ACIT, Ludhiana V. Sh. Rajnish Ahuja, Ludhiana

ITA 1138/CHANDI/2009

• Counselvise Citation: 113821514 RSA 2009
• Duration Of Justice: 2 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 31-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 10-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: S K MUKHI
• Keywords: Business income; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BEN CH B BEFORE SHRI H.L. KARWA, 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 TH E ACT ((IN SHORT THE ACT). 2. IN THIS APPEAL THE REVENUE HAS RAISED SOLE GROUN D WHEREIN IT HAS BEEN CONTENDED THAT THE LD. CIT(A) HAS ERRED IN DEL ETING THE ADDITION OF RS. 60,72,118/- MADE BY THE ASSESSING OFFICER IGNOR ING THE FACT THAT THE SALES WERE MADE TO ITS SISTER CONCERNS AT THE R ATES 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 WHE REAS THE LD. AR FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF TH E LD. CIT(A). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, FACTS OF T HE CASE AND THE RELEVANT RECORDS. THE ASSESSING OFFICER MADE THE AD DITION OF RS. 60,72,118/-, ON ACCOUNT OF DIFFERENCE, IN SALE PRI CE IN RESPECT OF SALES 2 MADE TO SISTER CONCERNS AND OUTSIDE PARTIES. THE A SSESSING OFFICER FOUND THAT THE ASSESSEE HAS RESORTED TO A DEVICE TO REDUCE ITS TAX BURDEN. THE ASSESSING OFFICER ALSO INVOKED RATIO O F THE DECISION OF THE ORDER OF THE HON'BLE SUPREME COURT IN CASE OF MCDOW ELL 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. (200 8) 12 DTR (BOM) 304. 2. CIT V. SIYA RAM GARG (HUF) (2011) 49 DTR (P&H) 1 26 5. WE HAVE CAREFULLY PERUSED AND CONSIDERED THE FINDIN GS OF THE LD. CIT(A) AND FOUND THAT THE SAME ARE DETAILED AND WEL L REASONED ONE. FURTHER, IT IS OBSERVED BY THE LD. CIT(A), THAT NO PROVISIONS OF SECTION 40A ARE APPLICABLE, TO THE FACT SITUATION OF THE CASE. THE LD. CIT(A) ALSO DISCUSSED THE APPLICABILITY OF THE RATIO OF THE DEC ISIONS OF THE HON'BLE SUPREME COURT, IN THE CASE OF MCDOWELL AND CO. LTD. V. COMMERCIAL TAX OFFICE (SUPRA). THE LD. CIT(A), HAS CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT, IN THE CASE OF UNION OF INDIA V. AZA DI BACHAO ANDALAWN, 184 CTR (SC) 450. IN THE ULTIMATE ANALYSIS, IT WAS POINTED BY THE LD. CIT(A) THAT IN FACT, IN THE CASE OF M/S RAJNISH INTERNATIO NAL TO 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 FROM BASIS OF THE ASSESSING OFFICER FOR MAKING SUCH ADDITION. WE DO FIND ANY I NFIRMITY, IN THE ORDER OF THE LD. CIT(A) AND HENCE THE SAME ARE UPHELD. HOWE VER, FOR THE SAKE OF APPRECIATION SUCH FINDINGS OF THE LD. CIT(A) ARE RE PRODUCED HEREUNDER:- 3.3. I HAVE ANALYZED THE MATTER AND FIND THAT THE A SSESSING 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 CHA RGED 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 SIS TER CONCERNS AS COMPARED TO \OUTSIDE PARTIES BY RELYING ON THE JUDG MENT 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 OT HER PROVISIONS OF THE ACT TO MAKE THIS ADDITION. THE PROVISIONS OF SECTION 40A C OULD NOT HAVE BEEN APPLIED IN THE APPELLANT'S CASE BECAUSE NO PAYMENT HAS BEEN MA DE 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 CA SE (CITED SUPRA) WHEREIN THE HON'BLE SUPREME COURT HELD THAT TAX PLA NNING IS PERMISSIBLE BUT TAX AVOIDANCE IS NOT. IN THIS LAND MARK JUDGMENT JU STICE CHINNAPPA REDDY MARKED THE ADVENT OF NEW CONCEPT THAT SOUGHT TO DIS PEL THE AGE OLD WEST MINISTER CONCEPT (IRC VS. DUKE OF WESTMINISTER (193 6) AC. 1}. IN THIS JUDGEMENT JUSTICE CHINNAPPA REDDY OBSERVED AS UNDER : 'IT IS NEITHER FAIR NOR DESIRABLE TO EXPECT THE LEG ISLATURE 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 SOPHIS TICATED LEGAL DEVICES TO AVOID TAX AND CONSIDER WHETHER THE SITUA TION CREATED BY THE DEVICES COULD BE RELATED TO THE EXISTING LEGISLATION WITH T HE AID OF EMERGING TECHNIQUES OF INTERPRETATION AS WAS DONE IN RAMSAY, BURMAH OIL, D AWSON, TO EXPOSE THE DEVICES FOR WHAT THEY REALLY ARE AND TO REFUSE TO G IVE THEM JUDICIAL BENEDICTION.' 3.4 HOWEVER, THE MAJORITY IN MCDOWELL'S DECISIO N DID NOT FULLY ENDORSE JUSTICE CHINNAPPA REDDY'S VIEWS. JUSTICE RA NGNATH MISRA OBSERVED AS UNDER: 'TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITH IN THE FRAMEWORK OF LAW, COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING A ND 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 AFF AIRS SO THAT THE TAX ATTACHING UNDER THE APPROPRIATE ACTS IS LESS THAN IT OTHERWIS E WOULD BE. IF 4 HE SUCCEEDS IN ORDERING THEM SO AS TO SECURE THIS R ESULT, THEN, HOWEVER UNAPPRECIATIVE THE COMMISSIONERS OF INLAND REVENUE OR HIS FELLOW TAXPAYERS MAY BE OF HIS INGENUITY, HE CANNOT BE COM PELLED 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) LOO KED INTO THE ENGLISH DECISIONS AND HELD THAT 'FAR FROM BEING EXORCISED IN ITS COUNTRY OF ORIGIN, DUE OF WESTMINISTER CONTINUES TO BE ALIVE A ND KICKING IN ENGLAND. INTERESTINGLY, EVEN IN MCDOWEL, THOUGH CHINNAPPA RE DDY, J., DISMISSMED THE OBSERVATION OF J.C. SHAH, J IN CIT V S. A RAMAN & CO. (1968) 67 ITR 11 (SC) BASED ON WESTMINISTER AND FIS HER'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 CHINNAP PA REDDY, J IN MCDOWELL THAT THE PRINCIPLE IN DUKE OF WESTMINISTER \HAS BEEN DEPARTED FROM SUBSEQUENTLY BY THE HOUSE OF LORDS IN ENGLAND IS NO T CORRECT. EVEN IN THE YEAR 1988 THE HOUSE OF LORDS EMPHASIZED THE CONTINU ED VALIDITY AND APPLICATION OF THE PRINCIPLE IN DUKE OF WESTMINISTE R . WHILE CHINNAPPA REDDY, J. TOOK THE VIEW THAT RAMSAY WAS AN AUTHORIT ATIVE 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 PRI NCIPLE IN DUKE OF WESTMINISTER ALIVE AND KICKING IN ENGLAND, BUT IT A LSO 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 WILLIQAMSON (ASSAM) LTD. (2004) 187 CTR (GAU) 499 ; (2004) 265 ITR 626 (GAU), HAS, AFTER REVIEWING VARIOUS DECISIO NS IN INDIA & UK REITERATED THE PRINCIPLE THAT IT IS OPEN FOR ASSESS ES TO ARRANGE THEIR AFFAIRS IN SUCH MANNER THAT IT WOULD NOT ATTRACT THE TAX LIABILITIE S, 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 TRANSACTIO N IS LESS AND WOULD NOT FALL OUTSIDE THE FOUR CORNERS OF THE LAW APPLICABLE AT THE RELEV ANT 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 CASE S AFTER THE ASSESSING OFFICER HAS DISCHARGED HIS BURDEN THAT THE ASSESSEE HAS FLO UTED THE LEGAL PROVISIONS. A TAXPAYER CAN MANAGE HIS AFFAIRS TO REDUCE TAX LIABI LITY 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 APPELL ANT HAD PROVISIONS OF THE ACT. AS SUCH THE ALLEGATION OF THE A.O. THAT THE AP PELLANT HAS SHIFTED HIS PROFITS TO OTHER SISTER CONCERNS WHERE THE TAX RATES ARE LO WER BECOMES INCONSEQUENTIAL. IN FACT IN CASE OF M/S RAJNISH INT ERNATIONAL 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 E XPENSES 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. THA T 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 A T 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 AR E UPHELD. THIS GROUND OF APPEAL OF THE REVENUE DISMISSED. 5. GROUNDS NO. 2 & 3 RAISED BY THE REVENUE IN ITS A PPEAL ARE GENERAL IN NATURE AND HENCE DO NOT REQUIRE SEPARATE ADJUDICATION. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED ON 22.08.2012 SD/- SD/- (H. L. KARWA) (M EHAR SINGH) VICE PRESIDENT ACCOUNANT MEMBER CHANDIGARH, THE 22.08.2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE CIT(A)/THE DR