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TMI Blog2015 (6) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer examined the claim of gross loss of (-) 3.65% against the total turnover of Rs. 59,07,03,526/-, particularly in view of the fact that the assessee had disclosed gross profit at the rate of 5.48% in the earlier year. The assessee explained that the loss was on account of continuous fall in the price of the principal raw material, copper, which had an average cost of Rs. 445 per kg at the beginning of the year, and an average cost of Rs. 233 per kg at the end of the year. The assessee stated that its purchases were booked at the prices prevailing on the date of order whereas the prices had fallen substantially by the time delivery was taken. The assessee also incurred heavy losses where forward contracts had been booked at higher prices than those prevailing on the date of delivery. The assessee also stated that direct expenses had increased, and higher depreciation had been debited on account of investments in new plant. The Assessing Officer held that the fall in the rate of copper was not an acceptable reason for incurring loss as monthwise details of purchase and sale showed that the sale price was lower than the purchase price only in the two months of November and Decemb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. The books of accounts of the assessee are based on actual state of affairs and not based on any adhoc G.P.rate basis. The accounts of the assessee are duly audited u/s 44AB of Income Tax Act. The assessee is maintaining proper records (both, quantity wise and amount wise) of opening stock, purchase, sales and closing stock. All the details in relation thereto had been furnished before the A.O. The books of accounts were produced before the A.O. which has been examined by him as admitted by himself in first part of the assessment order. The book of accounts have not been rejected. No discrepancies whatsoever has been pointed by the A.O. in the books of accounts or the details furnished by assessee. No discrepancies in the quantity and amount of purchase and sales has been pointed out by the A.O. Similarly no discrepancy in the quantity and valuation of opening and closing stock has been pointed out by A.O. No discrepancy in any of the expenses claimed by the assessee has been pointed by A.O. Under the circumstances, there was no rationale for the A.O. to make the addition. The A.O. has made the addition in an arbitrary manner without appreciating the facts of the case. It is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its submission dated 13.9.2011 filed the comparative gross profit and net profit chart for three years (including the year under assessment) wherein the reasons for declaring the gross loss on operations and incurring net loss for the year were elaborated upon along with documentary evidence in support of its claims. No further queries were raised by the AO on the issue nor was any show cause given to the assessee that the arguments advanced by it explaining the loss incurred was not acceptable to the AO thereafter. The AO then framed the assessment order under section 143(3) of the Act on 19.12.2011 wherein he computed the gross profit @ 3.65% (2/3rd of last year gross profit rate of 5.48%) of the immediately preceding previous year and after disallowing gross loss declared of Rs. 2,15,80,361/- by the assessee and making his own calculations / assumptions figures made additions for Rs. 2,15,60,678/- for gross profit earned (effectively disallowing Rs. 4,31,41,039/-) and computed the net taxable income at Rs. 67,55,154/-. 7.1 We further find that the scrutiny assessments had been framed in its case for the Assessment Years 2006-07, 2007-08 and 2008-09, in which only some disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was cancelled without delivery resulting in a loss of Rs. 38,70,047/-. 7.3 The observation of the Assessing Officer that profit may have been diverted to sister concerns is also found to be unsubstantiated. The instances of sales of copper scrap mentioned in the. assessment order are of different times of the year. The sale of copper scrap at Rs. 320-330 per kg. took place between April and July 2008 when the sale price of copper wire was between Rs. 410 and 430 per kg. The sale of scrap at Rs. 160-200 per kg. was in December 2008 when the sale price of copper wire was Rs. 225 per kg. The Assessing Officer has not compared these sale instances with any sales to outside parties, and the Assessing Officer has not shown that the sale price of copper scrap prevailing at the time was lower than the rate charged from the sister concerns. 7.4 The counsel for the assessee has submitted that the gross loss is also on account of the opening stock of 88,692 kgs. of copper valued at Rs. 445 per kg. The purchase quantity of 1552.210 MT is less than the sale quantity of 1640.90 MT which could only have come out of the opening stock. Hence the finding of the Assessing Officer that the monthl ..... 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