37. os itxa 615-17.doc R.M. AMBERKAR (Private Secretary) IN HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO. 615 OF 2017 Pr. Commissioner of Income Tax -15 .. Appellant Versus Pharmalab Engineering India Pvt Ltd .. Respondent Mr. Akhileshwar Sharma for Appellant Mr. Tanmay Phadke i/by Mr. Satendra Kumar Pandey for Respondent CORAM : AKIL KURESHI & S.J. KATHAWALLA, JJ. DATE : AUGUST 5, 2019. P.C.: 1. This appeal is filed by Revenue to challenge judgment of Income Tax Appellate Tribunal, Mumbai ("the Tribunal" for short) dated 22.6.2016. 2. Following question is presented for our consideration:- "Whether on facts and in circumstances of case, Tribunal was correct in law in deleting addition of Rs. 1,38,47,120/- made on account of suppression of profit by recording that no cogent material has been deduced from audited accounts to show suppression of profit, thereby completely ignoring authoritative findings of Assessing Officer and excluding entire sales to its sister concern from turnover for calculating gross 1 of 5 ::: Uploaded on - 07/08/2019 ::: Downloaded on - 08/08/2019 12:27:05 ::: 37. os itxa 615-17.doc profit and passing order in favour of assessee on erroneous finding of facts giving rise to substantial question of law?" 3. respondent - assessee is engineering company and had filed return of income for assessment year 2008- 09. Assessing Officer made additions inter alia on ground of lower GP rate in present year. CIT(A) granted partial relief being calling for remand report. assessee carried matter further in appeal before Tribunal. Tribunal, by impugned judgment, deleted entire additions retained by CIT(A), making following observations:- "10. We have considered rival contentions and perused material on record including case laws relied upon. We have observed that assessee is company engaged in business of manufacturing of equipments / machineries which are used by Pharmaceuticals and allied industries. AO has made additions on grounds that gross profit margin earned during year being lower than gross profit margin of immediately preceding year and additions were made to income of assessee by applying gross profit margin of 31.82% to sales of previous year relevant to assessment year under appeal , based on gross profit margin earned during preceding year. assessee contended that in respect of some items, sale price to outside parties is inclusive of accessories being supplied along with manufactured products as well is inclusive of installation and commissioning whereas in case of sister concern, installation and commissioning was carried on by sister concern itself. 2 of 5 ::: Uploaded on - 07/08/2019 ::: Downloaded on - 08/08/2019 12:27:05 ::: 37. os itxa 615-17.doc AO rejected contentions during assessment proceedings as same were not based upon documentary evidences, while assessee had duly submitted all details before authorities below. No particular defect was pointed out by AO in remand report proceedings with respect to this contention of assessee. submissions made before AO with this regards are placed in paper book page 18-22. It was also explained by assessee that sale price to sister concern was lower because excise duty and sales tax(against H form) was not included in sale price for manufactured products as products were procured by sister concern which were meant for exports. This contention of assessee was accepted by AO in remand report proceedings . It was also accepted by AO in remand report proceedings that AO in assessment proceedings while computing gross profit margin has not included other manufacturing costs such as labour, power and fuel , carriage inwards etc. and only material costs were considered by AO in arriving at gross profit margin while framing assessment u/s 143(3) of Act. With respect to sale of spares components to sister concern of Rs.6.49 crores at cost owing to assessee merger , same were accepted of being sold at cost by learned CIT(A) and consequent relief was given by learned CIT(A) in first appellate proceedings vide orders dated 23.12.2013 and Revenue is not in appeal before Tribunal against said relief granted by learned CIT(A) . It was also observed by AO while framing assessment that assessee booked sales commission of Rs 99 lacs on sales of Rs 19.01 crores during previous year relevant to impugned assessment year, while in immediately preceding assessment year sales commission was only Rs.1.08 lacs on sales of Rs.20.58 crores. separate addition was made by AO of Rs. 99 lacs in assessment order for impugned assessment year under appeal. learned CIT(A) deleted said addition after calling remand report from AO 3 of 5 ::: Uploaded on - 07/08/2019 ::: Downloaded on - 08/08/2019 12:27:05 ::: 37. os itxa 615-17.doc whereby AO accepted that commissions expenses were duly verified. It is not brought on record by Revenue that second appeal has been filed with Tribunal by Revenue challenging relief granted by learned CIT(A) in his appellate orders. In our considered view, merely because gross profit margin is lower in instant assessment year under appeal vis-a-vis preceding assessment year cannot be ground of additions to income of assessee unless Revenue points out particular defect or discrepancies in books of accounts maintained by assessee. assessee is maintaining books of accounts which are audited. assessee has duly met all adverse reservations of AO in remand report/appellate proceedings before learned CIT(A) as set out above. No cogent material has been brought on record to prove that assessee has manipulated its accounts to suppress profits. Therefore, there are no reasons or justification in law to reject explanation given by assessee to support its contentions. Mere fall in gross profit ratio , in absence of any cogent reasons could not be ground to hold that proper income could not be deduced from audited accounts maintained by assessee and book results ought to be rejected, and consequently gross profit margin rate of preceding years be applied to sales of instant assessment year under appeal. There is no averments that there is deliberate attempt to inflate cost of material or other expenses on part of assessee or to suppress sale price of products sold by assessee. allegations of AO were duly met by assessee in remand report/appellate proceedings as set out above. Revenue is not in appeal before Tribunal with respect to relief s granted by learned CIT(A). Our view is consistent with decision of Hon ble Delhi High Court in case of CIT v. Smt Poonam Rani (2010) 326 ITR 223 (Del.HC). In our considered view, additions made by learned AO as sustained/confirmed by learned CIT(A) to tune of Rs.1,38,47,120/- is not sustainable in 4 of 5 ::: Uploaded on - 07/08/2019 ::: Downloaded on - 08/08/2019 12:27:05 ::: 37. os itxa 615-17.doc law and we order deletion of same. We order accordingly." It can, thus, be seen that Tribunal after detail consideration came to conclusion that assessee's books were not rejected. Merely because, in present year, assessee had reflected lower margin, would not be ground for making additions. Most significantly, assessee had explained reason for sale of products to its sister concern at lower rate than that of assessee had supplied to other purchasers by pointing out that price quoted to sister concern was minus sales tax component since product was meant for export. entire issue is based on appreciation of evidence on record. No question of law arises. Appeal is dismissed. [ S.J. KATHAWALLA, J. ] [ AKIL KURESHI, J ] 5 of 5 ::: Uploaded on - 07/08/2019 ::: Downloaded on - 08/08/2019 12:27:05 ::: Pr. Commissioner of Income-tax-15 v. Pharmalab Engineering India Pvt. Ltd