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TMI Blog2014 (12) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... thereby the assessee could not be held responsible for not having earned profits at a particular rate. Merely because, the assessee was having low gross profit or loss in respect of its trading activities for which due reasons were given before the AO without finding fault in the books of account the AO rejected audited account and estimated profit on sales - nowhere, the AO has stated that particular items were sold at a price below the market price nor it is a case of AO that the assessee has purchased goods at higher price - mere selling of goods at low margin cannot be made the reason for rejection of books of accounts - thus, there was no justification for the rejection of the books of account and adhoc estimation of profit on sales – the AO is directed to delete GP addition made by him – Decided in favour of assessee. - I.T.A. No. 2228/Mum/2010 - - - Dated:- 17-12-2014 - Shri R. C. Sharma, (AM) And Vivek Varma, (JM),JJ. For the Appellant : Shri Vijay Mehta For the Respondent : Shri Pawan Kumar Beerla ORDER Per R. C. Sharma, Accountant Member: This is an appeal filed by the assessee against the order passed by the ld. CIT(A) dated 28.1.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r price because of the expectation of the rate of steel going lower and lower. More over due to fact that we work with a very small capital and no borrowing from banks, we do not have capacity to hold stock for a longer periods. Hence, we have to take decision of sell and purchase keeping the time gap at the minimum 5. The assessee was asked to substantiate its claim that some of the sales were effected at less cost price. In reply vide letter dated 17/12/2007 the assessee submitted details of purchase and sales above ₹ 5,00,000/- and an item wise, month wise compilation of purchases and sales. The assessee vide their letter dated 19/ 12/2007 stated as under : Purchases and sales made from and to the same parties :- As explained to you we deal in various items such as M S Plates, M.S. Angles, Channels, Beams, Tubes, Pipes, Motors, Pumps, Gears etc. We have accepted separate orders for purchase of some items to these parties. At the same time we have supplied them some goods under a separate contract. In both the cases, the item of purchase and the sale is not the same, which means we have executed separate sales and purchase order of the same party during the same yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold out of the average inventory held by the assessee and may not consider differential basis of arriving the profits. 7. The assessee also referred various decisions of Hon ble Supreme Court, High Courts to substantiate reasons for lower gross profits : The AO concluded as under : The submissions put forth by the assessee have been considered. Briefly stated the assessee has attributed the low gross profit rate to the following reasons: 1. ,goods are purchased and sold on competitive low margin as the volumes are high ; 2. goods are sold at the minimum time gap; 3. pries of steel keep fluctuating as it is very volatile and hence it is some times sold below cost; 4. Goods have been sold below cost because of the expectation of prices of steel going lower; 5. limited capital on account of which capacity to hold stock is limited 6. If the sale proceed are calculated on the average cost i.e. including the opening stock, it would result in an income; 7. the assessee also relying on the chart listing purchases and sales has stated that substantial profit has been made in respect of most of the parties. 8. The AO further observed that out of total turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances, the rejection of books of account and estimation of profit at 2% of the gross sales was not justified, relying on the decision of co-ordinate bench in the case of Girish M Mehta (296 ITR 125) (AT). 12. On the other hand, the ld. DR relied on the orders of authorities below and pointed out that the assessee was unable to establish the reasons for low gross profit in respect of various items dealt with by it. 13. We have considered the rival contentions and perused record, we have also carefully gone through the orders of authorities below and deliberated on judicial pronouncement relied upon by ld. AR and DR . We found that along with the return of income the assessee has filed audited account along with audit report for the assessment year 2005-06. During the course of scrutiny assessment the assessee produced complete books of accounts and also filed item-wise, month-wise purchase and sales with quantitative details of purchases, sales and closing inventory. However, no defect was pointed out by the AO in the books of account nor any fault was found with regard to quantity wise details of purchases, sales opening and closing stock of inventory of various item ..... X X X X Extracts X X X X X X X X Extracts X X X X
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