Mere fall In G.P. Rate cannot be a ground for rejection of books of Accounts
Kamani Oil Industries Pvt. Ltd. Vs DCIT (ITAT Mumbai)
I.T.A. No. 5465/Mum/2017
AO observed that the turnover of the assessee was increased, however, Gross profit rate was reduced as compared to the preceding year.
AO rejected the books of account u/s 145(3) and estimated Gross profit at 9% and after adjusting the already declared gross profit, added INR 56.27 Crore.
Assessee submitted that variation in GP rate was due to change in grouping of expenses and certain selling & distribution expenses were treated as part of manufacturing cost.
Second allegation was with regard to software expense, AO disallowed the same u/s 40(a)(ia) and contented that assessee failed to deduct TDS u/s 194J.
Fact is that assessee had purchased a software and capitalized the same. Assessee just claimed depreciation against the software expenditure.
Assessee submitted that they have claimed only depreciation against the software expenditure which was only statutory allowance and therefore could not be disallowed by applying provisions of section 40(a)(ia).
HELD –
Mere fall in GP rate could not be the ground for making in-depth inquiry. As per section 145(3), books could be rejected only in the situation where AO was not satisfied about the correctness / completeness of the accounts of the assessee.
Depreciation being statutory allowance in nature and not an actual outgoing for the assessee and therefore could not be disallowed by applying the provisions of section 40(a)(ia).