Commissioner of Income Tax vs Satish Chandra

The revenue is in appeal against an order dated 20.06.2014 of the Income Tax Appellate Tribunal (ITAT) in ITA No. 5613/Del./2012. The ITAT had confirmed the order of the Appellate Commissioner. The latter had directed the deletion of the findings of the Assessing Officer (AO) in respect of the assessee''s returns for assessment year 2009-10. The AO had proceeded to work out "after rejection of the assessee''s books of account" the gross profit rate at 5.35% and on that basis, determined the net profit to be 1.96% - based upon the previous year''s assessments.

The assessee deals in electrical goods and lamination and stamping. The assessee''s business yields scrap; for the relative period it had sold a quantity of 51,84,336 kg for Rs.2,92,72,696/-. Noticing that for the previous years, the value of scrap was at Rs.5.65/- per kg, as opposed to the comparatively substantially higher price of ''16-30/- per kg in case of other scrap material, the AO finally determined the profit margin to be 1.96%.

The assessee''s contention was that the addition was unjustified, on account of the fact that the comparison was made with a completely unrelated concern i.e. PVR Ship Breaking Company. The assessee had contended that the scrap generated by it was in the form of thin iron sheets of 0.27 mm to 0.50 mm thick, which remained uncontroverted. The AO had rejected its contentions and proceeded to determine the scrap value at a much higher rate, entirely based upon the amounts earned by PVR Ship Breaking Company.

The assessee''s appeal succeeded in full before the CIT(Appeals). The ITAT confirmed those findings. The ITAT''s findings are as follows:

"At this juncture, it is relevant to mention that the assessee sold steel scrap weighing 51,84,336 Kgs. for Rs.2.92 crore giving per Kg. average rate of Rs.5.65 per Kg. The AO has not disputed the quantitative aspect of the scrap sold. What he did was to simply apply the rate of Rs.16 per Kg. on the total scrap weighing 51,84,336 Kgs. As such, we are confined to considering as to whether the rate applied by the AO was correct. In this regard, it is relevant to note the observations made by the Ld. CIT(A) to the effect that two specific instances mentioned by the AO in this regard, namely, M/S Makino Auto Industries and M/s. PVR Ship Breaking Company were not comparable. The Ld. CIT(A) has observed that M/S Makino Auto Industries has described the scrap sold as ''Iron scrap'' (Branded goods). In so far as M/s. PVR Ship Breaking Company is concerned, the scrap in that case resulting from ship breaking was qualitatively different. In comparison with these two cases, the assessee generated scrap from very thin iron sheets of .27 mm to .50 mm thickness. Nothing has been brought on record to controvert these findings recorded by the Ld. CIT(A). Even from the assessment order, we are unable to find out as to whether these two so-called comparable cases were confronted to the assessee before applying their rate of scrap sale. Be that as it may, it is seen that the assessee sold scrap during the year at Rs. 5.65 per Kg. which is better than the rate of sale of scrap at Rs. 5.05 per Kg. and Rs.5 per Kg. in the immediately preceding two years. The assessments for such years were completed U/S 143(3) and no adverse inference was drawn on the rate of scrap sold. As the rate at which the assessee sold scrap for the current year is better than that of the preceding years and the Further fact that the gross profit declared by the assessee for the current year is marginally higher than that of the preceding year, we are of the considered opinion that no fault can be found with the Ld. CIT(A) in deleting this addition." 5. This Court notices that besides the question as to correctness of concurrent finding the questions urged on behalf of the revenue are fact intensive. We are satisfied that the AO did not apply his mind to the circumstances of the case, considering that the assessee had urged, during the course of the proceedings, that the cost of raw material had increased. Likewise, the rate of interest payable had increased, considering that it had borrowed amounts in the routine course of its business. That explanation, was furnished to argue that the rate of net profit was 1.04%, as opposed to the rate of the previous years i.e. 1.96%.

By all accounts, the explanation of the assessee was reasonable as was held by the CIT(Appeals) and the ITAT. We see no reason to interfere with the concurrent findings. No substantial question of law arises.

The appeal is accordingly dismissed.