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PR. COMMISSIONER OF INCOME TAX-3 V/S PURSHOTTAM B PITRODA, decided on Wednesday, May 3, 2017.
[ In the High Court of Gujarat at Ahmedabad, Tax Appeal No. 287 of 2017. ] 03/05/2017
Judge(s) : M.R. SHAH & B.N. KARIA
Advocate(s) : Nitin K Mehta.
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  "2017 (248) TAXMAN 118"  ==   ""  







    M.R. Shah J.Oral:1. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Income Tax Appellate Tribunal A Bench Ahmedabad (hereinafter referred to as the learned tribunal) in ITA No.3513/Ahd/2010 for the Assessment Year 2007-08 by which the learned tribunal has dismissed the said Appeal preferred by the revenue and has confirmed the order passed by the learned CIT(A) deleting the addition made by the Assessing Officer on rejection of the books of accounts by the Assessing Officer and estimating the Gross Profit at 53.32% instead of 48.39% as declared by the assessee revenue has preferred the present Tax Appeal with the following proposed questions of law;(A) Whether the Hon'ble ITAT has erred in law and on facts in deleting the addition made on account of low Gross Profit without considering the facts of the case?(B) Whether the Hon'ble ITAT has erred in law and on facts by not appreciating the facts arrived by the Assessing Officer that the assessee is doing the huge turnover without maintaining site wise stock register work-in-progress register.2. The respondent - assessee filed the return of income for the Assessment Year 2007-08 declaring the total income of Rs.12 64 190/- after set off carried forwarded loss of Rs.85 33 567/-. The respondent - assessee claimed the Gross Profit at 48.39%. The respondent - assessee also claimed diesel expenses at 39%. The Assessing Officer rejected the books of accounts of the respondent - asseessee mainly on the ground that the stock register site wise and item wise were not maintained. The Assessing Officer also did not accept the diesel expenditure of 39% as claimed by the respondent - assessee and estimated and considered the diesel expenses at 30%. The Assessing Officer did not accept the Gross Profit at 48.39% as declared by the respondent - assessee and considering the overall Gross Profit declared in earlier years which comes at 53.32%. The Assessing Officer estimated the Gross Profit ratio at 53.32% and made the addition of Rs.1 76 91 830/-.2.1 Feeling aggrieved and dissatisfied with the order passed by the Assessing Officer making the addition of Rs.1 76 91 830/- taking the Gross Profit ratio at 53.32% the assessee preferred Appeal before the learned CIT(A). Learned CIT(A) allowed the Appeal preferred by the assessee and deleted the addition made by the Assessing Officer of Rs.1 76 91 830/-. On Appeal preferred by the revenue against the order passed by the learned CIT(A) deleting the addition of Rs.1 76 91 830/- the learned tribunal has dismissed the said Appeal and has confirmed the order passed by the learned CIT(A) which has given rise to the present Tax Appeal.3. Shri Nitin Mehta learned advocate appearing on behalf of the revenue has vehemently submitted that in the facts and circumstances of the case more particularly when the respondent - assessee did not maintain the stock register site wise as well as item wise and on quantitative basis Assessing Officer was justified in rejecting the books of accounts. It is further submitted by Shri Nitin Mehta learned advocate appearing on behalf of the revenue that even the Assessing Officer was justified in restricting the diesel expenses to 30% considering the terms of contract with GMDC.3.1 It is further submitted that once the Assessing Officer was justified in rejecting the books of accounts thereafter the Gross Profit was required to be arrived at on estimation basis. It is submitted that considering the overall Gross Profit ratio declared in earlier years which comes to 53.32% the Assessing Officer was justified in taking the Gross Profit ratio at 53.32% and thereafter was justified in making the addition of Rs.1 76 91 830/-. It is submitted that considering the aforesaid facts and circumstances of the case the learned tribunal was not justified in deleting the addition made by the Assessing Officer made on account of taking Gross Profit ratio at 53.32%.Making the above submissions it is requested to admit /allow the present Tax Appeal.4. We have heard Shri Nitin Mehta learned advocate appearing on behalf of the revenue. We have also perused and considered the order passed by the Assessing Officer more particularly the reasoning given by the Assessing Officer while rejecting the books of accounts and the reasoning given by the Assessing Officer while restricting the diesel expenses at 30% and also while arriving at the Gross Profit ratio at 53.32%. We have also considered and gone through the order passed by the learned CIT(A) and the learned tribunal deleting the addition made by the Assessing Officer. At the outset it is required to be noted that the Assessing Officer rejected the books of accounts mainly on the ground that the respondent - assessee had not maintained the stock register site wise and item wise which was maintained /produced on estimation basis. The Assessing Officer doubted the diesel expenses of 39% claimed by the respondent - assessee and restricted it to 30% considering the terms and conditions of the contract between the respondent - assessee and the GMDC. The Assessing Officer thereafter and after rejecting the books of accounts made the estimation of Gross Profit considering the overall Gross Profit ratio declared in earlier years which comes at 53.32%. Now so far as the findings recorded by the learned CIT(A) as well as the learned tribunal setting aside the action of the Assessing Officer in rejecting the books of accounts is concerned though cogent reasons have been given and assuming that there was some justification by the Assessing Officer to reject the books of accounts in that case the Assessing Officer was required to do the exercise of estimating the Gross Profit. The Assessing Officer has estimated the Gross Profit at 53.32% against the claim of the respondent - assessee at 48.39% considering the overall Gross Profit ratio declared in the earlier years. The reasoning given by the Assessing Officer for the aforesaid is that in the earlier years with respect to the same contract the respondent - assessee estimated the profit at 53.32%. However the Assessing Officer has not properly appreciated the fact that there may be number of reasons for decline in the profit. The expenditure might have increased and /or maybe for some or the other reason the profit might have decreased. Merely with respect to the same contract in the earlier years the respondent - assessee estimated the Gross Profit at 53.32% on the aforesaid ground alone the Assessing Officer was not justified in estimating the Gross Profit for the year under consideration. One of the ground which has been weighed with the learned tribunal in accepting the Gross Profit ratio at 48.39% claimed by the respondent - assessee is for the year under consideration the income has increased and therefore there was justification in decrease in the Gross Profit. Under the circumstances the learned tribunal has rightly observed and held that the Assessing Officer was not justified in estimating the Gross Profit ratio at 53.32% against the claim of the respondent - assessee of Gross Profit at 48.39%.4.1 Now so far as restricting the diesel expenses to 30% against the claim of the respondent - assessee at 39% what was weighed with the Assessing Officer was that in the contract between the GMDC and the respondent - assessee it was agreed that GMDC will pay the diesel expenses to the extent of 30% and therefore the Assessing Officer restricted the diesel expenses to 30%. However it is required to be noted that as per the terms and conditions of the agreement between the GMDC and the respondent - assessee GMDC agreed to pay diesel expenses to the extent of 30% only and whatever expenses above 30% was required to be borne by the respondent - assessee and therefore merely because GMDC agreed to pay diesel expenses to the extent of 30% the Assessing Officer was not justified in restricting the diesel expenses to 30%.5. In view of the above and for the reasons stated herein above and by giving cogent reasons when the learned tribunal has deleted the addition made by the Assessing Officer of Rs.1 76 91 830/- and estimated the Gross Profit at 53.32% we see no reason to interfere with the impugned judgment and order passed by the learned tribunal. No substantial questions of law arise as proposed by the revenue. In view of the above and for the reasons stated herein above the present Appeal fails and the same deserves to be dismissed and is accordingly dismissed.