The Tax Publishers2020 TaxPub(DT) 0984 (Ahd-Trib)

INCOME TAX ACT, 1961

Section 145(3)

Where assessee was continuously making loss not in one occasion but on several occasions for sales made to a particular party, which demonstrated that the assessee was under-invoicing the sales made to a particular party in order to show loss, the Revenue was justified in rejecting the assessee's books of account and making addition on account of under-invoicing of sales.

Accounting method - Rejection - Under-invoicing of sales made to a particular party in order to show loss -

Assessee-company was trading in milk powder and milk products. AO found that the assessee was buying the milk powder at an average cost price of Rs. 168 to 173 per kg. and selling the same at a price around Rs. 173 to Rs. 175 to customers except for a party named 'J'. In case of J, assessee sold milk powder at a price of Rs. 135 per kg resulting into loss of Rs. 38.40 per kg. uniformly on all its trades with it. AO further found that such loss occurred to the assessee only in case of supplies made to 'J' and with rest of the customers, the assessee incurred profit in the transactions. Assessee submitted that it was committed to sell the same to the 'J' at a price of Rs. 135 per kg. However, the AO did not accept the argument of the assessee and rejected its books of account and made addition on account of under-invoicing of sales. Held:Assessee was continuously making loss not in one occasion but on several occasions for sales made to a particular party, viz. 'J', which demonstrated that assessee was under invoicing the sales made to a particular party in order to show loss. Further, the explanation of the assessee of alleged commitment to sell the products at lower price was not substantiated, and hence not acceptable. It was also observed that the said party 'J' was not even a related party and there were no other transactions with them. Therefore, the Revenue rightly held that books of account did not reflect true picture, and accordingly rejected the same. Further, there was no evidence or explanation as to why it had sold items less than the purchase price by making loss, which resulted in under invoicing of sales. Hence, the addition made on account of under-invoicing of sales would be sustainable.

Distinguished: CIT, West Bengal v. Calcutta Discount Company Limited (1973) 91 ITR 8 (SC) : 1973 TaxPub(DT) 0471 (SC), A. Khadar Basha v. Asstt. CIT (2015) 58 taxmann.com 332 (Karn) : 2015 TaxPub(DT) 2948 (Karn-HC), CIT, Gujarat v. Keshavlal Chandulal. (1966) 59 ITR 120 (Guj) : 1966 TaxPub(DT) 0180 (Guj-HC), Sri Ramalinga Choodambikai Mills v. CIT (1955) 28 ITR 952 (Mad) : 1955 TaxPub(DT) 0143 (Mad-HC), Flipkart India (P) Ltd. v. Asstt. CIT (2018) 92txmann.com 387 (Bang-Trib) : 2018 TaxPub(DT) 2002 (Bang-Trib), Dy. CIT v. Sphoorti Machine Tools (P) Ltd. (2012) 30 Taxman.com 413 (Banglore Trib.) : 2012 TaxPub(DT) 2982 (Bang-Trib)

REFERRED :

FAVOUR : Against the assessee

A.Y. : 2013-14


INCOME TAX ACT, 1961

Section ???

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