PHARMALAB ENGINEERING INDIA P.LTD, MUMBAI V. ASST CIT 10(3), MUMBAI

ITA 999/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2878 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 13-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Wrong claim
• Section: 143(3)

Judgement Text

C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 999 /MUM/2014 ( / ASSESSMENT YEAR : 2008-09) PHARMALAB ENGINEERING INDIA PRIVATE LIMITED (NOW PHARMALAB INDIA PRIVATE LIMITED) , KASTURI, 3 RD FLOOR, SANGHAVI ESTATE,STATION ROAD, GOVANDI(EAST), MUMBAI- 400 088 / V. THE ASSISTANT COMMISSIONER OF INCOME TAX 10(3) , AAYAKAR BHAWAN, M K MARG, CHURCHGATE, MUMBAI- 400020 ./ PAN : AAACP7395Q ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI K.GOPAL & MS NEHA PARANJPE ,AR REVENUE BY : DR. S.PANDIAN,DR / DATE OF HEARING : 30-03-2016 / DATE OF PRONOUNCEMENT : 22-06-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING ITA NO. 999/MUM/2014, IS DIRECTED AGAINST THE APPELLATE ORD ERS DATED 23-12-2013 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)-21, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSME NT YEAR 2008-09, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARI SING FROM THE ASSESSMENT ORDER DATED 10-12-2010 PASSED BY THE LEARNED ASSESS ING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3)(II) OF THE INCOME TAX A CT,1961 (HEREINAFTER CALLED THE ACT). ITA 999/MUM/2014 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL , MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE COMMISSIONER OF APPEALS-21, ERRED IN UPHOLD ING ADDITION OF RS.1,38,47,120/- (ESTIMATING GROSS PROFIT OF 11.06%) AGAINST ADDITION OF RS.3,45,63,127/- MADE BY THE ASSESSING OFFICER. THE SAID ADDITION MAY BE DELETED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF EQUIPMENTS/MACHINE RIES WHICH ARE USED BY PHARMACEUTICALS AND ALLIED INDUSTRIES. 4. THE A.O. OBSERVED FROM THE PROFIT AND LOSS ACCOU NT FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 THAT THE AS SESSEE COMPANY HAS SALES OF RS.20.58 CRORES AND GROSS PROFIT OF RS.6.55 CROR ES , WHEREAS FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008- 09, THE ASSESSEE HAS SALES OF RS.19.01 CRORES AND GROSS PROFIT OF RS.2.6 CRORES. THE GROSS PROFIT RATIO OF THE ASSESSMENT YEAR 2007-08 WORKED OUT TO BE 31.82% , WHILE FOR THE ASSESSMENT YEAR 2008-09, IT WORKED OUT TO BE 13.67% AND HENCE THERE WAS A DRASTIC FALL IN GP RATIO FOR ASSESSMENT YEAR 2008-0 9 VIS--VIS FOR ASSESSMENT YEAR 2007-08. THE DETAILS WERE CALLED BY THE AO FRO M THE ASSESSEE TO ENQUIRE ABOUT THIS DRASTIC FALL IN GP RATIO. THE ASSESSEE S UBMITTED DETAILS AND THE AO OBSERVED FROM THE DETAILS SUBMITTED BY THE ASSESSEE THAT OUT OF SALES OF RS.19.01 CRORES, THE SALES TO THE TUNE OF RS.9.67 C RORES WERE MADE TO THE SISTER CONCERN M/S PHARMALAB INDIA PRIVATE LTD.. TH E ASSESSEE WAS CALLED UPON TO SUBMIT COMPLETE DETAILS OF TRANSACTIONS WIT H SISTER CONCERN FOR THE ENTIRE YEAR TO VERIFY THAT THE SAME WERE MADE AT AR MS LENGTH PRICE. THE ASSESSEE SUBMITTED DETAILS ON WHICH THE AO OBSERVED FROM PURCHASE AND SALE REGISTER THAT THE ASSESSEE HAS SHOWN SALE PRICE INC LUSIVE OF EXCISE DUTY, ITA 999/MUM/2014 3 FREIGHT AND TRANSPORT CHARGES WITH RESPECT TO THE SALES MADE TO SISTER CONCERN WHEREAS, IN RESPECT OF THE SALES MADE TO OU TSIDE PARTIES , THE ASSESSEE HAS ONLY SHOWN THE SALES FIGURE EXCLUSIVE OF EXCISE DUTY, FREIGHT AND TRANSPORT CHARGES TO SHOW THAT THE ASSESSEE HAS SOL D AT A HIGHER PRICE TO ITS SISTER CONCERN AND AT A LOWER PRICE TO OUTSIDE PART IES. THUS, FROM THE DETAILS SUBMITTED BY THE ASSESSEE, THE AO OBSERVED THAT THE ASSESSEE HAS SOLD ITEMS TO ITS SISTER CONCERN AT A DISCOUNT OF AROUND 30-50 % AS COMPARED TO OUTSIDE PARTIES. IT WAS ALSO OBSERVED BY THE AO THAT THE AS SESSEE HAS MANIPULATED THE SALES PRICES IN THE LAST QUARTER OF THE PREVIOUS YE ARS TO NULLIFY THE PROFITS MADE IN FIRST THREE QUARTERS. THE ASSESSEE HAS MADE SALES OF RS.7.22 CRORES IN THE LAST QUARTER TO ITS SISTER CONCERN TO MAKE THE STOCK NIL WHILE PURCHASES ARE RS.72.02 LACS DURING THE LAST QUARTER OF THE PR EVIOUS YEAR. THE ASSESSEE HAS BOOKED SALES OF RS.7.22 CRORES TO SISTER CONCER N EXCLUDING RS.13 LACS AS SALE OF SPARES WITHOUT GIVING DESCRIPTION ABOUT T HE DETAILS OF THE SPARES IT CONSTITUTED. THUS IT WAS OBSERVED BY THE AO THAT A NET LOSS OF RS 41 LACS WAS SHOWN FOR THE ENTIRE ASSESSMENT YEAR BY MANIPULATIN G THE SALES MADE TO SISTER CONCERN. IN RESPONSE, THE ASSESSEE SUBMITTED BEFORE THE AO T HAT SOME OF THE SALES TO OUTSIDE PARTIES WERE INCLUSIVE OF ACCESSORIES AS WE LL IN RESPECT OF SOME ITEMS OF SALES TO OUTSIDE PARTIES WERE OF DIFFERENT SPECI FICATION THAN THE ONE SOLD TO ITS SISTER CONCERN AND HENCE PRICES WERE HIGHER. TH E ASSESSEE ALSO CONTENDED THAT IN RESPECT OF SOME ITEMS, THE SALE PRICE TO OU TSIDE PARTIES IS INCLUSIVE OF INSTALLATION AND COMMISSIONING WHEREAS IN THE CASE OF SISTER CONCERN, THE INSTALLATION AND COMMISSIONING WAS CARRIED ON BY TH E SISTER CONCERN ITSELF. THE AO REJECTED THE CONTENTIONS AS THE SAME WERE NO T BASED UPON DOCUMENTARY EVIDENCES. IT WAS ALSO HELD BY THE AO T HAT WITH RESPECT OF SALES OF SPARE PARTS AT THE FAG-END OF THE PREVIOUS YEAR TO ITS SISTER CONCERN , THEREBY REDUCING THE STOCK TO NIL, THE DETAILS WERE NOT AVAILABLE IN THE STOCK REGISTER AND THE ASSESSEE DID NOT FURNISHED THE DET AILS BEFORE THE AO. ITA 999/MUM/2014 4 IT WAS ALSO OBSERVED BY THE AO THAT THE ASSESSEE BO OKED SALES COMMISSION OF RS 99 LACS ON SALES OF RS 19.01 CRORES DURING THE P REVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR, WHILE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE SALES COMMISSION WAS ONLY RS.1.08 LACS ON SALES OF RS.20.58 CRORES. FURTHER IT WAS OBSERVED BY THE AO THAT IT IS PERTI NENT THAT IN THE IMPUGNED ASSESSMENT YEAR UNDER APPEAL, THE SALES TO SISTER C ONCERN WAS RS.9.67 CRORES ON WHICH NO SALES COMMISSION WOULD BE PAYABLE. IT W AS OBSERVED BY THE AO THAT THE ASSESSEE HAS CLAIMED COMMISSION OF RS.99 L ACS ON SALES OF RS. 9.34 CRORES TO OUTSIDE PARTIES . NO DETAILS OF SALES COM MISSION WERE SUBMITTED BY THE ASSESSEE INCLUDING THE NAMES AND ADDRESS OF TH E PARTIES TO WHOM SALES COMMISSION IS PAYABLE, NOR THE ASSESSEE PAID SALES COMMISSION DURING THE PREVIOUS YEAR AND THE SAID SALE COMMISSION OF RS. 9 9 LACS WAS SHOWN AS PAYABLE AS AT 31-03-2008. THE AO HELD THAT THIS CLA IM OF RS.99 LACS TOWARDS SALES COMMISSION IS A BOGUS CLAIM MADE BY THE ASSES SEE AND IT IS AN ATTEMPT BY THE ASSESSEE TO MANIPULATE THE ACCOUNTS TO DEFLA TE THE PROFITS AND CONSEQUENTLY REDUCE THE TAX PAYABLE . IN VIEW OF THE ABOVE , THE AO REJECTED THE BOOK RES ULTS SHOWN BY THE ASSESSEE AS THE SAME DO NOT REFLECT TRUE AND FAIR PICTURE OF THE ASSESSEES PROFITABILITY AND THE AO ADOPTED GROSS PROFIT RATE OF 31.82% ON A TOTAL SALES OF RS.19.01 CRORES I.E. THE SAME GROSS PROFIT RATE SHOWN BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2007-08. THUS , ADDITION OF RS.3,45,63,127/- WAS MADE BY THE AO ON SALES OF RS. 19,01,35,203/- AFTER GIVING CREDIT OF GROSS PROFIT OF 13.67% DECLARED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT, VIDE ASSESSMENT ORDERS DATED 10.1 2.2010 PASSED BY THE AO U/S 143(3)(II) OF THE ACT. IT IS PERTINENT TO MENTION HERE THAT THE AO MADE S EPARATE ADDITIONS OF RS.99 LACS IN THE AFORE-STATED ASSESSMENT ORDER DATED 10. 12.2010 TOWARDS ALLEGED ITA 999/MUM/2014 5 BOGUS SALES COMMISSION AS DISCUSSED ABOVE IN PRECED ING PARA WHICH WAS LATER DELETED BY THE LEARNED CIT(A) IN THE FIRST AP PEAL FILED BY THE ASSESSEE BEFORE LEARNED CIT(A) AND THUS IS NOT AN ISSUE FOR ADJUDICATION IN THIS SECOND APPEAL FILED BY THE ASSESSEE BEFORE THE TRIBUNAL AS IT IS NOT BROUGHT ON RECORD THAT THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL T O AGITATE AND CHALLENGE THE RELIEF GRANTED BY THE LEARNED CIT(A) IN FIRST APPEA L FILED BY THE ASESSEE. 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 10.12.20 10 PASSED BY THE AO U/S 143(3)(II) OF THE ACT, THE ASSESSEE FILED FIRST APP EAL BEFORE THE LEARNED CIT(A). 6. THE LEARNED CIT(A) CALLED FOR REMAND REPORT FROM THE AO. THE AO SUBMITTED REMAND REPORT AND ACCEPTED THAT THE INVOICES RAISED TO THE SISTER CONCERNS DOES NOT INCLUDED EXCISE DUTY AND SALES TAX(FOR EXP ORTS), WHEREAS THE INVOICE TO OUTSIDERS INCLUDED EXCISE DUTY AND SALES TAX AS ALSO SALES TO OUTSIDER CONTAINED ADDITIONAL SPECIFICATIONS. IT WAS SUBMITT ED BY THE AO IN REMAND REPORT THAT THE GROSS PROFIT ARRIVED AT BY THE AO W AS 31.82% WHILE THE ASSESSEE SUBMITTED CHART ARRIVING AT GROSS PROFIT A T 18.79%.THE ASSESSEE HAD CONTENDED THAT THE ASSESSEE IS A MANUFACTURING CONC ERN AND MANUFACTURING COST ALSO INCLUDE MATERIAL, LABOUR CHARGES, CARRIAG E INWARD, POWER AND FUEL, AS AGAINST ONLY MATERIAL COST TAKEN BY THE AO WHILE COMPUTING GROSS PROFIT DURING ASSESSMENT PROCEEDINGS. IT WAS ALSO VERIFIED BY THE AO IN REMAND REPORT PROCEEDINGS AND FOUND TO BE CORRECT BY THE A O , WHEREBY IT WAS OBSERVED BY THE AO IN REMAND REPORT PROCEEDINGS THA T THE AO HAS TAKEN ONLY MATERIAL COST IN HIS COMPUTATION OF GROSS PROFIT MA RGIN IN THE ASSESSMENT PROCEEDINGS AND HENCE GROSS PROFIT MARGIN IS HIGHE R. THE AO IN REMAND REPORT PROCEEDINGS SUBMITTED THAT WITH RESPECT TO I SSUE REGARDING THE INCLUSION OF OTHER COST AS DESCRIBED ABOVE FOR ARRI VING AT THE GROSS PROFIT, THE SAME MAY BE DECIDED BY LEARNED CIT(A) AS PER MERITS OF THE CASE. ITA 999/MUM/2014 6 THE REMAND REPORT SUBMITTED BY THE AO TO THE LEARNE D CIT(A) WAS FORWARDED BY THE LEARNED CIT(A) TO THE ASSESSEE FOR ITS COMME NTS. THE ASSESSEE SUBMITTED BEFORE LEARNED CIT(A) THAT T HE AO HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE IN REMAND REPORT PROCEE DINGS AND NO DISCREPANCIES HAVE BEEN REPORTED IN REMAND REPORT A ND HENCE THE ADDITIONS ARE NOW NOT SUSTAINABLE. IT WAS SUBMITTED THAT THE ASSESSEE IS A RESPECTABLE LARGE CAPITAL GOODS MANUFACTURING UNIT, MANAGED AND RUN BY PROFESSIONALS. THE REVENUE HAS NOT MADE ANY SUCH ADDITIONS IN THE ASSESSMENT ORDERS FOR PRECEDING YEARS . THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND ITS MANUFACTURING PROCESS WAS SUBJECT TO SUPERVISION AN D CHECKING BY CENTRAL EXCISE DEPARTMENT AND THERE IS NO JUSTIFICATION FOR REJECTING BOOK RESULTS. THE BOOKS OF ACCOUNTS ARE COMPLETE, PROPERLY MAINTAINED AND CORRECT AND THERE IS NO JUSTIFICATION IN REJECTING THE AUDITED BOOK RESU LTS WITHOUT INVESTIGATIONS AND WITHOUT POINTING DEFECTS IN THE AUDITED BOOKS O F ACCOUNTS. THUS, IN NUT- SHELL THE ASSESSEE CONTENDED THAT IN VIEW OF THE AO ACCEPTING THE CONTENTIONS OF THE ASSESSEE IN REMAND REPORT PROCEEDINGS , NOW THE ENTIRE ADDITIONS MADE ON GROSS PROFIT MARGIN OF RS.3,45,63,127/- NEED TO BE DELETED. THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEE HAS M ERGED ITS BUSINESS IN THE FINANCIAL YEAR 2007-08 AND MAJOR PART OF IT WAS SOL D WHICH ARE PURCHASED AS COMPONENTS FOR MANUFACTURING PLANT AND MACHINERY ON COST BASIS, HENCE , THE GROSS PROFIT MARGIN OF THE IMPUGNED ASSESSMENT YEAR IS LOWER. THE DETAILS WERE CALLED BY THE LEARNED CIT(A) FROM THE ASSESSEE FOR THE FINANCIAL YEAR 2006-07 AND 2007-08 TO INCLUDE THE TRANSFER OF COMP ONENTS WHICH ARE SOLD AT COST PRICE ONLY AND ONLY TO INCLUDE MANUFACTURE ITE M AS TO SHOW THE GROSS PROFIT WHICH IS REPRODUCED BELOW: AMOUNT RS. IN CRORES F.Y.2006-07 ITA 999/MUM/2014 7 TO OPENING 1.80 BY SALES 20.58 TO PURCHASE & DIRECT EXPENSES 15.53 BY CLOSING STOCK 3.30 TO GROSS PROFIT 6.55 23.88 23.88 GROSS PROFIT MARGIN : 31.82% F.Y.2007-08 TO OPENING 3.30 BY SALES LESS: TRANSFER OF COMPONENTS, SPARES ETC. TO PHARMALAB INDIA PVT. LTD 19.01 6.49 -------- - 12.52 TO PURCHASE & DIRECT EXPENSES LESS: TRANSFER OF COMPONENTS, SPARES ETC. TO PHARMALAB INDIA PVT. LTD. 13.11 6.49 ------- 6.62 BY CLOSING STOCK NIL TO GROSS PROFIT 2.60 12.52 12.52 GROSS PROFIT MARGIN : 20.76% THE LEARNED CIT(A) COMPARED RESULTS OF FINANCIAL YE AR 2006-07 WHICH WERE TOTALLY OF MANUFACTURING ACTIVITIES OF THE ASSESSEE WITH THE RESULTS OF FINANCIAL ITA 999/MUM/2014 8 YEAR 2007-08 AFTER EXCLUDING TRANSFER OF COMPONENTS AND SPARES TO PHARMALAB INDIA PRIVATE LIMITED AT COST OF RS. 6.49 CRORES , THE SALES FROM MANUFACTURING PRODUCTS COMES TO RS 12.52 CRORES. TH E LEARNED CIT(A) OBSERVED THAT THERE IS A HUGE DIFFERENCE BETWEEN TH E GROSS PROFIT MARGIN OF THE TWO YEARS WHEREBY GROSS PROFIT MARGIN IN FINANCIAL YEAR 2006-07 WAS 31.82%, WHILE FOR FINANCIAL YEAR 2007-08 IT WAS 20.67% AND THERE IS A HUGE DIFFERENCE BETWEEN THESE TWO ON SIMILAR BUSINESS ON SIMILAR IT EMS OF MANUFACTURING ACTIVITIES OF THE ASSESSEE. THE LEARNED CIT(A) APPL IED THE DIFFERENCE BETWEEN THE TWO YEARS GROSS PROFIT MARGIN I.E. 11.06% TO TH E SALES OF PRODUCTS FROM MANUFACTURING ACTIVITIES OF RS.12.52 CRORES DURING THE IMPUGNED ASSESSMENT YEAR AND ADDED RS.1,38,47,120/- TO THE INCOME OF TH E ASSESSEE AND GAVE RELIEF WITH RESPECT TO THE BALANCE ADDITION MADE BY THE AO , VIDE APPELLATE ORDERS DATED 23.12.2013 PASSED BY LEARNED CIT(A). 7. AGGRIEVED BY THE APPELLATE ORDERS DATED 23.12.20 13 PASSED BY THE LEARNED CIT(A) , THE ASSESSEE FILED SECOND APPEAL WITH THE TRIBUNAL. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW. IT WAS SUBMITTED THAT THE LEARNED CIT(A) HAS MADE ADDITIONS OF RS.1,38,47,120/- TO THE INCOME OF THE ASSESSEE BY MAKING ADDITION OF GROSS PROFIT MARGIN OF 11.06% ON SALES OF MANUFACTURED PRODUCTS MADE TO OUTSIDER WHEREBY GROSS PROFIT MARGIN OF THE IMPUGNED ASSESSMENT YEAR WAS CALCULATED AT 20.76% ON SALES OF MANUFACTU RED PRODUCTS MADE TO OUTSIDER OF RS.12.52 CRORES , WHICH IS THEN COMPARE D TO GROSS PROFIT MARGIN RATE OF 31.82% OF IMMEDIATELY PRECEDING ASSESSMENT YEAR AND THUS ADDITION WAS ARRIVED AT OF GROSS PROFIT MARGIN OF 11.06% BEI NG THE DIFFERENCE BETWEEN GROSS PROFIT MARGIN ON MANUFACTURED PRODUCTS FOR TH E IMPUGNED ASSESSMENT YEAR UNDER APPEAL VIS-A-VIS PRECEDING YEAR . THE A O MADE ADDITIONS OF RS.3,45,63,127/- TO THE INCOME OF THE ASSESSEE BY E STIMATING GROSS PROFIT MARGIN OF 31.82% ON TOTAL SALES OF THE INSTANT ASSE SSMENT YEAR UNDER APPEAL ITA 999/MUM/2014 9 BASED ON THE GROSS PROFIT MARGIN OF 31.82% OF PREC EDING ASSESSMENT YEAR. THE LEARNED COUNSEL DREW OUR ATTENTION TO THE ORDER S OF THE AUTHORITIES BELOW. IT WAS SUBMITTED THAT THE LEARNED CIT(A) CALLED THE REMAND REPORT FROM AO WHICH IS PLACED AT PAPER BOOK FILED WITH THE TRIBUN AL AT PAGE 44-46. IT WAS SUBMITTED THAT WHILE COMPUTING GROSS PROFIT MARGIN, THE AO ERRED IN NOT INCLUDED MANUFACTURING COSTS LIKE LABOUR CHARGES, P OWER AND FUEL,CARRIAGE INWARD ETC.. IT WAS SUBMITTED THAT SALES TO SISTER CONCERN WAS MADE WITHOUT EXCISE DUTY AND SALES TAX (AGAINST H FORM) AS THE SAME WERE MEANT FOR EXPORT PURPOSES, WHILE FOR OUTSIDER THE SALES WERE EFFECTE D INCLUDING SALES TAX AND EXCISE DUTY. IT WAS THE MAIN REASON THAT PRICES VAR IATION WAS COMING AND IT WAS COMMENTED IN THE ASSESSMENT ORDERS THAT THE SAL E TO SISTER CONCERN IS AT LOWER PRICE THAN PRICE AT WHICH THE MANUFACTURED PR ODUCTS WERE SOLD TO OUTSIDER. IT WAS SUBMITTED THAT IN REMAND REPORT PR OCEEDINGS, THE AO ACCEPTED THIS CONTENTION OF THE ASSESSEE. HE DREW O UR ATTENTIONS TO THE INVOICES PLACED IN PAPER BOOK AT PAGE 13-17. IT WAS ACCEPTED BY THE AO IN REMAND REPORT THAT THERE IS NO DISCREPANCIES AND WH ILE COMPUTING GROSS PROFIT MARGIN THE AO HAS NOT INCLUDED OTHER MANUFACTURING COSTS SUCH AS LABOUR, CARRIAGE INWARDS, POWER AND FUEL. IT WAS SUBMITTED THAT NO DISCREPANCY HAS BEEN NOTED IN THE AUDITED BOOKS OF ACCOUNTS. THE LE ARNED COUNSEL RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT V. POONAM RANI (2010) 326 ITR 223(DEL. HC). 9. THE LEARNED DR ON THE OTHER HAND RELIED UPON THE DECISION OF LEARNED CIT(A) AND SUBMITTED THAT THE ADDITIONS MADE BY LEA RNED CIT(A) BE SUSTAINED. IT IS NOT BROUGHT ON RECORD THAT THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE RELIEFS GRANTED BY THE AO. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIAL ON RECORD INCLUDING CASE LAWS RELIED UPON. WE HAVE OBS ERVED THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF ITA 999/MUM/2014 10 EQUIPMENTS/MACHINERIES WHICH ARE USED BY PHARMACEUT ICALS AND ALLIED INDUSTRIES. THE AO HAS MADE ADDITIONS ON THE GROUND S THAT THE GROSS PROFIT MARGIN EARNED DURING THE YEAR BEING LOWER THAN THE GROSS PROFIT MARGIN OF IMMEDIATELY PRECEDING YEAR AND THE ADDITIONS WERE M ADE TO THE INCOME OF THE ASSESSEE BY APPLYING THE GROSS PROFIT MARGIN OF 31. 82% TO THE SALES OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL , BASED ON GROSS PROFIT MARGIN EARNED DURING THE PRECEDING YEAR. THE ASSESSEE CONTENDED THAT IN RESPECT OF SOME ITEMS, THE SALE PRICE TO OUTSIDE PARTIES IS INCLUSIVE OF ACCESSORIES BEING SUPPLIED ALONG WITH THE MANUFACTU RED PRODUCTS AS WELL IS INCLUSIVE OF INSTALLATION AND COMMISSIONING WHEREAS IN THE CASE OF SISTER CONCERN, THE INSTALLATION AND COMMISSIONING WAS CAR RIED ON BY THE SISTER CONCERN ITSELF. THE AO REJECTED THE CONTENTIONS DUR ING ASSESSMENT PROCEEDINGS AS THE SAME WERE NOT BASED UPON DOCUMEN TARY EVIDENCES , WHILE THE ASSESSEE HAD DULY SUBMITTED ALL THE DETAILS BEF ORE THE AUTHORITIES BELOW. NO PARTICULAR DEFECT WAS POINTED OUT BY THE AO IN T HE REMAND REPORT PROCEEDINGS WITH RESPECT TO THIS CONTENTION OF THE ASSESSEE. THE SUBMISSIONS MADE BEFORE THE AO WITH THIS REGARDS ARE PLACED IN PAPER BOOK PAGE 18-22. IT WAS ALSO EXPLAINED BY THE ASSESSEE THAT THE SALE PR ICE TO THE SISTER CONCERN WAS LOWER BECAUSE EXCISE DUTY AND SALES TAX(AGAINST H FORM) WAS NOT INCLUDED IN THE SALE PRICE FOR MANUFACTURED PRODUCTS AS THE PRODUCTS WERE PROCURED BY THE SISTER CONCERN WHICH WERE MEANT FOR EXPORTS. TH IS CONTENTION OF THE ASSESSEE WAS ACCEPTED BY THE AO IN REMAND REPORT PR OCEEDINGS . IT WAS ALSO ACCEPTED BY THE AO IN REMAND REPORT PROCEEDINGS THA T THE AO IN THE ASSESSMENT PROCEEDINGS WHILE COMPUTING THE GROSS PR OFIT MARGIN HAS NOT INCLUDED THE OTHER MANUFACTURING COSTS SUCH AS LABO UR, POWER AND FUEL , CARRIAGE INWARDS ETC. AND ONLY MATERIAL COSTS WERE CONSIDERED BY THE AO IN ARRIVING AT GROSS PROFIT MARGIN WHILE FRAMING ASSES SMENT U/S 143(3) OF THE ACT. WITH RESPECT TO THE SALE OF SPARES COMPONENTS TO SISTER CONCERN OF RS.6.49 CRORES AT COST OWING TO ASSESSEE MERGER , THE SAME WERE ACCEPTED OF BEING SOLD AT COST BY LEARNED CIT(A) AND CONSEQUENT RELIEF WAS GIVEN BY ITA 999/MUM/2014 11 LEARNED CIT(A) IN THE FIRST APPELLATE PROCEEDINGS V IDE ORDERS DATED 23.12.2013 AND THE REVENUE IS NOT IN APPEAL BEFORE THE TRIBUNA L AGAINST THE SAID RELIEF GRANTED BY THE LEARNED CIT(A) . IT WAS ALSO OBSERV ED BY THE AO WHILE FRAMING ASSESSMENT THAT THE ASSESSEE BOOKED SALES COMMISSIO N OF RS 99 LACS ON SALES OF RS 19.01 CRORES DURING THE PREVIOUS YEAR RELEVAN T TO THE IMPUGNED ASSESSMENT YEAR, WHILE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE SALES COMMISSION WAS ONLY RS.1.08 LACS ON SALES OF RS.20.58 CRORES. A SEPARATE ADDITION WAS MADE BY THE AO OF RS. 99 LACS IN THE ASSESSMENT ORDER FOR THE IMPUGNED ASSESSMENT YEAR UNDER APPEAL.THE L EARNED CIT(A) DELETED THE SAID ADDITION AFTER CALLING REMAND REPORT FROM THE AO WHEREBY THE AO ACCEPTED THAT THE COMMISSIONS EXPENSES WERE DULY VE RIFIED. IT IS NOT BROUGHT ON RECORD BY THE REVENUE THAT THE SECOND APPEAL HAS BEEN FILED WITH THE TRIBUNAL BY THE REVENUE CHALLENGING THE RELIEF GRAN TED BY THE LEARNED CIT(A) IN HIS APPELLATE ORDERS. IN OUR CONSIDERED VIEW, ME RELY BECAUSE GROSS PROFIT MARGIN IS LOWER IN THE INSTANT ASSESSMENT YEAR UNDE R APPEAL VIS--VIS PRECEDING ASSESSMENT YEAR CANNOT BE A GROUND OF ADD ITIONS TO THE INCOME OF THE ASSESSEE UNLESS THE REVENUE POINTS OUT PARTICUL AR DEFECT OR DISCREPANCIES IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE . THE ASSESSEE IS MAINTAINING BOOKS OF ACCOUNTS WHICH ARE AUDITED. TH E ASSESSEE HAS DULY MET ALL THE ADVERSE RESERVATIONS OF THE AO IN REMAND RE PORT/APPELLATE PROCEEDINGS BEFORE LEARNED CIT(A) AS SET OUT ABOVE. NO COGENT M ATERIAL HAS BEEN BROUGHT ON RECORD TO PROVE THAT THE ASSESSEE HAS MANIPULATE D ITS ACCOUNTS TO SUPPRESS PROFITS. THEREFORE, THERE ARE NO REASONS O R JUSTIFICATION IN LAW TO REJECT THE EXPLANATION GIVEN BY THE ASSESSEE TO SUP PORT ITS CONTENTIONS. MERE FALL IN THE GROSS PROFIT RATIO , IN THE ABSENCE OF ANY COGENT REASONS COULD NOT BE A GROUND TO HOLD THAT THE PROPER INCOME COULD NO T BE DEDUCED FROM THE AUDITED ACCOUNTS MAINTAINED BY THE ASSESSEE AND THE BOOK RESULTS OUGHT TO BE REJECTED, AND CONSEQUENTLY GROSS PROFIT MARGIN R ATE OF PRECEDING YEARS BE APPLIED TO THE SALES OF THE INSTANT ASSESSMENT YEAR UNDER APPEAL. THERE IS NO AVERMENTS THAT THERE IS AN DELIBERATE ATTEMPT TO IN FLATE COST OF MATERIAL OR ITA 999/MUM/2014 12 OTHER EXPENSES ON THE PART OF THE ASSESSEE OR TO SU PPRESS SALE PRICE OF PRODUCTS SOLD BY THE ASSESSEE. THE ALLEGATIONS OF THE AO WERE DULY MET BY THE ASSESSEE IN REMAND REPORT/APPELLATE PROCEEDINGS AS SET OUT ABOVE. THE REVENUE IS NOT IN APPEAL BEFORE THE TRIBUNAL WITH R ESPECT TO THE RELIEFS GRANTED BY THE LEARNED CIT(A). OUR VIEW IS CONSISTE NT WITH THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. SMT POONAM RANI (2010) 326 ITR 223(DEL.HC). IN OUR CONSIDERED VIEW, THE ADDIT IONS MADE BY THE LEARNED AO AS SUSTAINED/CONFIRMED BY THE LEARNED CIT(A) TO THE TUNE OF RS.1,38,47,120/- IS NOT SUSTAINABLE IN LAW AND WE O RDER DELETION OF THE SAME. WE ORDER ACCORDINGLY. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA N0. 999/MUM/2014 FOR THE ASSESSMENT YEAR 2008-09 IS ALL OWED . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE, 2016. # $% &' 22-06-2016 ( ) SD/- SD/- (SANJAY GARG) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 22-06-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI H BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI