Income Tax Appellate Tribunal - Mumbai
Milton Plastics Ltd, Mumbai vs Dcit Cir 2(2), Mumbai on 1 September, 2017
आयकर अपीलीय अिधकरण, अिधकरण, मुब ं ई " एफ"
एफ" खंडपीठ Income-tax Appellate Tribunal -"F"Bench Mumbai सव ी राजे ,लेखा सद य एवं, शि जीत डे, याियक सद य Before S/Shri Rajendra,Accountant Member and Saktijit Dey,Judicial Member आयकर अपील सं/ ITA No. 7120/Mum/2011 आयकर अपील सं/ ITA No. 2970/Mum/2013 िनधा रण वष /Assessment Year:2008-09 & 2009-10 Milton Plastics Ltd. DCIT, Circle 2(2) th Asian Building , 4 Floor Room No.545, Aayakar Bhavan R. Kamani Marg, Ballard Estate Vs. M.K. Road, Mumbai-400 020. Mumbai-400 001.
PAN:AAACM 4047 Q
(अपीलाथ /Appellant) ( यथ / Respondent)
Revenue by: Shri B.S. Bisht
Assessee by: Shri Hiro Rai
सुनवाई क तारीख / Date of Hearing: 07/06/2017
घोषणा क तारीख / Date of Pronouncement: 01.09.2017
आयकर अिधिनयम,1961
अिधिनयम क धारा 254(1)केके अ
तग त आदे श
Order u/s.254(1)of the Income-tax Act,1961(Act)
सद य, राजे
के अनुसार
लेखा सद य ार/ PER Rajendra A.M.-
Challenging the orders dated 12.08.2011&14.02.2013 of the CIT(A)-5,Mumbai,the Assessee has filed the present appeals for the above mentioned assessment years (AY.s).Assessee- company is engaged in the manufacture of thermoware products and trading in polymers.The details of return of income filed on, income returned , assessessed income etc. for both the AYs can be summarised as under:-
A.Y. ROI filed on Income as per return Dt. of Assessment order Assessed income 2008-09 28/09/2008 Nil 10/12/2010 Nil 2009-10 21/09/2009 Nil 08/12/2011 Nil ITA/7120/Mum/2011,AY.2008-09:
2.First effective Ground of appeal (GOA-1-3) is about addition Rs.5.86 crores on account of difference in sale price for the goods sold to M/s. Hamilton Housewares Pvt. Ltd.(HHPL).
During the assessessment proceedings the AO found that the assessee had sold goods worth Rs.44.33 crores to HHPL,that it was related concern of the assessee group.He directed the assessee to submit the details of quantity sold to HHPL, price charged from HHPL and price charged from other unrelated parties in respect of each and every item sold. After considering the submission of assessee dated 7/12/10 the AO held that the sales effected to HHPL were sold at a discounted rate (12% less than the other sales),that the assessee had failed to submit any documentary evidence in support of claim that HHPL was bearing the transportation cost 1 and advertisement expenses, that HHPL had claimed deduction u/s. 80-IB of Rs.6.66 crores, HHPL was by and large exempt undertaking, that the assessee was getting a duel benefit by transferring its products to HHPL at a lesser price, that the assessee was not paying any tax, that HHPL was claiming exemption, that it was not understandable as to how HHPL would bear the freight cost while other parties were not required to bear the same, that the assessee had evaded tax of Rs.5,68,14,843/- by under invoicing the sales made to HHPL.
2.1.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA)and made elaborate submissions before him. After considering the submission of the assessee and assessment order, he held that the assessee was not able to explain the reduced discounted sales price,that the AO had made the addition after making detailed comparative analysis of similar sales to other unrelated parties, that the explanation regarding bearing transport costs and advertisement expenditure was not convincing and satisfactory, that the assessee has not filed any documentary evidence in that regard,that the other unit was eligible for deduction u/s. 80-IB.He referred to the case of Shatrunjay Diamonds(261ITR258);Nund and Samont Co. P. Ltd.(70 ITR 268), and upheld the order of the AO.
2.2.Before us,the Authorised Representative(AR)contended that that no provision in the Act permitted the AO to make addition for alleged shortfall,that no additional consideration passed, that the AO did not take notice of the submissions made by the assessee. He referred to Pg.69 of the paper-book and stated that the sister concern was incurring expenditure on account of advertisement and freight,that the FAA had not dealt with the 80 IB issue, that the income of the assessee even after the addition made by the AO,amounting to Rs.5.64 crores, was nil,that sister concern was paying taxes,that the FAA had relied upon the cases dealing with the provisions of section 40A(2) of the Act,that they had no bearing on the facts of the case under consideration. He relied upon the cases of Calcutta Discount Ltd.(91ITR8); Shivkami Co.Pvt.Ltd.(159ITR71) and A Raman & Co.(67 ITR 11) .
The Departmental Representative(DR) argued that assessee and HHPL were sister concerns, that the sale was principal to principal transaction,that the assessee had charged prices at lower rates, that the manufacture i.e.the assessee and the other party was not in the same place.He referred to the case of Lakewood Construction Co.Pvt.Ltd.(ITA/841/Mumbai/2010, dated 15/05/2013).
2In his rejoinder,the AR stated that factory of the assessee was located at Silvasa, that HHPL was having business establishment in Dadra and Nagar Haveli,that in the case of Lakewood Construction Co. Pvt. Ltd.(supra) the Tribunal had not considered the three judgments delivered by the Hon'ble Supreme Court relied upon by him,that facts of the case under appeal were totally different from the facts of Lakewood.
2.3.We have heard the rival submissions and perused the material before us.We find that the assessee had sold goods to HHPL at lower rates,that it had filed explanation in that regard to the AO and the FAA,that both the authorities rejected the justification filed by it.Prima facie it may appear that the transaction entered into by the assessee with HHPL were not at arm's length.But,if the entire picture is looked at it become clear that there was justification for selling the goods at lower rates to HHPL.The assessee was suffering huge losses whereas HHPL was earning profit.By submitting the accounts of both the entities the assessee had discharged the initial onus cast upon it with regard to selling the goods at lower rates. Thereafter,the onus had shifted to the AO and he had to demonstrate as to how the payment was excessive or unreasonable. Apart from the presumption,based on the relationship between HHPL and the assessee-company,there was no other material before both the revenue authorities to come to the conclusion that the sale price charged by the assessee from HHPL was not reasonable.It is a fact that the assesse had incurred negligible expenses under the heads transportation and advertisement, i.e.1.04% and 0.74% of the sales respectively. Whereas,HHPL had incurred substantial expenditure on account of those two heads.The assessee was suffering losses and it decided to charge lesser price in lieu of certain expenses incurred by the purchaser then the decision cannot be challenged by anybody.Revenue authorities are not entitled to step in to the shoes of the assessee and decide the issue as to how to run its business and which expenses to incur or not to incur.They have not doubted the transaction i.e. selling of goods to HHPL and receiving of lower price.Their objection is about discount allowed to the buyer.In our opinion,if an assessee files a plausible explanation for charging lesser or higher rates as compared to the normal market rates,it has to be seen from a point of view of a businessman.In the case of A Raman & Co.(supra), the assessee firm was found to have affected sales of goods to its partners i.e.Manager of the two HUF.s. The AO alleged that the assessee had sold the goods to the families, that the families had earned substantial profit on the resale of the goods over and above the margin of profit earned by the assessee,that the creation of the family business was merely a subterfuge of the 3 partners of the assessee to divert the profits.Deciding the matter the Hon'ble Apex Court has laid down a basic principle and has held as under :-
"The law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands: income which he could have, but has not earned, is not made taxable as income accrued to him. By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee, and if the income has escaped tax in a previous assessment, a case for commencing a proceeding for reassessment under section 147(b) may be made out. Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income- tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented."
In the case under consideration the AO/FAA had failed to prove that there was any avoidance of tax liability.It was a simple and plain case of offering a discount to the buyer in lieu of reduced transportation and advertisement expenses.It was the proverbial 'Ek Haath le Ek Haath de'dealing.
We would also like to refer to the matter of Sivakami Co.(supra).In that case the assessee held certain shares which were not quoted on the stock exchange. It sold the shares to two other companies which were directly or indirectly connected with it at prices considerably less than their break-up value. The Tribunal found that the consideration was not understated and that the real and main object of the respondent in selling the shares was to safeguard the shares from being taken over by the Government in settlement of tax dues. The question was whether the provisions of the first proviso to section 12B(2) of the Indian Income-tax Act, 1922, could be invoked and the break-up value substituted in the place of the declared price and the respondent assessed to tax on capital gains on that basis.Dismissing the appeal filed by the Department,the Hon'ble Apex Court held as follow:
......since the Tribunal had found that the consideration was not understated and there was no evidence direct or inferential to show that the consideration actually received by the respondent was more than what was disclosed or declared by the respondent, the proviso to section 12B(2) could not be invoked. ......Though the legislation in question is to remedy a social evil and should be read broadly and should be so read that the object is fulfilled, yet the onus of establishing a condition of taxability must be fulfilled by the Revenue.....Unless there is evidence that more than what was stated was received, no higher price can be taken to be the basis for computation of capital gains."
Following the above judgment,we hold that the AO/FAA had not brought on record any evidence to prove that higher price was received by the assessee than what was stated in the books of accounts.We would also like to mention that both the authorities have emphasised that by charging lesser price the assessee had helped the buyer to claim higher 80IB deduction.But,they have ignored the basic fact that deduction under that section is available 4 only for manufactured goods.Thus,the one of the reasons for rejecting the claim of the assessee has no basis at all.We would also like to mention that the facts of Lakewood(supra) are totally different from the facts of the case under consideration.In that matter the assessee had sold flats to Directors and share holders and there was vast difference in the market price and the sale price.It was not a case of charging lesser price for shifting burden of certain expenses to the buyer.
Considering the above,we hold that the order of the FAA cannot be endorsed.So,reversing the same,we decide first effective ground of appeal in favour of the assessee.
3.Second effective Ground of appeal (GOA-4-6) is about disallowance made u/s. 14A of the Act.During the assessment proceedings,the AO found that the assessee had and investment of Rs.4.06 crores.He directed it to explain as to why expenses related to investment should not be disallowed under section 14 A as per rule 8D. As per the AO, the assessee did not file any details regard expenditure related to investment. He made a disallowance of Rs. 1.39 crore to the income of the assessee, invoking the provisions of section 14 A of the Act.
3.1.During the appellate proceedings, before the FAA, the assessee argued that AO had erred in making the disallowance without any justification,that he had not provided any computa - tion as to how the said figure was derived that he did not appreciate the fact that assessee had not earned any exempt income during the year under consideration, that the investment were very old and were not earning any income,that the disallowance on account of interest expenditure made by him was absolutely unjustified,that the assessee had already disallowed an amount of Rs. 34,20,11,234/- out of the total interest of Rs. 36.80 crores debited in the books of accounts which was not forming part of the taxable income as per the Act, that any disallowance under section 14A would tantamount to double disallowance. The FAA, referring to the matter of Godrej and Boyce Manufacturing Company Ltd.(43DTR177), confirmed the order of the AO.
3.2.The AR,before us,stated that disallowance was not justified,that the assessee had not earned any tax free income during the year under appeal.He referred to the case of Cheminvest of the Hon'ble Delhi High Court(377 ITR 78). The DR stated that matter could be decided on merits.
3.3.We have heard the rival submissions.As per the settled principles no disallowance u/s. 14A of the Act can be made if the assessee had not earned exempt income.In the case under consideration the AO had mentioned that the assessee had made investments. In other words, he also accepted the assessee had not claimed any exempt income against which expenditure 5 was booked.Therefore, we are of the opinion that there was no justification for making any disallowance as per the provisions of section 14 A read with rule 8D. Reversing the order of the FAA,we decide the effective ground of appeal in favour of the assessee.
ITA/2970/Mum/2013-AY.2009-10:
4.Following our order for the earlier AY.,we decide the effective ground of appeal in favour of the assessee,as the facts of both the cases are identical.
As a result, appeals filed by the assessee for both the AY.s.stand allowed.
फलतः िनधा रती ारा दािखल क गई दोन िन.व.क अपील मंजर ू क जाती ह .
Order pronounced in the open court on 1st September ,2017.
आदेश क घोषणा खुले यायालय म दनांक 01 िसतंबर ,2017 को क गई ।
Sd/- Sd/-
(शि जीत डे / Saktijit Dey) (राजे
/ Rajendra)
याियक सद
य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांक/Dated : 01.09.2017.
Jv.Sr.PS.
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1.Appellant /अपीलाथ 2. Respondent /
यथ
3.The concerned CIT(A)/संब अपीलीय आयकर आयु , 4.The concerned CIT /संब आयकर आयु
5.DR " F " Bench, ITAT, Mumbai /िवभागीय ितिनिध, खंडपीठ,आ.अ. याया.मुंबई
6.Guard File/गाड फाईल स यािपत ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.
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