The DCIT, Gandhinagar Circle, Gandhinagar V. M/s. Western Agri Seeds Ltd., Gandhinagar

ITA 1920/AHD/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4762 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 11-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Keywords: Maximum Marginal Rate; Fair market value
• Section: 143(3); 195; 22; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (VIRTUAL COURT) BEFORE: SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE DEPUTY CIT, GANDHINAGAR CIRCLE, GANDHINAGAR (APPELLANT) VS M/S. WESTERN AGRI SEEDS LTD. 802/11, WESTERN HOUSE, GIDC ESTATE, SECTOR-28, GANDHINAGAR-382028 PAN: AAACW1478P (RESPONDENT) REVENUE BY: SHRI L.P. JAIN, SR. D.R. ASSESSEE BY: SHRI BANDISH SOPARKAR, A.R. DATE OF HEARING : 11-09-2020 DATE OF PRONOUNCEMENT : 07-10-2020 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THIS REVENUES APPEAL FOR A.Y. 2012-13, ARISES FROM ORDER OF THE CIT(A), GANDHINAGAR, AHMEDABAD DATED 19-07-2018, IN PROCEED INGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961; IN SHORT T HE ACT. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE DISALLOWANCE OF DISCOUNT AND RATE DIFFERENCE OF RS. 3,95,22,183/-. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN A LLOWING THE DISALLOWANCE OF RS. 1,60,27,926/- U/S. 40A(2) IN RESPECT OF PURCHASE OF SEEDS FROM GREEN INDIA SEEDS CO. ITA NO. 1920/AHD/2018 ASSESSMENT YEAR 2012-13 I.T.A NO. 1920/AHD/2018 A.Y. 2012-13 PAGE NO DY. CIT VS. M/S. WESTERN AGRI SEEDS LTD. 2 3. THE FACT IN BRIEF IS THAT ORIGINAL ASSESSMENT OR DER U/S. 143(3) WAS PASSED ON 25 TH FEB, 2015 AT RS. 1,00,69,520/-. SUBSEQUENTLY THE CASE WAS REOPENED BY ISSUING OF NOTICE U/S. 148 OF THE ACT ON 21 ST NOV, 2016 AND ASSESSMENT U/S. 143(3) R.W.S. 147 OF THE ACT WAS MADE ON 22 ND DECEMBER, 2017 AND TOTAL INCOME WAS ASSESSED AT RS. 6,56,19,689/-. DURING THE COURSE O F RE-ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT IN THE ORIGINAL ASSESSMENT NO DISALLOWANCE ON ACCOUNT OF RATE DIFFERENCE AND DISCOUNT ALLOWED TO DEALERS TO THE T UNE OF RS. 3,95,22,183/- WAS MADE IN THE CASE OF ASSESSEE. THEREFORE, THE ASSES SING OFFICER HAS DISALLOWED THE CLAIM OF THESE EXPENSES STATING THAT ON IDENTICAL G ROUND SUCH DISALLOWANCE WAS MADE FOR ASSESSMENT YEAR 2010-11 AND 2011-12. FURT HER, IN RESPECT OF PURCHASES OF RS. 40,17,02,418/- MADE FROM M/S. GREEN SEEDS CO MPANY AN ASSOCIATE CONCERN OF THE ASSESSEE, THE ASSESSING OFFICER HAD DISALL OWED 3.99% OF GROSS PROFIT OF ASSOCIATE CONCERN AT RS. 16,27,926/- U/S. 40A(2)(B ) OF THE ACT ON THE BASIS OF SIMILAR DISALLOWANCE MADE IN THE EARLIER YEARS. 4. THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE U S, THE LD. AUTHORIZED REPRESENTATIVE HAS BROUGHT TO OUR NOTICE THAT IDENT ICAL ISSUE ON SIMILAR FACTS HAVE BEEN ADJUDICATED BY THE CO-ORDINATE BENCHES OF THE ITAT FOR THE ASSESSMENT YEAR 2010-11 TO 2013-14 IN FAVOUR OF THE ASSESSEE. LD. DEPARTMENTAL REPRESENTATIVE WAS FAIR ENOUGH NOT TO CONTROVERT THESE UNDISPUTED FINDING OF THE CO-ORDINATE BENCHES IN THE CASE OF THE ASSESSEE ITSELF. WE HAV E GONE THROUGH THE DECISION OF THE CO-ORDINATE BENCHES OF THE ITAT AND NOTICED THA T SIMILAR ISSUE ON IDENTICAL FACTS HAVE BEEN ADJUDICATED IN FAVOUR OF THE ASSESS EE VIDE ITA NO. 2795 & 2796/AHD/2014 DATED 27-03-2019 AND ITA NO. 2237/AH D/2017 DATED 27-06- I.T.A NO. 1920/AHD/2018 A.Y. 2012-13 PAGE NO DY. CIT VS. M/S. WESTERN AGRI SEEDS LTD. 3 2019. THE DECISION OF THE CO-ORDINATE BENCH VIDE I TA NO. 2237/AHD/2017 IS REPRODUCED AS UNDER:- 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD CAREFULLY. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE HAVE GONE THR OUGH THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF THE ASSESSEE ITSELF VIDE ITA NOS. 2795 & 27 96/AHD/2016 AND NOTICED THAT IDENTICAL ISSUE ON SIMILAR FACTS HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE. RELEVANT PART OF THE DECISION OF AFORESAID CO-ORDINATE BENCH IS REPRODUCED AS UNDER: - IN RESPECT OF ADDITION MADE ON ACCOUNT OF RATE DIFF ERENCE, RELEVANT PART OF DECISION OF CO- ORDINATE BENCH IN THE AFORESAID DECISION IS REPRODU CED AS UNDER:- 7. WE HAVE HEARD THE REPRESENTATIVE OF THE RESPECT IVE PARTIES. WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. IT APPEARS THAT THE ASSESSEE DULY SUBMITTED THE LEDGER ACCOUNT ALONG WITH THE COMPLET E DETAILS OF THE PARTIES WHICH IS ALSO PART OF ANNEXURE BEFORE US IN THE PAPER BOOK THE DE TAILS WHEREOF IS ALSO BEFORE US AT PAGE NO.37 OF THE PAPER BOOK. THE LIST OF THE PARTIES AN D THE LEDGER ACCOUNTS OF THOSE PARTIES ARE ALSO REFLECTING FROM PAGE 38 TO 190 OF THE PAPE R BOOK. WE HAVE GONE THROUGH THE SAME; THE ENTIRE PAYMENT M ADE BY THE ASSESSEE IS REFLECTED IN THOSE LEDGER ACCOUNTS AS ON RECORD BEFORE US WHICH HAS NOT BEEN ALLEGED AS NON-GENUINE BY THE LEARNED AO. SO FAR AS THE RATE DISCOUNT OF R S.1,89,160/- PAID TO M/S. SAMARTH BAPARAM SEEDS CORPORATION IS CONCERNED THE DETAIL S UBMISSION IS ALSO AVAILABLE IN THIS RESPECT MADE BY THE ASSESSEE AT PAGE 4 & 5 OF THE A SSESSMENT ORDER. IT APPEARS THAT SUFFICIENT DETAILS WERE SUBMITTED BY THE APPELLANT IN SUPPORT OF HIS CLAIM. FURTHER THAT WHILE ALLOWING THE CLAIM OF THE ASSESSEE BY DELETIN G THE ADDITION MADE BY THE LEARNED AO THE LEARNED CIT(A) OBSERVED AS FOLLOWS: ON CAREFUL CONSIDERATION OF ENTIRE FACTS IT IS OBS ERVED THAT APPELLANT HAS ESTABLISHED ITS BUSINESS TO PROVIDE HIGH VALUE RESE ARCH AND HYBRID SEEDS TO FARMERS AS A BRAND NAME 'WESTERN' SINCE LAST TWENTY YEARS. IN ANY BUSINESS, DISCOUNT/RATE DIFFERENCE IS ALLOWED TO CUSTOMERS AS PER POLICY OF THE BUSINESS AND FOR WHICH TRADE CIRCULARS ARE ISSUED ON TIME TO TIME BASIS. THE ENTIRE PAYMENT MADE BY APPELLANT IS DULY REFLECTED IN LEDG ER ACCOUNT OF VARIOUS DEALERS AND SUPPORTED BY EVIDENCES. EVEN AO HAS NOT POINTED OUT ANY DEFECT IN SUCH EVIDENCES PRODUCED BY APPELLANT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO HAS RAISED ONE QUERY RELATING TO DI SCOUNT AND RATE DIFFERENCE OF RS.1,89,160/- PAID TO SHRI SAMARTH BAPARAM SEEDS C ORPORATION AND SAID QUERY IS REPRODUCED AT PAGE NO. 3 OF THE ASSESSMENT ORDER . AGAINST THIS QUERY, APPELLANT HAS MADE DETAILED SUBMISSION, WHICH IS AL SO REPRODUCED ON PAGE-4 AND 5 OF THE ASSESSMENT ORDER. ON THE BASIS OF SUC H SUBMISSION, AO HAS NOT DRAWN ANY ADVERSE INFERENCE WHICH IS APPARENT IN TH E ASSESSMENT ORDER. THE ISSUE WAS RAISED FROM THE DETAILS SUBMITTED BY APPE LLANT, WHICH PROVE THAT APPELLANT HAS PRODUCED EVIDENCES IN SUPPORT OF ITS CLAIM. IT IS PERTINENT TO NOTE THAT RATIO OF DISCOUNT TO TURNOVER IN A.Y. 2008-09 WAS 6.25%, 7.02 % IN A.Y. 2009-10 AND 6.66% IN YEAR UNDER CONSIDERATION, WH ICH SUPPORTS THE CONTENTION OF THE APPELLANT THAT DISCOUNT/RAT E DIFFERENCE ARE ALLOWED CONSISTENTLY. FURTHER, IN AY 2009-10, AO HAS MADE PARTIAL DISALLOWANCE OF SUCH EXPENDITURE ON THE GROUND THAT THERE WAS INCRE ASE IN SUCH EXPENDITURE, WHICH WAS DELETED BY UNDERSIGNED VIDE ORDER DATE D 10/12/2013 IN APPELLATE ORDER NO. CIT(APPEALS)/ GNR/367/201 2-13. FURTHER, GROSS PROFIT RATIO OF APPELLANT FOR THE YEAR UNDER, CONSIDERATIO N HAS IMPROVED AND SAME IS ACCEPTED BY AO. THE AO HAS NOT BROUGHT OUT ANY EVI DENCES WHICH CAN SUGGEST THAT PAYMENT MADE BY APPELLANT IS NON-GENUINE OR IN FACT, NOT RECEIVED BY DEALERS AND MADE ADDITION ON HYPOTHECATION BASIS. THUS, ON HOLISTIC I.T.A NO. 1920/AHD/2018 A.Y. 2012-13 PAGE NO DY. CIT VS. M/S. WESTERN AGRI SEEDS LTD. 4 CONSIDERATION OF ENTIRE FACTS, ADDITION OF RS.2,14, 47,109/- MADE BY THE AO IS DELETED. THE GROUNDS OF APPEAL ARE ALLOWED. TAKING INTO CONSIDERATION THE ENTIRE ASPECT OF THE MATTER WE DO NOT FIND ANY INFIRMITY IN THE OBSERVATION MADE BY THE LD. CIT(A) . HENCE THE GROUND OF APPEAL PREFERRED BY REVENUE BEING DEVOID OF MERIT IS HEREB Y DISMISSED. IN RESPECT OF ADDITION MADE U/S. 40(A)(2)(B), RELEV ANT PART OF DECISION OF CO-ORDINATE BENCH IN THE AFORESAID DECISION IS REPRODUCED AS UNDER:- 12. HEARD THE LD. COUNSEL APPEARING FOR THE PARTIE S, PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. IT WAS AN ADMITTED FACT THAT THE AO FAILED TO GIVE ANY INSTANCES WHICH CAN PROVE THAT SUCH PURCHASES MADE BY THE ASS ESSEE ARE EXCESSIVE, UNREASONABLE AND HENCE DISALLOWANCE U/S. 40(A)(2)(B) ON ESTIMATE D GROSS PROFIT IS NOT SUSTAINABLE IN THE EYE OF LAW. THE LD. CIT(A)A HOLDING THE SAID V IEW RELYING UPON THE JUDGMENT PASSED BY THE HONBLE APEX COURT IN THE MATTER OF CIT VS. GLAXO SMITHKLINE ASIA PVT. LTD. REPORTED IN 195 TAXMAN 35 OBSERVED AS FOLLOWS IN FA VOUR OF THE ASSESSEE: IT IS AN UNDISPUTED FACT THAT APPELLANT AND ITS AS SOCIATED CONCERN ARE ASSESSED TO TAX AT MAXIMUM MARGINAL RATE HENCE EVEN IF FOR S AKE OF ARGUMENT, IT IS ASSUMED THAT APPELLANT HAS PURCHASED GOODS AT EXCES SIVE RATE, ITS ASSOCIATED CONCERN HAS SOLD GOODS AT SUCH RATE AND OFFERED HIG HER INCOME AND PAID HIGHER TAXES. THE HONBLE SUPREME COURT IN THE CASE OF CI T VS. GLAXO SMITHKLINE ASIA LIMITED 195 TAXMAN 35 RELIED UPON BY APPELLANT HAS HELD AS UNDER:- HOWEVER, A LARGER ISSUE WAS INVOLVED N THE INSTANT CASE. THE MAIN ISSUE WHICH NEEDED TO BE ADDRESSED WAS, WHETHER TRANSFER PRICIN G REGULATIONS SHOULD BE LIMITED TO CROSS-BROKER TRANSACTIONS OR BE EXTENDED TO DOMESTIC TRANSACTIONS. IN THE CASE OF DOMESTIC TRANSACTIONS THE UNDER-INVOLVI NG OF SALES OR OVER-INVOICING OF EXPENSES ORDINARILY WOULD BE REVENUE NEUTRAL IN NATURE, EXCEPT IN THE FOLLOWING TWO CIRCUMSTANCES HAVING TAX ARBITRAGE- (I) IF ONE OF THE RELATED COMPANIES IS A LOSS MAKING CO MPANY AND THE OTHER IS A PROFIT MAKING COMPANY AND PROFIT IS SHIFTED TO THE LOSS MAKING CONCERN; AND (II) IF THERE ARE DIFFERENT RATES FOR TWO RELATED UNITS [ON ACCOUNT OF DIFFERENT STATUS, AREA-BASED INCENTIVES, NATURE OF ACTIVITY, ETC.] AN D IF PROFITS IS DIVERTED TOWARDS THE UNIT ON THE LOWER SIDE OF THE TAX ARBITRAGE. F OR EXAMPLE, SALE OF GOODS OR SERVICES FROM NON-SEZ AREA, [TAXABLE DIVISION] TO S EZ UNIT [NON-TAXABLE UNIT] AT A PRICE BELOW THE MARKET PRICE SO THAT TAXABLE DIVI SION WILL HAVE LESS TAXABLE PROFIT AND NON-TAXABLE DIVISION WILL HAVE A HIGHER PROFIT EXEMPTION.[PARA 4] AS THE CASE OF THE APPELLANT IS SNOT FALLING IN THE EXCEPTION AS PROVIDED BY HONBLE SUPREME COURT, DISALLOWANCE U/S. 40A(2)(B) MADE BY THE AO FOR RS. 86,39,915/- IS DELETED. THIS GROUND OF APPEAL IS A LLOWED. WE FIND NO INFIRMITY IN THE OBSERVATION MADE BY THE CIT(A) IN HOLDING THAT IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE DISALLO WANCE U/S. 40(A)(2)(B) IS NOT PERMISSIBLE IN THE ABSENCE OF ANY INSTANCES AND/OR OBSERVATION MADE BY THE AO THAT PURCHASES MADE BY THE ASSESSEE ARE EXCESSIVE UNREAS ONABLE WITH THAT OF THE FAIR MARKET VALUE OF GOODS. HENCE, THE DECISION ARRIVED AT BY THE LD. CIT(A) IS HEREBY UPHOLD. REVENUES APPEAL IS THUS DISMISSED. RESPECTFULLY RELYING UPON THE AFORESAID DECISION OF CO-ORDINATE BENCH OF THE ITAT, WE UPHOLD THE ORDER OF LD. CIT(A), THEREFORE, BOTH THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. I.T.A NO. 1920/AHD/2018 A.Y. 2012-13 PAGE NO DY. CIT VS. M/S. WESTERN AGRI SEEDS LTD. 5 RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH AS CITED ABOVE ON SIMILAR FACTS AND CIRCUMSTANCES, WE UPHOLD THE DECISION OF LD. CIT(A). THEREFORE, BOTH THE GROUNDS OF APPEAL OF THE REVENU E ARE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07-10-2020 SD/- SD/- (RAJPAL YADAV) (AMARJIT SINGH) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD : DATED 07/10/2020 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,