Dhanlaxmi Pigments Pvt.Ltd., Bharuch V. ACIT-, Circle,-2, Bharuch

ITA 235/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1913 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-05-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 21-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Maximum Marginal Rate; Corroborative evidences
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 235/Srt/2019 (Assessment Year: 2012-13) (Hearing in Virtual Court) M/s Dhanlaxmi Pigments Pvt. Ltd., Plot No. 3019/20/21, GIDC Estate, Panoli, District- Bharuch-394116. (Gujarat) PAN No. AABCD 0214 H Vs. A.C.I.T., Room No. 5, 2 nd Floor, Income Tax Office, Station Road, Bharuch. Appellant/ assessee Respondent/ revenue Appellant represented by Shri Jimit Shah, AR Respondent represented by Shri Vinod Kumar, Sr.DR Date of hearing 25/05/2022 Date of pronouncement 08/07/2022 Order under section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-3, Vadodara (in short, the ld. CIT(A) dated 28/02/2019 for the Assessment year 2012-13. The assessee has raised following grounds of appeal: “1. The ld. AO as well as ld. CIT(A) has erred in law in confirming the action of AO in adding back the sum of Rs. 6,97,500/-. The ld. AO held that the same is unreasonable and thus added the said to the income of the appellant. The ld. AO considered that the 50% of the rate difference is unreasonable and thus added the same to the income of the appellant. ITA No.235/Srt/2019 M/s Dhanlaxmi Pigments Pvt. Ltd. Vs ACIT 2 2. The ld. AO as well as ld. CIT(A) has erred in law and in considering the facts of the case of the appellant, the appellant and the sister concerns of the appellant are paying taxes at maximum marginal rate and there is no loss of revenue to the government. 3. The learned Assessing Officer has erred in law and on facts in levying interest u/s 234A/B/C/D of the Act. 4. The learned Assessing Officer has erred in law and on facts in initiating penalty under Section 271(1)(c) of the Act without recording mandatory satisfaction as contemplated under the Act. 5. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time or before the hearing of the appeal.” 2. Brief facts of the case are that the assessee is engaged in the business of manufacturing of copper phthalo cynine crude (CPC Blue). The assessee filed its return of income for the year under consideration on 01/09/2012 declaring total income of Rs. 5,25,76,850/-. The case has been selected for scrutiny through CASS and statutory notices were issued to the assessee. During the scrutiny assessment, the Assessing officer noted that in the Profit & Loss Account (P&L account), the assessee has debited Rs. 13,95,000/- on account of rebate/concession given to relates parties namely M/s Dhanlaxmi Chemicals and M/s Krishna Chemicals who were sister concerns and are covered under Section 40A(2)(b) of the Income Tax Act, 1961 (in short, the Act). The Assessing Officer vide order sheet ITA No.235/Srt/2019 M/s Dhanlaxmi Pigments Pvt. Ltd. Vs ACIT 3 dated 09/03/2015 asked the assessee to furnish the details and reasonableness of rate difference allowed on sales to both the parties. In response to question of Assessing Officer, the assessee stated that these payments have been made to these parties for lifting of more than stipulated quantity. The assessee also furnished other necessary details required by the Assessing Officer. On considering of such details, the Assessing Officer was of the view that the assessee has taken a rate difference of Rs. 5/- per kilogram (kg) which is almost 2% of average sale price of Rs. 250/- per kg. The Assessing Officer, accordingly, disallowed 50% of such rebate/concession give to both the parties thereby disallowed Rs. 6,97,500/-. 3. On appeal before the ld. CIT(A), the assessee filed detailed written submission. The submission of assessee is recorded in para 2.2. of order of ld. CIT(A). The assessee submitted that the rate difference credit was given to associated enterprises i.e. M/s Dhanlaxmi Chemicals and M/s Krishna Chemicals as the sales to them was of material with 95% purity of pigment and it was agreed that the trade credit would be given to the associated concerned at the end of the year. Though, the assessee was one of the interested party in the associated concerned, however, there are other partners in the associated concerned and the credit of rate ITA No.235/Srt/2019 M/s Dhanlaxmi Pigments Pvt. Ltd. Vs ACIT 4 difference was given for purchase of bulk quantity of material. The assessee also given the details of turnover of assessee and both the associated concerned and submitted that the assessee as well as both the associated concerned are taxed at maximum marginal rate and there was no evasion of tax. The sale to both the parties is about 15.23% of the total quantity sales by assessee. The assessee also relied on certain case laws. 4. The ld. CIT(A) on considering the contents of assessment order, submission of the assessee and the detailed furnished by assessee held that the assessee could not submit any proper supporting evidence to prove that the rate difference of Rs. 5/- per kg allowed on sales to M/s Dhanlaxmi Chemicals and M/s Krishna Chemicals is reasonable and confirmed the order of Assessing Officer. Further aggrieved, the assessee has filed the present appeal before this Tribunal. 5. We have heard the submissions of ld. Authorised Representative (AR) of the assessee and the ld. Sr. Departmental Representative (DR) for the Revenue and perused the material available on record. The ld. AR of the assessee submits that during the relevant financial year under consideration, the assessee granted discount of Rs. 5/- per kg on the material supplied to both the concerns i.e. M/s Dhanlaxmi Chemicals and M/s Krishna Chemicals. Both the associated concerns are taxed at ITA No.235/Srt/2019 M/s Dhanlaxmi Pigments Pvt. Ltd. Vs ACIT 5 maximum marginal rate and there is no evasion of tax. The assessee has made total sale of associated concerned of 2,79,000 kgs which is almost 15.23% of the total quantity. The assessee has shown gross total income of Rs. 5.25 crores and have paid tax of Rs. 1.708 crore. The assessee has shown very good profit. There is no question of diversion of fund by making discount to the associated concerned and accordingly no disallowance under Section 40A(2)(b) of the Act could be made against the assessee. To support his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Bombay High Court in the case of CIT Vs. V.S. Dempo & co (P) Ltd. (2011) 196 Taxman 193 (Bom). 6. On the other hand, the ld. Sr.DR for the revenue supported the orders of lower authorities and submits that all the submission which the assessee has raised before the Tribunal was considered by the lower authorities and held that the assessee could not provide any supporting evidence to prove the rate difference between unrelated parties and the related parties transactions. 7. We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities carefully. We find that the Assessing Officer made the addition by taking a view that the assessee has debited Rs. 13,95,000/- on account of rebate/concession given to ITA No.235/Srt/2019 M/s Dhanlaxmi Pigments Pvt. Ltd. Vs ACIT 6 related parties namely M/s Dhanlaxmi Chemicals and M/s Krishna Chemicals who were sister concerns and are covered under Section 40A(2)(b) of the Act. In response to question of Assessing Officer, the assessee stated that the payments have been made to these parties for lifting of more than stipulated quantity. On considering of such details, the Assessing Officer held that the assessee has taken a rate difference of Rs. 5/- per KG which is almost 2% of average sale price of Rs. 250/- per kg. The Assessing Officer, accordingly, disallowed 50% of such rebate/concession give to both the parties. We find that the ld. CIT(A) upheld the action of Assessing Officer by taking view that that the assessee could not submit any proper supporting evidence to prove that the rate difference of Rs. 5/- per kg allowed on sales to M/s Dhanlaxmi Chemicals and M/s Krishna Chemicals is reasonable and proper. Before us, the ld AR for the assessee vehemently submitted that the assessee as well as the associated enterprises, all are taxed at maximum marginal rate of tax and there is no diversions of fund to evade the tax. We find that Hon'ble High Court of Bombay in CIT Vs V S Dempo & Co (supra) held that where the assessee as well as the subsidiary are taxed in the same bracket of tax and paid same rate of tax, there was no question of diversion of funds by paying higher rate to subsidiary company and ITA No.235/Srt/2019 M/s Dhanlaxmi Pigments Pvt. Ltd. Vs ACIT 7 therefore, no disallowance under section 40A(2) could be made. Considering the aforesaid facts and the legal view taken by Hon'ble High Court of Bombay, we do not find any justification in making the 50% of disallowance of discount allowed by the assessee to its associated enterprises. Thus, we direct the assessing officer to delete the entire disallowance made against the assessee under section 40A(2) of the Act. In the result, the grounds of appeal raised by the assessee are allowed. 8. In the result, this appeal of the assessee is allowed. Order pronounced in the open court on 08 th July, 2022 at the time of hearing of this appeal. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 08/07/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By order Sr.Private Secretary, ITAT, Surat