ITA No.118/Kol/2013 M/s. Shyamlal Iron & Steel Co. IN INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH , KOLKATA (Before Shri N.V.Vasudevan, J.M. & Dr.A.L.Saini, A.M.) ITA No. 118/Kol/2014 : Asstt. Year : 2010-11 A.C.I.T., Circle-40, Vs M/s. Shyamlal Iron & Steel Co. 18, Rabindra Sarani, 120A, Maniktala Main Road, Poddar Court, 4th floor, Kolkata 700 054 Kolkata 700 001 PAN: AALFS 6698 F (APPELLANT) (RESPONDENT) Appellant by: Shri Sallong Yaden, Addl.CIT, Respondent by: Shri Mihir Bandyopadhyay, A.R. Date of Hearing : 23.08.2016 Date of Pronouncement :- 21/09/16 ORDER Per Dr. A.L.Saini, A.M.: captioned appeal filed by Revenue pertaining to assessment year 2010-11, is directed against order passed by Ld. Commissioner of Income- Tax (A) -XII, Kolkata in appeal No.18/XII/Cir-40/13-14 dated 21/10/2013, which in turn arises out of order passed by Assessing Officer under section 143(3) of Income Tax Act, 1961 (in short, Act ), dated 08/03/ 2013. 2. facts of case are stated in brief. return of income declaring income of Rs.20,22,040/- had been filed on 15.10.2010, which is processed under section 143(1) on 26.05.2011. Thereafter case was selected for scrutiny under section 143(3) and AO has completed assessment by making additions, based on net profit 1 ITA No.118 /Kol/2013 M/s. Shyamlal Iron & Steel Co. ratio. Revenue has taken following grounds of appeal, which read as under: 1. That on fact and in circumstances of case Ld. CIT(A) erred in accepting books of accounts of assessee and ignoring fact that cost of inferior material supplied to M/s. Tata Motors Ltd. should be lower than declared cost, than proper account of stocks, processing of material and sale is not maintained, rate of purchase is higher than rate of sale and assessee failed to explain discrepancy of opening stock, purchase and closing stock detected regarding transaction with M/s. Tata Motors Ltd. 2. facts of issue are stated in brief. assessee inter alia, carries on business of supplying of iron scrap(M.S.) to Tata Motors at Jamshedpur through Head Office of respondent at Kolkata. iron scrap was purchased from local markets, Kolkata and same is supplied by respondents to Tata Motors, job work processing like decoilling, straightening and cutting of M.S. coils is done for Telco ancillaries. Revenue has observed that neither material is supplied to M/s. Tata Motors should be lower than declared cost. business activity of assessee s Head Office consists of supply of iron scrap (M.S.) procured from local sources to M/s. Tata Motors at Jamshedpur and there is gross profit, not gross loss in transaction with M/s. Tata Motors Ltd. Since assessee has shown net loss, therefore, AO made addition based on net profit shown by its branches. ld. AO made addition based on estimated net profit and aggrieved from order of AO, assessee filed appeal before ld. CIT(A), who has deleted addition observing following: 2 ITA No.118 /Kol/2013 M/s. Shyamlal Iron & Steel Co. 5.1.3. Decision: I have considered facts of case, finding in assessment order, report of Assessing Officer as well as submissions and arguments put forth on behalf of appellant. case of Assessing Officer is that net profit declared by appellant in Head Office business was comparatively less than that declared in Pune Branch and that in absence of qualitative records, deductions and losses claimed in respect of sales to Tata Motors, warranted rejection of book results and application of net profit rate. Whereas appellant's case is that in view of different business activities carried in HO and branches, margin of branch and HO is not comparable, that principal, M/s Tata Sons, being company of international repute conscious of quality control, had made heavy deductions on account of non-ferrous metal from iron scrap supplied by appellant, and that appellant had to sacrifice profit on many occasions to meet business expediency in long term interest. I find merit in submissions of appellant on account of following points:- (i) Firstly, several units of appellant firm are engaged in different types of business earning different margins. Assessing Officer has not doubted profit shown in branches. Pune branch is shown to have been engaged in business of trading in M.S Scraps (locally) procuring scrap of local origin and selling same to larger stockiests or to iron processing units, while in Head Office, appellant is engaged Trading in Iron Scrap purchased from third parties by weight including purchases from outside parties of Durgapur, Balasore etc. and sale of same to Tata Motors, Jamshedpur. (ii) Unlike principals in respect of Pune Branch, appellant's principal in respect of Head Office has been Tata Motors, who had shown to have made heavy deductions on account of short weight and non-ferrous contents in iron scrap. business conditions being dissimilar, it could not be said that cases of Pune branch and Head Office could not be said to be identical and profit margin similar. 3 ITA No.118 /Kol/2013 M/s. Shyamlal Iron & Steel Co. (iii) Assessing Officer has not doubted purchases. He has not called for accounts of appellant with Tata Sons and verified same before arriving at conclusion that out of total purchases of scrap, only inferior quality of scrap was supplied to Tata Sons. Having not carrying out such exercise, and having not found any adverse results, Assessing Officer was not justified in jumping to conclusion that better quality of scrap must have been sold to some other parties and suppressed profits. (iv) accounts are apparently supported with quantitative details. Absence of qualitative accounts, on facts and in circumstances of case and its past history, did not by itself render books of account defective. There is not finding that purchases are bogus. Neither is there any finding that expenses debited in HO account are not supported with bills and vouchers and are unreasonable and unverifiable. (v) It is not uncommon that businessmen will compromise with profitability in certain transactions keeping in view long term business interest as in case of appellant with Tata Sons. Where absence of stock register, cash memos etc., coupled with other factors like absence of vouchers in support of expenses and purchases and existence of low profit, may give rise to legitimate inference that all is not well with books and same cannot be relied upon to assess income, profits or gains of assessee, authorities would be justified in rejecting account books under section 145(2) and in making assessment in manner contemplated in that provision. However, this is not case with appellant. (vi) Assessing Officer has not pointed out any specific defects in maintenance of account except stating that appellant has not maintained qualitative records of M.S. steel scraps supplied by weight to company, M/s Tata Sons. appellant has given sufficient reasons for 4 ITA No.118 /Kol/2013 M/s. Shyamlal Iron & Steel Co. low profit shown this year in respect of supply of M.S. scrap to Tata Sons. As regards past history of case, it is seen that assessment of appellant for assessment year 2009-10 had been completed under scrutiny, where facts are more or less similar, and books of account were not rejected. (vii) In Jindal Aluminium Ltd. v. Deputy CCT.( 1999) 115 STC 257, 278 (Karn)] , it has been held that "the books maintained by assessee in regular course of business are prima facie proof unless they are proved false by any other material on record. assessment cannot be made on basis of personal opinion". In case of Sf. Teresa's Oil Mills v. State of Kerala, (1970) 76 IIR 365, 367-8(Ker), it was held that accounts regularly maintained in course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. department has to prove satisfactorily that account books are unreliable, incorrect or incomplete before it can reject accounts, which may be done by showing that important purchases are omitted therefrom or proper particulars or vouchers are not forthcoming or accounts do not include entries relating to particular class of business. Rejection of accounts should not be done light-heatedly. (viii) In CIT v. Amitbhai Gunwantbhai (1981) 129 ITR 573, 580 (Guj)], Hon' ble Gujarat High COurt held that basic principle is same in law relating to income- tax as well as in civil law, namely, if there is no challenge to transaction represented by entries or to genuineness of entries, then it is not open to revenue or other side to contend that what is shown by entries is not real state of affairs. (ix) When it is not established by A.O that sales are suppressed or any item of purchase is inflated, no gainful purpose is served because value of closing stock will have direct bearing on opening stock (thereby profits) of next year thereby proportionately adjusting next year's 5 ITA No.118 /Kol/2013 M/s. Shyamlal Iron & Steel Co. profit. In number of legal pronouncements it has been held that merely because stock register is not maintained, books of a/cs cannot be rejected. Reference in this regard may be made to judgements in cases of Ashoke Refractories (P) Ltd v. CIT (2005) 279 ITR 457(Cal); ACIT v. Ravi Agricultural lndustries (2009) 316.1TR. AT (Agra). In view of facts of case, principles of case laws discussed above, I am of view that Assessing Officer was not justified in rejecting books of account of Head Office of appellant and applying net profit rate of 7.23% shown in branch account. consequent addition to trading results is hereby deleted and these grounds of appeal of appellant are allowed. 3. Not being satisfied with order of ld. CIT(A), Revenue is in appeal before us. 4. ld. DR for Revenue has primarily reiterated stand taken by AO which we have already noted in our earlier para and is not repeated for sake of brevity. 5. ld. AR for assessee has submitted that AO has not established that sales are suppressed or any item of purchase is inflated, no gainful purpose is served because value of closing stock will have direct bearing on opening stock (thereby profits) of next year thereby proportionately adjusting next year s profit. In number of legal pronouncments it has been held that merely because stock register is not maintianed, books of a/cs cannot be rejected. In additon to this, ld. AR has submitted that it is not necessary that assessee should earn profit always. Therefore, there could be loss also. Therefore, AO was not justified in rejecting books of 6 ITA No.118 /Kol/2013 M/s. Shyamlal Iron & Steel Co. accounts of Head Office of assessee and applying net profit rate of 7.23% shown in branch account. 6. Having gone through rival submissions, we noticed that there is merit in submissions of assessee, as propositions canvassed by ld. AR for assessee are supported by facts cited above and decisions narrated above. As we have noticed that it is not necessary that businessman should always earn profit. profit includes loss also. AO did not bring any cogent material on record to show that there is suppression of income or there is siphoning of funds, addition made by AO is purely based on surmises, conjectures and guess. Therefore, we do not hesitate to confirm order of ld. CIT(A). 7. In result, appeal filed by Revenue is dismissed. Order Pronounced in Open Court on 21.09.2016 Sd/- Sd/- (N.V.Vasudevan) (Dr. A.L.Saini) Judicial Member Accountant Member Dated:21 /09/2016 Talukdar (Sr.PS) Copy of order forwarded to: 1. Revenue 2 Assessee 3. CIT-I, 4. CIT(A)-I, 5. DR, Kolkata Benches, Kolkata True Copy, By order, Asst. Registrar, ITAT, Kolkata Benches 7 A.C.I.T., Circle-40, Kolkata v. M/s. Shyamlal Iron & Steel Co