ITAT Remands Higher GP Addition and Expense Disallowance Issues for Fresh Examination:

ITAT Remands Higher GP Addition and Expense Disallowance Issues for Fresh Examination The ITAT Delhi remanded two key issues related to a trading addition based on a higher gross profit rate and a disallowance of business promotion expenses to the tax authorities for fresh examination, ruling partly in favour of the tax authorities. The assessee, Rich Food Corporation, had filed its income tax return (ITR), declaring a total income of Rs 43.18 lakh for the Assessment Year 2017-18. During the inspection of the return, the tax authorities made two key adjustments to the company's income: a trading addition amounting to Rs 2.20 crore based on a higher gross profit (GP) rate by 2.66% and a disallowance of business promotion expenses of Rs 17.94 lakh, assessing the total of the company at Rs 2.81 crore.

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The company argued that market conditions had changed significantly during the relevant period, especially because pulse prices had decreased and its total turnover had sharply increased in comparison to last year. When approached, the Commissioner of Income Tax (Appeals) endorsed the assessee's explanation, and the impugned addition was deleted through an order dated May 31, 2024, passed under Section 250 of the Income Tax Act, 1961. Thereafter, the tax authorities filed an appeal before the ITAT Delhi, challenging the CIT(A)'s order. When the tribunal analysed the complete case, it partly agreed. The ITAT held that, rather than relying merely on the previous year's GP rate, the tax authorities should consider the average GP rate of the past five years. Accordingly, the case has been sent back to the tax authorities for fresh consideration, with directions to recompute the addition. In case the recomputed addition amount comes out lower than the present year's declared rate, then no addition should be made.

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In the dispute of business promotion expenses, the tribunal observed that the CIT(A) had announced its final decision considering the additional evidence without granting the tax authorities even an opportunity to review it once for the purpose of verification. Therefore, the case has been sent back to the tax authorities with directions to verify the bills and invoices produced by the assessee before the CIT(A). As a result, the tax authorities' appeal was partly allowed, since both issues have been sent back for fresh examination.