Punjab & Haryana H.C : the order of the Ld. CIT(A) deleting the addition of Rs. 2,69,00,000/- made on account of low G.P. rate, especially in view of its own decision of upholding the rejection of books of account in terms of section 145(3) of the Income Tax Act, 1961 and reversing the decision of the Ld. CIT(A) on this ground but not upholding the consequential estimation of income by the AO even though there are serious defects in assessee’s accounts

High Court Of Punjab And Haryana

CIT vs. Smt. Satish Bala Malhotra

Section : 145

Assessment Year : 2006-07

S.J. Vazifdar, CJ. And Deepak Sibal, J.

IT Appeal No. 233 Of 2016 (O&M)

August 30, 2016

JUDGMENT

S.J. Vazifdar, C.J. – This is an appeal against the order of the Tribunal in respect of the assessment year 2006-2007.

2. The appellant has raised four questions of law. Questions (ii), (iii) and (iv) are liable to be dismissed in view of our order and judgment dated 11.08.2016 in ITA-232-2012 titled as CIT v. Smt. Satish Bala Malhotra (No.1) [2016] 387 ITR 403 (Punj. & Har.). That matter was also between the same parties.

3. The facts, however, leading to the proceedings in this case are the same as those in ITA-232-2012. The same have been referred to therein.

4. This brings us to question (i) raised by the appellant which reads as under:—

“(i) Whether the Hon’ble ITAT is right in law in upholding the order of the Ld. CIT(A) deleting the addition of Rs. 2,69,00,000/- made on account of low G.P. rate, especially in view of its own decision of upholding the rejection of books of account in terms of section 145(3) of the Income Tax Act, 1961 and reversing the decision of the Ld. CIT(A) on this ground but not upholding the consequential estimation of income by the AO even though there are serious defects in assessee’s accounts?”

5. At the outset, it may be noted that the Assessing Officer rejected the books of account, but the CIT (Appeals) upset that finding. The Tribunal, however, accepted the Assessing Officer’s rejection of books of account. Despite the same, the Tribunal accepted the CIT (Appeal’s) decision to accept the assessee’s G.P. rate of 25.34%.

6. The Assessing Officer had adopted a G.P. rate of 41.50%. This was on the basis of the G.P. rate of M/s Pardeep Publication. M/s Pardeep Publication are also involved in the similar business. That, however, cannot be the only ground for the purpose of determining the G.P. rate. The CIT (Appeals) has dealt with the case of M/s Pardeep Publication in considerable detail. There are substantial differences between the assessee and M/s Pardeep Publication. The publications of the two were also produced before the authorities. Some of the important differences are as follows. The assessee’s books are of a higher quality. This was accepted even by the Assessing Officer. The assessee had given greater discounts on its books than that given by M/s Pardeep Publication. Moreover, its cost of production would be higher as the size of the paper used by M/s Pardeep Publication in one of its book was less than that of the paper used by the assessee. The increase in the cost of paper itself was 60%. The quality of the paper was also different the assessee having used thicker paper. There were more colours in the assessee’s publication which would in turn increase the cost of publication. The Tribunal accepted this approach and the finding.

7. The Tribunal also noted that in the earlier years, the assessee’s G.P. rate varied between 21% to about 24%. In the year in question, it was 25.34%. The Tribunal did not, therefore, find the G.P. rate to be erroneous.

8. From the above facts it is clear that the determination of the G.P. rate in this case was essentially a question of fact. There is nothing to indicate that the discretion exercised in this regard by the CIT (Appeals) and the Tribunal was perverse or absurd.

9. The issue raised by the appellant, therefore, does not constitute a substantial question of law.

10. The appeal is, therefore, dismissed.

[Citation : 387 ITR 408]