The New Delhi ITAT held that the Department cannot make additions to the taxpayer’s hands in a summary manner without pointing out any defect in the maintenance of its books of account, showing an analysis of the fall in profits. The Court added that the appellant has submitted detailed reasons justifying the fall in profit, which were discarded by the AO without any cogent reasons.
The Court essentially clarified that it is the business decision of the businessman to conduct in such a manner beneficial to his business, and not the duty of the tax authorities to direct how a business should be handled or conducted. Accordingly, the Court dismissed the Revenue’s appeal.
The Division Bench comprising Satbeer Singh Godara (Judicial Member) and Rifaur Rahman (Accountant Member) observed that the AO has rejected the books of account simply based on account of fall in gross profit & net profit, and without even calling for any specific information from the taxpayer/ appellant, which was already substantiated.
Briefly, in this case, the AO observed a fall in the gross profit (GP) rate from 18.57% to (-) 2.12% and in the net profit (NP) rate from 9.33% to -15.17% as shown in the Tax Audit Report. The AO therefore asked the appellant to justify the fall in GP & NP rate, and the appellant claimed that the fall in profit ratios was due to the production of new models of mobile phone parts. The AO was not satisfied with this explanation and made an addition of Rs. 7.97 crores by rejecting the books of account. On appeal, the CIT(A) deleted this addition.
Appearances:
Advocates Ananya Kapoor, Sumit Lal Chandani, and Shivam Yadav, for the Appellant/ Taxpayer
Advocate Rajesh Kumar Dhanesta, for the Respondent/ Revenue
