Appeal details
Counselvise Citation
[2017] 127 COUNSELVISE.COM (IT) 5873 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
09-11-2017
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
C
Assessment Year
2012-2013
Appeal Filed On
02-06-2017
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 1418/MDS/2017 / ASSESSMENT YEAR : 2012-13 SULEKHA.COM NEW MEDIA P. LTD., 484-485, PANTHEON PLAZA, 4 TH FLOOR, PANTHEON ROAD, EGMORE, CHENNAI 600 008. [PAN: AADCM 6938R] VS. DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE, 6(2) CHENNAI, CHENNAI 600 034. ( / APPELLANT) ( / RESPONDENT) %& / APPELLANT BY : SHRI. V. RAVICHANDRAN, CA )*%& / RESPONDENT BY : SHRI. SAILENDRAMAMIDI, PCIT & /DATE OF HEARING : 16.08.2017 & /DATE OF PRONOUNCEMENT : 09.11.2017 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER P ASSED U/S. 263 BY THE PCIT, CHENNAI-6, IN C. NO. 6119(28)/PR CIT-6/2016-1 7 DATED 31.03.2017 FOR ASSESSMENT YEAR 2012-13. :-2-: ITA NO.1418/MDS/2017 2. SULEKHA.COM NEW MEDIA PVT. LTD., THE ASSESSEE, I S ENGAGED IN THE BUSINESS OF SELLING ONLINE SPACE TO SMALL AND MEDIU M SIZE COMPANIES AND LOCAL E-COMMERCE SERVICES, HAD E-FILED ITS RETURN FOR THE ASSESSMENT YEAR 2012-13 ON 28.09.2012 DECLARING A TOTAL LESS OF RS.16,88,36 ,205/-. A SURVEY OPERATIONS U/S. 133A WAS CONDUCTED ON 12.12.2013IN THE ASSESSEE'S CASE. PRIOR TO SURVEY, THE CASE WAS SELECTED FOR SCRUTIN Y THROUGH CASS AND A NOTICE U/S. 143(2) WAS ISSUED ON08.08.2013 AND THE ASSES SMENT WAS COMPLETED U/S 143(3) ON 30.03.2015. ON EXAMINATION OF RECORDS THE PRINCIPAL COMMISSIONER OF INCOME TAX (PCIT) NOTICED THAT DURI NG THE SURVEY IT WAS REPORTED THAT ON VERIFYING THE RETURN AND THE ANNEX URE, IT WAS FOUND THAT THE ASSESSEE PAID RS.29 92 CRORES TO M/S MERCADO ON LIN E P LTD (M/S INDIA PLAZA) DURING F.Y. 2011-12 AND 2012-13 WHICH SEEMS TO BE A RELATED ENTERPRISE OF THE ASSESSEE COMPANY BY VIRTUE OF TWO OF ITS DIRECT ORS BEING THE DIRECTORS OF M/S. INDIA PLAZA. IT WAS FOUND IN THE SURVEY THAT T HE TRANSACTIONS ENTERED INTO BETWEEN THE ASSESSEE AND MERCADO WERE BOGUS AS THE PLACE OF BUSINESS OF MERCADO WAS CONTINUOUSLY SHIFTED AND WAS ELUSIVE TO THE DEPARTMENT. IT WAS OPINED THAT THE GENUINENESS OF THE PAYMENTS HAS TO BE EXPLAINED BY THE ASSESSEE ONLY AND AFTER VERIFICATION OF PAYMENTS, T HE ENTIRE PAYMENT OF RS.29.92 CRORES REQUIRES TO BE DISALLOWED. HOWEVER, DURING THE ASSESSMENT, THE E-COMMERCE COST OF RS.90,30,782/- WAS DISALLOWE D. OUT OF THE TOTAL PAYMENT OF RS.29.92 CRORES, IT IS UNDERSTOOD THAT A N AMOUNT OF RS. 11,81,09,557/- PERTAINS TO AY 2012-13. AS PER THE S URVEY REPORT, THE :-3-: ITA NO.1418/MDS/2017 TRANSACTIONS WITH THE AFORESAID ENTITY WERE BOGUS. THE BOGUS TRANSACTION WAS DISCUSSED DURING SCRUTINY ASSESSMENT AND ALSO THERE WAS A MENTION THAT M/S MERCADO TO WHOM PAYMENTS HAVE BEEN MADE IS A NON-TR ACEABLE COMPANY. IN SUCH A CASE, THE ENTIRE PAYMENTS CLAIMED TO HAVE BE EN MADE TO M/S MERCADO BY THE ASSESSEE REQUIRED TO BE DISALLOWED. IF THIS IS CONSIDERED, THERE WOULD BE A POTENTIAL TAX EFFECT OF RS.3,53,90,609/- ON RS .11.81 CR. - 0.90 CR. IN VIEW OF THE ABOVE, THE PCIT ISSUED A SHOW CAUSE NOTICE U/S 263 ON 05.01.2017. THE ASSESSEE FILED ITS WRITTEN SUBMISSION. AFTER CO NSIDERING THE ASSESSEES PLEA ETC, THE PCIT HELD THAT THE ASSESSING OFFICER HAS FAILED TO MAKE A COMPLETE VERIFICATION WITH RESPECT TO BOGUS TRANSAC TIONS ENTERED INTO WITH THE RELATED PARTY M/S. MERCADO DURING THE ACCOUNTING YE AR IN QUESTION AND HAS PASSED THE ASSESSMENT ORDER WITHOUT PROPER AND DILI GENT APPLICATION OF MIND. THE ASSESSMENT ORDER SO PASSED IS BOTH ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, HE SET ASIDE THE ASSESSMENT ORDER, WITH A DIRECTION TO THE ASSESSING OFFICER TO EXAMINE THE EXACT QUANTUM OF DISALLOWANCE TO BE MADE WITH RESPECT TO THE BOGUS T RANSACTIONS ENTERED INTO WITH THE RELATED PARTY M/S. MERCADO DURING THE ACCO UNTING YEAR AND PASS A FRESH ORDER AFTER GRANTING OPPORTUNITY TO THE ASSES SEE WITHIN STIPULATED TIME. THE ASSESSEE CAN FURNISH DOCUMENTS WHICH WERE NOT A VAILABLE AT THE TIME OF ASSESSMENT IN THE RECORDS OF THE ASSESSING OFFICER FOR FRESH EXAMINATION. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL WITH FOLL OWING GROUNDS : :-4-: ITA NO.1418/MDS/2017 1. THE ORDER UNDER SECTION 263 IS CONTRARY TO LAW AND THE FACTS OF THE CASE. 2. THE IMPUGNED ORDER IS BARRED BY LIMITATION. 3. THE IMPUGNED ORDER HAS BEEN PASSED IN VIOLATION OF THE PRINCIPAL OF NATURAL JUSTICE INASMUCH AS THE APPELLANT WAS NOT PROVIDED WITH THE BASIS OF FACTUAL ASSERTIONS IN THE SHOW CAUSE NOTICE NOR A COPY OF T HE SURVEY REPORT RELIED ON BY THE PRINCIPAL COMMISSIONER OF INCOME TAX NOR A PERS ONAL HEARING. 4. THE ORDER UNDER SECTION 263 IS INVALID AND ILLEG AL SINCE IT SEEKS TO REOPEN MATTERS CONSIDERED IN DETAIL DURING THE ORIGINAL AS SESSMENT. 5. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX OUGHT TO HAVE APPRECIATED THAT THE ASSESSMENT ORDER CANNOT BE SAID TO BE ERRO NEOUS MERELY BECAUSE ANOTHER VIEW OF THE MATTER CONSIDERED IN THE ASSESS MENT PROCEEDINGS IS POSSIBLE. 6. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN REVERSING AN ASSESSMENT ON ISSUES WHICH ARE ALREADY PENDING IN A PPEAL BEFORE THE CIT (APPEALS). 7. THE LEARNED PRINCIPAL COMMISSIONER ERRED IN SETT ING ASIDE THE ASSESSMENT WITH A DIRECTION TO RE-DO THE ASSESSMENT AFTER CONDUCTIN G FURTHER ENQUIRY. 8. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF THE HEARING, IT IS PRAYED THAT THE ORDER UNDER SECTION 263 MAY B E SET ASIDE AND JUSTICE RENDERED. 3. THE AR SUBMITTED THAT THE SURVEY WAS CONDUCTED O N 12.02.2013 AND THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFIC ER ON 30.03.2015. THUS, THE ASSESSING OFFICER HAS APPLIED HIS MIND WITH REF ERENCE TO ALL THE ISSUES THAT AROSE OUT OF THE SURVEY AND THEN COMPLETED THE ASSE SSMENT. IN SUCH FACTS AND CIRCUMSTANCES, THE PCIT CANNOT INVOKE THE JURIS DICTION U/S. 263. THE AR SUBMITTED THAT EVERY LOSS OF REVENUE CANNOT BE TREA TED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE ASSESSING OFFIC ER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS AR E POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT :-5-: ITA NO.1418/MDS/2017 AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE UNDER LAW. F URTHER SUBMITTED THAT , IF WHILE MAKING THE ASSESSMENT, THE ASSESSING OFFICER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE COMMISSIONER, WHILE E XERCISING HIS POWER UNDER SECTION 263, IS NOT PERMITTED TO SUBSTITUTE H IS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE ASSESSING OFFI CER. THE AR CONTINUED HIS SUBMISSION STATING THAT THE POWERS VESTED IN THE CO MMISSIONER UNDER SECTION 263 ARE EXTRAORDINARY POWERS AND COMPETED ASSESSMEN T PROCEEDINGS CANNOT BE REOPENED UNLESS THERE IS SOME COGENT MATERIAL TO SHOW THAT THERE IS TOTAL NON-APPLICATION OF MIND ON THE PART OF THE ASSESSIN G OFFICER OR THAT THE ASSESSING OFFICER HAS COMMITTED ANY GLARING MISTAKE OF FACT OR LAW AS PER THE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS. G ABRIAL (INDIA) LTD. [1993] 203 ITR 188/ 71 TAXMAN 585 AND HENCE PLEADED THAT T HE JURISDICTION INVOKED BY THE PCIT IS NOT CORRECT AND HENCE THE ORDER PASS ED U/S 263 MAY BE SET ASIDE. 4. PER CONTRA, THE DR INVITED OUR ATTENTION TO THE FOLLOWING PORTION OF THE SHOW CAUSE NOTICE ISSUED BY THE PCIT, U/S. 263 DATE D 05.01.2017: FROM THE RECORDS AVAILABLE BEFORE THE UNDERSIGNE D, IT IS NOTICED THAT THE ASSESSEE HAD PAID TOTALLY RS. 29.92 CRORES TO M /S. MERCADO ONLINE P. LTD. (M/S. INDIA PLAZA) OUT OF WHICH RS. 11,81,09,557/- PERTAINS TO ASSESSMENT YEAR 2012-13. M/S. MERCADO ONLINE P LTD., IS A RELATED ENTERPRISE OF THE ASSESSEE COMPANY BY VIRTUE THAT TWO DIRECTORS OF THE ASSESSE E COMPANY BEING THE :-6-: ITA NO.1418/MDS/2017 DIRECTORS OF M/S. MERCADO ONLINE P. LTD., ALSO. DU RING THE COURSE OF SURVEY, IT WAS ESTABLISHED THAT THE TRANSACTIONS BETWEEN THE T WO COMPANIES ARE BOGUS FOR THE REASON THAT M/S, MERCADO ONLINE P. LTD., WAS IN THE HABIT OF SHIFTING ITS PRINCIPLE PLACE OF BUSINESS VERY OFTEN AND WAS VERY ELUSIVE FOR THE DEPARTMENT. DURING THE SURVEY OPERATION AND DURING THE COURSE O F SCRUTINY PROCEEDINGS, THE ASSESSEE COMPANY FAILED TO EXPLAIN THE GENUINENESS OF THE PAYMENTS MADE TO M/S. MERCADO ONLINE P. LTD., THE ASSESSING OFFICER WHILE PASSING ORDER U/S. 143 (3) DATED 30.03.2015 HAD VERY MUCH DISCUSSED AND HAD COME TO A CONCLUSIO N THAT M/S. MERCADO ONLINE P. LTD., TO WHOM PAYMENT OF RS. 11.81 CRORE WERE MADE IS A BOGUS AND NON TRACEABLE COMPANY. SUCH BEING THE CASE, THE AS SESSING OFFICER OUGHT TO HAVE DISALLOWED THE PAYMENT OF RS. 11.81 CRORES MAD E TO M/S. MERCADO ONLINE P. LTD., AND BROUGHT IT INTO THE TAXNET, WHICH HE FAILED TO DO. FOR THE REASONS STATED ABOVE, I AM OF THE VIEW THA T THE ORDER PASSES U/S. 143 RWS 147 ON 30.03.2015 WITHOUT CONSIDERING THE ABOVE ISSUE IS ERRONEOUS IN SO FAR AS ALSO PREJUDICIAL TO THE INTE RESTS OF REVENUE. THEREFORE, THE ORDER OF THE ASSESSMENT U/S. 143 PASSED BY THE ASSESSING OFFICER, CORPORATE CIRCLE -6(2) CHENNAI, IS PROPOSED TO BE T AKEN UP U/S. 263 OF THE IT ACT, 1961 TO PASS APPROPRIATE REVISION ORDERS, AFTE R GIVING OPPORTUNITY TO THE ASSESSEE. 4.1 THEREAFTER, THE DR SUBMITTED THAT IT IS CLEAR FROM THE ORDER U/S. 263 THAT THE ASSESSEE HAS NOT LAID ANY MATERIAL TO SAY THAT THE PAYMENT OF RS. 11.81 CRORES MADE TO M/S. MERCADO ONLINE P. LTD., A NON-TRACEABLE COMPANY, WAS EVER EXAMINED BY THE A O AND THE ASSESSEE HA S NOT LAID ANY MATERIAL TO PROVE THAT THIS TRANSACTION WAS EVER EXPLAINED BY IT TO THE AO AND ON SUCH EXPLANATION THE IMPUGNED TRANSACTION WAS CONSIDERE D AS A GENUINE ONE . THE DR FURTHER SUBMITTED THAT EVEN BEFORE THE PCIT, THE ASSESSEE HAS NOT LAID ANY SUCH MATERIAL. IN THE FACTS AND CIRCU MSTANCES, THE CONCLUSION :-7-: ITA NO.1418/MDS/2017 DRAWN BY THE PCIT IS UNASSAILABLE AND HENCE THE ORD ER PASSED U/S. 263 IS MERITORIOUS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS , GONE TH ROUGH RELEVANT ORDERS AND MATERIAL. THE PCIT INVOKES THE JURISDICTION U/ S 263 FOR THE REASON THAT FROM THE RECORDS AVAILABLE BEFORE HIM HE NOTICED T HAT THE ASSESSEE HAD PAID TOTALLY RS. 29.92 CRORES TO M/S. MERCADO ONLINE P. LTD. (M/S. INDIA PLAZA) OUT OF WHICH RS. 11,81,09,557/- PERTAINS TO ASSESSMENT YEAR 2012-13. M/S. MERCADO ONLINE P LTD., IS A RELATED ENTERPRISE OF T HE ASSESSEE COMPANY BY VIRTUE THAT TWO DIRECTORS OF THE ASSESSEE COMPANY B EING THE DIRECTORS OF M/S. MERCADO ONLINE P. LTD., ALSO. DURING THE COURSE OF SURVEY, IT WAS ESTABLISHED THAT THE TRANSACTIONS BETWEEN THE TWO COMPANIES ARE BOGUS FOR THE REASON THAT M/S, MERCADO ONLINE P. LTD., WAS IN THE HABIT OF SHIFTING ITS PRINCIPLE PLACE OF BUSINESS VERY OFTEN AND WAS VERY ELUSIVE FOR THE DEPARTMENT. DURING THE SURVEY OPERATION AND DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSEE COMPANY FAILED TO EXPLAIN THE GENUINENESS OF THE PA YMENTS MADE TO M/S. MERCADO ONLINE P. LTD.THE ASSESSING OFFICER WHILE P ASSING ORDER U/S. 143(3) DATED 30.03.2015 HAD VERY MUCH DISCUSSED AND HAD CO ME TO A CONCLUSION THAT M/S. MERCADO ONLINE P. LTD., TO WHOM PAYMENT O F RS. 11.81 CRORE WERE MADE IS A BOGUS AND NON TRACEABLE COMPANY. SUCH BE ING THE CASE, THE ASSESSING OFFICER OUGHT TO HAVE DISALLOWED THE PAYM ENT OF RS. 11.81 CRORES MADE TO M/S. MERCADO ONLINE P. LTD., AND BROUGHT I T INTO THE TAXNET, WHICH :-8-: ITA NO.1418/MDS/2017 HE FAILED TO DO. NOW, LET US EXAMINE THE RELEVANT P ORTION OF THE ASSESSMENT ORDER WHICH IS EXTRACTED AS UNDER : 3. DISALLOWANCE OF E -COMMERCE COST: THE ASSESSEE HAS CLAIMED EXPENSES OF RS.90,30,787/- AS E-COMMERCE TRANSACTION COSTS. THE AR WAS ASKED TO EXPLAIN THE NATURE OF THE TRANSACTIONS. THE AR EXPLAINED THE MODUS OPERANDI OF THE E-BUSINE SS THE ASSESSEE HAS ENTERED IN TO E- COMMERCE BUSINESS WITH M/S. MERCADO ONLINE P LTD (HEREAFTER REFERRED AS M/S MER CADO) IN WHICH THE M/S. SULEKHA WILL POST THE ADVERTISEMENTS REGARDING THE VARIOUS PRODUCTS OR ITS WEBSITE. SINCE SULEKHA.COM BEING A POPULAR WEBSITE. THE CUSTOMERS NORMALLY LOG ON TO THE WEBSITE AND PLACE ORDER FOR THE PRODU CTS. THE DETAILS OF THE BOOKINGS WERE FORWARDED TO M/S MERCADO, WHICH PROCU RES AND DELIVERS THE PRODUCTS TO THE CUSTOMERS, THE PAYMENTS RECEIVED FR OM THE CUSTOMERS WERE PAID TO M/S MERCADO ON THE BASIS OF THE INVOICES RA ISED BY M/S MERCADO. THE ASSESSEE OFFERS DISCOUNTS TO CUSTOMERS DEPENDING ON THE DAILY, WEEKLY ANALYSIS OF COMPETITIVE PRICES SET UP BY LEADING E- SELLERS LIKE FLIPKART, SNAP DEAL ETC. DURING THE A.Y 2012-13, IT IS SEEN THAT THE ASSESSE E HAS MADE PAYMENTS OF RS.11,81,09,557/- TO M/S MERCADO FOR TH E PRODUCTS SOLD RETAINING ITS PROFIT MARGIN. THE QUESTION THAT ARISES IS WHO FIXES THE PRICES OF THE PRODUCTS DELIVERED TO THE CUSTOMERS. DURING THE SCR UTINY PROCEEDINGS THE AR OF THE ASSESSEE STATED THAT THE BILLS ARE RAISED BY M/ S MERCADO AND PAYMENTS ARE MADE BY SULEKHA. HENCE FROM THE ABOVE, IT IS CLEAR THAT THE PRICES ARE FIXED BY M/S. MERCADO. THE E-COMMERCE COST CLAIMED BY THE A SSESSEE IS THE DISCOUNT OFFERED BY THE ASSESSEE TO THE CUSTOMERS. THE ASSES SEE CLAIMS IT AS E- COMMERCE COST BECAUSE IT PROMOTES ITS WEBSITE AND H ENCE IT CAN BE EQUATED WITH ADVERTISING EXPENSES. THE ASSESSEE'S ARGUMENT IS NOT ACCEPTABLE BECAUSE O F THE FOLLOWING REASONS: THE PRICES ARE FIXED BY MERCADO AND THE SAME IS PRO VIDED TO SULEKHA FOR PUTTING IT IN WEBSITE. THE QUESTION THAT ARISES HOW CAN M/S. SULEKHA OFFER DISCOUNT OR FIX PRICE FOR THE GOODS SUPPLIED BY M/S . MERCADO .PROFIT IS NOTHING BUT SELLING PRICE - COST PRICE OF THE GOODS. IF DIS COUNT IS OFFERED ON COST PRICE ITSELF, THEN THE RESULT WILL ALWAYS BE LOSS. NOBOD Y WILL DO A BUSINESS TO MAKE A LOSS. :-9-: ITA NO.1418/MDS/2017 M/S. MERCADO IS A RELATED PARTY AND TWO DIRECTORS O F BOTH M/S. SULEKHA AND M/S MERCADO ARE SAME. THE AR WAS ASKED ABOUT TH E PAYMENT MADE TO M/S MERCADO OF RS.11,81,09,557/- AND WHETHER THE SAME H AS BEEN REFLECTED IN THE RETURN OF INCOME OF M/S MERCADO. THE AR OF THE ASSE SSEE VIDE HIS LETTER FILED ON 16.3.2015 STATED THAT M /S. MERCADO HAS NETTED THE RECEIPTS RECEIVED FROM SULEKHA AND THE PAYMENTS IT HAD MADE TO VENDORS FRO M WHICH IT HAD PURCHASED THE GOODS, THAT BEING THE REASON THAT ONLY ITS PROF IT MARGIN BEING SHOWN AS INCOME. HOWEVER THEASSESSEE HAS MADE THE PAYMENTS L A MERCADO THROUGH RTGS. BANK PAYMENTS ETC. M/S. MERCADO IS A NON TRACEABLE COMPANY AND FREQUEN TLY IT HAS SHIFTED ITS ADDRESS. ON INVESTIGATION, IT IS SEEN THAT THE COMPANY IS PRESENTLY IN BANGALORE. THE AR OF THE ASSESSEE WAS ASKED TO PROD UCE THE DETAILS WHY THE GOODS PURCHASED FROM THE MERCADO CANNOT BE MORE THA N THE MARKET PRICE. THE ASSESSEE COULD NOT FURNISH THE DETAILS IN SPITE OF THE FACT THAT TWO OF THE DIRECTORS OF BOTH THE COMPANIES ARE THE SAME. THE ASSESSEE COULD NOT PRODUCE THE MARKET PRICE AS ON THE DATE OF SALE/PURCHASE , BUT INSTEAD PRODUCED A FEW MARKET PRICES LIST AVAILABLE ON THE INTERNET. THE E- COMMERCE TRANSACTION COST DEPENDS UPON THE P URCHASE PRICE AS WELL AS SELLING PRICE. IF BOTH THE PRICES ARE INCRE ASED OR DECREASED, THEN THE E- COMMERCE COST CHANGES AND HENCE IT IS A DEPENDENT V ARIABLE. IF THE PURCHASE PRICE IS INCREASED FROM MERCADO (BEING A RELATED PA RTY) AND THE SALE PRICE IS REDUCED BY GIVING DISCOUNTS TO CUSTOMER, THEN THE E -COMMERCE COST WHICH IS ACTUALLY A LOSS INCREASES AND THE SAME IS CLAIMED E XPENSES. LOSS CAN NEVER BE CLAIMED AS EXPENSES. THE MARKET PRICE OF THE GOODS PURCHASED HAS NOT BEE N ESTABLISHED BY THE ASSESSEE. SINCE THE E- COMMERCE TRANSACTION COS T IS DEPENDENT ON THE PURCHASE PRICE (MARKET PRICE OF PURCHASE), WHICH TH E ASSESSEE IS NOT ABLE TO ESTABLISH WITH PROOF. THE COMPANY M/S MERCADO BEING A RELATED PARTY AND ALSO ITS WHEREABOUTS ARE NOT KNOWN POINTS TO THE FACT TH AT THERE IS A POSSIBILITY OF BOOSTING THE PURCHASE PRICE OF THE GOODS .THE ASSES SEE GETS A BENEFIT, BY THE INCREASE IN E-COMMERCE COST CLAIMED AS EXPENSES. I F WE ASSUME THAT M/S MERCADO BEING A RELATED PARTY, THE GOODS ARE PURCHA SED AT LESS THAN THE MARKET PRICE IN REALITY, THOUGH PAYMENT WAS MADE IN EQUAL TO MARKET PRICE, THE BACK ROUTING OF THE MONEY IS A POSSIBILITY. IN THIS CASE , IF THE GOODS ARE RECEIVED AT LESS THAN RNARKET PRICE, THERE IS ALWAYS A PROFIT B ECAUSE THE SELLING PRICE IS :-10-: ITA NO.1418/MDS/2017 ALWAYS MORE EVEN AFTER GIVING DISCOUNT. THE ASSESSE E MAKES A PROFIT WHICH IS ESCAPED FROM TAX, AND THE LOSS IS CLAIMED AS E-COMM ERCE COSTS. HENCE, THE AMOUNT OF RS. RS.90,30,782/- CLAIMED AS E- COMMERCE TRANSACTION COSTS IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. 6. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE HAS ENTERED IN TO E- COMMERCE BUSINESS WITH M/S. MERCADO ONLINE P LTD ( HEREAFTER REFERRED AS M/S MERCADO). DURING THE A.Y 2012-13, THE ASSESSEE CLA IMED TO HAVE MADE PAYMENTS OF RS.11,81,09,557/- TO M/S MERCADO FOR T HE PRODUCTS SOLD RETAINING ITS PROFIT MARGIN. THE PRICES ARE FIXED B Y M/S. MERCADO. THE E- COMMERCE COST CLAIMED BY THE ASSESSEE IS THE DISC OUNT OFFERED BY THE ASSESSEE TO THE CUSTOMERS. M/S. MERCADO IS A RELA TED PARTY AND TWO DIRECTORS OF BOTH M/S. SULEKHA AND M/S MERCADO ARE SAME. THE AR WAS ASKED BY THE AO ABOUT THE PAYMENTS MADE TO M/S MERCADO OF RS. 11,81,09,557/- AND WHETHER THE SAME HAS BEEN REFLECTED IN THE RETURN O F INCOME OF M/S MERCADO. THE A R OF THE ASSESSEE REPLIED THAT M /S. MERCA DO HAS NETTED THE RECEIPTS RECEIVED FROM THE ASSESSEE AND THE PAYMENTS IT HAD MADE TO VENDORS FROM WHOM IT HAD PURCHASED THE GOODS AND ONLY ITS PROFI T MARGIN BEING SHOWN AS INCOME AND THE ASSESSEE HAS MADE THE PAYMENTS TO MERCADO THROUGH RTGS. BANK PAYMENTS ETC. THE AO TAKING COGNIZANCE O F M/S MERCADO BEING A NON TRACEABLE COMPANY HAS REQUIRED THE AR OF THE ASSESSEE TO PRODUCE THE DETAILS WHY THE GOODS PURCHASED FROM THE MERCAD O CANNOT BE MORE THAN THE MARKET PRICE. THE ASSESSEE COULD NOT FURNISH THE DETAILS IN SPITE OF THE FACT THAT TWO OF THE DIRECTORS OF BOTH THE COMPANIE S ARE THE SAME. THE :-11-: ITA NO.1418/MDS/2017 ASSESSEE COULD NOT PRODUCE THE MARKET PRICE AS ON T HE DATE OF SALE/PURCHASE , BUT INSTEAD PRODUCED A FEW MARKET PRICES LIST AVAIL ABLE ON THE INTERNET. 6.1 IN SUCH SITUATION , THE AO RIGHTLY CONCLUDES THAT THE MARKET PRICE OF THE GOODS PURCHASED HAS NOT BEEN ESTABLISHED BY THE ASSESSEE . FURTHER, THE AO CONCLUDES THAT THE ASSESSEE IS NOT ABLE TO EST ABLISH THE E- COMMERCE TRANSACTION COST IS WHICH IS DEPENDENT ON THE PURCH ASE PRICE (MARKET PRICE OF PURCHASE) WITH PROOF. HE DEDUCES THAT THE COMPANY M/S MERCADO BEING A RELATED PARTY AND ITS WHEREABOUTS BEING NOT KNO WN THAT THERE IS A POSSIBILITY OF BOOSTING THE PURCHASE PRICE OF THE G OODS. IF THE GOODS ARE PURCHASED AT LESS THAN THE MARKET PRICE IN REALITY, THOUGH PAYMENT WAS MADE IN EQUAL TO MARKET PRICE, THE BACK ROUTING OF THE M ONEY IS A POSSIBILITY. IF THE GOODS ARE RECEIVED AT LESS THAN MARKET PRICE, THERE IS ALWAYS A PROFIT BECAUSE THE SELLING PRICE IS ALWAYS MORE EVEN AFTER GIVING DISCOUNT. THE ASSESSEE MAKES A PROFIT WHICH IS ESCAPED FROM TAX. BUT , TH EREAFTER THE AO HAS NOT ADDRESSED THIS ISSUE OF THE PURCHASE PRICE AT RS.1 1,81,09,557/- AT ALL IN THE ASSESSMENT ORDER AS THERE IS NO DISCUSSION ABOUT TH E IMPUGNED PURCHASE AT ALL IN THE ASSESSMENT ORDER, SUPRA, BUT JUMPED IMME DIATELY TO THE OTHER ISSUE(E COMMERCE COST) AND CONCLUDED THE ASSESSMEN T. THUS, IT IS CLEAR THAT THE AO HAS FAILED TO APPLY HIS MIND ON THIS ISSUE ( PURCHASE PRICE PAID AT RS.11,81,09,557/-) AS TO WHETHER SUCH TRANSACTIONS ARE GENUINE OR NOT , IF IT WAS GENUINE TRANSACTIONS UP TO WHAT EXTENT THEY WER E GENUINE ETC AND THE :-12-: ITA NO.1418/MDS/2017 CONSEQUENCES THEREOF, WHICH CLEARLY ATTRACTS THE S COPE OF PROVISIONS OF SECTION 263 OF THE ACT AND HENCE WE HOLD THAT THE PCIT HAS CORRECTLY INVOKED THE JURISDICTION. THE ASSESSEES APPEAL GROUNDS FAIL . 7. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. ORDER PRONOUNCED ON THURSDAY, THE 09 TH DAY OF NOVEMBER, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) !' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 09 TH NOVEMBER, 2017 JPV &)1232 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2) /DR 6. 7 /GF
