M.D.B.Chemicals (India) P.Ltd., V. Jt.CIT,Range 2,

ITA 1584/PUN/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3402 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 15-12-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL PATHAK DR L RAMJI RAO
• Keywords: Diversion of income
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO. 1584/PN/2008 (ASSTT. YEAR : 2005-06) M/S M.DB. CHEMICALS (INDIA) PVT. LTD. 34, TRIMBAK, S.M. PATH, NEAR BYTCO HOSPITAL, NASHIK ROAD 422 101 PAN: AACCM 1223 E) . APPELLANT V. JT.CIT, RANGE 2, WANI HOUSE, OFFICE OF INCOME TAX DEPARTMENT, MUMBAI AGRA HIGHWAY, NASHIK . RESPONDENT APPELLANT BY : SHRI SUNIL PATHAK RESPONDENT BY : DR. L. RAMJI RAO ORDER PER D. KARUNAKARA RAO AM THIS APPEAL BY THE ASSESSEE IS FILED AGAINST THE ORD ER OF THE CIT(A)- II NASHIK DATED 11-11-2008 FOR THE A.Y. 2005-06. THE GROUNDS T AKEN BY THE ASSESSEE READ AS UNDER : WHEREVER CONTEXT SO REQUIRE, FOLLOWING GROUNDS OF APP EAL AND PRAYERS ARE WITHOUT PREJUDICE TO ONE ANOTHER AND IN ALTERNATIVE 1. UNDER THE FACTS, CIRCUMSTANCES, PROVISIONS OF LAW AN D THE CASE LAW RELIED, THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS65,80,000/- TO THE GROSS TOTAL INCOME OF APPELLANT, ON THE GROUND OF UNDER INVO ICING OF SALES TO M/S. CATAPRO TECHNOLOGIES. THEREFORE, IT IS PRAYED TO DELETE THE ADD ITION. 2. IN SPITE OF FURNISHING THE PROOFS LIKE COPIES OF DEED OF ASSOCIATION, R & D REGISTER OF M/S CATAPRO TECHNOLOGIES, AFFIDAVIT OF CONCE RNED EMPLOYEE OF M/S CATAPRO TECHNOLOGIES, COPY OF SALARY SHEET OF CATAPRO TECHNOLOGIES AND LIST OF MACHINERIES AND EQUIPMENTS WITH APPELLANT AS WELL AS M/S. C ATAPRO TECHNOLOGIES TO SHOW THAT, THE EQUIPMENTS REQUIRED FOR DEVELOPMENT OF TECHNOLOGY WERE NOT AVAILABLE WITH THE APPELLANT BUT WITH M/S CATAPRO TECHNOLO GIES, THE LEARNED CIT (A) ERRED IN HOLDING THAT, NO PROOF OF OWNERSHIP OF M/S. CA TAPRO TECHNOLOGIES WAS SUBMITTED. THEREFORE IT IS PRAYED TO DELETE THE ADDITION JUSTIFIED FOR THE SAID REASON. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN MANUFACTURE AND TRADE OF CHEMICALS. DURIN G THE PERIOD RELEVANT TO THE ABOVE ASSESSMENT YEAR, THE ASSESSEE-COMPANY SUPPLIED CERTAIN CHEMICALS TO M/S. CATAPRO TECHNOLOGIES. THE A.O EXAMINED THESE TRANSACT IONS AND CONCLUDED THAT ITA NO 1584/PN/2008 M/S.M.D.B. CHEMICALS (INDIA) PVT. LTD., A.Y.2005-06 PAGE OF 10 2 THERE WAS UNDER-INVOICING AND ACCORDINGLY, MADE AN AD DITION OF RS. 65,80,000/-. APART FROM THIS, THERE WERE CERTAIN OTHER DISALLOWANCES A LSO WITH REGARD TO THE CLAIM MADE U/S. 80IB OF THE ACT. AGGRIEVED, THE ASSESSEE WAS IN APPEAL BEFORE THE CIT(A). THE FIRST AND MAJOR ISSUE BEFORE CIT(A) RELATED TO THE ADDITION ON ACCOUNT OF UNDER-INVOICING IN RESPECT OF THE TRANSACTIONS WITH M/S. CATAPRO TECHNOLOGIES. THE ASSESSEE COMPANY HAD SUPPLIED 1-METHYL, 3-PHENYL PIPRAZINE IN PURSUANCE OF ORDERS FROM M/S CATAPRO TECHNOLOGIES. THE A.O WHILE EXAMINI NG THE AVERAGE SALE PRICE OF THESE CHEMICALS NOTICED THAT THERE WAS DECREASE IN SA LE PRICES DURING THE PERIOD RELEVANT TO THE A.Y. 2005-2006 COMPARED TO THE EARLIER ASSESSMENT YEARS. AO THEREFORE CALLED FOR EXPLANATION FROM THE ASSESSEE COMP ANY. IN RESPONSE, THE ASSESSEE FILED AN EXPLANATION AND UNDERLINED THE INT ENSE COMPETITION IN THE MARKET AND HIGHER QUANTITY AND REDUCED RAW MATERIAL ETC RESULTE D IN DECLINE IN THE AVERAGE PRICE. FURTHER, AO STARTED VERIFYING THE SALE INVOICES INDETAIL AND FOUND THAT THE ASSESSEE COMPANY SOLD SOME CHEMICALS @ RS.5,200/-PE R KGS TO ONE CHEMPI FINE CHEMICALS. WHEREAS, THE SAME PRODUCT WAS SOLD TO M/S . CATAPRO TECHNOLOGIES @ RS.2,000/- PER KGS ONLY. A.O HAS ALSO NOTICED THAT M/S. CATAPRO TECHNOLOGIES WAS EXPORTING THE SAME CHEMICAL @ RS.5,048/- PER KGS. TH EREFORE, THE A.O WAS OF THE OPINION THAT THERE WAS DIVERSION OF INCOME TO M/S. CA TAPRO TECHNOLOGIES BY UNDER- INVOICING THE SALES. THEREFORE, THE A.O CALLED FOR EX PLANATION FROM THE ASSESSEE COMPANY. ASSESSEE EXPLAINED BEFORE THE A.O DURING TH E ASSESSMENT PROCEEDINGS AS FOLLOWS : A) M/S. CATAPRO TECHNOLOGIES DEVELOPED THE SAID CHE MICAL AND PROVIDED THE TECHNICAL KNOW-HOW TO THE APPELLANT COMPANY, TH EREFORE IT HAS TO CHARGE AT A PRE-DETERMINED RATE. B) THERE WAS NO LOSS OF REVENUE AND IT WAS CLAIMING DEDUCTION U/S. 80IB OF THE ACT, WHEREAS NO SUCH DEDUCTION WAS CLAIMED B Y M/S. CATAPRO TECHNOLOGIES. C) IT WAS ONLY 24% OF SHARE HOLDERS HAVE THE BENEFI T OF 95% OF SHARE PROFIT IN M/S. CATAPRO TECHNOLOGIES AND HENCE M/S. CATAPRO TECHNOLOGIES WAS NOT HAVING ANY MAJORITY SHARE HOLDING IN THE APPELL ANT COMPANY. D) THE LOWER PRICE WAS AGAINST A SINGLE PURCHASE B Y M/S. CHEMI FINE CHEMICALS OF 500 KGS. WHEREAS THE REMAINING SALES W ERE ONLY TO M/S. CATAPRO TECHNOLOGIES E) THE MARKET PRICE CANNOT BE SUBSTITUTED FOR DISCO UNTED PRICE FETCHED IN THE TRANSACTION WITH THE ASSOCIATE COMPANY [RELIANC E PLACED ON 91 ITR 81]. BEFORE THE A.O, THE ASSESSEE ARGUED THAT IN VIEW OF THE ABOVE SUBMISSIONS THERE WAS NO DIVERSION OF PROFITS AND RELIED ON THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF A. RAMAN & CO. [67 ITR 11]. ITA NO 1584/PN/2008 M/S.M.D.B. CHEMICALS (INDIA) PVT. LTD., A.Y.2005-06 PAGE OF 10 3 2.1. THE A.O. DID NOT ACCEPT THE SUBMISSIONS OF TH E ASSESSEE AND CONCLUDED THAT THERE WAS UNDER-INVOICING BY THE ASSESSEE COMPANY AN D ESTIMATED AN ADDITION OF RS. 65,80,000/- AND ACCORDINGLY ADDED TO THE INCOME RETURNED BY THE ASSESSEE FOR THE FOLLOWING REASONS : A) AS PER THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF A.RAMAN & CO. (SUPRA), IT WAS CATEGORICALLY HELD TH AT 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 BRO UGHT TO TAX IN THE HANDS OF THE ASSESSEE AND IF THE INCOME HAD ESCAPED TAX IN A PREVIOUS ASSESSMENT, A CASE FOR COMMENCING THE PROCEEDINGS F OR RE-ASSESSMENT. THEREFORE, THERE WAS AN UNDER-INVOICING AND THE PR OFITS OF THE ASSESSEE COMPANY WERE EARNED BY SOME OTHER PERSON, IN THE IN STANT CASE M/S. CATAPRO TECHNOLOGIES. B) M/S. CATAPRO TECHNOLOGIES AND M/S. CATAPHARMA IN DIA PVT. LTD HAVE ALMOST 95% SHARES IN THE ASSESSEE COMPANY. ONE OF THE MEMBERS OF M/S. CATAPRO TECHNOLOGIES, DR.SHRIKANT KARWA IS THE CHAI RMAN AND PROMINENT PERSON OF THE ASSESSEE COMPANY. THEREFORE, M/S. CA TAPRO TECHNOLOGIES HAD ULTIMATELY SUBSTANTIAL INTEREST IN THE ASSESSEE COM PANY. C) THERE WAS NO SATISFACTORY EXPLANATION OFFERED BY THE ASSESSEE FOR THE RATE DIFFERENCE BETWEEN M/S CATAPRO TECHNOLGIES AND OTHER COMPANY AND THERE WAS NO COMMERCIAL CONSIDERATION FOR THE SALES MADE TO M/S. CATAPRO TECHNOLOGIES. D) THE TRANSACTIONS WERE SO DEVISED THAT PROFIT OF THE ASSESSEE COMPANY WAS DIVERTED TO M/S. CATAPRO TECHNOLOGIES AND SUBSE QUENTLY TO ITS MEMBERS SO AS TO AVOID DIVIDEND TAX U/S.115O OF THE ACT. E) THERE WAS NO EVIDENCE FURNISHED BY THE ASSESSEE TO PROVE THAT THE TECHNICAL KNOWHOW WAS DEVELOPED AND BELONGED TO M/ S. CATAPRO TECHNOLOGIES. IT WAS ONLY TO COVER-UP ITS DIVERSIO N OF INCOME THE ASSESSEE COMPANY TOOK THIS PLEA. THERE WAS NO SUCH INSTANCE S OF SALE OF CHEMICALS AT SUCH NOMINAL RATES MADE TO M/S. CATAPRO TECHNOLOGIE S DURING THE EARLIER YEAR. THEREFORE, THE A.O CONCLUDED THAT IT WAS A COLORABLE DEVICE OF UNDER-INVOICING AND ASSESSEE DIVERTED ITS PROFIT TO ITS SISTER CONCERN AND ULTIMATELY TO ITS MEMBERS SO AS TO AVOID OTHER LEGAL OBLIGATIONS SUCH AS PAYMENT OF DIVIDEND TAX. THE A.O. RELIED ON THE DECISIONS OF THE APEX COURT IN THE CASE OF MACDO WALS 154 ITR 148, SUMATI DAYAL 214 ITR 801 AND A. RAMAN & CO., 67 ITR 11. ACCORDIN GLY, THE A.O. COMPUTED THE SALE PRICE TO M/S. CATAPRO TECHNOLOGIES @ RS. 4,000/- PER KGS. AFTER CONSIDERING 20% OF G.P. ON THE EXPORT PRICE OF RS. 5,048/-. THUS , THE UNDER-INVOICING WORKED OUT @ RS.2,000/- ON THE TOTAL QUANTITY SOLD AT 3298 KGS. AMOUNTING TO RS.65,80,000/-. THE SAID AMOUNT WAS ADDED TO THE I NCOME RETURNED. 2.2. AGGRIEVED WITH THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). DURING THE COURSE OF THE HEARING BEFORE THE CIT (A), THE ASSESSEE FILED ITA NO 1584/PN/2008 M/S.M.D.B. CHEMICALS (INDIA) PVT. LTD., A.Y.2005-06 PAGE OF 10 4 DETAILED SUBMISSIONS BY LETTER DATED 26/02/2008, BROA D ARGUMENTS OF THE ASSESSEE IN BRIEF ARE REPRODUCED IN PARA 3.2 OF THE IMPUGNED ORDER UNDER THE FOLLOWING HEADINGS : A. FIRST GROUND RELIED BY THE A.O. IS THE ALLEGATIO N THAT, THE UNDER INVOICING IS A DEVICE/SUBTERFUGE CONTRIVANCE USED TO DIVERT APPELLANTS INCOME TO M/S. CT : THEREFORE, IN ABSENCE OF THE CHARGE OF BOGUS/SHAM/BENAMI SALES THE CHARGE OF USE OF DEVICE/SUBTERFUGE/CONTRIVANCE CANNOT SURVIVE. B. SECOND GROUND RELIED ON BY THE A.O IS THAT, SINC E DR.SHRIKANT KARWA & HIS FAMILY MEMBERS HAVE SUBSTANTIAL INTEREST IN BOT H THE CONCERNS, THE PROFITS HAVE BEEN TRANSFERRED TO M/S./ CT: ..THEREFORE, SUBSTANTIAL HOLDING OF DR. KARWA & HIS FAMILY MEMBERS, IN BOTH THE CONCERNS, C ANNOT BE A GROUND TO TREAT THE SALES BY APPELLANT TO M/S. CT, AS A DEVIC E TO DIVERT THE INCOME. FURTHER, IN ANY CASE, CONSIDERING THE FACT THAT M/S . CATAPHARMA (INDIA) PVT. LTD. IS SEPARATE LEGAL ENTITY & LIFTING OF CORPORA TE VEIL IS NOT PERMITTED, A.O. ERRED IN INCLUDING THE HOLDING OF SAID M/S.CATAPHAR MA (INDIA) PVT LTD, IN THE HOLDING OF DR. KARWA & HIS FAMILY MEMBERS, TO ARRIV E AT HIS CONCLUSION. C. NEXT GROUND OF A.O. IS THAT NO EXPLANATION IS OF FERED BY APPELLANT FOR HUGE DIFFERENCE IN THE PRICE CHARGED FOR SALES TO M /S.CT & TO THIRD PARTIES: ..THUS, THE BUSINESS DONE WITH M/S. CT, AT THE P RICES FIXED BY IT, WAS VERY MUCH IN THE INTERESTS OF APPELLANT AS WELL. D. ANOTHER REASON GIVEN BY THE A.O. IS THAT THE AVE RAGE SALE RATE ALLOWED FOR THE EARLIER YEAR OF RS.7.505.20 PER KG WAS MUCH HIGHER THAN THE ONE OF RS.2,000/- PER KG, FOR THE YEAR UNDER APPEAL.: ..THEREFORE, THE SERIOUS DOUBT RAISED ON THE BONAFIDES OF APPELLANT IS BASEL ESS. E. NEXT GROUND OF A.O. IS THAT THE UNDER INVOICING WAS RESORTED TO AVOID DIVIDEND TAX U/S. 115O: .. THUS, THE REASON OF ALLEGATION OF AVOIDANCE OF DIVIDEND TAX ALSO DOES NOT SURVIVE. F. A.O. HAS ELIDE ON THE DECISION IN THE CASE OF MC DOWELL (154 ITR 148) FOR THE GROUND THAT, APPELLANTS ARRANGEMENT WITH M /S. CT IS A COLOURABLE DEVICE: HENCE, THE DISTRIBUTION OF TAX LIABILITY OTHER WISE IS NOT OBJECTIONABLE TO A.O. AS WELL. G. IT IS THE CONTENTION OF A.O. THAT, THERE IS NO E VIDENCE OF KNOW HOW BELONGED TO M/S. CT.: .. THIS ALSO PROVES THAT, IT WAS ONLY DUE TO DEVELOPMENT OF PRODUCTS BY M/S. CT, IT COULD DICTAT E ITS TERMS. H. A.O. HAS RELIED ON CERTAIN OUT OF CONTEXT OBSERV ATIONS OF THE SUPREME COURT IN THE CASE OF A. RAMAN & CO. (SUPRA) TO JUST IFY THE ADDITION.: . THUS, A.O CLEARLY MISINTERPRETED THE DECISION IN TH E CASE OF A. RAMAN & CO. (SUPRA). ITA NO 1584/PN/2008 M/S.M.D.B. CHEMICALS (INDIA) PVT. LTD., A.Y.2005-06 PAGE OF 10 5 I. TO SUPPORT HIS CASE A.O. HAS ALLEGED THAT APPELL ANT FURNISHED MIS- LEADING INFORMATION. : .HENCE, THE SAME NEEDS TO BE IGNORED. 3. ON EXAMINING THE SUBMISSIONS OF THE ASSESSEE, CI T(A) REJECTED THE SAME AND CONFIRMED THE ADDITION MADE BY THE A.O. THE RELE VANT DISCUSSION AS PROVIDED BY THE CIT(A) IN PARA 3.4 TO 3.8 READS AS UNDER :- 3.4 I HAVE CONSIDERED THE DETAILED SUBMISSIONS OF THE APPELLANT AND ALSO THE REASONS GIVEN BY THE A.O., BOTH IN HIS ASSESSME NT ORDER AND IN HIS REPORTS. IT IS AN UNDISPUTED FACT THAT THE APPELLA NT COMPANY SOLD BULK OF ITS PRODUCT @ RS. 2,000/- COMPARED TO MARKET RATE OF RS .5,200/-. IT MAY BE A SOLITARY INSTANCE BUT THE MARKET RATE IF RS.5,200/ - AND THIS FACT CANNOT BE DENIED AND IS NOT DISPUTED. THUS, THERE IS A SALE E FFECTED TO THE SISTER CONCERN AT A HEAVILY DISCOUNTED RATE. THE A.O. HAS STRONGL Y RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF A. RAMAN & CO. 67 ITR 11. THE APPELLANT ALSO ARGUED THAT THE SAID DECISION WAS IN FACT APPLICABLE TO THEM IN THEIR FAVOUR. THERE ARE VARIOUS JUDICIAL DECISIONS QUOTED AND RELIED BY BOTH THE PARTIES. NO DOUBT, THESE DECISIONS LAW DOWN C ERTAIN LEGAL PRINCIPLES AND THE FACTS OF THE PRESENT CASE ARE NOT EXACTLY SIMIL AR TO THOSE DECISIONS AND CANNOT BE APPLIED DIRECTLY. THE APPELLANT TRIED TO TAKE DEFENCE ON THE GROUND THAT THE TECHNOLOGY USED WAS DEVELOPED AND OWNED BY M/S. CATAPRO TECHNOLOGIES. THE APPELLANT STATED THAT IT DID NOT HAVE ANY NECESSARY LABORATORY EQUIPMENTS AND INSTRUMENTS, HENCE ARGUED THAT THE TECHNOLOGY WAS DEVELOPED BY M/S. CATAPRO TECHNOLOGIES AS IT HA D NECESSARY LAB, EQUIPMENTS AND RESOURCES. THE ARGUMENT IS NOT CONVI NCING SINCE MERE POSSESSING OF NECESSARY FACILITIES AND RESOURCES CA NNOT BE THE CRITERION TO SAY THAT THE TECHNOLOGY WAS DEVELOPED BY M/S. CATAPRO T ECHNOLOGIES. THERE IS NO EVIDENCE BROUGHT ON RECORD, EITHER AT THE TIME OF A SSESSMENT OR AT THE TIME OF APPELLATE PROCEEDINGS, TO PROVE CONCLUSIVELY THE FACT THAT THE TECHNOLOGY WAS ACTUALLY AND LEGALLY OWNED BY M/S. CATAPRO TECH NOLOGIES EXCEPT ASSERTING THE ARGUMENT REPEATEDLY. THOUGH THE APPE LLANT FILED A NOTE ABOUT THE DETAILED PROCESS OF TECHNOLOGY ALONG WITH THE S UBMISSIONS DATED 11/08/2008, WHICH ANY WAY DOES NOT PROVE THAT THE O WNERSHIP OF THE TECHNOLOGY WAS LEGALLY BELONGING TO M/S. CATAPRO TE CHNOLOGIES. THEREFORE, I AM OF THE OPINION THAT THE ARGUMENT OF THE APPELLAN T THAT THE TECHNOLOGY WAS OWNED BY AND BELONGED TO M/S. CATAPRO TECHNOLOGIES IS NOT STRONG ENOUGH. 3.5 THE APPELLANT COMPANY ALSO TRIED TO JUSTIFY THA T THE SALE AT THE REDUCED PRICE TO M/S. CATAPRO TECHNOLOGIES WAS FOR BUSINESS CONSIDERATIONS. THE APPELLANT ARGUED THAT THE SALE PRICE CHARGED TO THE REGULAR BULK CUSTOMER, I.E. M/S. CATAPRO TECHNOLOGIES CANNOT SIMPLY BE COMPARED WITH THE SALE PRICE CHARGED TO OTHERS. IT WAS ARGUED THAT THE DISCOUNT ED PRICE WAS DICTATED BY M/S. CATAPRO TECHNOLOGIES AND IT COULD NOT HAVE BEE N POSSIBLE FOR THE APPELLANT COMPANY TO SURVIVE WITHOUT THEIR ORDERS. THE APPELLANTS ARGUMENT IN THIS REGARD IS ALSO NOT ACCEPTABLE AS THE COMPEL LING BUSINESS OR COMMERCIAL CONSIDERATIONS ARE NOT EXPLAINED SATISFACTORILY. TH E ARGUMENT THAT THE TECHNOLOGY WAS OWNED AND BELONGED TO M/S. CATAPRO T ECHNOLOGIES IS ALREADY REJECTED ABOVE HENCE THERE IS NO QUESTION OF DICTAT ING THE PRICE BY M/S. ITA NO 1584/PN/2008 M/S.M.D.B. CHEMICALS (INDIA) PVT. LTD., A.Y.2005-06 PAGE OF 10 6 CATAPRO TECHNOLOGIES. WHEN THE MARKET PRICE IS APP ROXIMATELY RS.5,000/- PER KGS., THE APPELLANT SOLD THE SAME @ RS.2,000/- PER KGS WITHOUT ANY PROPER JUSTIFICATION. THE A.O ALSO NOTICED THAT TH ERE WAS NO SUCH SALE IN THE EARLIER YEARS. IN FACT, THE G.P. OF THE APPELLANT COMPANY HAS COME DOWN WHICH GAVE RAISE TO THE SCRUTINY OF THE WHOLE TRANS ACTION BY THE A.O. THUS, THERE IS NO COMMERCIAL/BUSINESS JUSTIFICATION GIVEN BY THE APPELLANT TO EFFECT THE SALE AT A REDUCED PRICE WHEN THE MARKET PRICE I S MUCH HIGHER AND WHICH HAD RESULTED IN UNDER-STATEMENT OF PROFITS BY THE A PPELLANT. 3.6 THE APPELLANT FURTHER ARGUED THAT IT WAS NOT A DEVICE ADOPTED TO SHOW THAT INCOME OF THE APPELLANT WAS EARNED BY SOME OTH ER PERSON AS THE A.O. HAD NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE TRANSACTIONS ARE SHAM OR BOGUS OR BENAMI IN CHARACTER IT IS NOT NEC ESSARY IN THE PRESENT FACTS OF THE CASE THAT THE TRANSACTIONS ARE TO BE PROVED AS SHAM OR BOGUS. THE TRANSACTIONS BY THE APPELLANT WITH THE SISTER CONCE RN RESULTED IN AN UNDER- ASSESSMENT OF INCOME BECAUSE OF REDUCED PROFITS. W HAT IS REQUIRED IS TO COMPUTE IS THE CORRECT INCOME OF THE APPELLANT COM PANY AND IN THE INSTANCE CASE APPELLANT COMPANY HAD REDUCED ITS INCOME LIABI LITY BY ITS TRANSACTIONS WITH THE SISTER CONCERN BY UNDER-INVOICING. 3.7 THE APPELLANT ALSO ARGUED THAT IF THE INCOME IS HELD TO BE BELONGING TO THE APPELLANT THEN TAXING THE SAME IN THE HANDS OF M/S. CATAPRO TECHNOLOGIES WOULD AMOUNT TO DOUBLE TAXATION. IT WAS ALSO STATE D THAT THE APPELLANT WAS CLAIMING DEDUCTION U/S. 80IB OF THE ACT WHEREAS M/S. CATAPRO TECHNOLOGIES WAS NOT CLAIMING ANY SUCH DEDUCTION HENCE THERE WAS NO LOSS OF REVENUE. THE SALE AT A REDUCED RATE TO THE SISTER CONCERN BY THE APPELLANT WAS HELD AS WITHOUT ANY PROPER JUSTIFICATION IN THE ABOVE PARA GRAPHS. THEREFORE, THE INCOME ON THIS ACCOUNT HAS TO BE TAXED IN THE HANDS OF THE APPELLANT. THE QUESTION OF DOUBLE TAXATION DOES NOT ARISE HERE. T HE SISTER CONCERN HAS TO SHOW THE CORRECT PURCHASE PRICE AND OFFER THE CORRE CT PROFITS FOR TAXATION AND THERE IS NO EXEMPTION/DEDUCTION AVAILABLE TO THE AP PELLANT IN THIS REGARD. THE SISTER CONCERN IS A SEPARATE ENTITY AND HAS TO OFFE R ITS TRUE INCOME UNDER THE INCOME-TAX ACT, 1961. THEREFORE, WHAT IS TAXED IS ACTUALLY TAXABLE IN THE HANDS OF THE APPELLANT COMPANY AND THERE IS NO DOUB LE TAXATION. 3.8 IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE CO NSIDERED OPINION THAT THE AO HAS RIGHTLY MADE AN ADDITION OF RS.65,80,000 /- AS INCOME OF THE APPELLANT COMPANY WHICH WAS SUPPRESSED BY UNDER-INV OICING BY THE APPELLANT COMPANY. THUS THE CIT(A) CONFIRMED THE ADDITION AND AGGRIEVED WITH THE DECISION OF THE CIT(A). THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE AS SESSEE MADE VARIOUS SUBMISSIONS AND BASICALLY ARE REITERATION OF THE ARGUME NTS MADE BEFORE THE REVENUE AUTHORITIES. ADDITIONALLY, LD COUNSEL FILED THE COPI ES OF THE ORDER OF THIS BENCH IN THE CASE OF NICHROME MACHINES & PACKAGING PVT.LTD (ITA N O.666/PN/2000) AND ATTEMPTED TO DISTINGUISH THE SAID DECISION AS INAPP LICABLE TO THE FACTS OF THE APPEAL. ITA NO 1584/PN/2008 M/S.M.D.B. CHEMICALS (INDIA) PVT. LTD., A.Y.2005-06 PAGE OF 10 7 ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED ON THE ORDER OF THE REVENUE AND THE DECISION OF THE TRIBUNAL IN THE CASE OF NICHROME MACHINES & PACKAGING PVT.LTD (SUPRA). 4. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDER OF TH E REVENUE AND THE CITATIONS RELIED UPON BY THE PARTIES OF THE APPEAL. I T IS NOTICED THAT THIS BENCH OF THE TRIBUNAL HAS TAKEN A VIEW IN THE MATTER IN THE CASE O F NICHROME MACHINES & PACKAGING PVT.LTD AND IN OUR OPINION, WE FIND IT IS RELEVANT TO REPRODUCE BELOW THE FINDINGS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL (PA RA 6) IN ITA NO.666/PN/2000, A.Y. 1997-98 IN THE CASE OF NICHROME MACHINES & PACK AGING PVT.LTD (SUPRA) :- 6. WE HAVE NOTED THAT IT IS AN UNDISPUTED POSITION THAT TPNIL WAS CARRYING OUT EXPORT MARKETING ACTIVITY ON BEHALF OF THE ASSESSEE, AND THE PRECISELY WAS REASON OF ASSESSEE BEARING PROPORTION ATE SHARE OF EXPORT MARKET EXPENSES INCURRED BY TPNIL. THE EXPORT BUSI NESS OBTAINED BY THE TPNIL FOR ASSESSEES PRODUCT WAS THUS CLEARLY ON BE HALF OF THE ASSESSEE, AND NOT IN HIS OWN ACCOUNT. THEREFORE, STRICTLY SPEAKING, THERE WAS NO COMMERCIAL REASON TO FIRST SELL A MACHINE TO TPNIL AND THEN LET TPNIL EXPORT THE SAME, ON OWN ACCOUNT, TO AN OVERSE AS CUSTOMER AT AN INFLATED PRICE . THE EXPORT PROCEEDS REALIZED IN SUCH CIRCUMSTANCES DE FACTO BELONGED TO THE ASSESSEE. THE FACT THAT THE ASSESSEE DID NOT HAVE CERTAIN REGISTRATION, EVEN IF THAT BE SO, CANNOT JUSTIFY SHIFTING OF ENTIRE EXPORT PROFITS TO TPNIL THESE RE GISTRATIONS ARE PROCEDURAL ISSUES AND, IN ANY EVENT, UNSUBSTANTIATED TO THE EXTENT OF JUSTIFICATION FOR LOSS OF PROFIT IN EXCESS OF RS 75 LAKHS. THE ACTION OF THE ASSESSING OFFICER BY TREATING THE ENTIRE ARRANGEMENT AS A SHAM ARRANG EMENT TO DIVER PROFITS BY SELLING GOODS TO TPNIL AT LOWER VALUE, WAS QUITE JUSTIFIED . THE ASSESSEE WAS FOLLOWING MERCANTILE METHOD OF ACC OUNTING AND THE ASSESSEE HAD A LEGITIMATE RIGHT TO RECEIVE ENTIRE E XPORT PROCEEDS OF THE MERCHANDISE EXPORTED THROUGH TPNIL. THE ENTIRE EXPORT PROCEEDS, ACCORDINGLY, SHOULD HAVE TAXED IN THE HANDS OF THE ASSESSEE , IN CASE ASSESSEE HAD TO COMPENSATE TPNIL FOR HAVING AVAILED THEIR REGISTRATIONS ETC. THAT IS ENTIRELY A DIFFERENT MATTER. NO SUCH CLAIM IS HOWEVER MADE BY THE TPNIL, NOR HAS THE ASSESSEE ACCOUNTED FOR THE SAME . THE WAIVER OF SUCH A CLAIM EVEN IF THAT BE SO, CANNOT ENTITLE TPNIL TO R ETAIN ENTIRE EXPORT PROCEEDS AS ITS OWN RECEIPTS. THE CIT(A) HAS PROCEEDED TO GRANT RELIEF ON THE BASIS OF HIS FINDINGS THAT THE ASSESSEE DID NOT STAND TO GAIN ANYTHING BY DIVERTING PROFITS TO HOLDING COMPANY. THIS FINDING IS, HOW EVER, BASED ON VAGUE AND GENERALIZED OBSERVATIONS. NO SPECIFIC COMPUTATION OF ACTUAL TAXABILITY HAS BEEN BROUGHT ON RECORD BY THE CIT(A) , NOR THE DETAILS OF ACTUAL ASSESSED INCOME AND LOSSES ARE ON RECORDED BY HIM. LEARNED COUNSEL HAS RELIED ON HONBLE BOMBAY HIGH COURTS JUDGMENT IN T HE CASE OF CIT VS. GAJANAN CHAMPALAL BAJAJ (HUF) (164 TAXMAN 532) WHER EIN IT IS HELD NO REFERABLE QUESTION ARISES OUT OF TRIBUNALS FINDING , THAT ONCE AN INCOME IS TAXED IN THE HANDS OF A PERSON, IT CANNOT BE TAXED IN THE HANDS OF ANOTHER. LEARNED COUNSEL HAS ONLY FILED HEAD NOTES OF THIS D ECISION WHICH DO NOT HIGHLIGHT THE FACT THAT THE HON;BLE HIGH COURT HAD ALSO CATEGORICALLY OBSERVED ITA NO 1584/PN/2008 M/S.M.D.B. CHEMICALS (INDIA) PVT. LTD., A.Y.2005-06 PAGE OF 10 8 THAT, IN THIS CASE, IT IS NOT IN DISPUTE THAT THE INVESTMENT MADE WERE THE AMOUNTS BELONGING TO THE INDIVIDUAL AND NOT TO THE ASSESSEE HUF (BEFORE THEIR LORDSHIPS. ON THESE MATERIAL FACTS, THEIR L ORDSHIPS OBSERVED THAT THE FINDINGS RECORDED BY THE TRIBUNAL BEING FINDINGS OF FACT, NO INTERFERENCE IS CALLED. THE FACTS BEFORE US ARE DIAMETRICALLY OPPO SED TO THE ABOVE FACTS, ON WHICH WE ARE OF THE CONSIDERED VIEW THAT ENTIRE RECEIPTS BELONG TO THE ASSESSEE BEFORE US, AND NOT THE PARENT COMPANY. AS FAR AS QUESTION OF TAXATION OF INCOME, IT IS ONLY ELEMENTARY THAT IN TERMS OF THE PROVISIONS OF SECTION 153(3)(II), A RE-COMPUTATION TO GIVE EFFECT TO THIS ORDER PASSED U/S 254(1) DOES NOT HAVE ANY TIME BARRING LIMITS, AND T HAT, AS HELD BY US IN THE CASE OF SABNIS ASHOK ANAND VS. ACIT (10 DTR 203) IT IS NECESSARY FOR THE ASSESSING OFFICER TO PROPERLY IMPLEMENT THE TRIBUNA LS ORDER IN ENTIRETY. SECTION 153(3)(II) DOES NOT GIVE AN ARBITRARY POWER TO PASS AN ORDER AT THE WHIM AND FANCY OF THE ASSESSING OFFICER. IT IS IND EED HIS DUTY TO DO SO, WHEN CIRCUMSTANCES EXIST WHICH WARRANT AND JUSTIFY THE U SE OF HIS POWERS. THE APPREHENSIONS OF THE LEARNED COUNSEL ARE THUS UNFOU NDED. LEARNED COUNSELS ARMOURY IS NOT EXHAUSTED. HIS NEXT DEFENSE IS RELIA NCE ON THE TRIBUNALS DECISION IN THE CASE OF MAFATLAL HOLDINGS LTD. VS. ADDITIONAL COMMISSIONER OF INCOME-TAX (85 TTJ 821) WHICH, INTER ALIA, HOLDS CORPORATE VEIL CANNOT BE LIFTED UNLESS IT IS ESTABLISHED THAT THERE WAS A TAX AVOIDANCE MOTIVE IN TRANSACTIONS. WE ARE UNABLE TO APPRECIATE RELEVANCE OF THE PROPOSITION. WHERE IS THE QUESTION OF CORPORATE VEIL BEING LIFTE D? ALL THAT THE ASSESSING OFFICER DOES IS TO TAKE INTO ACCOUNT EXPORT PROCEED S WHICH DE FACTO AND DE JURE BELONGED TO THE ASSESSEE . IT HAS NOTHING TO DO WITH LIFTING OF CORPORATE VEIL. THE ARGUMENT IS ILL CONCEIVED. IN ANY EVENT, AS FAR AS THE ISSUE BEFORE US IS CONCERNED, ALL THAT WE HAVE TO S EE IS WHETHER INCOME OF THE ASSESSEE IS CORRECTLY ASSESSED OR NOT. THE CONCEPT OF GROUP CONSOLIDATION, SO FAR AS TAX ASSESSMENTS ARE CONCER NED, IS STILL ALIEN TO INDIAN TAX LAW. THE RELIEF GRANTED BY THE CIT(A) THUS DOES NOT RE ST ON LEGALLY SUSTAINABLE BASIS. WE, THEREFORE, VACATE T HE SAME AND RESTORE THE ORDER OF THE ASSESSING OFFICER. 5. THE ARGUMENTS OF THE ASSESSEE AND THE CASE OF THE ASSESSEE ARE DETAILED IN THE PRECEDING PARAGRAPHS. THE REASONING OF THE AO AND CIT(A) IN SUPPORT OF MAKING THE ADDITIONS ARE EVIDENT IN THE EXTRACTS WHICH ARE REP RODUCED ABOVE. FURTHER, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE-COMPANY SOLD I TS PRODUCTS TO M/S. CATAPRO TECHNOLOGIES @ RS. 2,000/- AGAINST THE MARKET RATE O F RS.5,200/-. IT IS ALSO A FACT THAT THE A.O HAS ALSO NOTICED THAT M/S. CATAPRO TEC HNOLOGIES WAS EXPORTING THE SAME CHEMICAL @ RS.5,048/- PER KGS. AS PER THE ASSE SSEE, THIS GAP IS BRIDGEABLE BY THE EXISTENCE OF BUSINESS CONSIDERATIONS, COMMERCIAL EXPEDIENCIES, SUPPLY OF TECHNOLOGY AND TO INFRASTRUCTURE TO THE ASSESSEE, GROU P CONSIDERATIONS ETC. 6. THE PERUSAL OF THE DECISION OF THIS TRIBUNAL IN TH E CASE OF NICHROME MACHINES & PACKAGING PVT.LTD (SUPRA) IS RELEVANT FOR THE PROPOSI TION THAT THE INCOME OF THE ASSESSEE HAS TO BE CORRECTLY ASSESSED IN ITS HANDS, W HICH IS ELIGIBLE OR INELIGIBLE TO ITA NO 1584/PN/2008 M/S.M.D.B. CHEMICALS (INDIA) PVT. LTD., A.Y.2005-06 PAGE OF 10 9 THE DEDUCTION U/CHAPTER VI OF THE ACT. FURTHER, IT IS ALSO RELEVANT IF THE ASSESSING OFFICER HAS RIGHTLY TAKEN INTO ACCOUNT THE EXPORT P ROCEEDS WHICH DE FACTO AND DE JURE BELONGED TO THE ASSESSEE . IT IS ALSO RELEVANT FOR THE PROPOSITION THAT THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THE EXIST ENCE OF BUSINESS CONSIDERATIONS, COMMERCIAL EXPEDIENCIES WHILE ASSESSE E OFFERING THE DISCOUNTED AND EXPLAIN THE BIG GAP BETWEEN THE MARKET PRICE OF RS 52 00/- AND THE ACTUAL SALE PRICE OF RS 2000/-. EVEN BEFORE US, NO DETAILS ARE BROUGHT T O OUR NOTICE TO SUBSTANTIATE THE DIFFERENCE. CONSEQUENTLY, THE GENERAL EXPLANATION S REGARDING THE BORROWING OF THE (I) TECHNOLOGY AND (II) THE INFRASTRUCTURE OF THE PURCHASER OF THE PRODUCT CANNOT BE ACCEPTED. IN THIS REGARD, WE AGREE WITH THE FINDING OF THE CIT(A) AS MADE OUT IN THE IMPUGNED ORDER. THERE IS NO COMMERCIAL/BUSINESS JUS TIFICATION GIVEN BY THE ASSESSEE TO EFFECT THE SALE AT A REDUCED PRICE WHEN T HE MARKET PRICE IS MUCH HIGHER AND WHICH HAD RESULTED IN UNDER-STATEMENT OF PROFITS. THUS, WHAT IS REQUIRED IS TO COMPUTE IS THE CORRECT INCOME OF THE ASSESSEE AND IN THE INSTANCE CASE APPELLANT COMPANY HAD REDUCED ITS INCOME LIABILITY BY ITS TRANS ACTIONS WITH THE RELATED CONCERN BY UNDER-INVOICING. 7. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CO NSIDERED OPINION THAT THE AO HAS RIGHTLY MADE AN ADDITION OF RS.65.80 LAKSH AS IN COME OF THE ASSESEE. THUS, WE ARE OF THE OPINION, THE ORDER OF THE CIT(A) DOES NOT C ALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GROUNDS RAISED IN THE APPEAL OF THE ASSESSEE ARE DISMISSED . 8. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13TH DAY OF AUGU ST 2010. SD/- SD/- (I.C. SUDHIR) JUDICIAL MEMBER (D. KARUNAKARA RAO) ACCOUNTANT MEMBER PUNE, DATED THE 13 TH AUGUST, 2010 US COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT- I, NASHIK 4. THE CIT(A)-II, NASHIK 4. THE D.R. A BENCH, PUNE 5. GUARD FILE ITA NO 1584/PN/2008 M/S.M.D.B. CHEMICALS (INDIA) PVT. LTD., A.Y.2005-06 PAGE OF 10 10 BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE