AI Insights
Baroda Industrial Electrical Products Pvt. Ltd. appealed against the orders of the Commissioner of Income Tax (Appeals) which confirmed the rejection of their books of accounts and the estimation of gross profit at 24.52%. The company argued that the nature of their business, which involves servicing and repairing power generation transformers, leads to variable turnover and static costs, making it unreasonable to apply a fixed gross profit rate across different years. The Tribunal considered the company's past performance and the nature of its business, ultimately deciding to apply the net profit ratio from the previous year to the current assessment year.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 114087 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 2 month(s) 22 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-08-2023
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
09-08-2023
Assessment Year
2014-2015
Appeal Filed On
26-05-2019
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member Baroda Industrial Electrical Products Private Limited, 222, GIDC, Near Bank of Baroda, Nandesari, Vadodara-391340 PAN: AACCB0826G (Appellant) Vs The Income Tax Officer, Ward-1(1)(1), Vadodara (Respondent) Assessee Represented: Shri M.J. Shah, A.R. & Shri Rushin Patel, A.R. Revenue Represented: Shri Sanjay Kumar, Sr. D.R. Date of hearing : 10-08-2023 Date of pronouncement : 18-08-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- These appeals are filed by the Assessee as against two appellate orders dated 04.09.2018 & 15.03.2019 passed by the Commissioner of Income Tax (Appeals)-1, Vadodara as against the assessment order passed under section 144 and 154 r.w.s. 155 of ITA No. 2367/Ahd/2018 & ITA No. 917/Ahd/2019 Assessment Year 2014-15 I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 2 the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the same Assessment Year (A.Y) 2014-15. 2. Brief facts of the case is that the appellant is Private Limited Company engaged in the business of repairing and servicing of power distribution transformers, small amount of manufacturing and supply of transformer parts. For the Assessment Year 2014-15, the assessee filed its Return of Income on 26-09-2014 declaring total income at Rs. 24,96,784/-. During security assessment, the Assessing Officer noticed that the closing stock of raw material as on 31-03-2014 was of Rs. 23,77,400/- as compared to closing stock of Rs. 59,58,140/-. In Form 3CA, the Chartered Accountant has mentioned that the assessee company was engaged mainly in rendering overhauling and repairing service of power generation transformers and it had not maintained detailed records of inventory, therefore it was not possible to verify the consumption of stock and closing stock, etc. Therefore the A.O. issued a show cause notice requiring the assessee to submit the details of month- wise purchases and sales in terms of quantity, rate and opening as well as closing stock of each item. The assessee did not responded to the above notice, therefore a second show cause notice was issued by the Assessing Officer specifically pointing out that after excluding other sources of income of Rs. 48,57,180/-, there was a loss from the business activities, why the book result be not rejected u/s. 145(3) and assessment be not finalized u/s. 144 of the Act. I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 3 3. In response, the assessee submitted that the business operations are not stereo type and the assessee carry out works as per job requirement of customers. The assessee bids for various tenders, on procurement of the tenders, the annual rate contracts are executed. The type of repairing and servicing work changing as per customer requirements and there is no standard input-output ratio applicable in the nature of services carried out by the assessee. Further the “interest income” on bank FDs of Rs. 47.85 lacs have been earned during the year is primarily for mortgage for availment of Bank Guarantees to the limit of 1 crore which was given as security by the assessee. Further the transformers which the assessee deliver after service/repairing have warranty of 3 years. To facilitate any such warranty claim in future, the assessee kept this FDs so that there is no adverse effect and cash flow of the assessee company. These deposits also used to get successful tenders, when the customers check financial soundness of the assessee. In other words, the bank FDs are not kept wholly and exclusively for earning interest income. But in fact they are kept for procuring good business, for covering future warranty claim, for availing bank guarantee facility etc. Therefore this “interest income” is shown as business income even in the past assessment years which has been accepted by the Revenue. 3.1. The assessee further submitted that there is higher proportion of expenses compared to last year (2013-14) and there is slight decrease in the net profit during this Assessment Year 2014-15. The major increase in the expenditure is because of employee cost, it was 51.30 % in FY 2013-14 and it was 37.84 % in FY 2012-13. I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 4 Net profit ratio during the present year is 7.65% and in the last year it was 9.52 % as follows: Sr. No. F.Y. Turnover in Lacs Employee Cost in Lacs Employee cost in % Net Profit in Lacs Net Profit in % 1 2012-13 506.03 191.48 37.84% 48.16 9.52% 2 2013-14 325.24 166.86 51.30% 24.87 7.65% 3.2. From the above table, it can be seen that assessee’s net profit has decreased by 1.87%, whereas the employee cost increased by 13.46 %. Despite steep decrease in turnover, with almost same amount of overhead costs one cannot achieve reasonable net profit for the year under consideration. The assessee being engaged in repairing of power generation transformer, the turnover depends on the nature of job received by it. The nature of job, number of jobs depends on the wear and tear of transformer. Thus the assessee to keep team of workers for whole the year, whether work is there or not. Even there is always keen competition to get the repairs jobs, the assessee required to quote reasonable rate for the job. The quantum of job is not continuous, whereas overheads are constant in nature. Hence the profit margin or profit ratio cannot be directly linked with turnover of the nature of assessee business. The assessee is not engaged in any product driven industry, wherein the margins per product are more or less fixed. There is reduction in turnover from Rs.5.06 crores in financial year 2012-13 to Rs.3.25 crores in financial year 2013-14. There is reduction in turnover by 35.77% compared to last year. Overheads and normal business expenditures are incurred throughout the year. Hence there is impact on the profits of the assessee company, and its books of accounts are audited. The transactions are supported by I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 5 necessary evidences in the form of bills and vouchers. Book results have been accepted in past. Assessee’s main revenue is from service & repairing, which is not fixed, it depends on customer requirements, whereas overheads-are fixed. Therefore the assessee requested to accept the book results as true and genuine. 3.3. Regarding details of month wise purchase and sales in terms of quantity and rate, as well as opening and closing stock for each item traded, the assessee submitted the details of materials at the beginning of the year purchases, consumption, closing stock at the end of the year as per Annexure 1. The assessee also furnished quantitative details of sales of materials as per Annexure-2. The details of materials are many in nature, with different types, size, etc. and hence the assessee could not been able to maintain detailed records of inventory and assessee’s major revenue is from service and not from sale. 4. The above submissions of the assessee was considered by the A.O., however rejected the book result and applied net profit rate of 25% resulting into business income of Rs. 81,56,030/-. The income from other sources at Rs. 48,57,180/- was separately added by the A.O. Thus determining the taxable income as Rs. 1,30,13,210/-. 5. Aggrieved against the assessment order, the assessee filed an appeal before Ld. CIT(A). The Ld. CIT(A) applied average gross profit rate of last three years to determine the income of the assessee and held as follows: “...4.1.Ground No.1 is regarding rejection of books of account and application of Net Profit at 25% of the total turnover. Ground No.2 is pertaining to assessment of income from other sources at Rs.48,57,180/- I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 6 separately. Since, both the grounds of appeal are interlinked because the Net Profit is affected by the income from other sources also, the same are being dealt with simultaneously. 4.2. Undisputedly, the appellant company is mainly engaged in the business of manufacturing and repair/overhauling of the transformers: Huge raw material to the tune of Rs.1,13,56,320/- has been consumed during the year under consideration, but, the appellant has not maintained any record of consumption of raw material. It has also not maintained quantitative record of opening stock, purchases, consumption and closing stock of various items of raw material. Therefore, it is not possible to verify the genuineness of consumption of raw material as well as valuation of closing stock as on 31.03.2014. It is worthwhile to mention that the closing stock shown as on 31.03.2014 at Rs.23,77,400/- is substantially lower as compared to the closing stock of immediately preceding assessment year of Rs.59,58,140/- and there is no documentary evidence available to verify the correctness of the same. The appellant has disclosed income from other sources at Rs.48,57,180/- which includes interest on FDRS at Rs.47,85,740/-. In the written submission, the Ld. AR has stated that income from FDRS has to be treated as business income because the fixed deposits were maintained for business purposes only. However, I find that the borrowed funds are very normal as is evident from the financial cost claimed at Rs.5,27,520/- excluding financial cost, the Net Profit from fixed deposits comes to Even after Rs.42,58,190/-. Since, there was negligible borrowing, it was clear that the fixed deposits were prepared out of surplus funds and hence, the interest income therefrom cannot be considered as income from business. After excluding the interest income from FDRs, there is a loss of Rs.17,70,760/- from the business receipts of Rs.3,25,24,123/- which is not justifiable looking to the nature of business were margins are very high. 4.3. On perusal of Gross Profit rates of four years including the year under consideration, I find that the Gross Profit rate in AY 2011-12 was 47.62% as compared to Gross Profit rate of 7.70% during the year under consideration. The average Gross Profit rate for AY 2011-12 to AY 2013-14 comes to 24.52%. I also find that during the year under consideration, the appellant has shown consumption of material at 34.90% of the total revenue as compared to 24.61% in AY 2011-12. Similarly, the cost of employees engaged in the manufacturing and repairs etc. has been claimed at 51.3% of the total sales as compared to only 20.1% in AY 2011- 12. These data clearly reflect that the appellant has either suppressed the receipts or claimed excessive expenses on material consumption as well as manufacturing emoluments. The excessive consumption of the material is not verifiable from the record since the appellant has not maintained quantitative records. The auditor of the appellant company has also pointed out this deficiency in his audit report. Under these circumstances, the decisions relied upon by the Ld. AR are distinguishable on facts. In the following case, non-maintenance of the stock register and other I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 7 quantitative records has been found to be sufficient ground for rejection of book results and application of Gross Profit rate: a) ACIT vs. Mahesh Enterprises (2013) 38 taxmann.com 249 (Mum-Trib) In this case, the assessee had not maintained any stock register and there was no basis for verification of material consumption and hence, assessee's books of account were not amenable to yield correct operating results and accordingly, rejection of book results u/s 145(3) was justified. b) Zamidara Timber Traders vs ITO (2015) 55 taxmann.com 80 (Delhi-Trib) In this case, the assessee purchased timber at different rates according to the quality, but, no narration of quality was maintained in the sale vouchers. No stock register was also maintained. Under these circumstances, rejection of books of account was justified. c) Sage Infrastructure (P) Ltd. vs ACIT (2013) 37 taxmann.com 32 (Guj) The assessee was a civil contractor and non-maintenance of stock register was found to be sufficient ground for rejection of books of account u/s 145(3) since, purchases, consumption and closing stock was not verifiable. 4.3.1. In view of the above facts and legal position, thus, it emerges that the books of account maintained by the appellant are not correct and complete, because the consumption of raw material vis-à-vis sales and closing stock are not verifiable Accordingly, I hold that the AO has rightly rejected the book results u/s 145(3). 4.4. It is an established legal position that after rejection of books of account, a reasonable Gross Profit or Net Profit rate has to be applied either on the basis of comparable cases or looking to the past history of the assessee itself. Since, the Net Profit in the case of the appellant also included interest income, it is in the fitness of things to compare the Gross Profit rate based on the past history of the appellant. As already discussed, the average Gross Profit rate of the three years from AY 2011- 12 to AY 2013-14 in the case of the appellant was 24.52% on turnover ranging from Rs.4.29 crores to Rs.8.87 crores. Thus, I am of the considered view that application of average gross profit rate of last three years will be legally justified. The Gross Profit at 24.52% on total turnover of Rs.3,25,24,123/- for the year under consideration comes to Rs.79,74,915 as compared to shown at Rs.25,04,207/-. Thus, it emerges that the appellant has suppressed Gross Profit by Rs.54,70,708/- (Rs.79,74,915 minus Rs.25,04,207). Accordingly, I am of the view that the addition of Rs.54,70,708/- is required to be made on account of low Gross Profit rate instead of assessment of Net Profit from business at Rs.81,56,030/- made by the AO. Since, the Gross Profit rate is applied, no further addition on account of income from other sources is required to be made. Hence, the AO is directed to make addition of Rs.54,70,708/- to the returned income. Thus appellant succeeds partly on his account. 5. In result, the appeal is partly allowed.” I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 8 6. Aggrieved against the same, the assessee is in appeal in ITA No. 2367/Ahd/2018 for A.Y. 2014-15 before us raised the following Grounds of Appeal: 1. The Learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming rejection of books of accounts and thereafter estimating gross profit rate of 24.52% and thereby making addition of Rs.54,70,708/- to the returned income of the Appellant. 7. The Ld. Counsel Mr. Manish J Shah appearing for the assessee, brought to our notice at Page Nos. 37 & 38 of the Paper Book that the reply filed by the assessee in response to the notice issued u/s. 142(1) relating to the previous Assessment Year 2013-14, explaining the turnover and net profit of the assessee company is as follows: “....03. As regards comparative returned income for last 4 assessment years, there are growth in the returned income of for A.Y. 2010-11, 2011-12 & 2012-13 but there is decrease in returned income for A.Y. 2013-14. The comparative table containing assessment year, turnover, net profit, direct expenses like material consumption, labour charges, power & fuel, overheads containing salaries, administrative expenses, finance expenses, depreciation etc. for the assessment year under consideration and last 3 immediately preceding assessment years are as under :- A.Y. Turnover Net Profit Material Consumption, Labour Charges, Power & Fuel % of (c) vs. (a) Overheads (Salaries, Admn. Finance, Depreciation etc.) % of (e) vs. (a) (a) (b) (c) (d) (e) (f) 2010-11 4,31,39,511 1,28,67,471 2,12,48,123 49.25 1,18,01,971 27.36 2010-12 4,29,44,028 1,71,10,830 1,38,64,927 32.29 1,42,01,632 33.07 2012-13 8,87,63,681 2,57,04,353 3,90,47,85 43.99 2,79,28,221 31.46 2013-14 5,06,03,463 48,16,444 2,42,56,266 47.93 2,65,31,682 52.43 The reason is that our turnover was growing till A. Y. 2012-13. There is sharp decline in turnover in A.Y. 2013-14. The ratio of material consumption, labour charges and power & fuel expenses are more or less in comparison with last years. But the ratio of overheads expenses is very high compared to last years. The main reason is reduction in turnover by Rs.3.82 crores i.e. 43% compared to turnover of A.Y. 2012-13 and 75 % compared to turnover for A.Y. 2013-14. When there is so much decline in the turnover, no company could be able to maintain net I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 9 profit. We did not have anticipation that the turnover will be such lower compared to last year. In the nature of industry in which we are engaged, the quantum of job is not continuous, whereas overheads are constant in nature. Hence profit margin or profit ratio cannot be directly linked with turnover. We are not engaged in any product driven industry wherein the margins per product are more or less fixed. There is reduction in turnover from Rs.8.88 Crores in financial year 2011-12 to Rs.5.06 crores in financial year 2012-13. There is reduction in turnover by 43 % compared to last year. Overheads and normal business expenditures are incurred throughout the year. Hence, there is impact on the profits of the company which is observed from the table above. Our books of accounts are audited. The transactions are supported by necessary evidences in the form of bills and vouchers. In view of the above, your Hon. is hereby requested to accept the book results and true and genuine.” 7.1. Thus the Ld. Counsel submitted that the Ld. Assessing Officer for the immediate previous Assessment Year 2013-14 has not rejected the books of accounts but accepted the returned net profit offered by the assessee, but however without any change of facts, the Ld. A.O. rejected the books of accounts and relied upon following case laws in support of his argument: (i) CIT Vs. Superior Crafts [2012] 20 taxmann.com 144 (Delhi) (ii) CIT Vs. Inani Marbles (P.) Ltd. [2008] 175 taxmann.com 56 (Rajasthan) (iii) CIT Vs. Jas Jack Elegance Exports [2010] 191 taxmann.com 386 (Delhi) 8. Per contra, the Ld. Sr. D.R. Shri Sanjay Kumar appearing for the Revenue supported the order passed by the Lower Authorities and pleaded to uphold the same. 9. We have given our thoughtful consideration and perused the materials available on record. It is seen from the records that the turnover of the Assessee Company and net profit thereon are not static because of the nature of repairing and servicing of power generation transformers. As pleaded by the assessee, the nature of repairing jobs and number of servicing jobs depends upon the wear I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 10 and tear of the transformers, whereas the assessee was required to keep a team of expert workers to attend the repairing works throughout the year. Therefore the employers cost is found to be static. It is also the case of the assessee to quote reasonable rate for being a successful bidder in the auctions for the repair works of the power generation transformers. Therefore the profit margin or profit ratio cannot be directly linked with the turnover of the assessee company more particularly engaged in the business of servicing and repairing works. Further there is reduction in total turnover from Rs. 5.06 crores for the Assessment Year 2013-14 to Rs. 3.25 crores for the present Assessment Year 2014-15. Correspondingly the employees cost during these two years are Rs. 191.48 lacs and Rs. 166.86 lacs. In terms of percentage employees cost is 37.8% for the Assessment Year 2013-14 and 51.3% for the Assessment Year 2014-15. Thus there is net profit of 9.52% for the Assessment Year 2013-14, whereas net profit of 7.65% for the present Assessment Year 2014-15. Thus the claim of the assessee is found to be reasonable comparing with the past business transaction of the assessee. It is also placed on record for the immediate Assessment Year 2013-14, when the Assessing Officer issued show cause notice, why not to reject the books of accounts, for non- maintenance of stock register as well as fall in gross net profit ratio comparing with the preceding financial years. Pursuant to assessee’s reply and considering the nature of repairing job works carried out by the assessee, the Assessing officer accepted the reply filed by the assessee (which is already extracted in Para 7 of this order) and completed the scrutiny assessment order dated 29-01- 2016 for the Assessment Year 2013-14 without rejection of books. I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 11 The A.O. for the present Asst. Year 2014-15, has not made any enquiry or verification of other expenses claimed by the assessee, but rejected to books of accounts only on the ground of non- maintaining of regular stock register. 9.1. Further our Jurisdictional High Court in the case of J Stick Intermediaries Pvt. Ltd. Vs. ACIT reported in 242 taxmann.com 319 (Guj.) held that “not maintaining of day to day stock register was not a ground to reject books of accounts”. 9.2. Similarly the Delhi High Court in the case of CIT Vs. Superior Crafts (cited supra) held that Assessing Officer rejected closing inventory on the ground that no day to day stock register was maintained, he had to determine the gross profit only on estimate either on the basis of assessee’s own past record or on the basis of a comparable case and thereby held as follows: “Section 145 of the Income-tax Act, 1961 Method of accounting Valuation of stock Assessment year 2002-03 On basis of special audit report, Assessing Officer rejected closing stock as declared by assessee and held that there was under- valuation of closing stock-Accordingly, Assessing Officer made addition - Tribunal found that assessee had not been maintaining day-to-day account of stock but had been determining closing stock items on physical verification at end of year Considering volume of business and numerous items involved, assessee had been valuing finished goods, semi finished goods and goods. in progress on basis of sale price of these items sold in subsequent year after deducing a particular margin, which had been uniformly followed by assessee in earlier and subsequent years - Tribunal also observed that no efforts had been made by revenue to gather any other material to establish that closing stock on last day of accounting period was higher than declared value; that even if Assessing Officer rejected closing inventory on ground that no day to day stock register was maintained, he had to determine gross profit only on estimate either on basis of assessee's own past record or on basis of a comparable case; that no comparable case had been brought on record - Tribunal also found that GP rate declared by assessee in relevant year at 28.93 per cent was substantially higher than GP rate 19.16 per cent accepted in assessee's own case in immediate preceding year Tribunal, accordingly, held that addition on account of closing stock valuation was not justified and, therefore, it deleted addition made by Assessing Officer - Whether findings recorded by Tribunal on question of closing stock could not be categorized and regarded as perverse - Held, yes - Whether, therefore, no substantial question I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 12 of law arose out of finding recorded by Tribunal - Held, yes [In favour of assessee]” .............................. “..... On a perusal of the order passed by the Assessing Officer, it is evident that the rejection of books is based upon reasons/grounds stated in the assessment order for the assessment year 2002-2003. In the said assessment year, there was a special audit. The special auditor did not report and state that it was not possible to decipher and compute income/profits from the books of account. The special auditor had examined the books of account, vouchers, invoices etc., but did not suggest that books of accounts should be rejected. The Assessing Officer for the assessment year 2002-03 did not reject the books of accounts. In the said year, the Assessing Officer did make additions/disallowances, but not after rejecting the books of accounts. In the said assessment year, similar disallowance and additions were made for identical grounds/reasons given by the Assessing Officer as in the assessment year 2001-02. Therefore, we do not agree with the counsel for the Revenue that rejection of books of accounts was justified and findings recorded by the tribunal are perverse. Accordingly, we do not think that on this aspect any substantial question of law arises for consideration.” 9.2. Similarly, the Hon’ble Rajasthan High Court in the case of CIT Vs. Inani Marbles (P.) Ltd. (cited supra) held as follows: “Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of profit - Assessment year 2000-01 - For relevant assessment year, assessee- company had filed its return disclosing gross profit rate at 2.30 per cent - Assessing Officer rejected its books of account and after invoking provisions of section 145 applied gross profit rate at 15 per cent on sales - On appeal, Commissioner (Appeals) reduced gross profit rate to 14.5 per cent - On second appeal, Tribunal opined that in absence of any change in factual position, profit rate declared and accepted in preceding years constituted a good basis for working out gross profit rate - Accordingly, Tribunal held that since in earlier year gross profit rate declared and accepted was 2.51 per cent, same rate should have been applied for relevant year also - Whether on facts, impugned order passed by Tribunal was justified - Held, yes” 9.3. Similarly, the Delhi High Court in the case of CIT Vs. Jas Jack Elegance Exports (cited supra) held as follows: “....5. Section 145(3) of Act provides for assessment in the manner prescribed in section 144 of the Act, where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee or where either the method of accounting provided in sub-section (1) or the accounting standards as notified under sub-section (2) have not been regularly followed by the assessee. This is not the case of the revenue that the assessee had not followed either cash or mercantile system of accounting stipulated in sub-section (1) of section 145 of the Act. This is also not the case of the revenue that the Central Government had notified any particular accounting standards to be followed by manufacturers and exporters of readymade garments. Hence, the second part of sub-section (3) of section 145 does not apply to this case. As noted by the Commissioner of Income- I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 13 tax (Appeals) as well as by the Income-tax Appellate Tribunal, the Assessing Officer had not pointed out any defect in the Account Books maintained by the assessee, which, admittedly, were produced before the Assessing Officer for his consideration. This is also not the finding of the Assessing Officer that the account of the assessee was not complete. No provision either in the Act or in the Rules requiring an assessee carrying business of this nature, to maintain a Stock Register, as a part of its accounts has been brought to our notice. As regards non- production of Stock Register, the assessee has given an explanation which has been accepted not only by the Commissioner of Income-tax (Appeals) but also by the Tribunal and both of them have given a concurrent finding of fact that maintaining Stock Register was not feasible considering the nature of the business being run by the assessee which was engaged in the business of manufacturing readymade garments by purchasing fabric which was then subjected to embroidery, dyeing and finishing and then converted into readymade garments by stitching. Section 145(3) of the Act therefore, could not have been applied by the Assessing Officer to the present case. .............................. 8. Another important aspect of this case is that, admittedly, the gross profit percentage declared by the assessee in the assessment year 2003-04 which was the immediate preceding year, was more or less the same as was declared in the assessment year 2004-05, to which this appeal pertains. However, the Assessing Officer, instead of applying the gross profit ratio declared in the immediate preceding year, applied the gross profit ratio declared in the assessment year 2002-03, thereby failing to maintain the accepted principle of continuity and consistency. No ground at all has been given by the Assessing Officer for deviating from this accepted principle of assessment.” 9.4. Respectfully following the above judicial precedents and nature of business involved in the assessee’s case namely business of repairing and servicing of diesel generators, we deem it fit to adopt the net profit ratio of 9.52% as determined in the previous Assessment Year 2013-14 to be adopted for the present Assessment Year 2014-15. Thus the Assessing Officer is directed to adopt 9.52% as the net profit for the Assessment Year 2014-15. Thus the Grounds raised by the Assessee is hereby allowed. 10. In the result, the appeal filed by the Assessee is partly allowed. I.T.A No. 2367/Ahd/2018 & 917/Ahd/19 A.Y. 2014-15 Page No Baroda Industrial Electrical Products Pvt. Ltd. Vs. ITO 14 ITA No. 917/Ahd/2019 is relating to A.Y. 2014-15 11. The Grounds of Appeal raised by the Assessee reads as under: 1. The Ld. CIT(A) erred in law and on facts in rectifying his own order dated 04.09.2018 by invoking the provision of sec. 154 and thereby enhancing the income of the Appellant by amount of Rs. 60,50,269/-. 1.1. The Ld. CIT(A) erred in law in reviewing the order in the garb of rectification by invoking the provision of sec. 154 of the I.T. Act, 1961. 12. ITA No. 917/Ahd/2019 is rectification of the Ld. CIT(A)’s order dated 04-09-2018, since there is an arithmetical mistake in that order. This appeal become infructuous, since the main order in ITA No. 2367/Ahd/2018 wherein the A.O. was directed to compute the net profit at 9.52% of the turnover of the assessee relating to the Assessment Year 2014-15 and no separate adjudication is required. Thus the present appeal filed by the assessee become infructuous, therefore the same is hereby dismissed. 13. In the result, the appeal filed by the Assessee in ITA No. 917/Ahd/2019 is hereby dismissed. Order pronounced in the open court on 18-08-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 18/08/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद
Other Referred Cases
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