Pr. Commissioner Of Income-Tax, 4 v. M/S. Yes Power And Infrastructure P.…Respondentltd

Sharayu Khot. IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 813 OF 2015 Pr. Commissioner of Income-Tax, 4 …Appellant Versus M/s. Yes Power and Infrastructure P.…RespondentLtd. ---------- Mr. Suresh Kumar, for the Appellant. Mr. Jas Sanghavi, i/b PDS Legal, for the Respondent. ---------- CORAM :M.S. SANKLECHA &RIYAZ I. CHAGLA, JJ. DATE : 20 February 2018 ORDER : 1.This Appeal under Section 260-A of the Income TaxAct, 1961 (“The Act” for short), challenges the order dated 17December 2014 passed by the Income Tax Appellate Tribunal(“The Tribunal” for short). The impugned order dated 17December 2014 is in respect of Assessment Year 2005-06. 1/7 22-1-ITXA-813-15.doc 2.The Revenue urges the following questions of law for our consideration: 1.Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified inlaw in holding that there was no justification forrejection of books of accounts by the Assessinglaw in holding that there was no justification forrejection of books of accounts by the Assessing Officer? 2.Whether on the facts and circumstances of the case and in law, by accepting the books ofaccounts of the Assessee, the Tribunal wasjustified in deleting the addition made by theAssessing Officer, on the basis of estimation ofgross profit at the rate of 2 percent of the sales?accounts of the Assessee, the Tribunal wasjustified in deleting the addition made by theAssessing Officer, on the basis of estimation ofgross profit at the rate of 2 percent of the sales? 3.The Respondent is engaged in trading of steel andother engineering items. The Assessing Officer during scrutinyproceedings for assessment year 2005-06 found that theother engineering items. The Assessing Officer during scrutinyproceedings for assessment year 2005-06 found that the 2/7 22-1-ITXA-813-15.doc Respondent had sales of Rs. 52.17 Crores while gross profit wasonly Rs. 26.08 Lakhs. This led the Assessing Officer to call for anexplanation for such low profits from the Respondent-Assessee.In response, the Assessee pointed out as follows:- “Our company, is a concern mainly engagedin trading of steel & engineering products. Wepurchase and sale these goods on very competitivelow margin but our volume are very high. Wenormally purchase the goods and resale them at theminimum time gap. It is a known fact that rates ofsteel keep fluctuating and it is a very volatile item.To avoid any risk due to market price fluctuation.We have to take the fast decision to sell out ofpurchase, the steel at the available rate receivedfrom the market, some time it may be sold on a lowprice or some times at a higher price. During theyear some of the transactions are sold at lower pricebecause of the expectation of the rate of steel going 3/7 22-1-ITXA-813-15.doc lower and lower. More over due to fact that wework with a very small capital and no borrowingfrom banks, we do not have capacity to hold stock for a longer periods. Hence, we have to take decisionof sell and purchase keeping the time gap at theminimum.” 4.However, the Assessing Officer did not accept theexplanation for low profits and by assessment order dated 31December 2007 rejected the books of accounts. This on theground that the purchase price of goods was much higher thanthe selling price of those very items. On rejection of the books ofaccounts the Assessing Officer estimated the gross profit on thebasis of 2 percent of the sales. This resulted in enhancement ofgross profits from Rs. 26.08 Lakhs to Rs. 1.18 Crores. 5.Being aggrieved with the order dated 31 December2007, the Respondent-Assessee filed an Appeal to theCommissioner of Income Tax (Appeals) (“CIT(A)” for short). By 4/7 for a longer periods. Hence, we have to take decisionof sell and purchase keeping the time gap at theminimum.” 4.However, the Assessing Officer did not accept theexplanation for low profits and by assessment order dated 31December 2007 rejected the books of accounts. This on theground that the purchase price of goods was much higher thanthe selling price of those very items. On rejection of the books ofaccounts the Assessing Officer estimated the gross profit on thebasis of 2 percent of the sales. This resulted in enhancement ofgross profits from Rs. 26.08 Lakhs to Rs. 1.18 Crores. 5.Being aggrieved with the order dated 31 December2007, the Respondent-Assessee filed an Appeal to theCommissioner of Income Tax (Appeals) (“CIT(A)” for short). By 4/7 22-1-ITXA-813-15.docan order dated 20 January 2009, the CIT(A) dismissed theRespondent-Assessee's Appeal. On further Appeal, the impugnedorder of the Tribunal allowed the Respondent-Assessee's Appeal.This inter alia on the ground that it found that the Respondenthad along with return of income filed audited accounts alongwith audit report for the subject assessment year. Moreover,during the course of scrutiny, complete books of accounts withitemwise and monthwise purchase and sales in quantitativedetails were also furnished. It found that the Assessing Officerdid not find any defect in the books of accounts nor with regardto quantity details furnished by the Respondent-Assessee. In theabove circumstances, it held that merely because theRespondent-Assessee being a trader has sold goods at priceslower than the purchase price and/or the prevailing marketprice would not warrant rejection of the books of accounts. 6.The grievance of the Revenue with the impugnedorder is that the Respondent-Assessee has sold goods at pricelower than its purchase price. Therefore, the books of accounts 5/7 22-1-ITXA-813-15.doc cannot be relied upon. Thus, the rejection of the books ofaccounts and estimation of profits in these facts should not havebeen interfered with. 7.We find that it is not the case of the Revenue thatthe amounts reflected as sale price and/or purchase price in thebooks do not correctly reflect the sale and/or purchase prices. Interms of Section 145(3) of the Act, the Assessing Officer isentitled to reject the books of accounts only on any of thefollowing condition being satisfied. (i)Whether he is not satisfied about the correctness or completeness of accounts; or (ii) Whether the method of accounting has not been regularly followed by the Assessee; or (iii) The income has been determined not in accordance with notified income and disclosure standard. 6/7 22-1-ITXA-813-15.doc 8.It is not the case of the Revenue that any of theabove circumstances specified in Section 145(3) of the Act aresatisfied. The rejection of accounts is justified on the basis that itis not possible for the Assessee who is a trader to sell goods atthe prices lower than the market price or purchase price. In factas observed by the Apex Court Commissioner of Income Tax,Gujarat Vs. A. Raman & Co.[1]. and in S.A. Builders Vs.Commissioner of Income Tax[2], the law does not oblige/compela trader to make maximize its profits. 9.In the above view, the questions as proposed doesnot give rise to any substantial question of law. Thus, notentertained. 10.Accordingly, Appeal dismissed. No order as to costs. [RIYAZ I. CHAGLA J.] [M.S. SANKLECHA, J.] 1 (1968) Vol.67 pg. 11 2 288 ITR pg.1 7/7