Introduction: In a recent decision, the Income Tax Appellate Tribunal (ITAT) Delhi Bench “G” set aside the order of the Commissioner of Income Tax (Appeals)-Faridabad and ruled in favor of the assessee, Mr. Vishnu Aggarwal, in relation to the assessment year 2013-14. The appeal, ITA No. 358/Del/2017, primarily contested the addition of Rs. 39,17,853/- to the income of the assessee.
Background: During the relevant assessment year, Mr. Vishnu Aggarwal, an individual engaged in the metal scrap business through his proprietary concern, M/s. Shri Hari Metals, declared a Gross Profit (GP) of Rs. 8.14 lakh on a total turnover of Rs. 11.83 crore. The assessing officer (AO) found the declared GP rate of 0.69% to be lower than the previous year and applied section 145(3) of the Income Tax Act, rejecting the books of accounts. Consequently, the AO determined a GP rate of 4%, resulting in an addition of Rs. 39,17,853/- to the assessee’s income.
Grounds of Appeal: The assessee contested the AO’s decision on several grounds, including the rejection of books of accounts, the GP addition, and the partial deletion of an addition under section 2(22)(e) related to deemed dividend.
Tribunal’s Decision on GP Addition: The primary focus of the appeal was on the GP addition. The Tribunal noted that the issue had previously arisen in the appellant’s case for the assessment year 2012-13. Referring to the earlier tribunal order dated 26.04.2019 in ITA No. 357/Del/2017, the Tribunal observed that the same arguments and facts were presented, resulting in the deletion of the GP addition for the earlier year.
Conclusion on GP Addition: Relying on its earlier decision, which held as under:
I have heard both the parties and perused the records. I find that the assessee was engaged in business of wholesale trading in Aluminium scrap and Aluminium ingots. He declared gross profit @ 0.77 % as against 4.19% in the preceding year. The Books of a/c were duly audited and there was no adverse remark regarding books maintained by him. It is noted that all purchases & sales were supported by vouchers. Copies of the same were furnished before the AO along with letter dated 17.02.2015 and no quantitative details of stock were maintained on day to day basis. However, such details were furnished before AO vide letter dated 23.2.2015. It is also noted that closing stock was valued on the basis of FIFO method at cost. It is also noted that AO has observed that the GP rate declared by the appellant was much lower than declared in the preceding year. As per AO, the assesse neither maintained stock register nor declared any quantitative details of goods and no books of accounts with purchase 86 sale bills were produced for verification. AO also noted that M/s Sai Metal from whom purchases were made was not found as per inspector’s report and according to him the purchases from Haryana Metal Traders 8s Sai Metals were not found to be genuine. However, the fact of the case are that the books of a/c are duly audited raises a presumption to the correctness of such books unless proved otherwise I note that maintenance of day to day stock register is not the legal requirement as held by the Hon’ble Delhi HC in CIT-v-Jacksons House 198 Taxman 385; Maruti Udyog Ltd-v-CIT) 253 Taxman 60(Del) as well as of Guj HC in Jaytick Intermediates (P) Ltd 242 Taxman 319. However, quantitative details along with invoices were furnished before the AO vide letter dated 17.02.2015. Hence, no adverse inference could be drawn by AO. It is found that that the closing stock was quantified 86 valued at cost as per FIFO method which is recognised method. The details with vouchers were also filed before AO vide letter dated 17.02.2015. In my view that the AO is also not justified in observing that purchases were not found genuine. After perusing the para no. 2.5 of the assessment order, I find that the purchases were made by two parties namely M/s Haryana Metal Traders & Sai Metals. The enquiry notice sent to Haryana Metal Traders was served and admitted by the AO himself. Further both the parties were registered with Excise & Taxation Department which is proved by the invoices itself. It is also noted that payments were also made through banks.
Also it is settled law that section 145(3) cannot be invoked on the mere ground that GP rate is low as compared to earlier year, as held in the decision of Hon’ble P&H High Court in Surinder Kumar Charanjit Kumar 282 ITR 78 PH, wherein it has been held that “a low GP rate may not per se lead to an inference that accounts are false, but coupled with other relevant circumstances, it does afford a sufficient ground for rejection of the accounts and estimation of profits.”
Keeping in view of the facts and circumstances of the case and respectfully following the precedents, the addition in dispute made by the AO and confirmed by the Ld. CIT(A) is hereby deleted and accordingly the ground No. 1 to 3 are allowed.”
The Tribunal upheld the principles laid down in the preceding assessment year and deleted the GP addition of Rs. 39,17,853/-. The Tribunal concluded that the AO’s observation of a low GP rate alone was insufficient to reject the accounts, and the addition was not justified.
Deemed Dividend Addition: The appeal also challenged the addition of Rs. 16,04,242/- as deemed dividend under section 2(22)(e), which the AO restricted to Rs. 12,29,050/-. The Tribunal, citing the business relationship between the assessee’s proprietary concern and the company, ruled in favor of the assessee, setting aside the AO’s decision.
Final Verdict: In conclusion, the ITAT Delhi Bench “G” allowed the appeal, overturning the decisions of the AO and CIT(A) and providing relief to Mr. Vishnu Aggarwal. The Tribunal’s decision emphasized the consistency of facts and arguments across assessment years and highlighted the business nature of transactions in dismissing the additions made by the income tax authorities.
