Pratap Cashew Company Pvt. Ltd., Kollam V. DCIT, Kollam

ITA 177/COCH/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64742 (ITAT-COCHIN)
• Duration Of Justice: 5 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 23-07-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 01-03-2007
• Court: TRIBUNAL
• Department Lawyers: PRADUMNA KUMAR SINGH
• Assessee Lawyers: T V HARIHARAN
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 177/COCH/2007 ASSESSMENT YEAR: 2003-04 PRATHAP CASHEW COMPANY PVT. LTD., KOCHUPILAMOODU, KOLLAM [PAN: AABCP 6100C] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, KOLLAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI T.V.HARIHARAN, CA REVENUE BY SHRI PRADUMNA KUMAR SINGH, JR. DR DATE OF HEARING 26/07/2012 DATE OF PRONOUNCEMENT 10/08/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 13-11-2006 PASSED BY LD CIT(A)-I, KOCHI AND IT RELATES TO THE ASSESSMENT YEAR 2003-04. 2. THE ASSESSEE DID NOT PRESS THE GROUND NUMBER 5 AND HENCE THE SAME IS DISMISSED AS WITHDRAWN. THE REMAINING GROUNDS URGED IN THIS APPEAL GIVE RISE TO THE FOLLOWING ISSUES:- (A) ASSESSMENT OF DEPB BENEFITS. (B) ADDITION IN RESPECT OF SALES MADE TO SISTER CO NCERNS. (C) EXCLUSION OF PRIOR PERIOD ADJUSTMENT ITEM WHILE COMPUTING PROFITS OF BUSINESS U/S 80HHC OF THE ACT. I.T.A. NO.177 /COCH/2007 2 3. THE FACTS RELATING TO THE CASE ARE SET OUT IN BRIEF. THE ASSESSEE IS A MANUFACTURER AND EXPORT OF CASHEW KERNELS. THE ASSESSEE FILED I TS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF RS. 93,64,960/-. HOWEVER, THE AO DETERMINED THE TOTAL INCOME AT RS.1,71,82,064/- BY MAKING VARIOUS TYPES OF ADDITIONS. THE ASSESSEE FILED APPEAL BEFORE LD CIT(A), WHICH W AS PARTLY ALLOWED. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US IN RESPECT OF T HE ISSUES MENTIONED IN THE PRECEDING PARAGRAPH. 4. THE FIRST ISSUE RELATES TO THE ASSESSMENT OF DEPB BENEFITS. THIS ISSUE HAS SINCE BEEN SETTLED BY HONBLE SUPREME COURT IN THE CASE O F TOPMAN EXPORTS VS. CIT REPORTED IN (2012)(247 CTR (SC) 353) AND ACCORDINGLY, THE LD A.R PRAYED THAT THIS ISSUE MAY BE SET ASIDE TO THE FILE OF AO FOR FRESH CONSIDERATION IN TERMS OF THE DECISION OF HONBLE SUPREME COURT REFERRED SUPRA. THE LD D.R ALSO DID NOT OBJECT TO THE SAID PLEA MADE BY LD A.R. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF AO WITH THE DIRECTION TO EXAMIN E THE ISSUE OF TAXABILITY OF DEPB IN ACCORDANCE WITH THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF TOPMAN EXPORTS REFERRED SUPRA. 5. THE NEXT ISSUE RELATES TO THE ADDITION IN RE SPECT OF SALES MADE TO SISTER CONCERNS. THE AO NOTICED THAT THE ASSESSEE HAD SOLD 542871 KG S OF KERNELS FOR RS.89626960/- TO ITS SISTER CONCERNS, WHICH RESULTED IN AN AVERAGE P RICE REALIZATION OF RS.165/- PER KG. HOWEVER, IT WAS NOTICED THAT THE COST OF PRODUCTION OF THE SAME WORKED OUT TO RS.177/- PER KG. THE AO TOOK THE VIEW THAT THERE WAS UNDER PRICING IN RESPECT OF SALES MADE TO SISTER CONCERNS AND ACCORDINGLY ADDED THE DIFFERENC E AMOUNTING TO RS.65,14,452/- TO THE TOTAL INCOME OF THE ASSESSEE. THE LD CIT(A) CO NFIRMED THE SAID ADDITION. 6. BEFORE US, THE LD A.R SUBMITTED THAT THE CO- ORDINATE BENCH OF THIS TRIBUNAL CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF SMT. P RIYA PRAKASH IN ITA NO.241/COCH/2007 RELATING TO ASSESSMENT YEAR 2003-0 4 AND THE TRIBUNAL, VIDE ITS ORDER DATED 25-07-2011 SET ASIDE THIS MATTER TO THE FILE OF THE LD CIT(A) FOR CONSIDERING THE I.T.A. NO.177 /COCH/2007 3 SAME AFRESH. HE FURTHER SUBMITTED THAT THE TRIBUNA L HAD FOLLOWED THE ORDER DATED 18.3.2011 PASSED BY THE CO-ORDINATE BENCH IN THE CA SE OF T.C. USHA IN ITA NO.559/COCH/2007 RELATING TO THE ASSESSMENT YEAR 20 04-05 FOR THE SAID PURPOSE. HOWEVER, ON IDENTICAL SET OF FACTS, THIS BENCH OF T HE TRIBUNAL HAS CONFIRMED SIMILAR ADDITION MADE IN THE CASE OF SHRI PRATAP R. NAIR IN I.T.A. NOS. 485, 312 & 486/COCH/2007 VIDE ITS ORDER DATED 04/05/2012. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW RELEVANT OBSERVATIONS:- 8. THE NEXT ISSUE RELATES TO THE ADDITION MAD E ON ACCOUNT OF UNDER PRICING MADE IN RESPECT OF SALES EFFECTED TO THE SISTER CO NCERNS. THE AO NOTICED THAT THE AVERAGE SALE PRICE OF CASHEW KERNEL SOLD TO TH E SISTER CONCERNS WAS RS.186.93 PER KG, WHERE AS THE AVERAGE COST OF PRO DUCTION FOR THE ASSESSEE WORKED OUT TO RS.194/- PER KG. THUS THE ASSESSEE INCURRED A LOSS OF RS.7.07 PER KG OF CASHEW KERNEL SOLD TO HIS SISTER CONCERNS. THE AO TOOK THE VIEW THAT NO BUSINESSMAN WILL SELL HIS PRODUCTS AT A PRICE WHIC H IS LESS THAN THE COST OF PRODUCTION, EVEN IF THE SALE WAS MADE TO THE SISTE R CONCERNS. ACCORDINGLY, THE AO WORKED OUT THE UNDER PRICING OF SALES AT RS.23, 41,202/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE LD CIT(A ) CONFIRMED THE SAID ADDITION WITH THE FOLLOWING OBSERVATIONS:- I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. FIRST OF ALL, I AM OF THE VIEW THAT THE CONTENTION OF THE APPELLANT THAT THE COST OF PRODUCTION COULD BE KNOWN ONLY AT THE YEAR END CANNOT BE ACCEPTED. IF THAT I S THE CASE NO MANUFACTURER WOULD BE ABLE TO FIX THE EXPORT PRICE FOR A PRICE S ENSITIVE PRODUCT LIKE CASHEW. FOR THE PURPOSE OF ASSESSMENT UNDER THE INCOME TAX ACT, EACH BUSINESS ENTITY, EVEN IF THAT BE A SISTER CONCERN, IS TREATED AS A S EPARATE UNIT OF ASSESSMENT, THE PROFIT OR LOSS OF WHICH IS TO BE INDEPENDENTLY ARRI VED AT AND ASSESSED. THEREFORE THE CONTENTION OF THE APPELLANT THAT IT IS NOT NECE SSARY THAT THE TRANSFER PRICE HAS TO BE ABOVE THE COST OF PRODUCTION ESPECIALLY WHERE SUCH SALE IS TO A SISTER CONCERN CANNOT BE ACCEPTED. ALSO THE ASSESSING OFF ICER WAS FORCED TO ADOPT THE AVERAGE COST BECAUSE THE APPELLANT WAS UNABLE TO FU RNISH DETAILS OF DIFFERENT GRADES AND THEIR INDEPENDENT COST OF PRODUCTION. IT HAS BEEN HELD IN THE CASE OF PATEL CHEMICAL WORK S VS. CIT REPORTED IN 265 ITR 273 THAT A SALE TO A SISTER CONCERN AT PRICES MUCH BELOW THE MARKET RATES WAS A DEVICE FOR TAX AVOIDANCE. THEREFORE, THE APPELLANT S CASE, WHEREIN THE SALE TO A SISTER CONCERN IS EVEN BELOW THE COST PRICE, HAS TO BE VIEWED MORE SERIOUSLY. I.T.A. NO.177 /COCH/2007 4 IN VIEW OF THE ABOVE, I HOLD THAT THE ASSESSING OFF ICER IS PERFECTLY IN ORDER IN HIS ACTION AND THEREFORE THE ADDITION OF RS.23,41,202/- MADE BY HIM IS SUSTAINED. 9. BEFORE US, THE ASSESSEE HAS MADE GENERAL SU BMISSIONS FINDING FAULT WITH THE WORKINGS MADE BY THE AO. THE ASSESSEE HAS MIS ERABLY FAILED TO OFFER CONVINCING EXPLANATIONS AS TO THE REASONS THAT COM PELLED HIM TO UNDER PRICE THE SALE PRICE IN RESPECT OF SALES MADE TO THE SISTER CONCERNS. IN THE ABSENCE OF PROPER EXPLANATIONS, THE TAX AUTHORITIES DO NOT HA VE ANY OTHER OPTION, BUT TO PRESUME THAT THE ASSESSEE HAS ADOPTED COLOURABLE D EVICE TO SHIFT HIS PROFIT TO HIS SISTER CONCERNS. HENCE, WE DO NOT FIND ANY INFIRM ITY IN THE DECISION OF LD CIT(A) IN CONFIRMING THIS ADDITION. CONSISTENT WITH THE VIEW TAKEN IN THE ABOVE SAID CA SE, WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 7. THE NEXT ISSUE RELATES TO THE EXCLUSION OF 90% OF RECEIPTS SHOWN AS PRIOR YEAR ADJUSTMENTS AMOUNTING TO RS.3,52,000/- FROM THE PR OFITS OF BUSINESS UNDER EXPLANATION (BAA) TO SEC. 80HHC. IT WAS NOTICED THA T THE ASSESSEE HAD CREDITED A SUM OF RS.35,70,700/- AS OTHER INCOME IN ITS PROFIT AND LOSS ACCOUNT. WHEN ENQUIRED, IT WAS NOTICED THAT THE GROSS AMOUNT OF OTHER INCOME STOOD AT RS.39,22,700/- AND THE ASSESSEE HAD DEBITED A SUM OF RS.3,52,000/- AS PRIO R YEAR ADJUSTMENT AND ACCORDINGLY SHOWN A NET BALANCE OF RS.35,70,700/-. HENCE, FOR THE PURPOSE OF COMPUTING PROFITS OF BUSINESS U/S 80HHC OF THE ACT, THE AO EXCLUDED 90% OF RS.39,22,700/-. THE CONTENTION OF THE ASSESSEE IS THAT ONLY 90% OF RS.3 5,70,700/- SHOULD HAVE BEEN EXCLUDED. 8. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE . APPARENTLY, THE AMOUNT OF RS.3,52,000/- REPRESENT A DEBIT ITEM, I.E., AN EXPE NDITURE ITEM. ACCORDINGLY, IT CANNOT FALL IN THE CATEGORY OF INCOME WITHIN THE MEANING OF EXPLANATION GIVEN FOR PROFITS OF BUSINESS UNDER SEC. 80HHC OF THE ACT. ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A) I.T.A. NO.177 /COCH/2007 5 IN HOLDING THAT THE SAME IS REQUIRED TO BE EXCLUDED UNDER EXPLANATION (BAA) OF SEC.80HHC OF THE ACT. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY O N 10-08-2012 SD/-- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 10TH AUGUST, 2012 GJ COPY TO: 1. PRATHAP CASHEW COMPANY PVT. LTD., KOCHUPILAMOODU , KOLLAM. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CI RCLE, KOLLAM. 3.THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, KOCHI. 4.THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN