S.G. Gokani, J.

1. Aggrieved by the order of Income Tax Appellate Tribunal, Rajkot in ITA No. 240/RJT/2016 for the assessment year 2010-11, this tax appeal under Section 260-A of the Income Tax Act, 1961 (`IT Act' hereinafter) has been preferred with the following substantial questions of law.

"4.(i) Whether the Hon'ble Tribunal was justified in upholding the order of the Ld.CIT(A), in spite of the fact that the A.O. has rightly arrived in estimating net profit @ 7% of the assessee company by establishing the fact that the assessee company has got loss at the flag and of the year with the help of its sister concerns as mentioned in para 9 of assessment order

(ii) Whether the Hon'ble Tribunal was justified in upholding the order of the Ld. CIT(A) in directing to take net profit @ 0.5% as again 7% estimated by the AO overlooking the fact that both Ld.CIT(A) as well as Hon'ble Tribunal has upheld the action of the AO to reject the books of account by invoking the provisions of section 145(3) of the Act

(iii) Whether the Hon'ble Tribunal was justified in upholding the order of the Ld.CIT(A), even though the decision of both the Ld.CIT(A) and Hon'ble ITAT is based on the finding of the fact as regard to the percentage of net taxable income. However, since the Hon'ble Tribunal upheld the decision of the Ld.CIT(A) rejecting of books of accounts u/s 145(3) of the I.T.Act, the direction to take net profit of @0.5% as against 7% taken by the AO give raised to substantial question of law in absence of any evidence contrary to the records of the AO"

2. The assessee company has filed return of income on 4.10.2020 declaring the total income of Rs2,20,780/-. Its return was processed under Section 143(1) and the case was selected for scrutiny assessment and accordingly, the notice was issued.

3. The assessee is a private limited company. It carried on the business of trading in iron and steel. Several requests were made by the Assessing Officer to the company to produce the books of accounts with supporting documents for finalizing the show cause notice. As they were not produced, it was asked to furnish once again on 8.3.2013. Moreover, the other substantial material and information had been called for. The company had purchased the goods from one M/s Ruchi Global Limited in the month of March, 2010 at higher prices and they have been sold to another company M/s Indian Steel Limited at lower prices. They were sold and purchased on day-to-day basis. This had raised serious doubts in the mind of the Assessing Officer and it eventually chose to opine that the reply given was general in nature and without any evidence of contractual obligations and proof of commercial expediency. The loss had incurred not in one transaction but approximately in 300 transactions in the year end and no prudent business skilled person will incur such losses. Both the companies, according to the Assessing Officer, belonged to the same group and there were no physical transactions of goods involved. It also rejected the books of accounts maintained by the assessee company under Section 145(3) and permitted the profit of the company @ 7% proposed in the show cause notice.

4. This was challenged by the assessee before the CIT (Appeals). It was argued before the CIT (Appeals) by the revenue that this set of transactions were sham and artificial transactions. They have been followed up by payments, to and from, through concerned parties through banking channels. It was entered into only to create loss to wipe out the profit earned by the appellant in the earlier period of the year.

4.1. On the part of the assessee, it had explained to the Assessing Officer that the resultant loss was due to fulfillment of contractual obligation which it has entered into during normal course of business with the purchaser, i.e. M/s Indian Steel Corporation Ltd. The future contract with the Indian Steel Corporation Ltd. And M/s Shiv Ratna was entered into the month of December and the future sale rate was decided between the buyers and the company.

5. The CIT (Appeals) examined two issues namely, whether the action of the rejection of books of accounts by the Assessment Officer was correct and whether he had applied a correct method to work out the notional GP after rejecting the books of accounts. On being convinced that there was a serious defect which smacked of intra-group adjustment, the Assessment Officer had rightly pointed out the serious defect in the books of accounts of there being a wide mis-match between the purchase price and the sell price, therefore, invocation of Section 145(3) of the IT Act was upheld.

6. With regard to the estimation of the gross profit, the CIT (Appeals) extensively considered the entire factual matrix to hold that to meet with the ends of justice, the net profit is required to be fixed at 0.5% considering the result declared by the assessee as well as the prevalent market rate in the trading of wholesale metal business. It also held that the NP ratio of 7% in this sector is beyond imagination and unbelievable. Most of the trading concerns are operating in miniscule GP ratio 0.5% to 1% and in absence of any external comparables, the Assessing Officer could have analyzed the books results of the assessee in the earlier year before arriving at a reasonable estimate of GP/NP. There was absence of any internal or external comparative figures of the sector of the assessee's business.

7. When challenged before the Tribunal, it had agreed with the approach of the CIT (Appeals) by holding thus :

"12. We are not in agreement with the contention of the Ld D.R. that the basis adopted by the A.O. was correct. Having rejected the books of accounts of the assessee, the very same set of books of could not have been relied upon for revealing the true profitability of the assessee, even though in part, i.e. relating to the period exclusion the last month of the year, since admittedly the books were managed to book losses but also on account of booking expenses of loading and unloading through the year which were found not verifiable.

13. The basis adopted by the Ld CIT(A), on the other hand we find is just and appropriate having considered the assessor's profitability in preceding year and succeeding years and the profitability in this line of business.

13.1 We therefore uphold the order of the Ld CIT(A) estimating the net profit of the assessee adopting the net profit of the assessee by adopting net profit rate of 0.5% of the turnover."

8. Aggrieved by this, the aforementioned questions of law have been raised before this Court.

9. We have heard learned senior standing counsel Mrs.Raval assisted by learned advocate Mr.Karan Sanghani.

10. We find that both the CIT (Appeals) and the Tribunal have concurrently held estimating the net profit at 0.05 % of the assessee company. While so doing, it had also confirmed the act of rejection of books under Section 145 of the IT Act. At the same time, there has been equitable balance struck by the authorities when it found that the Assessing Officer had not given any internal or external comparative figures of sector of the assessee's business while arriving at the GP/NP ratio of 7%. The business is of trading of steel items. The manufacturing activities had almost stopped. The NP ratio of 7% being impractical and completely unacceptable and as most of the trading concerns have been operating at the GP ratio of 0.5% to 1%, when both the authorities have deemed it appropriate to apply 0.5% ratio, no indulgence is necessary. These are all essentially and predominantly the factual aspects analysed based on the material adduced before these authorities and that also by giving cogent and sound reasons, in absence of any question of law, much less any substantial questions of law for the court to admit this matter, this appeal is dismissed.