF CONFIDENCE AND TRUST AMONG THE CUSTOMERS. THE DETAIL OF EXPENDITURE INCURRED BY THE ASSESSEE HAS NOT BEE N DOUBTED BY THE AO IN THE ASSESSMENT ORDER. THE ALLEGATION O F AO IS NOT WITH RESPECT OF INCURRENCE OF THE EXPENDITURE BY TH E ASSESSEE RATHER THE SAME RELATES TO THE BENEFIT THAT THE ASS ESSEE HAS DERIVED OUT OF THE SAME. THIS IS A QUESTION OF BUSI NESS PRUDENCE ITA NO. 648/DEL/2017 AVL INDIA PVT. LTD. 3 WHICH CANNOT BE CHALLENGED BY THE AO. ONCE EXPENDIT URE IS INCURRED FOR THE BUSINESS PURPOSE, THE SAME IS AN A LLOWABLE DEDUCTION. THE ASSESSEE MIGHT NOT DERIVE IMMEDIATE BENEFIT FROM SUCH REPLACEMENT OF GOODS TO THE CUSTOMERS BUT IT CREATES A GOODWILL AND REPUTATION IN THE MARKET FOR THE ASS ESSEE. SUCH EXPENDITURE IS HELD TO BE WHOLLY AND EXCLUSIVELY FO R BUSINESS PURPOSES AND SAME IS AN ALLOWABLE EXPENDITURE AND C ANNOT BE DOUBTED. THE ASSESSING OFFICER CANNOT SIT IN THE CH AIR OF BUSINESSMAN AND TAKE DECISION ON HIS BEHALF. THE OB SERVATION OF THE AO IN THE ASSESSMENT ORDER NOWHERE LEADS TO ANY DEFECT OR ERROR IN THE BOOKS OF THE ACCOUNTS ON THE BASIS OF WHICH THE BOOKS COULD BE REJECTED. 8. WITH REGARD TO INCREASE IN COST OF COMPONENT SUP PLIER AND REDUCTION IN PRICE OF THE GOODS, THE LD. CIT (A) HE LD THAT INCREASED COST OF COMPONENTS USED IN THE MANUFACTUR ING OF GOODS AND REDUCED SELLING PRICE OF THE GOODS SOLD H AVE DIRECT IMPACT ON THE GROSS PROFIT. HE HELD THAT THE AO IN THE ASSESSMENT ORDER HAS NOT BEEN ABLE TO CONTROVERT TH E FACTS AND FIGURES SUBMITTED BY THE ASSESSEE AND THERE IS NO E VIDENCE ON RECORD WHICH COULD PROVE THAT THE FACTS SUBMITTED B Y THE ASSESSEE WERE FALSE. THE OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER THAT INFLATION IS A SUBJECTIVE ISS UE AND IT HITS BOTH SIDES I.E. PURCHASES AS WELL AS SALES, MAY BE RIGHT IN GENERAL SENSE. HOWEVER, THE LD. CIT (A) HELD THAT I N THE PRESENT CASE, THE ASSESSEE HAS QUANTIFIED THE IMPACT OF BOT H SIDES WHICH THE AO COULD NOT CONTROVERT AND POINT OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE WHI CH COULD LEAD TO REJECTION OF BOOKS U/S 145(3). HENCE, THIS ALLEG ATION OF THE ITA NO. 648/DEL/2017 AVL INDIA PVT. LTD. 4 AO DOES NOT QUALIFY AS GROUND FOR REJECTION OF BOOK S OF ACCOUNTS. 9. ON THE ISSUE OF LOW GP RATE IN PROJECT WITH INDI AN OIL CORPORATION, THE LD. CIT (A) AFTER EXAMINATION OF T HE DETAILS CATEGORICALLY HELD THAT THE ASSESSEE HAS BEEN ABOVE TO SUBSTANTIATE ITS CLAIM FOR EARNING LOW MARGINS IN T WO OF ITS PRESTIGIOUS PROJECTS ALONG WITH EVIDENCES. FURTHER, THE TURNOVER AND MARGIN EARNED BY THE ASSESSEE HAS NOT BEEN DOUB TED BY THE AO ANYWHERE IN THE ASSESSMENT ORDER. THE LD. CIT (A ) HELD THAT THE AO HAS NOT POINTED OUT ANY SINGLE DEFECT IN THE SUBMISSIONS MADE BY THE ASSESSEE WITH RESPECT TO PROJECTS WITH M/S INDIA OIL CORPORATION LTD. AND M/S SIMPSON & CO. LTD., ON THE BASIS OF WHICH THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSES SEE COULD BE DOUBTED. ACCORDINGLY, HE HELD THAT THE LOW MARGI N IN THE PROJECTS OF M/S INDIA OIL CORPORATION LTD. COUNTS A S VALID REASON FOR FALL IN THE GROSS PROFIT RATE OF THE ASSESSEE. 10. WITH REGARD TO FOREIGN EXCHANGE, THE LD. CIT (A ) ON GOING THROUGH THE FACTUAL POSITION HELD THAT THE FIGURE O F FOREX GAIN REPORTED IN THE FINANCIAL STATEMENT IS THE NET GAIN WHICH WAS MAINLY ON ACCOUNT OF GAIN REALIZED ON THE RECEIVABL ES CARRIED FORWARD FROM EARLIER YEARS DUE TO INCREASE IN THE R ATE OF FOREIGN EXCHANGE. 11. THUS, WE FIND THAT THE LD. CIT (A) HAS EXAMINED IN DETAIL THE VARIOUS REASONS ATTRIBUTED BY THE ASSESSING OFF ICER AND REBUTTED BY THE ASSESSEE. WE FIND PRIMARILY NO TANG IBLE REASON WHICH COULD LEAD TO REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) AND HENCE, DECLINE TO INTERFERE WITH THE WELL REASO NED ORDER OF THE LD. CIT (A). ITA NO. 648/DEL/2017 AVL INDIA PVT. LTD. 5 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/07/2021. SD/- SD/- (AMIT SHUKLA) (DR. B. R. R. KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED: 14/07/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR