No addition based only on low GP margin vs prior years | ITAT

Case Details: ACIT v. Anant Commodities (P.) Ltd. - [2025] 176 taxmann.com 925 (Indore - Trib.)

Judiciary and Counsel Details

• B.M. Biyani, Accountant Member and
•  Paresh M. Joshi, Judicial Member
• Ashish Porwal, Sr. DR for the Appellant.
• S.S. Deshpande and Ashok Khasgiwala, ARs for the Respondent.

Fact of the Case

The assessee, a company, was engaged in the merchant export of agri-commodities. During the assessment proceedings, the Assessing Officer (AO) noted a sharp fall in the assessee’s gross profit ratio from 13.01% to 0.23%.
In response to queries, the assessee submitted detailed replies explaining the reasons for the decline in profit margins, citing fluctuations in international prices, changes in commodity mix, and losses due to contract cancellation and exchange rate variations. The assessee also pointed out that benefits available in the earlier year, such as service tax credit and duty drawback, were not available during the year under consideration.
Without expressly rejecting the books of account or pointing out specific defects, the AO estimated the gross profit by averaging the gross

profit rate of the preceding three years (8.23%) and made an addition of Rs. 1,90,78,444. On appeal, the CIT(A) deleted the addition. The matter reached the Indore Tribunal.

Tribunal  Held

The Tribunal held that the CIT(A) had rightly held that the assessee was maintaining books of account which were duly audited. Merely because the gross profit margin was lower in the year under consideration vis-à-vis preceding assessment years cannot be a ground for additions to the assessee’s income unless the AO pointed out a particular defect or discrepancies in the books of account maintained by the assessee. Further, the AO did not expressly reject the books of account. A mere observation that the assessee had lost credibility in the maintenance of proper books is not a rejection of the books in law.
In the instant case, the commodities in the earlier years and the year under consideration were different, and gross profit could not be compared. The assessee rightly contended that the comparison should be of comparables and not un-comparables.
Therefore, the AO ought not to have averaged the gross profit rate of preceding years to arrive at the gross profit rate for the year under consideration, as the commodities were different and not comparable.

List of Cases Referred to

• Pr. CIT v. Mahabir Jute Mills Ltd. [2024] 162 taxmann.com 601/[2025] 482 ITR 345 (Allahabad) (para 3.1),
• CIT-XII v. Smt. Poonam Rani [2010] 326 ITR 223/192 Taxman 167 (Delhi) (para 3.1) and
•  Dy. CIT v. Omprakash Dhanwani [ ITAppeal Nos.339(Ind) of 2017, 439 and 440(Ind) of 2018 (para 3.1).