Income Tax Appellate Tribunal - Ahmedabad
Laser Mark,, Surat vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D"
Before Shri N.S. SAINI, ACCOUNTANT MEMBER and
Shri MAHAVIR SINGH, JUDICIAL MEMBER
Date of hearing:27/11/2009 Drafted on:30.11.09
ITA No.2805/AHD/04
Assessment Year : 2001-2002
Asst. Commissioner of Vs. M/s. Laser Mark
Income Tax, Circle-6, 1 s t Floor, Durgabhavan Khansb
Surat. no Dello, Rughnathpura,
Main Road, Surat.
PAN/GIR No. : AAAFL 9390C
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri C.K.Mishra Sr. D.R.
Respondent by: Shri J.P.Shah A.R.
ORDER
PER N.S.SAINI , ACCOUNTANT MEMBER :-
This is an appeal filed by the Revenue against the order of the ld.CIT(Appeals)-IV, Surat, dated13.07.2004 in Appeal No.CAS-IV/71/03-04.
2. The sole ground of appeal taken by the revenue is that the Learned Commissioner of Income Tax(Appeals) erred in deleting the addition of Rs.32,60,820/- made on account of transfer of profit to associate concerns in the garb of discount.
3. The brief facts of the care are that the appellant is a partnership firm engaged in the business of laser sawing of diamond on job work basis. The appellant filed its return of income for Assessment Year 2001-02 on 12.07.2001 declaring total income of Rs.59,97,900/-. The Learned Assistant Commissioner of Income Tax, Circle-6, Surat completed the assessment under section 143(3) of the act by passing an order dated 29.10.2003 whereby the total income of the appellant was determined at Rs.92,58,720/-. While ITA No.2805/Ahd/2004 M/s. laser Mark Asst.Year -2001-02 -2- determining the total income at Rs.92,58,720/- , the Ld Learned Assessing Officer has disallowed the total claim of discount of Rs.32,60,820/- on account of alleged transfer of profits to associates concerns.
4. On appeal, the Learned Commissioner of Income Tax(Appeals) deleted the above addition.
5. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In the instant case, the assessee is engaged in laser sawing of diamonds on job work basis. The assessee its return of income disclosed receipt of Rs.1,87,37,183/- from the job work charges which included Rs.1,64,36,392/- from M/s. H. Dipak & Co. Mumbai and Rs.3,93,033/- from M/s. Depak H. Shah Mumbai, which were the sister concerns of the assessee. Thus, out of total receipts of Rs.1,87,37,183/-, Rs.167,75,425/- were from aforesaid two sister concerns. The Learned Assessing Officer observed that in respect of M/s. H. Dipak & Co. Mumbai the assessee has raised gross bills of Rs. 1,96,23,069/- on which TDS was also deducted by the said party, but the assessee claimed to have allowed discount of Rs.31,86,677/- to the said concerns and therefore, reflected Rs.1,64,36,392/- only in its receipts. Similarly, in the case M/s Dipak H. Shah, the Learned Assessing Officer observed that the gross bill raised by assessee was to the tune of Rs.413176/- but the assessee has shown receipt of Rs.3,39,033/- only after allowing discount of Rs.74,143/- to the said concern. The Learned Assessing Officer observed form the above that the assessee has allowed discount of Rs. 32,60,820/- to the sister concerns which were 20% of the billed amount. According to the Learned Assessing Officer, such high rate of discount was unheard of in the line of the business in which the assessee was engaged. The Learned Assessing Officer further observed that two sister concerns to whom discount was allowed were claiming deduction under section 80HHC of the Act in respect of their income and ITA No.2805/Ahd/2004 M/s. laser Mark Asst.Year -2001-02 -3- thereby they were liable to pay lesser tax on the same amount of income and therefore, the assessee being the sister concern diverted the profit to the said sister concerns in order to pay lesser amount of tax. In view of this, the Learned Assessing Officer added Rs.32,60,820/- being discount claimed by the assessee as given to the said two sister concerns.
6. On appeal, the Learned Commissioner of Income Tax(Appeals) deleted the above addition by observing as under:-
"After considering the observations of Learned Assessing Officer in the assessment order as well as remand report and submission of the appellant, it is clear that the addition was made by the Learned Assessing Officer on the following ground only:-
i) The bills were raised @ Rs.100/- per carat and discount allowed was Rs.20/- per carat as an afterthought in order to reduce the tax liability especially because the principal in Mumbai enjoin the benefit of deduction under section 80HHC and the tax liability on the principal was only 20% of the benefit taken by the as assessee as well as of giving discount.
ii) The TDS certificate shows that the principal had deducted TDS @ 2.2% uniformly and paid the same to the Government. According to the Learned Assessing Officer, this shows the intention of the principal as having accepted the rate of Rs.100/- per carat.
iii) The chart of bills raised by the appellant and money received by the appellant from the principals shows that no amount was withheld. The Learned Assessing Officer has stated that till November, 2000 the bills of Rs.1.28 Crore were raised whereas the payment of Rs.1.25 Crores was made. Similarly bills from December, 2000j to March 2001 was raised for Rs.67.93 lacs and payment was made for Rs.42 lac.
iv) The parties i.e. both the principals were related to the appellant and hence they were covered by the provision of Section 40A(2)(b).
v) From the above, it is clear that the whole devise of giving discount was colourable and entered into to accommodate so that the tax liability would reduced.
2.3.5 The contention of the Learned Assessing Officer in respect of the above points is not sustainable from the documents furnished by the ITA No.2805/Ahd/2004 M/s. laser Mark Asst.Year -2001-02 -4- appellant and also given to the Learned Assessing Officer for remand report. It is true that the appellant had given wrong reasoning at the time of assessment proceedings but the bills submitted to the Learned Assessing Officer were only sample bills pertaining to the period April to August, 2000 only. The whole conclusion was drawn on the basis of those bills. The Learned Assessing Officer has not been able to point out in the remand report that wrong bills were submitted. At that the Learned Assessing Officer has stated in that the submissions in so far as the arguments made were wrong. About veracity of the bills vis-à-vis TDS certificate has been verified. Therefore, the doubt about the genuineness of bill does not exist. The contention of the Learned Assessing Officer /Addl. CIT in remand report with respect to raising of the bill and receipt of full payment is totally wrong. From the table reproduced above, it is clear that even though the table speaks differently, the Learned Assessing Officer has given a wrong statement. From the table given by the Addl. CIT in his letter dated 16.06.2004, it is clear that although the bills were raised from May 2000 to November, 2000 amounting to Rs.1,28,29,729/- but the one to one correlation for the payment from May, 2000 to January 2001has been made. IT is not understood as to why the Addl. CIT has stated that one to one correlation shows that the payment of Rs.1.25 crore has been made upto November, 2000 as against the bill of Rs.1.28 Crore up November 2000 although the bills were raised for Rs.1.28 crore but the payment was received only of Rs.55 lacs. Out of the said payment of Rs.1.25 Crore, Rs.20 lcas has been received in December, 2000 and Rs.50 was received in January, 2001 in on the basis of this table prepared by the Addl. CIT in his letter mentioned above. The appellant has stated that this table itself proves that out of Rs.1.25 crore to appellant only Rs.55 lacs was given against bills of Rs.1.28 crore and hence substantial portion of the payment was withheld. It is only when the part settlement was made in September that Rs.20 lac were realised in December, 2000 and only when the almost full settlement was made by December end that 40% of the payment i.e. Rs50 lacs were realized in January 2001. From the table cited by the Addl. CIT in his remand report, it is the case of the assessee which becomes stronger and it does not prove the contention of the Addl.CIT that there was no dispute between the assessee and the principals. In fact, this table proves that there might have been a dispute which was resolved somewhere around December 2000. The contention of the Learned Assessing Officer that the parties are covered by the provisions of section 40A(2)(b) are correct but it is seen that the end the disallowance has not been made under section 40A(2)(b). Further, the Learned Assessing Officer has to give proof that the rate at which the assessee has sold or done the work for the principal is less than the market rate. Since no such finding have been given and the disallowance ITA No.2805/Ahd/2004 M/s. laser Mark Asst.Year -2001-02 -5- has not been made under section 40A(2)(b), this observation has not meaning. Therefore, since no comparison has been given with the market rate, the contention of the Learned Assessing Officer that the provision of Section 40A(2)(b) are not applicable do not given any merit. It is further stated by the appellant that the principals kept on deducting TDS from the bills raised for the simple reason that if the TDS had not been deducted @2.2% they would have defaulted and they would have violated the TDS provisions inviting penalty etc. The appellant had also not objected to the deduction of TDS on the entire bill because its liability for tax was much greater than the total amount of TDS that would have been deducted as per the bills raised. Further, it is clear from the TDS certificate copy of which was filed with the Learned Assessing Officer that the bills raised are the same as the copies of the bills filed with the Learned Assessing Officer and the amounts tally. From the bills, it may be seen that the rates of the labour work as stated by the appellant is substantiated. It is clear that from April to September, the rate was charged @Rs.100/- per carat for both the qualities and from October to December, the rate for one of the major quality was charged @ Rs.85/- per carat and for the another quality which was lesser in amount, it was charged @ Rs.100/- per carat. It is also proved that from January, 2001 to March, 2001 and also till March, 2004j for both the qualities, the rates have been charged @ Rs.60/- per carat. If it was an accommodation to reduce the tax liability, the assessee could not have produce the proof to show that the rate till March, 2004 has been Rs.60/- per carat only. It has been contended by the appellant that from the fact that till March, 2004 and rate allowed has been Rs.60/- per carat shows that the agreement was finally arrived at from January, 2001 that the rate was to be charged @ Rs.60/- per carat only for both the qualities. It is further seen that in the assessment order, the Learned Assessing Officer did not bother to verify whether the 20% discount on the bills was equal to the total discount claimed by the assessee in the return. It is seen that if he had calculated the 20% discount, he would have realized that the figure of discount was not tallying. 20% of gross receipt of Rs.1,67,75,695/- from M/s. H.Deepak & Co. would be Rs.33,55,139/- and 20% of gross receipt from Mr. Deepak H. Shah of Rs.19,61,988/- would be Rs.3,92,297/- totalling to Rs.37,74,436/- as against the claim of Rs.32,60,820/-. The amount of discount claimed was correct but was not tallying with the 20% of the total billing whereas from all the bills it is seen that the discount amount are in conformity with 20% discount at different varying rates and if the discount is calculated in this manner then only the discount claimed in the Profit & Loss account tallies. This further shows that the bills have not been fudged or remade. It only shows that the submission made was incorrect earlier due to the fact that the submission was made on the basis of ITA No.2805/Ahd/2004 M/s. laser Mark Asst.Year -2001-02 -6- sample bills. The contention of the Learned Assessing Officer that the whole device was made to evade the tax because the principal was getting 80% benefit under section 80HHC is plausible but as stated by the appellant it is highly unlikely that the principal who was paying more than Rs.2 crore of tax would resort to this device for saving a few lac rupees (much less than Rs.10 lac) as against earning of Rs.2 Crore. In any case, as stated above, the bills are original bills as borne out from the TDS certificate. The contention made that up to August, the rate was Rs.100/- per carat from September to December Rs.85/- and from January, 2000 onwards the rate is borne out from the bills submitted. Since the discount @ 20% on these bills tallies with the total discount further proves that the contention of the appellant is correct.
3. In view of the above, the addition made the Learned Assessing Officer cannot be sustained as it is based totally on conjectures and surmises and not on facts. The Learned Assessing Officer has also not been able to prove that there was some underhand dealing or there was transactions in cash. Hence, the addition of Rs.32,60,820/- is deleted."
7. The Learned Departmental Representative vehemently supported the order of the Learned Assessing Officer and submitted that Learned Commissioner of Income Tax(Appeals) was not justified in deleting the addition merely on the ground that the sister concerns have paid taxes in crores would not have adopted this device of discount merely to save taxes which would have been less than Rs.10 lacs. He argued that the Learned Assessing Officer has pointed out that discount allowed which was about 20% of the bill value was unheard of and thus the same was not as per the market rate. The Learned Commissioner of Income Tax(Appeals) without bringing on record, any material to show that the discount was in accordance with the market rate prevailing at the material time was not justified in deleting the addition of Rs.32,60,820/-. On the other hand, Learned Authorised Representative of the Assessee vehemently supported the order of the Learned Commissioner of Income Tax(Appeals) and stated that a net profit declared by the assessee after allowing discounts to the sister concerns worked out to 31% of the receipts, and therefore, the discount allowed cannot be held as unreasonable. We find that in the instant case, the assessee has received job charges of Rs.1,87,37,183/- out of which 1,67,75,425/- was from the said two ITA No.2805/Ahd/2004 M/s. laser Mark Asst.Year -2001-02 -7- sister concerns and the balance amount of Rs. 19,61,758/- was from others. We find that both the parties before us or before the Learned Commissioner of Income Tax(Appeals) has brought no material to show the rates at which job charges was realized from the other parties and how the same compares with the net job charges realized from the said two sister concerns. In the instant case, it is observed that the genuineness of discount allowed by the assessee to the aforesaid two sister concerns is not in doubt or debate. The only point which is to be examined to adjudicate the issue was that the net job charges which was realized by the assessee from the said two sister concerns were in accordance with the market rate prevailing at the material time or not. We find that the Learned Commissioner of Income Tax(Appeals) has also not examined the issue from this point of view. The Learned Commissioner of Income Tax(Appeals) has observed that the rates at which bills were drawn in the case of sister concerns were Rs.100/- per carat for the period April to August 2000, @ Rs.85/- per carat during the period September to December 2000 and Rs.65/- per carat during the period January 2001 to March 2001. However, the Learned Commissioner of Income Tax(Appeals) has not brought on record, what was the rate of discount per carat which was allowed by the assessee to its sister concerns during the aforesaid period. In our considered opinion, no meaningful interpretation of the above rates can be drawn without the corresponding amount of discount allowed by the assessee is considered together. The Learned Commissioner of Income Tax(Appeals) has not brought on record the total quantity of job work done by the assessee during the period under consideration and to consider thereafter the net rate per carat realized by the assessee from the sister concerns during the said period and how the same compared to the market rate prevailing at that period. As observed above, the assessee has rendered services to others also of about Rs. 19,61,758/-. Thus, the Learned Assessing Officer could have easily examined that what was the rate at which services were rendered by the assessee to the other parties at the material time and whether those rates were ITA No.2805/Ahd/2004 M/s. laser Mark Asst.Year -2001-02 -8- more than the net rate realized by the assessee from the said two sister concerns. On the other hand, the assessee could have also produce the bills of the other parties to show that the net rates realized from the said two sister concerns were not less than the rates for which it did similar jobs for other parties. In the circumstances, in our considered opinion, it shall be fair and in the interest of the justice to restore this issue back to the file of Learned Assessing Officer for adjudication afresh in light of the discussion made hereinabove after allowing proper opportunity of hearing to the assessee. We order accordingly. Thus, this ground of appeal of the revenue is allowed for statistical purposes.
8. In the result, the appeal of the Revenue is allowed for statistical purposes.
Order pronounced at the close of the hearing in the presence of the parties in the Court on 27/11/2009.
Sd/- Sd/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 27/11/2009 Prepared and compared by : Paras ITA No.2805/Ahd/2004 M/s. laser Mark Asst.Year -2001-02 -9- Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT Concerned 4. The ld. CIT(Appeals)-IV, Surat. 5. The DR, Ahmedabad Bench 6. The Guard File. BY ORDER, स᭜यािपत ᮧित //True Copy// (Dy./Asstt.Registrar), ITAT, Ahmedabad