Income Tax Appellate Tribunal - Chandigarh
Sh. Rajnish Ahuja,, Ludhiana vs Department Of Income Tax on 31 July, 2012
IN THE INCO ME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH 'B'
BEFORE SHRI H.L. KARW A, V.P. AND SHRI MEHAR SINGH, AM
ITA No. 1138/Chd/2007
Assessment Year 2006-07
A.C.I.T. Circle 1 V Rajnish Ahuja Prop
Ludhiana M/s Ahuja Industrial Corp
E-26, Phase IV, Focal Point
Ludhiana
ABKRA 3060 H
(Appellant) (Respondent)
Appellant By : Smt. Jaishree Sharma
Respondent By: Shri S.K. Mukhi
Date of hearing: 31.07.2012
Date of pronouncement: 22.08.2012
ORDER
Per Mehar Singh, AM
This is an appeal filed by the revenue against the order dated 30.9.2009 passed by the ld. CIT(A) u/s 250(6) of the Act ((in short 'the Act').
2. In this appeal the Revenue has raised sole ground wherein it has been contended that the ld. CIT(A) has erred in deleting the addition of Rs. 60,72,118/- made by the Assessing Officer ignoring the fact that the sales were made to its sister concerns at the rates lower than the market rates thereby shifting burden of tax across units.
3. In the course of present appellate proceedings, the ld. DR for the revenue placed reliance on the assessment order whereas the ld. AR for the assessee placed reliance on the order of the ld. CIT(A).
4. W e have heard the rival submissions, facts of the case and the relevant records. The Assessing Officer made the addition of Rs. 60,72,118/-, on account of difference, in sale price in respect of sales 2 made to sister concerns and outside parties. The Assessing Officer found that the assessee has resorted to a device to reduce its ta x burden. The Assessing Officer also invoked ratio of the decision of the order of the Hon'ble Supreme Court in case of McDowell and Co. Ltd V. Commercial Tax office, 154 ITR 148 (S.C) to support his findings. The Assessing Officer has not invoked any provision of the Act to justify his addition in the matter. The assessee before the ld. CIT(A) placed reliance on the following case laws:
1. CIT V. Indo Saudi Services (Travel)(P) Ltd. (2008) 12 DTR (Bom) 304.
2. CIT V. Siya Ram Garg (HUF) (2011) 49 DTR (P&H) 126
5. W e have caref ully perused and considered the f indings of the ld. CIT(A) and f ound that the same are detailed and well reasoned one. Further, it is obser ved by the ld. CIT(A) , that no provisions of Section 40A are applicable, to the f act situation of the case. The ld. CIT(A) also discussed the applicabilit y of the ratio of the decisions of the Hon'ble Supreme Court, in the case of McDowell and Co. Ltd. V. Commercial Tax Off ice (supra). The ld. CIT(A), has considered the decision of the Hon'ble Supreme Court, in the case of Union of India V. Azadi Bachao Andalawn, 184 CTR (SC) 450. In the ult imate analysis, it was pointed by t he ld. CIT(A) that in f act, in the case of M/s Rajnish Internat ional t o whom major sales have been made tax has been paid, at the rate of 33.6% as compared to 30.6% paid by the appellant, which repudiates f rom basis of the Assessing Off icer f or making such addit ion. W e do f ind any inf irmity, in the order of the ld. CIT(A) and hence the same are upheld. However, f or the sake of appreciat ion such f indings of the ld. CIT(A) are reproduced hereunder:-
3.3. I have analyzed the matter and find that the Assessing Officer has made the addition on the ground that the sale price charged by the appellant from the sister concerns is less by 15% than what is charged from sales made to the 3 outside parties. Total sales made by the appellant during the year is Rs. 4.5 crores out of which sales to sister concerns are as under :
1. M/s Rajnish International Rs. 3.41 Crores
2. M/s Rajnish Enterprises Rs. 59.02 lacs
3. M/s Gujrat Traders Rs. 4.47 lacs And sale made to other parties Rs. 54.85 lacs The Assessing Officer has made this addition solely on the ground that the x assessee has charged less sale price from his sister concerns as compared to \outside parties by relying on the judgment of Mcdowell and Co. Ltd. vs. Commissioner Tax Officer (154-ITR-148) of the Hon'ble Supreme Court. The Assessing Officer has not invoked any other provisions of the Act to make this addition. The provisions of section 40A could not have been applied in the appellant's case because no payment has been made to sister concerns for any item of expenditure which the is claiming as revenue expenditure while computing his taxable income.
(ii) As regards the application of McDowell's case (cited supra) wherein the Hon'ble Supreme Court held that tax planning is permissible but tax avoidance is not. In this land mark judgment Justice Chinnappa Reddy marked the advent of new concept that sought to dispel the age old West Minister Concept (IRC vs. Duke of Westminister (1936) AC. 1}. In this judgement Justice Chinnappa Reddy observed as under :
"It is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation. It is upto the court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of emerging techniques of interpretation as was done in Ramsay, Burmah Oil, Dawson, to expose the devices for what they really are and to refuse to give them judicial benediction."
3.4 However, the majority in Mcdowell's decision did not fully endorse Justice Chinnappa Reddy's views. Justice Rangnath Misra observed as under:
"Tax planning may be legitimate provided it is within the framework of law, Colourable devices cannot be part of tax planning and it is payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay taxes honestly without resorting to subterfuges ".
3.5 In the celebrated case of Duke of Westminister (cited supra) it was ` held as under :
"Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If 4 he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay increased tax".
3.6 However later on the Hon'ble Supreme Court in the case of UOI vs. Azadi Bachoi Andolawn (184 CTR(SC) 450) looked into the English decisions and held that "Far from being exorcised in its country of origin, Due of Westminister continues to be alive and kicking in England. Interestingly, even in McDowel, though Chinnappa Reddy, J., dismissmed the observation of J.C. Shah, J in CIT vs. A Raman & Co. (1968) 67 ITR 11 (SC) based on Westminister and Fisher's Executor, the opinion of the majority is a far cry from the views of Chinnappa Reddy. The bsic assumption made in the judgment of Chinnappa Reddy, J in McDowell that the principle in Duke of Westminister \has been departed from subsequently by the house of Lords in England is not correct. Even in the year 1988 the House of Lords emphasized the continued validity and application of the principle in Duke of Westminister . While Chinnappa Reddy, J. took the view that Ramsay was an authoritative rejection of principle in the Duke of Westminister, the House of Lords, in the year 2001, does not seem to consider it to be so, as seen from MacNiven (Inspector of Ltd. The principle in Due of Westminister is very much alive and kicking in the country of its birth. And as far as this country is concerned, the observations of Shah, J., in CIT vs. A Raman are very much relevant' even today. Not only is the principle in Duke of Westminister alive and kicking in England, but it also seems to have acquired judicial benediction of the Constitutional Bench in India, notwithstanding the temporary turbulence created in the wake of McDowell. The situation is no different in United States and other jurisdictions too. "
3.7 Thus it would be seen that the law as laid down in McDowell's case has been water down and the principle as laid down in the case of Duke of Westminister (cited supra) still holds the field.
3.8 The Gauhati High Court in the case of CIT vs. George W illiqamson (Assam) Ltd. (2004) 187 CTR (Gau) 499 ; (2004) 265 ITR 626 (Gau), has, after reviewing various decisions in India & UK reiterated the principle that it is open for assesses to arrange their affairs in such manner that it would not attract the tax liabilities, so far it can be managed within the permissible limit of law. The assessees can very well manage their tax affairs so that the tax attracted in the transaction is less and would not fall outside the four corners of the law applicable at the relevant time. The tax management is permissible, if the law authorizes so.
3.9 In view of the decision cited above, it emerges that ratio of £ McDowell's case can be applied only in those cases after the Assessing Officer has discharged his burden that the assessee has flouted the legal provisions. A taxpayer can manage his affairs to reduce tax liability within the frame work of law. In the appellant's case no case has been made out by the Assessing Officer against the appellant to the effect that the appellant had provisions of the Act. As such the allegation of the A.O. that the appellant has shifted his profits to other sister concerns where the tax rates are lower becomes inconsequential. In fact in case of M/s Rajnish International to the major sales 5 have been made tax has been paid at the rate of 33.6% as compared to 30.6% paid by the appellant. The explanation of the appellant that discount of 15% was given on sales made to sister concerns as expenses like commission, salary and on marketing personnel and traveled had to be borne by them is convincing. It is also not the case of the A.O. that the goods have been sold a loss to the sister concerns. In fact the goods have been sold at a G.P. rate of 16.07%, as the assessee could not have sold goods at a loss because as per Central Excise Rules (2000) 8 & 9, the manufacturer has to sell his product to a sister concern at the value of 110% of the cost of production. Therefore, I have no hesitation in deleting the addition made by the Assessing Officer."
4(i) In view of above discussions and having regard to the findings of the ld. CIT(A) vis-a-vis the Assessing Officer, we do find any infirmity in the findings of ld. CIT(A) and hence the same are upheld. This ground of appeal of the revenue dismissed.
5. Grounds No. 2 & 3 raised by the revenue in its appeal are general in nature and hence do not require separate adjudication.
6. In the result, appeal of the revenue is dismissed.
Order Pronounced on 22.08.2012
Sd/- Sd/-
(H. L. KARW A) (MEHAR SINGH)
VICE PRESIDENT ACCOUNANT MEMBER
Chandigarh, the 22.08.2012
SURESH
Copy to:
The Appellant/The Respondent/The CIT/The CIT(A)/The DR