SAIF CARPETS PVT. LTD,BHADOHI V. DCIT/ACIT, CIRCLE - 1, VARANASI

ITA 83/VNS/2023

AI Insights

Saif Carpets Private Limited appealed against the order of the CIT(A), Lucknow-3, which confirmed the AO's decision to reject the books of account and estimate the net profit at 5% of turnover for the Assessment Year 2016-17. The AO had observed discrepancies in the maintenance of various registers and a significant drop in net profit percentage compared to the previous year. However, the assessee argued that despite a reduction in net profit percentage, the gross profit had actually improved and that the decline was primarily due to reduced duty drawback and export incentives. The Tribunal agreed with the assessee, noting that the AO's reasons for rejecting the books were misdirected and not applicable to the facts of the case.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 26057 (ITAT-VARANASI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 12-09-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 28-08-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAVITA MEENA
• Assessee Lawyers: E.H. ANSARI
• Keywords: Set aside

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, CIRCUIT BENCH, VARANASI BEFORE: SHRI B.R. BASKARAN, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA No.83/VNS/2023 (Assessment Year :2016-17) Saif Carpets Private Limited Himmatpur Bakuchia Bhadohi Uttar Pradesh-221 401 Vs. DCIT/ ACIT, CIR-1 Varanasi PAN/GIR No.AAECS1212M (Appellant) .. (Respondent) Assessee by Shri E.H. Ansari, CA Revenue by Smt. Kavita Meena, Sr. DR Date of Hearing 12/09/2024 Date of Pronouncement 15/10/2024 आदेश / O R D E R PER B.R. BASKARAN (A.M): The assessee has filed this appeal challenging the order dated 09/08/2023 passed by CIT(A), Lucknow-3 and it relates to the A.Y.2016-17. 2. The assessee company is engaged in the business of manufacturing and export of handmade carpets. The assessee filed return of income for the year under consideration declaring a total income of Rs.5,45,320/-. The AO noticed that the assessee has declared net profit at lower level vis-à- ITA No.83/VNS/2023 Saif Carpets Pvt. Ltd 2 vis profit level declared in the earlier years. The AO also observed that certain registers maintained by the assessee namely Wavers Register, Washing Register, Finishing Register, Clipping Register etc., were not properly maintained. The AO noticed that the postal address of labourers was not mentioned in the record. He also observed that the assessee has not maintained stock register for each quality. Accordingly, he rejected the books of account. He further noticed that the net profit declared by the assessee for the year under consideration was 0.30%, while the same was 5.19% in the immediately preceding year. Accordingly, AO rejected the book results and estimated the net profit of the assessee at 5% of the turnover, which resulted in an addition of Rs.1.46 Crores. The ld. CIT(A) also confirmed the same. 3. We heard the parties and perused the record. The ld. AR submitted that the assessee does not maintain Wavers Register, Washing Register, Finishing Register, Clipping Register etc., with regard to payment of labour charges. The ld. AR submitted that the assessee has maintained job sheets for each of the activity and posting is made in the books of account directly from the job sheet. Accordingly, he submitted that the observations made by the AO are not relevant to the assessee. Hence, the AO could not have rejected the book results. He further submitted that the assessee has declared gross profit rate of 12.06% during the year under consideration as against the gross profit rate of 11.58% in the immediately preceding year. Accordingly, he submitted that there is actually improvement in the gross profit. He ITA No.83/VNS/2023 Saif Carpets Pvt. Ltd 3 submitted that the AO was not justified in comparing the net profit percentage, since the duty drawback and other incentives received by the assessee constituted at 11.66% in the immediately preceding year wherein, it was 2.77% during the year under consideration. The huge reduction in the duty draw back and incentives was the main reason for the fall in net profit rate. Accordingly, he submitted that there is no reason to reject the books of account and also in estimating the profit. 4. We heard the rival contentions and perused the record. We noticed that the reasons cited by the AO for rejecting the books of accounts are not applicable to the assessee, since it is stated that the assessee is accounting for various expenses directly from out of job sheets, i.e., according to Ld A.R, those subsidiary registers are not maintained by the assessee. Hence it appears that the AO has misdirected himself in making certain observations, which are not applicable to the facts of the present case. Accordingly, we are of the view that there was no valid reason for the AO in rejecting the book results. 5. With regard to the estimation of profits, we notice that the assessee has furnished following comparative chart:- DETAILS OF COMPERATIVE CHART FOR FIVE YEARS F.Y.2015-16 2014-15 2013-14 2012-13 2011-12 EXPORT 293770869 297903639 338631003 274158111 264112642 GROSS PROFIT 35434277 34488628 39129889 30979092 30876446 ITA No.83/VNS/2023 Saif Carpets Pvt. Ltd 4 GP PERCENTAGE 12.06 11.58 11.56 11.30 11.69 DUTY DRAWBACK 25338553 24499504 27380108 23074603 21403298 IMPORT LICENCE 8145618 34729723 14702173 15387369 12080700 IMPORT LICENCE PERCENTAGE 2.77 11.66 4.34 5.61 4.57 NET PROFIT 868285 15482836 11971664 9887416 9553638 NET PROFIT PERCENTAGE 0.30 5.20 3.54 3.61 3.62 On a perusal of the above chart, we notice that the gross profit rate has actually improved in this year vis-à-vis the immediately preceding year. As rightly pointed out by Ld A.R, there was sharp fall in the Duty draw back and export incentives in this year and the same is the main reason for the fall in the net profit ratio. Hence, we are of the view that, in the facts and circumstances of the case, there is no reason to estimate the profit of the year. 6. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to accept the book results, i.e., the addition made by the AO should be deleted. ITA No.83/VNS/2023 Saif Carpets Pvt. Ltd 5 7. In the result, the appeal filed by the assessee is allowed. Order pronounced on 15/10/2024 by way of proper mentioning in the notice board. Sd/- (AMIT SHUKLA) Sd/- (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Varanasi; Dated 15/10/2024 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Varanasi 1. The Appellant 2. The Respondent. 3. The CIT(A), Varanasi. 4. CIT 5. DR, ITAT, Varanasi 6. Guard file. //True Copy// "