Income Tax Appellate Tribunal Hyderabad M/S National Traders,, Hyderabad vs Department Of Income Tax on 28 August, 2014 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES "A" : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.No.1661/Hyd/2013 Assessment Year 20102011 ACIT 9 (1) M/s. National Traders, Hyderabad. vs. Hyderabad. PAN AADFN8373L (Appellant) (Respondent) For Revenue Mr. Katta Kiran For Assessee Mr. B. Shanthi Kumar Date of Hearing 23.07.2014 Date of Pronouncement 28.08.2014 ORDER PER B. RAMAKOTAIAH, A.M. This appeal by Revenue is directed against the Order of the Ld. CIT(A)VI, Hyderabad dated 23.08.2013 for the A.Y. 20102011. 2. Briefly stated, assessee is a supplier of sugar, vanaspati, black gram dal, cardamom etc., on contract to government and semigovernment organisations like AP Foods Ltd. During the assessment proceedings, the A.O. observed that Assessee had purchased these items from various parties at a higher rate and was supplying the same to AP Foods for a lesser price and thereby incurring losses. The assessing officer on examination of the monthly statement of purchases/sales of various commodities, concluded that there was shortages shown in various commodities accounts. When these deficiencies were 2 ITA.No.1661/Hyd/2013 M/s. National Traders, Hyderabad. brought to the notice of Assessee, Assessee had submitted stating that: "With regard to buying sugar at higher price and selling at lesser price in April 2009, we submit that the first contract was awarded in January 2009 and it was to expire on 30.04.2009. When the bid was made the price of sugar was less than Rs.19.97 and accordingly, it was bid for that price and we got the contract awarded to supply at Rs.19.97. But unfortunately the price of sugar started raising around April 2009 which was last month of the contract period and if we do not supply for the price agreed as per award of contract, we have to pay penalty. To avoid penalty, we had to buy sugar at RS.20. 70 and supply the same at Rs.19. 97 as per contract. This was only in respect of purchases effected on 11.04.2009, 17.04.2009 and 24.04.2009. We submit that we could not avoid purchasing at a higher price to keep the commitment. 2. With regard to buying of sugar at a different price at the same point of time, we wish to state that when we were bidding for contract, since the size of the contract is big, we entered into a oral understanding with three other bidders viz., Laxminarayana & Co., Rupesh Traders and Deepak Trading Co. As per this understanding who also participated in the bid. As per the understanding whomsoever succeeds in the bid, he shall buy from the three others sugar at a price fixed by the AP Foods after reducing the margin of commission. Accordingly after reducing my commission from the price fixed by AP Foods in the contract awarded on 05.12.2009, I had to buy from them at a rate of RS.32.82 for the entire period of contract starting from the date of award. Thus the Addl. CIT would find that the price from these three concerns remained constant at Rs.32.82 whatever be the market price. When the market price was Rs.30.98 or when it is Rs.36.98 after January 2010. This is a common practice in this line of contracts. But our arrangement is only to allow cotraders also survive when they do not get a tender and this understanding is only between ourselves and the three above and not with all. Therefore, we submit that when we purchased in the open market at Rs.36.98 as against the price supplied by these three parties at Rs.32.82, it does not mean that we 3 ITA.No.1661/Hyd/2013 M/s. National Traders, Hyderabad. have inflated the price since it is so even earlier when we purchased at Rs.30.98 when we purchased at Rs.32.82 from these three parties. The statement of purchases during this period of December 2009 to March 2010 reveals this fact. We therefore submit that it is as per the commitment we had with these three parties we had to buy at that price or else we get a bad reputation in the market and it will become difficult to survive in this line of business. With regard to supply of Soyabean also the reasons for supply at a lesser pric