Genuine loss of the Assessee was disallowed by the Ld. Assessing officer , Confirmed by the Ld. CIT (A) , but allowed by the Hon,ble ITAT , New Delhi
Written submissions of the Assessee before the Hob’ble CIT (A) , Faridabad , Observations of the CIT (A) and relief granted to the assessee by the Hon’ble ITAT , New Delhi .
Before the Hon’ble Commissioner of Income tax (Appeals), Faridabad
In the case of Sh. XYZ Gupta, Prop. M/S ABC Metal Trading Co., Faridabad
The brief facts of the case is that the appellant continues to carry on the business of trading of metals during in the year in question under the name & style of M/s ABC Metal Trading Company. Its proprietor being Sh. XYZ Gupta. In the proceeding u/s 143(3) of the Income Tax Act,1961 the total taxable income was determined at Rs.1769440.00 against returned income of Rs.393480.00 in which the following additions/disallowances were effected by the AO which are subject matter of present appeal.
Disallowance of Loss of Rs.545879.00
1. The Ld. Assessing officer treated the loss as created loss and added the entire loss (Rs.545879.00 0ut of 568731.18) to the returned income of the assessee. The AO has written in the Assessment Order that the assessee has sold the goods at lower rates and created loss of Rs.545879.00 and the same is not allowed. Addition of Rs.545879.00 is made to the returned income of the assessee.
2. The AO has not given any concrete finding before making addition of Rs.545879.00 to the income of the assessee.
3. There is no material available with the AO which proves that the assessee has sold the goods at higher rates but reflected lower rates in the books of accounts .Why assessee shall sell the goods at lower rates if more rates are available to the assessee but due to some specific reason he had to sold the goods at lower rates.
4. The AO has ignored the entire material available on the file which was present at the time of making addition of Rs. 545879.00 to the income of the assessee. It was the mind set of the officer. He blindly disallowed the loss. There is no basis with the officer which justifies the disallowance of the loss. He has justified the disallowance in the following manner.
5. That assessee has purchased the inferior material and paid more purchase price instead of paying less price for the same material. Why the assessee has not informed the foreign seller for the inferior quality of the goods.
The payment of the material is paid in advance for the purchase of the imported material. No material is available without advance for the entire material. When the material was received it was of the lower quality. The assessee talked to the foreign seller on telephone with no response. Spectrometer test report fort the quality of the material was made. They keep the test report for six months. We also destroyed the test report. Foreign seller replied that he had sent the good of good quality material. When the material was loaded in ship it got moisturized and became inferior in nature. In the first container imported dt. 3.8.2006 there was profit in the sale of entire container. Again assessee imported the material from some other party with a profit motive but got loss in that transaction. Buyer is always intelligent and he recognized the quality of the material and purchased at a lower rate and assessee met with loss. The name ,address of the buyer were submitted with the AO but he has not cross examined the buyer and never issued summons to the buyer u/s 131 of the Income Tax Act,1961 . This was only the mindset of the AO which resulted in disallowance of loss. Hence prayed for deletion of addition made by the AO.
The selling price of the goods depends on many factors. It is not possible to decide the selling price in relation to the cost price. There is no relation between the cost price and the selling price. Selling price is independent of the cost price. Once the goods have been purchased the selling price will depend on the following factors.
1. General Market Conditions.
2. The arm chair of the business man who will decide at what price goods has to be sold.
3. Capacity to hold the goods in godown. Sometimes businessman decides to sell the goods at a price lower than the cost price because he has to make the payment to his creditors.
4. The quality of the material. Etc.
5. Negotiation with the buyer who purchases the goods. If goods are of inferior quality less rates are provided by the buyer as compared to superior quality goods.
No one can sit on the arm chair of a businessman who decides the selling price. It is the businessman himself who has to calculate his profit and loss. It is always in every business transactions that duty which is imposed by the state is decided by the state only and not the selling price. Businessman decides the selling price keeping in view the above factors. No material has been gathered and is in possession of the assessee as well as the AO who determines the more selling price of the imported goods and other goods on which loss has been incurred. Normally it is very difficult to find difference in quality (particularly in scrap) customers will put his sense to find the difference of quality.
The assessee has in his possession one sample test report of the material Dt. 23.11.2009 which specifies the contents and proportion of the contents in the material.
A material consist of many fragments of different different chemicals e.g. Lead, Cadmium, Sodium, Calcium, Ferrous, Magnesium, Manganese & Zinc etc. It is the zinc which is found proportionately of the higher value in comparison to the other chemicals. It is zinc which decides the strength of the material. If zinc is on the lower proportion the material is of inferior quality. If zinc is found in the higher proportion material is considered of superior quality. It is a spectrometer test report of the material which is enclosed. Normally in routine it is not done but when a buyer presses hard this test is done.
Though spectrometer test report does not belong to the relevant assessment year but proves the inherent strength of the material which decides the confidence level of the seller to fix the selling price. At the time of import it is not feasible and possible to get the strength of the material checked.
A business is done for a profit motive but it is not closed when in a year loss is incurred. Profit and loss moves parallel in the life of a business man. Metal trading market is like share market. Sometimes it is not wise to hold the goods because rates are falling continuously. It is wise to sell the goods to avoid more and more losses.
All the bills related to Zinc scrap were submitted with the AO at the time of assessment. In these bills full addresses of the buyers were mentioned. Where AO could summon u/s 131 of the Income Tax Act, 1961 to confirm the selling price of the assessee which he has not done. It is only the presumption of the AO that the material has been sold at a higher price but booked at a lower price in the books of accounts of the assessee. No material is available with the AO in order to substantiate that the material has been sold at a higher price but shown in the books at a lower price. The finding of the AO is baseless, arbitrary and not in accordance with law. No material has been confronted to the assessee by the AO which proves that the loss shown in the balance sheet is untrue. No separate enquiries have been made by the AO regarding higher selling price of the material by the assessee. The AO has not pointed to the Sales suppressed and more expenses booked. It is only the rough work of the AO on which he has relied for the disallowance of loss. Disallowance of loss has been made on estimated basis. It is purely the guess work of the AO that the goods were purchased of inferior quality and sold at such a rate which has earned less profit to the assessee. No one will desire to earn less profit. No detection of the more profit has been made by the AO. In these circumstances to put a parallel figure of income against the loss in the books of accounts amounts to the imaginary work of the AO and guess work. For disallowance of loss there may be ample reasons but the AO has pointed out to the one which has suited him to finalise the case according to his mind set without any technical, statistical findings based on evidences.
The AO is hardly hitting at the quality of the material which was purchased from UAE by the assessee. There is no material which has been gathered and is in possession of the AO to determine the more selling price of imported goods and other goods on which the loss has been incurred. . Even material is purchased at a lower price and commonly it is sold at a higher price. It is only the sense of the buyer which determines the type of quality of the material whether it is of inferior quality or superior quality. The AO has given the following for disallowance of loss:
1. The goods imported by the assessee from UAE sold with in a span of one month or even earlier of this, from the date of the receipt of the goods.
It is the arm chair of the businessmen who has to decide when the material has to sold and when it has to be purchased. This finding of the AO does not meet with the sufficiency for disallowance of loss.
2. The zinc scrap sold in the case of other parties, for whom the assessee is working as a consignee were sold on profit as is reflected from the details furnished during the assessment proceedings.
The zinc scrap which has been sold to the other parties on profits will not prove that the imported material which has been purchased from UAE has to be sold on the same profits. The root point is whether the assessee has sold the material at profits but shown loss in the balance sheet. There is no material which proves that the assessee has sold the goods on profit. The contention of the AO is baseless and arbitrary for disallowance of loss. The name and address of the parties to whom good were sold were available on the file with the AO. He has not made independent enquiries if under invoicing has been made by the assessee on selling the goods.
AO has stated inherently that the assessee has purchased the goods at a higher price and sold the goods at a lower price and created loss in the balance sheet. The entire disallowance of loss has been made on this mindset. The root is detection of suppressed sale for which the AO has not substantiated his guess work. It is purely presumption of the AO that the goods were sold at a higher price then shown in the balance sheet. Profit shown for the other goods for which the assessee is working as a consignment agent is true because it was good quality material.
3. There was an agreement with the foreign seller that in case of any type of dispute the parties can claim such demurrage but the assessee has not written even a single letter to the seller regarding quality of the scrap.
It is prerogative of the businessmen to earn more and more profit for himself and not for the government. Out of the profit earned income tax is calculated. The assessee has written letter to the foreign seller or has not written any letter to the foreign seller is look after of the assessee not of the AO. Assessee has to pay income tax on the profits. It cannot be said that why you have not earned more profits. Department has to assess income of the assessee. Department is not to assess why less income has been earned by the assessee. Hence this contention of the AO is baseless.
4. The assessee created a loss and adjusted the same against the other income and saved tax incident.
How the assessee has created the loss. What type of manipulation he has made. What material has been detected by the AO which proves that the profit has been concealed by the assessee. The adjustment is as per law.
I want to draw the kind attention of your good honor to the effect that manner and way the Ld. AO has proceeded in the case. Assessee produced what has been asked by the Ld. AO and explained the case, however Ld. AO pointed out the order in its own way and manner more suitable to its whims rather than on facts and law. Nowhere the AO has justified the disallowance of the loss by putting some concrete enquiries. It was on account of the best sense of the assessee as a prudent and reasonable businessmen to fix the selling price of the goods, which has not to be determined by the revenue, as per law according to his prudence the goods were sold at a lesser price and assessee ultimately met with the loss.
Trading results has not been challenged by the AO .Stock details were submitted with the AO which was checked by the AO at the time of assessment, Stock is not under stated. Purchased are not inflated. Only some goods were sold at a lower rates because buyer was competent to recognize the quality of the goods. It was not possible for the assessee to sell the goods at the same rates. After bearing loss the assessee stopped importing the material.
Complete books of accounts were produces before the AO audited by a Chartered Accountant. AO has not pointed out any concrete evidence of more income made by the assessee out of the books of accounts. He has also not pointed out any expense of bogus nature debited to the profit & loss account. How he has reached at a figure of Rs.545879.00 as income out of the books to nullify the effect of loss in an arbitrary manner. he has reached at a figure just equal to the loss figure which is not as per law. Law never permits an AO to reach a figure of income on his own without any corroborative evidence unless and until books of accounts are rejected.
As held in CIT vs Ranicherra Tea Co. Ltd. 207 ITR 979
In this reference under section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue, the following question of law has been referred by the Tribunal for the opinion of this court:
“Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in confirming the Commissioner of Income-tax (Appeals) order determining the loss at Rs. 4,20,000 which was done without any verification of the various claims made in the return as against the assessment order passed by the Income-tax Officer under section 144 at “nil” income?”
This reference relates to the income-tax assessment of the assessee-company for the previous year, being the calendar year 1981 corresponding to the assessment year 1982-83. In respect of the said year, the assessee-company filed its return of total income on June 26, 1982, declaring a net assessable loss of Rs. 4,45,140. The said return was accompanied by the audited profit and loss account, balance-sheet and other relevant details in respect of the calendar year 1981. The Income-tax Officer issued a notice under section 143(2) of the Income-tax Act, 1961, asking the assessee-company to produce its books of account and other evidence on which it may rely in support of the return filed by it. The authorised representative of the assessee sought time to furnish the details and produce books of account. The case was adjourned from time to time and ultimately when there was no compliance, on May 27, 1985, the Income-tax Officer felt that the assessee-company was not prepared to co-operate with the Department and, therefore, proceeded to make an ex parte assessment to the best of his judgment under section 144 of the Income-tax Act, 1961. The Assessing Officer only observed that, in the absence of accounts and other details and there being nothing on record to establish the assessee’s claim of loss, he was not prepared to accept the loss return. The Income-tax Officer, therefore, rejected the loss return filed by the assessee and computed the total income at “nil”.
The assessee-company filed an appeal against the said ex parte assessment to the Commissioner of Income-tax (Appeals) and submitted that the Income-tax Officer erred in ignoring its audited accounts and in rejecting its book results. It was also submitted on behalf of the assessee that proper opportunity was not given to the assessee-company for complying with the notice issued to it under section 143(2) of the said Act and, in any event, the ex parte assessment made by the Assessing Officer without looking into the audited accounts filed with the return as well as past assessment records of the assessee-company was wholly arbitrary, malafide, capricious and based on conjectures and surmises and was also contrary to the provisions of law. The Commissioner of Income-tax (Appeals) found that, even if there were good reasons for passing an ex parte order, the Income-tax Officer was wholly unjustified in totally ignoring the loss claimed by the assessee-company. The Commissioner observed that the Income-tax Officer should have based his judgment on the records of the assessee-company for earlier years. He could have derived support from the trend in the tea trade during the calendar year 1981 ; he could have looked around and seen how other tea companies were functioning. Instead of doing this, the Income-tax Officer was piqued and peeved by the behaviour of the appellant and passed his impugned assessment order ignoring the return and the accompanying statements. The Commissioner of Income-tax (Appeals) noted that the assessee was a public limited company and that its shares were regularly quoted on the Calcutta Stock Exchange. The Commissioner also looked into the past assessment records of the assessee-company and found that, in the immediately preceding year, that is to say, in the assessment year 1981-82, the Income-tax Officer, under directions from the Inspecting Assistant Commissioner given in the course of proceedings under section 144B of the said Act, had determined the loss of the appellant before applying rule 8 of the Income-tax Rules, 1962, at Rs. 24,46,384 and in making the said assessment, the aggregate disallowance made was only Rs. 12,490.
The Commissioner of Income-tax (Appeals), therefore, observed that, in the light of the past records, there was absolutely no reason for the Income-tax Officer to disallow the claim of loss in to when the audited accounts and certain other details were already filed for the assessment year 1982-83 along with the return. The Commissioner of Income-tax (Appeals), therefore, himself proceeded to compute the total income of the assessee-company after looking into the audited accounts and past records. In doing so, the Commissioner of Income-tax (Appeals) made an addition of Rs. 30,000 on account of expenses in addition to various other disallowances and ultimately computed the loss of the assessee-company for the said year after giving effect to rule 8 of the Income-tax Rules, 1962, at Rs. 4,20,900 as against the returned loss of Rs. 4,45,140.
The Revenue appealed to the Appellate Tribunal against the said order passed by the Commissioner of Income-tax (Appeals). The Tribunal found that the Income-tax Officer, while framing the ex parte assessment, had not given any basis for determining the assessee’s income at “nil” and erred in totally ignoring the loss disclosed by the assessee-company in its return of total income for the assessment year 1982-83. The Tribunal observed that, while framing an ex parte assessment under section 144, it was the duty of the Income-tax Officer to consider all the relevant materials available to him including the return filed by the assessee-company for the earlier assessment years as well as the assessments made in those years. The Income-tax Officer failed to consider the aforesaid material in the instant case of the assessee-company including the audited accounts for the year under reference. In this background, the Tribunal noted that the Commissioner of Income-tax (Appeals) was fully justified in determining the total loss at Rs. 4,20,900 after looking into the past records of the assessee-company including the audited accounts for the year under appeal.
The Revenue is now in reference before us. It is no doubt true that the facts of this case justified an ex parte best judgment assessment under section 144 because of the defaults committed by the assessee, but in making a “best judgment assessment”, the Assessing Officer cannot act dishonestly or vindictively or capriciously because he must exercise the judgment in the matter. In making a “best judgment assessment”, the Assessing Officer does not possess absolute arbitrary authority to assess any figure he likes and that although he is not bound by strict judicial principles, he should be guided by rules of justice, equity and good conscience. The limits of the power of the Assessing Officer are implicit in the expression “best of his judgment”. Though there is an element of guess work in a “best judgment assessment“, it shall not be a wild one but shall have reasonable nexus to the available material and the circumstances of each case. In State of Orissa v. Maharaja Shri B.P. Singh Deo  76 ITR 690, the Supreme Court has observed (at page 691):
“Apart from coming to the conclusion that the material placed before him by the assessee were not reliable, the Assistant Collector has given no reasons for enhancing the assessment. His order does not disclose the basis on which he has enhanced the assessment. The mere fact that the material placed by the assessee before the assessing authorities is unreliable does not empower those authorities to make an arbitrary order. The power to levy assessment on the basis of best judgment is not an arbitrary power; it is an assessment on the basis of best judgment. In other words, that assessment must be based on some relevant material. It is not a power that can be exercised under the sweet will and pleasure of the concerned authorities. The scope of that power has been explained over and over again by this court.”
As it would appear from the narration of the facts, the Income-tax Officer did not disclose any basis or reasons for determining the quantum of loss as “nil”. He should have given his reasons for arriving at a particular figure of income so that the assessee may be enabled to appreciate the mental process leading to the assessment and the figure assessed. Such order being subject to appeal needs also to be a speaking order. The Assessing Officer did not at all look into the audited balance-sheet accompanying the return nor did he reject the accounts as unreliable.
The question, however, remains as to whether the appellate authority should have in such circumstances remanded the matter to the Assessing Officer for determining the loss on the basis of the materials on record. In our view, in disposing of an appeal from an assessment under section 144, the first appellate authority need not confine itself only to the materials on record at the time of assessment. It may make such enquiries as it thinks fit. The first appellate authority has all the powers which the original authority may have. In the absence of any statutory provision to the contrary, the appellate authority is vested with all the plenary powers, which the subordinate authority has in the matter.
In CIT v. Kanpur Coal Syndicate  53 ITR 225, the Supreme Court held that the Appellate Assistant Commissioner has plenary powers in disposing of an appeal. The scope of his powers is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do. This view was reiterated by the Supreme Court in Jute Corporation of India Ltd. v. CIT  187 ITR 688.
In this case, the Commissioner of Income-tax (Appeals) himself looked into the audited accounts as well as the past assessment records of the assessee-company and, thereafter, computed the total income of the assessee for the assessment year 1982-83. The procedure adopted by the Commissioner of Income-tax (Appeals), in our opinion, was fully justified. In fact, the Income-tax Officer should have himself followed the same procedure which the Commissioner of Income-tax (Appeals) did. The Income-tax Officer, in our view, was not justified in rejecting the loss return filed by the assessee-company in to without examining the audited profit and loss account, balance-sheet and other statements accompanying the return as well as the past assessment records of the assessee-company.
We, therefore, answer the question referred by the Tribunal in the affirmative and in favour of the assessee. There will be no order as to costs.
Hence the Hon’ble court is prayed to delete the entire addition made by the AO regarding loss of Rs. 545879.00 which he has done in a most lurking, capricious & arbitrary manner.
The observations of the Ld. CIT (A) , Faridabad were as under . He confirmed the order of the Assessing officer on this point of loss.
I have considered the assessment order, the facts of the case and the submissions made by the appellant along with necessary evidence in support thereof. The AO after examining the issue of loss of zinc scrap incurred by the appellant on its own account concluded that the same was not allowable in view of the following 4 reasons:
During the course of assessment proceedings, the AO noticed that the appellant had sold zinc scrap both of other parties as well as on its own account. Since the nature of business along with other fact were the same in both lines of business, a natural conclusion which emerges is that the rate of profit should be approx the same in two lines of business. However, the AO found that while in case of sale of zinc scrap of other parties, the appellant earned profits, in case of sale of zinc scrap on its own account, it had incurred a substantial loss. This loss, when set off against other income of the appellant during the year under consideration resulted in reduction in tax liability of the appellant. The appellant’s explanation that there was deterioration in the quality of goods by the time it could be sold was not accepted by the AO, in view of the fact that there was hardly a difference of one month between the day on which the goods were received and the date on which these goods were subsequently sold to other parties. The most important point raised by the AO was that the appellant did not make any efforts to recover at least part of the loss by way of demurrage claimed as stipulated in its agreement with the foreign seller.
During the course of appellate proceedings, the appellant was specifically asked to give evidence of efforts made by it to recover the loss from the foreign seller. The appellant vide its submission dated 29.04.2013 simply added that he tried to contact the foreign seller through commission agent, but being a small trader, foreign sellers did not bother at all as they had already received the payment from the appellant. The appellant has ignored the point that even if it was difficult for him to recover any demurrage from the foreign seller, he could have at least made efforts to recover at least part of the loss he had suffered, being a prudent business practice and also in compliance with the agreement entered into with the foreign seller. Any businessman irrespective of his size and scale of operations compared to the other person with whom he is dealing tries his level best as a normal and prudent business practice to recover the loss which he had suffered, not because of his own fault but, may be, because of the order person or conditions beyond his control. The appellant, by not making any systematic and cogent efforts to recover the said loss did not even comply with the terms of the agreement with the foreign seller.
Hence, after a careful consideration of the facts of the case together with the explanation given by the appellant along with necessary evidence, I hold that the appellant did not make any efforts to recover the loss and by doing so did not follow the prudent norms of business as well as the agreement it had made with the foreign seller. Hence, I uphold the action of the AO to disallow loss incurred on sale of zinc scrap and dismiss the appeal of the appellant on this ground.
The Hon’ble ITAT , New Delhi accepted the version of the assessee which reads as under
This is an appeal filed by the assessee against the order dated 04.06.2013 passed by the ld.CIT(A),Faridabad , relating to A.Y.2007-08.
2. Brief facts of the case are that assessee had filed return declaring income of Rs.3,93,406/-. During the assessment proceedings the AO noticed that assessee had imported zinc scrap from UAE. The assessee submitted complete details of purchases/sales along with contracts made with the foreign sellers. The AO noticed that assessee was doing business of the sale and purchase of scrap of various types. He further noticed that assessee was also engaged in the trade of sale on consignment basis. He further noticed that the assessee had sold zinc scrap of other parties, on which it had shown profit, but in respect of goods purchased and sold by assessee in his own account the assessee had shown loss of Rs. 5,45,879/-. In response to AO’s query in this regard, the assessee pointed out that goods imported were of inferior quality and as such the goods were sold on the lower rates. The AO required the assessee to prove that the goods were of inferior quality. In response to this the assessee furnished spectrometer test report from Namo Alloys Pvt. Ltd. 14/1, Mathura Road, Faridabad dated 23.11.2009. The AO rejected this report, inter alia, observing that assessee had shown that zinc scrap was completely sold during the FY 2006-07 and no stock was left with the assessee. He, therefore, concluded that the report of Namo Alloys Pvt. Ltd. not be relied upon.
3. The assessee in its reply, which has been reproduced at pages 8&9 of assessment order, inter-alia, pointed out that sales depend upon:
a) General Market conditions.
b) The arm chair of the businessman who will decide at what price goods has to be sold.
c) Capacity to hold the goods in goodown, Sometimes businessman decides to sell the goods at a price lower than the cost price because he has to make the payment to his creditors.
d) The quality of the material etc.
e) Negotiation with the buyer who purchase the goods. If goods are of interior quality less rates are provided by the buyer as compared to superior quality goods.
4. The AO however, did not accept the assessee’s plea for the following reasons:
i. The goods imported by the assessee from UAE sold within a span of one month or even earlier of this, from the date of the receipt of the goods.
ii. The Zinc scrap sold in the case of other parties, for whom the assessee is working as a consignee were sold on profits as is reflected from the details furnished during the assessment proceedings.
iii. There was an agreement with the foreign seller that in case of any type of dispute the parties can claim such demurrage but the assessee has not written even a single letter to the seller regarding quality of the scrap.
iv. The assessee created a loss and adjusted the same against the order income and saved tax incident.
5. He, accordingly, concluded that assessee had sold goods on lower rates and created a loss of Rs.5,45,879/-.
6. Ld. CIT(A) confirmed the AO’s action mainly for the following reasons:
a) The assessee’s explanation that there was deterioration in the quality of goods by the time it could be sold, was not acceptable because there was hardly difference of one month between the day on which the goods were received and the dates on which these goods were subsequently sold to other parties.
b) The assessee did not make any efforts to recover at least part of the loss by way of demurrage as stipulated in its agreement with the foreign seller.
c) Ld. CIT(A) observed that even if it was difficult for him to recover any demurrage from the foreign seller, he could have at least made efforts to recover at least part of the loss, he had suffered, being a prudent business practice and also in compliance with the agreement entered into with the foreign seller.
7. Being aggrieved the assessee is in appeal before us and had taken following effective grounds of appeal:
“1. That the Ld. CIT(A) has erred in confirming the addition of Rs. 5,45,879.00 in total income as treating the loss as created loss, not a genuine loss.
8. Ground no. 1: Ld. counsel for the assessee referred to page 20 of the PB, wherein the details of import purchase a/c with the sale proceeds is contained to demonstrate that in import from SMS World PTE Ltd., Singapore, the assessee had purchased zinc scrap for Rs.21,26,242/- and sold the same for Rs.21,76,312.50. He further to the purchases made from Sun Metal Casting L.L.C., UAE and pointed out that the purchase were made for Rs. 70,78,847/- and the same was sold for Rs. 65,32,850/-, thereby assessee incurred a loss of Rs. 5,45,879.6. He, therefore, submitted that the AO’s observation that on entire imports, purchases the assessee had incurred loss, was not correct.
9. Ld. counsel further referred to page 44 wherein the P&L a/c is contained and pointed out6 that assessee had earned commission income of Rs. 4,49,445/- in respect of consignment sales.
10. Ld. counsel referred to page1 of the assessment order wherein the AO has noticed that relevant books of a/c and documents were examined by AO. He pointed out that total purchases and sales have not been found to be false. The books of a/c have been accepted.
11. Ld. counsel referred to page 67 onwards wherein the bills in respect of sales made to consignee are contained.
12. Ld. counsel pointed out that assessee is entitled to arrange his business in the manner he considers most profitable for him. In this regard he relied on following decisions:
– CIT Vs. Dhanrajgirji Raja Narasingirji 91 ITR 544 (SC), wherein it has been held that it is not open to department to prescribe what expenditure assessee should incur and in what circumstances he should incur that expenditure.
– CIT Vs. Wal Chand and Co. (P) Ltd. 65 ITR 381 (SC), wherein it has been, inter alia, held that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively has to be adjudged from the point of view of the businessman and not of the revenue.
13. Ld. counsel pointed out that assessee decided to forgo the loss because the loss was nominal and expenditure for recover the loss would have been much more.
14. Ld. DR submitted that assessee did not write a single letter as per agreement.
15. We have considered the submissions of both the parties and have perused the record of the case. The AO has not rejected the books of a/c. It is also not the case of lower revenue authorities that zinc scrap was sold to some related party in order to buy loss. The law is well settled that business decisions of assessee cannot be the subject matter of consideration of revenue authorities. From the findings recorded by ld. CIT(A), noted above, it is evident that the main reason for disallowing the loss was that assessee did not pursue the matter as per agreement with the foreign supplier. This reason cannot be countenanced in view of the two decisions relied upon by ld. counsel for the assessee. Ground is allowed.