PRINCIPAL COMMISSIONER OF INCOME TAX 3 vs. WAVES FOOD PVT. LTD.

Facts

The Revenue, Principal Commissioner of Income Tax 3, filed a Tax Appeal against an order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, dated November 15, 2018. The appeal pertains to assessment year 2008-09. The dispute concerns an addition of Rs. 1,71,69,560 made by the Assessing Officer (AO) on account of gross profit loss shown by the assessee, Waves Food Pvt. Ltd. The CIT(A) had deleted this addition, and the ITAT upheld the CIT(A)'s order. The High Court is considering the Revenue's appeal against the ITAT's decision.

Held

The Tribunal held that while it is unusual for a prudent businessman to sell goods at a loss, if the assessee had committed to supply goods at an agreed price without an escalation clause, they are bound to do so. The Tribunal found that the assessee had furnished copies of sales bills to the AO, which substantiated the claim that goods were sold at an agreed price lower than the cost. The Tribunal noted that the AO had not verified these sales with the parties and had not brought any evidence to prove the assessee's submission wrong, nor was there any allegation that the assessee sold goods at a higher value but declared a lesser value. Therefore, the Tribunal concluded that the AO's addition was based on surmise and conjecture and found no infirmity in the CIT(A)'s order. The High Court concurred with the concurrent findings of the revenue authorities that there was evidence to support the assessee's claim and no perversity in the factual findings.

Key Issues

1. Whether the Appellate Tribunal has erred in law and on facts in upholding the order of the CIT(A) in deleting the addition made by the Assessing Officer for Rs. 1,71,69,560/- on account of loss shown in the Gross Profit? Assessee's Contentions: The assessee contended that it sold goods at an agreed price, even though the cost of raw materials had increased, leading to a gross loss. The assessee claimed that it was contractually obligated to supply goods at the agreed price without an escalation clause, and such losses incurred in the course of business are allowable. The assessee furnished sales bills to substantiate its claim, which were not disproved by the AO. Revenue's Contentions: The Revenue alleged that there was no supporting evidence to substantiate the assessee's claim that goods were sold at a price lower than the purchase cost. The Revenue argued that no prudent businessman would sell goods at a loss. The Revenue also contended that the assessee failed to prove it was under an obligation to supply goods at the agreed price.