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Judgment
PER MAHAVIR SINGH, VP:
This appeal by the assessee is emanating from the order of the National Faceless Appeal Centre (NFAC), (hereinafter referred as CIT(A)), New Delhi dated 16.1.2026. Assessment was framed by the ACIT, Circle 9(1), Delhi vide order dated 11.12.2019 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as “Act”) relevant to assessment year 2016-17.
The only issue in this appeal of assessee is as regards the order of the CIT(A) in confirming the action of the Assessing Officer in making addition solely on account of variation in profit rate and accordingly added a sum of Rs. 65,19,933/- on account of fall in net profit rate.
We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that assessee is in engaged in the business of wholesale distribution of automobile components and manufacturing of twist and flex tubes for all kinds of vehicles. Assessee during the course of assessment proceedings showed details of various expenditure which were filed before the Assessing Officer. The assessee produced the complete books of accounts, including ledger accounts, stock register etc. The Assessing Officer raised a query vide questionnaire dated 7.10.2019 as under:-
Q.No. 3 Please refer to clause 40 of TAR and explain fall in GP ratio by 0.82% (from 33.53% to 32.71%) equivalent to Rs. 27,87,404/- and fall in Net Profit by 17.49% (from 45.18% to 27.69% = 17.49%) equivalent to Rs. 5,94,53,304/-. Also submit credible documentary evidence.
The assessee thereafter, replied that there was decrease in interest income on account of inter-corporate loans amounting to Rs. 5,01,45,967/- i.e. interest income of R. 5,45,71,123 (-) fall in GP of Rs. 43,25,126/-. The assessee explained that a negligible fall in GP @0.82% amounting to Rs. 27,87,404/- has also contributed to the fall in NP ratio. But the AO after noting the explanation of the assessee held that interest declared remains at Rs. 5,29,33,371/- after adding a sum of Rs. 27,87,404/- and therefore, remaining difference of fall in net profit at Rs. 65,19,933/- was added as unexplained.
Aggrieved, assessee preferred appeal before the Ld. CIT(A), who confirmed the action of the AO.
Against the action of the Ld. CIT(A), assessee is in appeal before the Tribunal.
We noted that the assessee has complete books of accounts including bills and vouchers, ledger accounts, stock registers, but no defect was pointed out by the AO. Even the books of accounts were not rejected. The assesee explained before the AO that there is fall in net profit ratio due to variation in GP to the extent of Rs. 23,12,595/-. The comparison of financial figures of last two years and this year explained (i) increase consumption of goods, raw material and components which has been increased by significant percentage of 3.18% and (ii) regular incremental in employee cost @ 0.47%. It was explained by the assessee that there are enough factors for reduction of net profit ratio in the year under consideration by 0.68% which is negligible decrease in NP and can be attributed to the above factor or the general business circumstances of the assessee. We after noting these factors are of the view that AO has not rejected the books of accounts and once the books of accounts are accepted as it is not variation and no such net profit ratio can be made. This view is supported by the decision of the Hon’ble Delhi High Court in the case of CIT vs. Smt Poonam Rani (2010) 192 Taxman 167 (Delhi). In view of the aforesaid factual matrix and legal position, as referred above, we delete the addition in dispute and allow the ground raised by the assessee on merits of the case.
In the result, the appeal of the assessee is allowed in the aforesaid terms.