DCIT vs. Indo Colchem Ltd. (ITAT Ahmedabad)
Fall in net profit rate due to dollar rate fluctuation (currency fluctuations): additions to income deleted in Indo Colchem case by Ahmedabad ITAT
Recently, in DCIT vs. Indo Colchem Ltd. [ITA Nos. 1902 & 2492/Ahd/2014 A.Y. 2009-10 & 2011-12, decided on 07. 3.2018], briefly, in ITA No. 1902/Ahd/2014, ground of appeal taken by Revenue was the CIT(A) has erred in law and on facts in deleting the addition of Rs.2,24,64,664/- made on account of low net profit, without properly appreciating the facts of the case and the material brought on record.
In this case, return of income declaring income of Rs. 1,14,00,998/- was filed on 30th September, 2009. Subsequently, the case was selected under scrutiny by issuing of notice under section 143(2) of the IT Act, 1961 on 28th September, 2010. The assessee company was engaged in the business of manufacturing of dies and dies intermediates and trading in chemicals. During the course of assessment proceedings, the Assessing Officer(AO) has noticed that assessee has shown gross profits of Rs 1,96,24,039/- @ 2.85% on sale of Rs. 68,92,45,395/-. In the immediate preceding year, the assessee had shown net profit of Rs. 2,45,92,180/- @ 4.03% on sale of Rs. 61,04,02,990/-. On scrutiny, the AO had observed that assessee had included gain and loss from foreign exchange fluctuation in computing the profit of the business. However, he was of the opinion that gain and loss of foreign exchange was income from other sources, therefore, she has re-calculated the net profit for the year under consideration after excluding gain from foreign exchange fluctuation as the calculation made by the AO was as under:-
| A.Y. 2009-10 | A.Y. 2008-09 | |
|---|---|---|
| Sales | Rs.68,92,45,395/- | Rs.61,04,02,990/- |
| Net Profit | Rs. 1,96,24,039/- | Rs. 2,45,92,180/- |
| Less: Gain from Foreign Exchange Fluctuation | Rs.61,39,020/- | |
| Add: Loss from Foreign Exchange Fluctuation | Rs.7,5 1,667/- | |
| Actual business Net profit | Rs.61,39,020/- | Rs.2,53,43,847/- |
| Net profit ratio | 0.89% | 4.15% |
In view of the above, the AO observed that the net profit of the assessee for the year under consideration was reduced by 3.26% on comparing to preceding A.Y. 2008-09. Consequently, the AO took the net profit for the year under consideration at 4.15% and made addition of Rs. 22464664/- to the total income of the assessee.
