ACIT-15(1)(2),MUMBAI , MUMBAI vs. NEST CHILDCARE SERVICES PRIVATE LIMITED, MUMBAI

Per Bench Bench The The The captioned captioned captioned appeals appeals appeals by by by the the the assessee assessee assessee for for for Assessment Years (AYs) 2012 Assessment Years (AYs) 2012-13 to 2014 13 to 2014-15 and the cross-appeal by the Revenue for AY 2014 appeal by the Revenue for AY 2014 appeal by the Revenue for AY 2014-15, arise from separate orders of the learned Commissioner of Income orders of the learned Commissioner of Income- tax (Appeals), National Faceless Appeal Centre, Delhi tax (Appeals), National Faceless Appeal Centre, Delhi tax (Appeals), National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”]. Since common issues pervade these [“Ld. CIT(A)”]. Since common issues pervade these [“Ld. CIT(A)”]. Since common issues pervade these matters, they were heard together and are being matters, they were heard together and are being matters, they were heard together and are being disposed of by this consolidated order for convenience disposed of by this consolidated order for convenience disposed of by this consolidated order for convenience and avoid repetition of facts. avoid repetition of facts.

2. The learned commissioner has erred in not considering the The learned commissioner has erred in not considering the The learned commissioner has erred in not considering the income actually earned OR arisen and assuming that income actually earned OR arisen and assuming that income actually earned OR arisen and assuming that income which could have been earned should be taxed. income which co uld have been earned should be taxed.

4. The learned Commissioner has erred in upholding the The learned Commissioner has erred in upholding the The learned Commissioner has erred in upholding the disallowance of loss made by the learned AO without disallowance of loss made by the learned AO without disallowance of loss made by the learned AO without rejecting the books of the accounts of the assesse ejecting the books of the accounts of the assesse ejecting the books of the accounts of the assessee.

1. ITA No. 6072,6073,6074/MUM/2025 4 Nest Childcare Services Private Limited Nest Childcare Services Private Limited For the year under consideration, the assessee filed its For the year under consideration, the assessee filed its For the year under consideration, the assessee filed its return of income on 30th September 2012 declaring return of income on 30th September 2012 declaring return of income on 30th September 2012 declaring a total loss of ₹7,90,94,532/-. The return was selected for total loss of . The return was selected for scrutiny and statutory notices under section 143(2) of scrutiny and statutory notices under section 143(2) of scrutiny and statutory notices under section 143(2) of the Income the Income-tax Act, 1961 (“the Act”) were duly issued tax Act, 1961 (“the Act”) were duly issued and complied with. and complied with. 4.1 During assessment, the Assessing Officer (“AO”) During assessment, the Assessing Officer (“AO”) During assessment, the Assessing Officer (“AO”) noted that the asse noted that the assessee had incurred an operational ssee had incurred an operational ₹1,18,450/- loss loss of of and and had had disclosed disclosed consumption/purchase of goods at ₹5,50,73,952/- consumption/purchase of goods at consumption/purchase of goods at against sales of ₹5,49,55,550/-. The assessee explained against sales of . The assessee explained that its pricing model was dictated by market that its pricing model was dictated by market that its pricing model was dictated by market competition and that, being an e competition and that, being an e-commerce retailer, it commerce retailer, it adopted a discount adopted a discount-driven penetration strategy in the driven penetration strategy in the early years. The AO, however, rejected this explanation early years. The AO, however, rejected this explanation early years. The AO, however, rejected this explanation on the premise that no prudent business entity would premise that no prudent business entity would premise that no prudent business entity would sell at prices lower than the purchase cost and held the sell at prices lower than the purchase cost and held the sell at prices lower than the purchase cost and held the pricing pricing pricing policy policy policy to to to be be be commercially commercially commercially unjustifiable. unjustifiable. unjustifiable. Consequently, he disallowed the entire loss and Consequently, he disallowed the entire loss and Consequently, he disallowed the entire loss and estimated profit at 20% of turnover. The Assessing estimated profit at 20% of turnover. The Assessing estimated profit at 20% of turnover. The Assessing officer mainly concluded that (i) products were sold er mainly concluded that (i) products were sold er mainly concluded that (i) products were sold below purchase cost;(ii) discounts were claimed to be below purchase cost;(ii) discounts were claimed to be below purchase cost;(ii) discounts were claimed to be excessive and commercially inexpedient;(iii) pricing excessive and commercially inexpedient;(iii) pricing excessive and commercially inexpedient;(iii) pricing allegedly failed to consider fixed, variable and incidental allegedly failed to consider fixed, variable and incidental allegedly failed to consider fixed, variable and incidental

ITA No. 6072,6073,6074/MUM/2025 5 Nest Childcare Services Private Limited Nest Childcare Services Private Limited costs; and(iv) no “futuristic” business p costs; and(iv) no “futuristic” business p costs; and(iv) no “futuristic” business plan was demonstrated. demonstrated. The relevant finding of the Assessing The relevant finding of the Assessing Officer is reproduced here under : icer is reproduced here under :-

“4. Perusal of the details filed by the assessee company Perusal of the details filed by the assessee company Perusal of the details filed by the assessee company shows that during the year under consideration, the shows that during the year under consideration, the shows that during the year under consideration, the assessee assessee assessee company company company has has has incurred incurred incurred net net net loss loss loss of of of Rs.7,90,94,532/Further, Rs.7,90,94,532/Further, Rs.7,90,94,532/Further, it it it is is is also also also seen seen seen that that that the the the consumption consumption consumption of of of materials/goods materials/goods materials/goods were were were shown shown shown Rs.55073952/ Rs.55073952/-against which there is a sale consideration against which there is a sale consideration of Rs. 54955502/ of Rs. 54955502/-, thus, incurring a loss of Rs.118450/ , thus, incurring a loss of Rs.118450/ Further, it is also seen that assessee company has Further, it is also seen that assessee company has Further, it is also seen that assessee company has incurred Rs.76940322/ ncurred Rs.76940322/-being other expenses spent for the being other expenses spent for the purpose of business. In the background of this, the purpose of business. In the background of this, the purpose of business. In the background of this, the assessee company was asked to justify its pricing policy. assessee company was asked to justify its pricing policy. assessee company was asked to justify its pricing policy. The assesse company was also asked to furnish complete The assesse company was also asked to furnish complete The assesse company was also asked to furnish complete details of its fixed cost, overhead details of its fixed cost, overheads and variable costs s and variable costs applicable to the costing and pricing of a particular applicable to the costing and pricing of a particular applicable to the costing and pricing of a particular product. The assesse company vide its letter dated product. The assesse company vide its letter dated product. The assesse company vide its letter dated 03.03.2015 and 10.03.2015 has submitted a detailed 03.03.2015 and 10.03.2015 has submitted a detailed 03.03.2015 and 10.03.2015 has submitted a detailed reply justifying the claim of loss incurred by the assessee. reply justifying the claim of loss incurred by the assessee. reply justifying the claim of loss incurred by the assessee. For the sake of br For the sake of brevity, the submission of the assessee evity, the submission of the assessee company are placed on record. company are placed on record.

4.1 The submissions are carefully perused. However, the The submissions are carefully perused. However, the The submissions are carefully perused. However, the same are not acceptable. The assessee company in its same are not acceptable. The assessee company in its same are not acceptable. The assessee company in its reply has suggested that the assessee is engaged in retail reply has suggested that the assessee is engaged in retail reply has suggested that the assessee is engaged in retail sale of child care sale of child care and baby products through its website and baby products through its website www.babyove.com. The business module of the assessee www.babyove.com. The business module of the assessee www.babyove.com. The business module of the assessee

ITA No. 6072,6073,6074/MUM/2025 6 Nest Childcare Services Private Limited Nest Childcare Services Private Limited company is that it buys and sells its products through company is that it buys and sells its products through company is that it buys and sells its products through websites. There is another module being operated in the websites. There is another module being operated in the websites. There is another module being operated in the market wherein an online platform tor other retailers market wherein an online platform tor other retailers market wherein an online platform tor other retailers is made available for selling of the products of retailers. The made available for selling of the products of retailers. The made available for selling of the products of retailers. The assessee company buys almost entire product from Moms assessee company buys almost entire product from Moms assessee company buys almost entire product from Moms Childcare. The pricing policy of the assessee as well as the Childcare. The pricing policy of the assessee as well as the Childcare. The pricing policy of the assessee as well as the industry is decided by the competitors prices in the market industry is decided by the competitors prices in the market industry is decided by the competitors prices in the market and the companies and the companies offers huge discount to beat the acute offers huge discount to beat the acute competition which is unheard off in traditional business. competition which is unheard off in traditional business. competition which is unheard off in traditional business. These discounts are often offered by the e These discounts are often offered by the e-tailers from their tailers from their own pockets thereby effecting sales at prices lower than own pockets thereby effecting sales at prices lower than own pockets thereby effecting sales at prices lower than the prices of the products. Thus, the p the prices of the products. Thus, the penetration pricing enetration pricing strategy allows the product to be priced as low as possible strategy allows the product to be priced as low as possible strategy allows the product to be priced as low as possible and attract customers and generate trade volume. Even if and attract customers and generate trade volume. Even if and attract customers and generate trade volume. Even if this resulted in gross loss, the long term strategy behind this resulted in gross loss, the long term strategy behind this resulted in gross loss, the long term strategy behind this policy is to penetrate the market fully and develop a this policy is to penetrate the market fully and develop a this policy is to penetrate the market fully and develop a good base od base for loyal customers. Once this is done, the or loyal customers. Once this is done, the discounts offered would gradually be reduced and the discounts offered would gradually be reduced and the discounts offered would gradually be reduced and the company would eventually start making profits. company would eventually start making profits. company would eventually start making profits.

4.2 The assessee company in its reply is trying to harp upon The assessee company in its reply is trying to harp upon The assessee company in its reply is trying to harp upon the fact that this is a new business and h the fact that this is a new business and h the fact that this is a new business and heavy discounts make it mandatory to price the product below the cost of make it mandatory to price the product below the cost of make it mandatory to price the product below the cost of acquisition of such products. There is no denying the fact acquisition of such products. There is no denying the fact acquisition of such products. There is no denying the fact that a particular item which is available at a retailer shop that a particular item which is available at a retailer shop that a particular item which is available at a retailer shop is priced higher than the same product which is available is priced higher than the same product which is available is priced higher than the same product which is available on e-t -tailers platform. However, the fact can also not be lers platform. However, the fact can also not be denied that in a e denied that in a e-tailers platform, the e distributor the wholesaler and the retailers are not in picture and the wholesaler and the retailers are not in picture and the wholesaler and the retailers are not in picture and the 7 I.T.A. No. 6215/MUM/2025 Nest Childcare Services Private Limited Nest Childcare Services Private Limited product is directly delivered by the manufacturer to the product is directly delivered by the manufacturer to the product is directly delivered by the manufacturer to the end use customer. end use customer. Hence, the margins available to the Hence, the margins available to the distributor/wholesaler/retailer do not form the part of distributor/wholesaler/retailer do not form the part of distributor/wholesaler/retailer do not form the part of price of the product and hence a particular product is much price of the product and hence a particular product is much price of the product and hence a particular product is much cheaper on the e cheaper on the e-tailer platform in comparison to a retailer tailer platform in comparison to a retailer shop. Therefore, the submission of the asse shop. Therefore, the submission of the asse shop. Therefore, the submission of the assessee that the product is much cheaper due to heavy discount offered by product is much cheaper due to heavy discount offered by product is much cheaper due to heavy discount offered by the manufacturers does not hold good. On the contrary, the the manufacturers does not hold good. On the contrary, the the manufacturers does not hold good. On the contrary, the margin available to a manufacturer is much higher on a e margin available to a manufacturer is much higher on a e margin available to a manufacturer is much higher on a e- platform as competitively, the prices are much lower in platform as competitively, the prices are much lower in platform as competitively, the prices are much lower in comparison to comparison to a retailer shop.

4.3 Further, nothing has been brought on record by the 3 Further, nothing has been brought on record by the 3 Further, nothing has been brought on record by the assessee company to suggest as to why it was compulsory assessee company to suggest as to why it was compulsory assessee company to suggest as to why it was compulsory for it to sell its products below the cost price even when the for it to sell its products below the cost price even when the for it to sell its products below the cost price even when the margins of the distributor, wholesaler and the retailer were margins of the distributor, wholesaler and the retailer were margins of the distributor, wholesaler and the retailer were not included in the cost of the product. Even if, the profit included in the cost of the product. Even if, the profit included in the cost of the product. Even if, the profit margins charged by a e margins charged by a e-tailer is higher in comparison to tailer is higher in comparison to the product when it is sold to the distributor, the end user the product when it is sold to the distributor, the end user the product when it is sold to the distributor, the end user or the customer still gets the same commodity at much or the customer still gets the same commodity at much or the customer still gets the same commodity at much cheaper prices since the h cheaper prices since the highest margin in any assemble ighest margin in any assemble chain from manufacturer to consumer are availed by the chain from manufacturer to consumer are availed by the chain from manufacturer to consumer are availed by the retailers, then the wholesalers and to some extent the retailers, then the wholesalers and to some extent the retailers, then the wholesalers and to some extent the distributors. Further, the entire product which is sold on e distributors. Further, the entire product which is sold on e distributors. Further, the entire product which is sold on e- platform have a cash on delivery system wherein there i platform have a cash on delivery system wherein there i platform have a cash on delivery system wherein there is no credit period available to the end user and the no credit period available to the end user and the no credit period available to the end user and the manufacturer gets the price of the product instantly which manufacturer gets the price of the product instantly which manufacturer gets the price of the product instantly which in turn helps it to control its cost further as the borrowings in turn helps it to control its cost further as the borrowings in turn helps it to control its cost further as the borrowings are less. In the case of the distribution chain network The are less. In the case of the distribution chain network The are less. In the case of the distribution chain network The 8 I.T.A. No. 6215/MUM/2025 Nest Childcare Services Private Limited Nest Childcare Services Private Limited distributor, wholesal distributor, wholesaler and the retailer generally takes er and the retailer generally takes good good good credit credit credit period period period for for for making making making payment payment payment and and and the the the manufacturer in turn has to do the deficit financing by manufacturer in turn has to do the deficit financing by manufacturer in turn has to do the deficit financing by external borrowings which further adds to its cost. external borrowings which further adds to its cost. external borrowings which further adds to its cost.

4.4 Further, while fixing the price of a particular product, the Further, while fixing the price of a particular product, the Further, while fixing the price of a particular product, the entire cost including the fixed cost, the overhead cost and entire cost including the fixed cost, the overhead cost and entire cost including the fixed cost, the overhead cost and the variable cost are accounted for. Also, a profit element is the variable cost are accounted for. Also, a profit element is the variable cost are accounted for. Also, a profit element is added to the cost to arrive at the selling price. It is added to the cost to arrive at the selling price. It is added to the cost to arrive at the selling price. It is pertinent to mention that even notional costs such as pertinent to mention that even notional costs such as pertinent to mention that even notional costs such as incidental cost, unfore incidental cost, unforeseen market forces, competition in seen market forces, competition in the market, competitive edge etc the market, competitive edge etc. is also taken into account is also taken into account and forms a part of the cost to arrive at the selling price. In and forms a part of the cost to arrive at the selling price. In and forms a part of the cost to arrive at the selling price. In the instant case, the assessee company has sold its price the instant case, the assessee company has sold its price the instant case, the assessee company has sold its price not only below the purchase cost, but not only below the purchase cost, but also none of the also none of the other costs have been taken into account to arrive at the other costs have been taken into account to arrive at the other costs have been taken into account to arrive at the selling price. Therefore, the entire pricing policy of the selling price. Therefore, the entire pricing policy of the selling price. Therefore, the entire pricing policy of the assessee is neither commensurate with its business nor assessee is neither commensurate with its business nor assessee is neither commensurate with its business nor with the normal pricing policy adopted by any prudent with the normal pricing policy adopted by any prudent with the normal pricing policy adopted by any prudent agency. agency. Non-inclusion of all these costs has resulted in nclusion of all these costs has resulted in huge loss of 7,90,94,532/ huge loss of 7,90,94,532/-which not only makes the which not only makes the business non sustainable but also economically and business non sustainable but also economically and business non sustainable but also economically and financially non financially non-viable. Vide its submissions, the assessee viable. Vide its submissions, the assessee company could not substantiate the loss incurred no company could not substantiate the loss incurred no company could not substantiate the loss incurred nor any futuristic path/ futuristic path/planning has been indicated to ov planning has been indicated to overcome the so called market forces hurdle the so called market forces hurdle.

4.5 Hence, the loss of Rs.7,90,94,532/ Hence, the loss of Rs.7,90,94,532/-claimed by the claimed by the assessee is disallowed as not assessee is disallowed as not justiciable justiciable. Further, the 9 I.T.A. No. 6215/MUM/2025 Nest Childcare Services Private Limited Nest Childcare Services Private Limited profit of the assessee is estimated at 20% of i profit of the assessee is estimated at 20% of i profit of the assessee is estimated at 20% of its sales being is added to the total income.” Rs. 109,91,100/ Rs. 109,91,100/-is added to the total income

5. On appeal, the Ld. CIT(A) concurred that the pricing On appeal, the Ld. CIT(A) concurred that the pricing On appeal, the Ld. CIT(A) concurred that the pricing policy policy policy and and and resultant resultant resultant loss loss loss were were were commercially commercially commercially unacceptable and sustained the disallowance of the unacceptable and sustained the disallowance of the unacceptable and sustained the disallowance of the loss, albeit albeit reducing the estimated profit rat reducing the estimated profit rate from 20% to 10% by relying on unspecified “research papers”. The to 10% by relying on unspecified “research papers”. The to 10% by relying on unspecified “research papers”. The relevant part of decision disallowing relevant part of decision disallowing the the business loss is as under : as under :- “6.1 In Grounds No. 1 to 4 of the Appeal, the appellant has 6.1 In Grounds No. 1 to 4 of the Appeal, the appellant has 6.1 In Grounds No. 1 to 4 of the Appeal, the appellant has contented that the AO has not appreciated the business contented that the AO has not appreciated the business contented that the AO has not appreciated the business model of e model of e-commerce in India and in comparing the commerce in India and in comparing the business dynamics of the appellant who is an e commerce business dynamics of the appellant who is an e commerce business dynamics of the appellant who is an e commerce retailer with those of a manufacturer and holding that in e retailer with those of a manufacturer and holding that in e retailer with those of a manufacturer and holding that in e- retailer platforms, product is directly delivered by retailer platforms, product retailer platforms, product is directly delivered by is directly delivered by manufacturer to the end user customer manufacturer to the end user customer, when in fact, manufacturer to the end user customer, when in fact, majority of entities in the e commerce business are majority of entities in the e commerce business are majority of entities in the e commerce business are retailers and market retailers and market places. It is also submitted by the It is also submitted by the appellant that the AO has erred in stating that the appellant that the AO has erred in stating that the appellant that the AO has erred in stating that the products have been sold below cost and observing that the products have been sold below cost and observing that the products have been sold below cost and observing that the appellant has brought appellant has brought nothing on record to suggest why it nothing on record to suggest why it was compulsory for it to sell its products below cost price, was compulsory for it to sell its products below cost price, was compulsory for it to sell its products below cost price, when in fact, it has made detailed submissions with when in fact, it has made detailed submissions with when in fact, it has made detailed submissions with supporting evidences to demonstrate how its pricing was supporting evidences to demonstrate how its pricing was supporting evidences to demonstrate how its pricing was determined in order to be competitive. It is furth determined in order to be competitive. It is furth determined in order to be competitive. It is further submitted by the appellant that the AO has erred in submitted by the appellant that the AO has erred in submitted by the appellant that the AO has erred in 10 I.T.A. No. 6215/MUM/2025 Nest Childcare Services Private Limited Nest Childcare Services Private Limited concluding that the pricing policy adopted by the appellant concluding that the pricing policy adopted by the appellant concluding that the pricing policy adopted by the appellant was not justifiable on the basis that it does not include all was not justifiable on the basis that it does not include all was not justifiable on the basis that it does not include all other fixed, variable and overhead costs. In doing so, he other fixed, variable and overhead costs. In doing so, he other fixed, variable and overhead costs. In doing so, he has ignored the fact has ignored the fact that pricing of the appellant was that pricing of the appellant was driven by market forces and not on a cost plus model and driven by market forces and not on a cost plus model and driven by market forces and not on a cost plus model and thus, the AO was wrong in disallowing the entire loss by thus, the AO was wrong in disallowing the entire loss by thus, the AO was wrong in disallowing the entire loss by considering the pricing policy as not justifiable and the considering the pricing policy as not justifiable and the considering the pricing policy as not justifiable and the business as not sustainable economically and finan business as not sustainable economically and finan business as not sustainable economically and financially. 6.1.1 From the facts of the case, observations made by the AO, 6.1.1 From the facts of the case, observations made by the AO, 6.1.1 From the facts of the case, observations made by the AO, submissions made by the appellant and documents on submissions made by the appellant and documents on submissions made by the appellant and documents on records, it is observed that appellant company is engaged records, it is observed that appellant company is engaged records, it is observed that appellant company is engaged in business of online selling of baby products and baby in business of online selling of baby products and baby in business of online selling of baby products and baby care and mother car care and mother care products on wholesale basis through e products on wholesale basis through its its its website website website www.Babyoye.com after purchasing its www.Babyoye.com after purchasing its www.Babyoye.com after purchasing its products from suppliers and advertised its products products from suppliers and advertised its products products from suppliers and advertised its products through online platforms to the target market by listing through online platforms to the target market by listing through online platforms to the target market by listing products on website with claimed substantial discount to products on website with claimed substantial discount to products on website with claimed substantial discount to the MRP. During the year under consideration, the MRP. During the year under consideration, the MRP. During the year under consideration, the appellant appellant appellant has has has shown shown shown cost cost cost of of of consumption consumption consumption of of of material/goods at Rs. 25,52,68,464/ material/goods at Rs. 25,52,68,464/- and had claimed to and had claimed to have incurred business expenses amounting to Rs. have incurred business expenses amounting to Rs. have incurred business expenses amounting to Rs. 16,00,34,150/ 16,00,34,150/-. Thus, total effective cost of products sold . Thus, total effective cost of products sold including expenses was claimed by the appellant at Rs. ncluding expenses was claimed by the appellant at Rs. ncluding expenses was claimed by the appellant at Rs. 41,53,02,614/ 41,53,02,614/- against which sale realization has been against which sale realization has been shown only at Rs. 29,81,56,703/ shown only at Rs. 29,81,56,703/- thus, claiming net loss thus, claiming net loss of Rs. 11,71,45,911/ of Rs. 11,71,45,911/-. These quantum of cost of . These quantum of cost of consumption, expenses and sales shown by t consumption, expenses and sales shown by t consumption, expenses and sales shown by the appellant show that appellant has declared loss at 39.29% of total show that appellant has declared loss at 39.29% of total show that appellant has declared loss at 39.29% of total

ITA No. 6072,6073,6074/MUM/2025 11 Nest Childcare Services Private Limited Nest Childcare Services Private Limited sale and the sale price realized by the appellant was just sale and the sale price realized by the appellant was just sale and the sale price realized by the appellant was just 71.29% of the effective cost price, leave aside a reasonable 71.29% of the effective cost price, leave aside a reasonable 71.29% of the effective cost price, leave aside a reasonable profit margin, which is expected to be earned by a profit margin, which is expected to be earned by a profit margin, which is expected to be earned by a business entity business entity in any business which is basic motive, for in any business which is basic motive, for which a business is established to run. Thus, the sale which a business is established to run. Thus, the sale which a business is established to run. Thus, the sale price fixed by the appellant, based on which, substantial price fixed by the appellant, based on which, substantial price fixed by the appellant, based on which, substantial business loss has been declared is clearly unbelievable as business loss has been declared is clearly unbelievable as business loss has been declared is clearly unbelievable as no business entity including the appella no business entity including the appellant would, in any nt would, in any situation including stated reasons of penetration pricing situation including stated reasons of penetration pricing situation including stated reasons of penetration pricing strategy as a long term perspective to attract customers strategy as a long term perspective to attract customers strategy as a long term perspective to attract customers and generate trade volume, fix sale price at such rate that and generate trade volume, fix sale price at such rate that and generate trade volume, fix sale price at such rate that would result sale realization of just 71.29% of total cost would result sale realization of just 71.29% of total cost would result sale realization of just 71.29% of total cost including expenses resulting into such a substantial loss to ding expenses resulting into such a substantial loss to ding expenses resulting into such a substantial loss to the tune of 39.29% of the sale amount. Even, generally the the tune of 39.29% of the sale amount. Even, generally the the tune of 39.29% of the sale amount. Even, generally the MRP of any product is fixed taking into account all the cost MRP of any product is fixed taking into account all the cost MRP of any product is fixed taking into account all the cost and direct and indirect expenses (including fixed cost, and direct and indirect expenses (including fixed cost, and direct and indirect expenses (including fixed cost, overhead cost, variable overhead cost, variable cost and notional costs like cost and notional costs like incidental cost, unforeseen market forces etc) incurred by incidental cost, unforeseen market forces etc) incurred by incidental cost, unforeseen market forces etc) incurred by the manufacture, expected expenses of distributors, whole the manufacture, expected expenses of distributors, whole the manufacture, expected expenses of distributors, whole- sellers, retailers etc and a handsome reasonable profit sellers, retailers etc and a handsome reasonable profit sellers, retailers etc and a handsome reasonable profit margin of all these chain constituents and thereafter, margin of all these chain constituents and thereafter, margin of all these chain constituents and thereafter, MRP is marked at an amount substantially higher than all the is marked at an amount substantially higher than all the is marked at an amount substantially higher than all the cost plus profit margin of all these persons viz. cost plus profit margin of all these persons viz. cost plus profit margin of all these persons viz. manufacture, distributors, whole manufacture, distributors, whole-sellers, retailers etc so sellers, retailers etc so that even after giving substantial discount on MRP as is that even after giving substantial discount on MRP as is that even after giving substantial discount on MRP as is the general practice in the the general practice in the market to attract and lure the market to attract and lure the customers in the name of heavy discount on MRP, every customers in the name of heavy discount on MRP, every customers in the name of heavy discount on MRP, every person in the chain earns a lucrative and reasonable profit person in the chain earns a lucrative and reasonable profit person in the chain earns a lucrative and reasonable profit

ITA No. 6072,6073,6074/MUM/2025 12 Nest Childcare Services Private Limited Nest Childcare Services Private Limited to sustain in the market. Therefore, submission of the to sustain in the market. Therefore, submission of the to sustain in the market. Therefore, submission of the appellant that the products were listed on its website w appellant that the products were listed on its website w appellant that the products were listed on its website with substantial discount to MRP resulting into such a huge substantial discount to MRP resulting into such a huge substantial discount to MRP resulting into such a huge claimed loss, does not hold a good and practical logic as claimed loss, does not hold a good and practical logic as claimed loss, does not hold a good and practical logic as the the the submission submission submission made made made by by by the the the appellant appellant appellant do do do not not not commensurate with its business nor with the normal commensurate with its business nor with the normal commensurate with its business nor with the normal pricing policy adopted by any prudent busine pricing policy adopted by any prudent busine pricing policy adopted by any prudent businessman. 6.1.2. The appellant company was asked by the AO to justify The appellant company was asked by the AO to justify The appellant company was asked by the AO to justify its pricing policy and to furnish the complete details of its pricing policy and to furnish the complete details of its pricing policy and to furnish the complete details of fixed cost, overheads and variable cost applicable to the fixed cost, overheads and variable cost applicable to the fixed cost, overheads and variable cost applicable to the costing and pricing of particular product. Thereafter, the costing and pricing of particular product. Thereafter, the costing and pricing of particular product. Thereafter, the appellant com appellant company submitted its reply, which has already pany submitted its reply, which has already been discussed in earlier paras of this order as well in the been discussed in earlier paras of this order as well in the been discussed in earlier paras of this order as well in the assessment order. The submission of the appellant that assessment order. The submission of the appellant that assessment order. The submission of the appellant that the pricing policy of the appellant company as well as the the pricing policy of the appellant company as well as the the pricing policy of the appellant company as well as the industry is decided by the competitor industry is decided by the competitor’s prices in the s prices in the market and companies offer huge discount to beat the market and companies offer huge discount to beat the market and companies offer huge discount to beat the acute competition unlike traditional business, is correct but acute competition unlike traditional business, is correct but acute competition unlike traditional business, is correct but even then, the claimed huge discount offered cannot be of even then, the claimed huge discount offered cannot be of even then, the claimed huge discount offered cannot be of such ratio so as to result huge loss of 39.29% as discussed such ratio so as to result huge loss of 39.29% as discussed such ratio so as to result huge loss of 39.29% as discussed above. above. At the most, discount is offered by any trader At the most, discount is offered by any trader including e including e-traders so as to earn at least a minimum profit traders so as to earn at least a minimum profit so as to run their business. So, the submission of the so as to run their business. So, the submission of the so as to run their business. So, the submission of the appellant that discounts were given from its own pocket appellant that discounts were given from its own pocket appellant that discounts were given from its own pocket thereby effecting sales price even be thereby effecting sales price even below the cost price of low the cost price of the products w the products which resulted in gross loss can hich resulted in gross loss cannot be accepted in view of market practice and general principle accepted in view of market practice and general principle accepted in view of market practice and general principle of running a business. of running a business.

ITA No. 6072,6073,6074/MUM/2025 13 Nest Childcare Services Private Limited Nest Childcare Services Private Limited 6.1.3 Further, this fact also cannot be denied that in e retailer 6.1.3 Further, this fact also cannot be denied that in e retailer 6.1.3 Further, this fact also cannot be denied that in e retailer platform, the sales are made direct platform, the sales are made directly to the end use ly to the end use customers which do not include any middlemen like customers which do not include any middlemen like customers which do not include any middlemen like distributors and retailers etc, hence, more margin is distributors and retailers etc, hence, more margin is distributors and retailers etc, hence, more margin is available to the manufacturer and whole seller like available to the manufacturer and whole seller like available to the manufacturer and whole seller like appellant, as it does not need to share its margins with the appellant, as it does not need to share its margins with the appellant, as it does not need to share its margins with the distributor and retai distributor and retailer etc and therefore, margin available ler etc and therefore, margin available to the chain of distributor and retailer do not form part of to the chain of distributor and retailer do not form part of to the chain of distributor and retailer do not form part of price of product and therefore, it is clear that the appellant price of product and therefore, it is clear that the appellant price of product and therefore, it is clear that the appellant company has failed in the assessment proceedings as well company has failed in the assessment proceedings as well company has failed in the assessment proceedings as well as appeal proceedings, to justify t as appeal proceedings, to justify the reason as to why it he reason as to why it was necessary to sell its product below the cost price, that was necessary to sell its product below the cost price, that was necessary to sell its product below the cost price, that too at loss of about 39.29%, even when the margins of too at loss of about 39.29%, even when the margins of too at loss of about 39.29%, even when the margins of distributors and retailers were not included in the cost of distributors and retailers were not included in the cost of distributors and retailers were not included in the cost of the product. Further, the AO is also right in pointing out the product. Further, the AO is also right in pointing out the product. Further, the AO is also right in pointing out that one platform, there is cash on delivery system, that one platform, there is cash on delivery system, that one platform, there is cash on delivery system, wherein, there is no credit period available to the end user wherein, there is no credit period available to the end user wherein, there is no credit period available to the end user and the manufacturer/whole seller like appellant, gets the and the manufacturer/whole seller like appellant, gets the and the manufacturer/whole seller like appellant, gets the price of product instantly, which helps to control its cost price of product instantly, which helps to control its cost price of product instantly, which helps to control its cost further as the borrowi further as the borrowings are less as compared to ngs are less as compared to distribution chain network, where the chain takes good distribution chain network, where the chain takes good distribution chain network, where the chain takes good credit credit credit period period period for for for making making making payment payment payment and and and the the the manufacturer/whole manufacturer/whole-seller in turn has to do the deficit seller in turn has to do the deficit financing by external borrowings which further adds to the financing by external borrowings which further adds to the financing by external borrowings which further adds to the cost. Therefore, cost. Therefore, in my opinion, in view of above facts, the in my opinion, in view of above facts, the loss declared by the appellant was rightly disallowed by loss declared by the appellant was rightly disallowed by loss declared by the appellant was rightly disallowed by the AO and the same is hereby confirmed. the AO and the same is hereby confirmed.” ”

ITA No. 6072,6073,6074/MUM/2025 14 Nest Childcare Services Private Limited Nest Childcare Services Private Limited

“7.1 From the asstt. 7.1 From the asstt. order, it is noticed that after disallowing order, it is noticed that after disallowing loss declared by the appellant, the loss declared by the appellant, the AO estimated net profit AO estimated net profit of the appellant at 20% of its sales without 7.1 From the of the appellant at 20% of its sales without 7.1 From the of the appellant at 20% of its sales without 7.1 From the asstt. asstt. order, it is noticed that after disallowing loss order, it is noticed that after disallowing loss declared by the appellant, the AO estimated net profit of declared by the appellant, the AO estimated net profit of declared by the appellant, the AO estimated net profit of the appellant at 20% of its sales without the appellant at 20% of its sales without giving any basis giving any basis or comparable net profit rates of e commerce business r comparable net profit rates of e commerce business r comparable net profit rates of e commerce business industry. Accordingly, this net profit margin taken by the industry. Accordingly, this net profit margin taken by the industry. Accordingly, this net profit margin taken by the AO without assigning any justification for the same cannot AO without assigning any justification for the same cannot AO without assigning any justification for the same cannot be held to be justified. Hence, the data published in this be held to be justified. Hence, the data published in this be held to be justified. Hence, the data published in this regard has been examined a regard has been examined and as per the published data, nd as per the published data, in the e in the e-commerce landscape, it is a fact that there may be commerce landscape, it is a fact that there may be various factors affecting Net Profit Margin, some of which various factors affecting Net Profit Margin, some of which various factors affecting Net Profit Margin, some of which are as under: are as under:

Cost of Goods Sold (COGS): The direct costs associated Cost of Goods Sold (COGS): The direct costs associated Cost of Goods Sold (COGS): The direct costs associated with producing or acquiring the produc with producing or acquiring the products sold. ts sold.

Operating Operating Operating Expenses: Expenses: Expenses: Costs Costs Costs such such such as as as rent, rent, rent, utilities, utilities, utilities, marketing, and employee salaries. marketing, and employee salaries.

Pricing Strategy: How a business sets its prices directly Pricing Strategy: How a business sets its prices directly Pricing Strategy: How a business sets its prices directly impacts its profit margin. impacts its profit margin.

ITA No. 6072,6073,6074/MUM/2025 15 Nest Childcare Services Private Limited Nest Childcare Services Private Limited Sales Volume: Higher sales volume can help offset fixed Sales Volume: Higher sales volume can help offset fixed Sales Volume: Higher sales volume can help offset fixed costs and improve ove costs and improve overall profitability.

Industry: Different retail sectors (e.g., apparel, grocery) Industry: Different retail sectors (e.g., apparel, grocery) Industry: Different retail sectors (e.g., apparel, grocery) have different average profit margins. have different average profit margins.

Market Shifts: Economic conditions and consumer behavior Market Shifts: Economic conditions and consumer behavior Market Shifts: Economic conditions and consumer behavior can influence retail profits. can influence retail profits.

Operational Operational Operational Efficiency: Efficiency: Efficiency: Streamlining Streamlining Streamlining processes processes processes and and and optimizing expenses can boost margins. optimizing expenses can boost margins.

Inventory Management: Efficient inventory control can Inventory Management: Efficient inventory control can Inventory Management: Efficient inventory control can minimize losses from spoilage or obsolescence. minimize losses from spoilage or obsolescence. minimize losses from spoilage or obsolescence.

Additional factors influencing profitability in India Additional factors influencing profitability in India Additional factors influencing profitability in India include include Competition: The Indian e Competition: The Indian e-commerce market is highly commerce market is highly competitive, requiring businesses to differentiate and competitive, requiring businesses to differentiate and competitive, requiring businesses to differentiate and manage costs effectively. manage costs effectively.

Logistics and Infrastructure: Challenges in logistics and Logistics and Infrastructure: Challenges in logistics and Logistics and Infrastructure: Challenges in logistics and supply supply supply chain chain chain management management management can can can impact impact impact profitability, profitability, profitability, especially in remote areas. especially in remote areas.

Cash on Delivery (COD): The popularity Cash on Delivery (COD): The popularity of COD can lead to of COD can lead to higher return rates, affecting margins. higher return rates, affecting margins.

Government Initiatives and Regulations: Policies like FDI Government Initiatives and Regulations: Policies like FDI Government Initiatives and Regulations: Policies like FDI regulations regulations regulations and and and ONDC ONDC ONDC (Open (Open (Open Network Network Network for for for Digital Digital Digital Commerce) can create both opportunities and challenges Commerce) can create both opportunities and challenges Commerce) can create both opportunities and challenges for e-retailers. retailers.

ITA No. 6072,6073,6074/MUM/2025 16 Nest Childcare Services Private Limited Nest Childcare Services Private Limited

Based on above factors, in India, in the e Based on above facto rs, in India, in the e-commerce landscape, as per various research papers and published landscape, as per various research papers and published landscape, as per various research papers and published data, a net profit margin of 10% is generally considered data, a net profit margin of 10% is generally considered data, a net profit margin of 10% is generally considered average, while 20% is considered high indicating strong average, while 20% is considered high indicating strong average, while 20% is considered high indicating strong cost management and profitability and 5% net profit cost management and profitability and 5% net profit cost management and profitability and 5% net profit margin is considered low suggesting that the business gin is considered low suggesting that the business gin is considered low suggesting that the business may need to improve cost control or pricing strategies. may need to improve cost control or pricing strategies. may need to improve cost control or pricing strategies. However, net profit margins can vary significantly by However, net profit margins can vary significantly by However, net profit margins can vary significantly by industry and even by the specific business model within e industry and even by the specific business model within e industry and even by the specific business model within e- commerce. Therefore, based on above r commerce. Therefore, based on above research papers/ esearch papers/ published data, it would be justified if, based on various published data, it would be justified if, based on various published data, it would be justified if, based on various factors related to the business of the appellant, the net factors related to the business of the appellant, the net factors related to the business of the appellant, the net profit margin of the appellant is taken at average i.e.@ 10% profit margin of the appellant is taken at average i.e.@ 10% profit margin of the appellant is taken at average i.e.@ 10% in place of 20% taken by the AO. Therefore, AO is directed in place of 20% taken by the AO. Therefore, AO is directed in place of 20% taken by the AO. Therefore, AO is directed to take net profit of the appellant company @ 10% of sale take net profit of the appellant company @ 10% of sale take net profit of the appellant company @ 10% of sale i.e. i.e. 2,98,15,670/- 2,98,15,670/ in in place place of of Rs.5,96,31341/ Rs.5,96,31341/-. Accordingly, this ground of appeal is partly allowed Accordingly, this ground of appeal is partly allowed Accordingly, this ground of appeal is partly allowed.”

7. Before us us the Ld. Counsel for the assessee filed ssessee filed a paper book combining various judicial pronounce book combining various judicial pronounce book combining various judicial pronouncements relied upon her. upon her.

ITA No. 6072,6073,6074/MUM/2025 17 Nest Childcare Services Private Limited Nest Childcare Services Private Limited and secondly, estimation of the profit on the sales of and secondly, estimation of the profit on the sales of and secondly, estimation of the profit on the sales of the Assessee. the Assessee.

8.1 As far as the As far as the disallowance of business loss is of business loss is considered, the lower authorities have dered, the lower authorities have mainly are of the mainly are of the view that the pricing policy of the Assessee of selling view that the pricing policy of the Assessee of selling view that the pricing policy of the Assessee of selling products even lower than their purchase value was not products even lower than their purchase value was not products even lower than their purchase value was not justified as a business justified as a business model. The crux of the AO’s The crux of the AO’s reasoning is that the assessee’s pricing of selling reasoning is that the assessee’s pricing of selling reasoning is that the assessee’s pricing of selling products below purchase products below purchase cost, defies commercial cost, defies commercial prudence and, therefore, the resultant loss is not prudence and, therefore, the resultant loss is not prudence and, therefore, the resultant loss is not allowable. allowable.

8.2 In our opinion, the approach of the authorities below In our opinion, the approach of the authorities below In our opinion, the approach of the authorities below cannot be countenanced in law. cannot be countenanced in law. The Hon’ble Supreme The Hon’ble Supreme court in S. A. Builders Ltd. vs Commissioner Of S. A. Builders Ltd. vs Commissioner Of court in Income Tax (Ap Income Tax (Appeals) 2007 288 ITR 1(SC) peals) 2007 288 ITR 1(SC) has held as under: as under:

“34. We agree with the view taken by the Delhi High Court in We agree with the view taken by the Delhi High Court in We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 that once (2002) 254 ITR 377 that once it is established that there was nexus between the it is established that there was nexus between the it is established that there was nexus between the expenditure and the purpose of the business (which need not expenditure and the purpose of the business (which need not expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the necessarily be the business of the assessee itself), the necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm Revenue cannot justifiably claim to put itself in the arm Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors of the businessman or in the position of the board of directors of the businessman or in the position of the board of directors

ITA No. 6072,6073,6074/MUM/2025 18 Nest Childcare Services Private Limited Nest Childcare Services Private Limited and assume the role to decide how much is reasonable and assume the role to decide how much is reasonable and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. expenditure having regard to the circumstances of the case. expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The No businessman can be compelled to maximize its profit. The No businessman can be compelled to maximize its profit. The income tax au income tax authorities must put themselves in the shoes of thorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. the assessee and see how a prudent businessman would act. the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own The authorities must not look at the matter from their own The authorities must not look at the matter from their own view point but that of a prudent businessman. As already view point but that of a prudent businessman. As already view point but that of a prudent businessman. As already stated above, we have to see the tra stated above, we have to see the transfer of the borrowed nsfer of the borrowed funds to a sister concern from the point of view of commercial funds to a sister concern from the point of view of commercial funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the expediency and not from the point of view whether the expediency and not from the point of view whether the amount was advanced for earning profits. amount was advanced for earning profits.” ”

8.3 The Hon’ble Hon’ble Bombay High Court in the ca Bombay High Court in the case of Commissioner Of Income Commissioner Of Income-Tax, Bombay vs M/S. x, Bombay vs M/S. Walchand & Co. (Pvt.) Ltd., Bombay Walchand & Co. (Pvt.) Ltd., Bombay Walchand & Co. (Pvt.) Ltd., Bombay reported in 1967 AIR 1435 1967 AIR 1435 held that in applying the test of n applying the test of commercial expediency for determining whether the commercial expediency for determining whether the commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the expenditure was wholly and exclusively laid out for the expenditure was wholly and exclusively laid out for the purpose purpose of of the the business, business, reasonableness reasonableness of of the the Expenditure has to be adjudged from the point of view of Expenditure has to be adjudged from the point of view of Expenditure has to be adjudged from the point of view of the businessman and not of the Revenue. the businessman and not of the Revenue. the businessman and not of the Revenue.

The Hon’ble Gujrat High Court in the case of CIT vs Gujrat High Court in the case of CIT vs 8.4 The Hon’ble Keshavlal Chandulal reported in (1966) 59 ITR 120 Keshavlal Chandulal reported in (1966) 59 ITR 120 Keshavlal Chandulal reported in (1966) 59 ITR 120 (Gujrat) held that when a person dispose goods at on dispose goods at lesser value than the market value or at a concessional lesser value than the market value or at a concessional lesser value than the market value or at a concessional price , there is nothing in income tax law which price , there is nothing in income tax law which price , there is nothing in income tax law which 19 I.T.A. No. 6215/MUM/2025 Nest Childcare Services Private Limited Nest Childcare Services Private Limited compels the him to sell at a price which realizable in compels the him to sell at a price which realizable in compels the him to sell at a price which realizable in market.

8.5 Following the aforesaid precedents, we are of the Following the aforesaid precedents, we are of the Following the aforesaid precedents, we are of the considered view that it is not within the considered view that it is not within the considered view that it is not within the authority of the Assessing Officer to dictate to a businessman the Assessing Officer to dictate to a businessman the Assessing Officer to dictate to a businessman the manner in which his business ought to be conducted. manner in which his business ought to be conducted. manner in which his business ought to be conducted. The pricing strategy adopted by the assessee The pricing strategy adopted by the assessee The pricing strategy adopted by the assessee was evidently driven by competitive compulsions inherent in evidently driven by competitive compulsions inherent in evidently driven by competitive compulsions inherent in the e-commerce market and formed part of its commerce market and formed part of its commerce market and formed part of its commercial commercial commercial judgment judgment judgment for for for business business business survival survival survival and and and expansion. expansion. In the present case, neither the Assessing In the present case, neither the Assessing Officer nor the CIT(A) has identified any instance Officer nor the CIT(A) has identified any instance Officer nor the CIT(A) has identified any instance of bogus purchases, sham or suppressed sales, diversion bogus purchases, sham or suppressed sales, diversion bogus purchases, sham or suppressed sales, diversion of profits to related parties, inflation of expenses, or of profits to related parties, inflation of expenses, or of profits to related parties, inflation of expenses, or adoption of any colourable device. The disallowance adoption of any colourable device. The disallowance adoption of any colourable device. The disallowance rests entirely on the Assessing Officer’s subjective rests entirely on the Assessing Officer’s subjective rests entirely on the Assessing Officer’s subjective disagreement with the assessee’s prici disagreement with the assessee’s pricing model. Such ng model. Such an approach is contrary to settled principles of law. A an approach is contrary to settled principles of law. A an approach is contrary to settled principles of law. A genuine business loss cannot be disallowed merely genuine business loss cannot be disallowed merely genuine business loss cannot be disallowed merely because the pricing policy adopted by the assessee does because the pricing policy adopted by the assessee does because the pricing policy adopted by the assessee does not conform to the Assessing Officer’s perception of not conform to the Assessing Officer’s perception of not conform to the Assessing Officer’s perception of what is commercially prude what is commercially prudent or desirable. nt or desirable. The assessee assessee assessee placed placed placed reliance reliance reliance on on on a a a compilation compilation compilation of of of authorities, including Flipkart India Pvt. Ltd. v. ACIT Flipkart India Pvt. Ltd. v. ACIT authorities,

ITA No. 6072,6073,6074/MUM/2025 20 Nest Childcare Services Private Limited Nest Childcare Services Private Limited (2022) 441 ITR 618 (Karnataka HC) (2022) 441 ITR 618 (Karnataka HC), to contend that , to contend that online retailers adopting deep online retailers adopting deep-discount penetration discount penetration strategies strategies cannot cannot be be subjected subjected to to notional notional or or hypothetical income additions merely because the AO hypothetical income additions merely because the AO hypothetical income additions merely because the AO considers the pricing commercially inexpedient. considers the pricing commercially inexpedient. considers the pricing commercially inexpedient. The Hon’ble Karnataka High Court in Karnataka High Court in Flipkart India Pvt. Flipkart India Pvt. Ltd. (supra) Ltd. (supra) has held (a) Deep-discount pricing is a discount pricing is a known industry practice known industry practice; (b) Losses arising from such Losses arising from such pricing in a highly competitive e pricing in a highly competitive e-commerce landscape commerce landscape cannot be disallowed merely because they appear cannot be disallowed merely because they appear cannot be disallowed merely because they appear commercially imprudent to the AO commercially imprudent to the AO and (c) and (c) Revenue cannot proceed on the presumption that business must cannot proceed on the presumption that business must cannot proceed on the presumption that business must necessarily earn profits in necessarily earn profits in every year. This ratio applies This ratio applies in pari materia to the assessee’s case. to the assessee’s case. There is no in pari materia adverse material to show that adverse material to show that (a) purchases were purchases were fictitious fictitious; (b) expenses inflated; (c) sales suppressed, or sales suppressed, or (d) any transaction was accommodation any transaction was accommodation- -like.

8.6 In such circums In such circumstances, the Revenue cannot disregard tances, the Revenue cannot disregard book results merely because it considers the business book results merely because it considers the business book results merely because it considers the business model unprofitable. model unprofitable. A business is permitted to take A business is permitted to take commercial commercial commercial risks, risks, risks, including including including incurring incurring incurring losses. losses. losses. Accordingly Accordingly we reject the finding of the lower the finding of the lower authorities on the i authorities on the issue of disallowance of the business ssue of disallowance of the business losses.

ITA No. 6072,6073,6074/MUM/2025 21 Nest Childcare Services Private Limited Nest Childcare Services Private Limited

9.2 In our opinion, firstly, the Assessing Officer has not In our opinion, firstly, the Assessing Officer has not In our opinion, firstly, the Assessing Officer has not rejected books of accounts invoking S rejected books of accounts invoking Section 145 ection 145(3) of the Act. . Secondly, no defects in the accounts were o defects in the accounts were pointed out. pointed out. Therefore, he is not justified in rejecting herefore, he is not justified in rejecting the book the booked results of the Assessee.

9.3 Further, n Further, neither the AO nor the CIT(A) used any either the AO nor the CIT(A) used any comparable cases or industry gross profit data. comparable cases or industry gross profit data. comparable cases or industry gross profit data. Both the authorities have applied the net profit rate on the the authorities have applied the net profit rate on the the authorities have applied the net profit rate on the arbitrary arbitrary manner. The CIT(A)’s reliance on unspecified The CIT(A)’s reliance on unspecified

ITA No. 6072,6073,6074/MUM/2025 22 Nest Childcare Services Private Limited Nest Childcare Services Private Limited “research “research papers” is wholly unsubstantiated and papers” is wholly unsubstantiated and cannot constitute evidentiary material. Therefore, the cannot constitute evidentiary material. Therefore, the cannot constitute evidentiary material. Therefore, the estimation of profits @ 20% by the AO and @ 10% by estimation of profits @ 20% by the AO and @ 10% by estimation of profits @ 20% by the AO and @ 10% by the CIT(A) is wholly arbitrary and legally untenable. the CIT(A) is wholly arbitrary and legally untenable. the CIT(A) is wholly arbitrary and legally untenable.

9.4 Accordingly, the grounds of the Assessee Accordingly, the grounds of the Assessee Accordingly, the grounds of the Assessee in relation to issue of disallowance of business losses are allowed issue of disallowance of business losses are allowed issue of disallowance of business losses are allowed.

in the Assessment Year 2013 The grounds raised in the Assessment Year 2013 The grounds raised in the Assessment Year 2013

14. Assessment Year are identical to grounds raised in are identical to grounds raised in Assessment Year 2012-13, , and therefore, all the grounds are accordingly and therefore, all the grounds are accordingly decided in mutatis mutandis. decided in mutatis mutandis.

11. In Assessment Year 2014 In Assessment Year 2014-15 both the Assessee and the 15 both the Assessee and the Revenue are in appeal. The Assessee is in appeal n Revenue are in appeal. The Assessee is in appeal n Revenue are in appeal. The Assessee is in appeal n respect of the disallowance of business losses and respect of the disallowance of business losses and respect of the disallowance of business losses and sustaining sustaining of the 10% net profit rate by the CIT (A), of the 10% net profit rate by the CIT (A), whereas the Revenue is in appeal against the whereas the Revenue is in appeal against the whereas the Revenue is in appeal against the reduction in net profit rate from 20%, net profit rate from 20%, to 10% ,which was adopted which was adopted by the Assessing Officer by the Assessing Officer. Since, both the issue of Since, both the issue of disallowance disallowance of business losses and estimation of the of business losses and estimation of the net profit have been net profit have been adjudicated by us by us in favour of the Assessee, ssessee, while deciding the appeal for Assessment eal for Assessment Year 2012 Year 2012-13 and therefore, the grounds raised in 13 and therefore, the grounds raised in appeals of the Assessee appeals of the Assessee are allowed whereas grounds are allowed whereas grounds raised by the raised by the Revenue are dismissed.

ITA No. 6072,6073,6074/MUM/2025 23 Nest Childcare Services Private Limited Nest Childcare Services Private Limited