Sinai Maritime Service Private Limited Vs ITO (ITAT Mumbai)
Lower GP Is a Red Flag, Not a Licence to Rewrite Profits-ITAT Deletes ₹3.79 Crore Addition Without Rejection of Books u/s 145(3)
The controversy
The assessee, Sinai Maritime Service Private Limited, was engaged in ship chandelling—supplying food, provisions, technical goods & other materials to Indian and foreign vessels at various ports.
For AY 2023-24, it filed its return declaring total income of ₹84,59,170. The return was selected for scrutiny because of the comparatively low net-profit rate.
In the preceding year, the assessee had reported turnover of ₹15.54 crore with a gross-profit rate of approximately 20.91% and net-profit rate of 2.60%.
During the year under consideration, turnover increased substantially to ₹40.63 crore, while the gross-profit rate declined to 10.67% and the net-profit rate to 1.54%.
The AO treated the decline as inadequately explained, adopted a gross-profit rate of 20% & made an addition of ₹3,79,19,056. The CIT(A) confirmed the addition.
Business expanded—but margins contracted
The assessee explained that its turnover had increased by more than 2.6 times because it acquired several new customers.
Sales to new customers amounted to approximately ₹27.15 crore, constituting nearly 66% of total turnover. To penetrate the market and meet competitive pressures, those sales were made at lower margins.
