Income Tax Appellate Tribunal: In an appeal against the order of Commissioner of Income Tax (‘CIT’), the two-member bench of Chandra Mohan Garg*, (Judicial Magistrate) and Pradip Kumar Kedia (Accountant Member) held that the CIT was right in deleting the addition made by the Assessing Officer without any justified reasoning and cogent basis.
The grounds raised by the Revenue were that the CIT erred both in law and on facts of the case in deleting the addition of Rs. 1,72,35,965/- made on account of low Gross Profit rate (‘GP rate’), as the GP rate in year under consideration, i.e., Assessment year 2015-16 was 0.41% as compared to GP rate of 8.59% in Assessment year 2014-15. The CIT deleted the gross profit addition merely on the grounds that books were not rejected, without appreciating the fact that it is a case where there is substantial fall of gross profit in this year in comparison to assessee’s own gross profit in last year and assessee failed to adduce any cogent reason for the same. Further, the CIT deleted the gross profit addition merely on the ground that books of account of assessee were not rejected, without realising that powers of CIT are co-terminus with that of Assessing Officer.
The Tribunal noted that the first appellate authority noted that the Assessing Officer being not satisfied by the submission made by the appellant estimated gross profit at rate of 1% and made addition of Rs. 1,72,35,965/- in the gross profit of jewellery segment, on the ground that the reduction in GP rate in comparison to the immediately preceding assessment year 2014-15 is quite significant and abnormal. The Assessing Officer observed that the other assessee in the similar trade declared GP at rate of 1% of turnover and he made addition in the hands of assessee.
The Tribunal said that it is unable to see any findings of the Assessing Officer regarding raising any doubt on the completeness or correctness of the books of accounts of assessee or pointing out any defects or discrepancies therein. Further, the Assessing Officer has not invoked provisions of Section 145(3) of the Income Tax Act, 1961 to reject books of accounts of assessee. The sole ground taken by the Assessing Officer for enhancing GP rate from 0.41% to 1% of turnover is that there was a significant rise in the turnover of jewellery segment, but the GP rate was reduced abnormally.
The Tribunal further said that it is a well-accepted principal of tax jurisprudence that the Assessing Officer cannot sit on the armchair of a businessman assessee to replace his business strategy by his own whims and fancies. The assessee took decision to reduce GP rate with an intention to fetch high turnover resulting into increase in the total net profit, and under this strategy the assessee undertook turnover of 34 times in comparison to the immediately preceding year, taking sky high increase in the turnover which resulted into reduction of GP rate to 0.41%.
After perusing the copy of the three years comparative chart with breakup of jewellery segment, bullion segment and Job work segment, the Tribunal said that when the turnover of assessee was less than the GP rate was 8.59% and when the assessee under business strategy increased the turnover to 34 times then the GP rate was reduced to 0.41%. The GP rate of other segments such as artificial jewellery, semi-precious stones and job work also faced marginal changes, but the Assessing Officer only noted abnormal fall in GP rate of jewellery without pointing out any defects or discrepancies in the audited books of accounts of assessee and this approach without any other positive material or evidence, only on standalone basis is not correct and justified.
The Tribunal held that the CIT was right in deleting the addition made by the Assessing Officer without any justified reasoning and cogent basis. Thus, the Tribunal declined to interfere with the findings arrived at by first appellate authority as there was no ambiguity, perversity or a valid reason to interfere with the findings of the CIT.
[The ACIT, Circle-47(1) v Ashish Bansal, 2023 SCC OnLine ITAT 365, Order dated 02-06-2023]
Order by: Chandra Mohan Garg (Judicial member)