M/s. JNP Products, Baroda V. The Jt.CIT, Range-3, Baroda

ITA 2475/AHD/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4122 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 08-09-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAURABH SINGH
• Keywords: Cost of acquisition; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.2475/AHD/2014 (ASSESSMENT YEAR : 2011-14) M/S.JNP PRODUCTS A-202, AISHWARYA COMPLEX NR. AMARKUNJ SOCIETY ELLORA PARK BARODA 390 007 / VS. THE JT.CIT RANGE-3 BARODA-390 008 [ PAN NO. AAEFJ 6422 D ] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI BHAVIN MARFATIA, AR RESPONDENT BY : SHRI SAURABH SINGH, DR DATE OF HEARING 12/06/2018 DATE OF PRONOUNCEMENT 08/08/2018 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL HAS BEEN PREFERRED BY THE ASSE SSEE AGAINST THE ORDER DATED 30.06.2014 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-II, BARODA [LD.CIT(A) IN SHORT] FOR ASSESSMENT YEAR (AY) 2011-12 ARISING OUT OF THE ORDER DATED 20.01.2014 PASSED BY THE JT.CIT, RANGE-3, BARODA. 2. THE ASSESSEE FILED THE APPEAL WITH THE FOLLOWIN G GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I I, BARODA [THE CIT(A)] ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION O F JOINT COMMISSIONER OF INCOME TAX, RANGE-3, BARODA (THE AO) IN INVOKING SECTION 40A(2) OF THE INCOME TAX ACT, 1961 (THE ACT) AND THEREBY MAKING A DISALLOWANCE OF RS.36,25,566/-. 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF AO IN MAKING THE DISALLOWANCE OF RS.36,25,566/- WITHOUT SATISFYI NG THE CONDITION OF SECTION 40A(2) OF THE ACT. 3. THE LEARNED AO ERRED IN FACT AND IN LAW IN MAKING A ND THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ADDITION INVOKING SECTION 40A(2) DESPITE THE FACT - 2 - ITA NO.2475/AHD/2014 M/S. JNP PRODUCTS VS. JT.CIT ASST.YEAR 2011-12 THAT THE APPELLANT HAD FILED A QUOTATION FOR SUBSTA NTIATING THAT THE PAYMENT TO SISTER CONCERN IS NOT EXCESSIVE OR UNREASONABLE AS COMPARE D TO FAIR MARKET VALUE. 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF AO IN CHARGING INTEREST U/S.234D OF THE ACT. 5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF AO IN INITIATING PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT. 3. GROUND NOS.1 TO 3 RELATE TO COMMON ISSUE AND T HEREFORE, DEALT WITH ANALOGOUSLY FOR THE SAKE OF BREVITY. 4. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF PROCESSING AND MANUFACTURING OF PARA AMINO PHENOL (PAP). THE RETURN OF INCOME WAS FILED BY THE ASSESSEE-FIRM ON 19.09.2011 DECLARING TOTAL INCOME AT RS.5,05,03,970 /- UPON ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'T HE ACT') THE TOTAL INCOME HAS BEEN DETERMINED AT RS.5,41,68,419/- AFTER MAKING ADDITIO N/DISALLOWANCE UNDER VARIOUS HEADS AMOUNTING TO RS.36,34,449/-. 4.1. THESE GROUNDS PREFERRED BY THE ASSESSEE QUEST IONING THE CORRECTNESS OF THE ORDER PASSED BY THE LD. CIT(A) IN CONFIRMING THE ORDER P ASSED BY THE ASSESSING OFFICER (AO) IN MAKING THE DISALLOWANCE OF RS.36,25,566/- WITHOU T SATISFYING THE CONDITIONS OF SECTION 40A(2) OF THE ACT. FACTUALLY, THE ASSESSEE HAS PURCHASED HYDROGEN GAS FROM THE ADJACENT SUPPLIER SHRI RAM ALKALIES & CHEMICALS, SI TUATED AT 749, GIDC JHAGADIA, SUPPLIED THROUGH PIPE LINE AND PAYMENT THEREOF IS BEING MADE TO FARMSON ANALGESIC, ASSOCIATE CONCERN. THE ASSESSEE WAS DIRECTED THR OUGH NOTICE ISSUED U/S.142(1) OF THE ACT BY THE AO TO FURNISH THE DETAILS OF PURCHASE AN D SALES FROM THE ASSOCIATE CONCERN, NAMELY FARMSON ANALGESIC MENTIONING THE DETAILS OF QUANTITY, DATE OF PAYMENT, RATE AND PREVAILING RATE OF THE MATERIAL POINT OF TIME WITH PROOF REGARDING 3 PRODUCTS NAMELY PAP, H 2 , PNC & PNP (PNL) PURCHASED BY THE ASSESSEE. 4.2. IN REPLY WHEREOF, THE ASSESSEE FILED WRIT TEN SUBMISSION ON 16.12.2013 FOLLOWED BY DETAILS OF PURCHASES AND SALES ENTERED WITH ASS OCIATE CONCERN ON 25.12.2013. A - 3 - ITA NO.2475/AHD/2014 M/S. JNP PRODUCTS VS. JT.CIT ASST.YEAR 2011-12 SHOW-CAUSE NOTICE DATED 30.12.2013 THEREAFTER WAS SERVED UPON THE ASSESSEE ON THE ISSUE OF EXCESS PAYMENT MADE TO THE ASSOCIATE CONCERN, N AMELY FARMSON ANALGESIC. HOWEVER, THE AO WAS NOT SATISFIED WITH THE CONTENTI ONS MADE BY THE ASSESSEE IN THIS RESPECT. IT APPEARED THAT THE ASSESSEE HAS PAID TO TAL AMOUNT OF RS.3,89,79,520/- TO THE ASSOCIATE CONCERN AS AGAINST 3607216 MT HYDROGEN GA S ON THE MARKET RATE OF RS.3,51,21,689/-. THE RATE DIFFERENCE WAS PAID OF RS.2,32,265/-. THEREFORE, THE BALANCE OF RS.36,25,566/- WAS TREATED AS EXCESSIVE AND UNRE ASONABLE AND THE SAME WAS DISALLOWED U/S.40A(2)(A) READ WITH SECTION 40A(2)(B ) OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4.3. THE LD. CIT(A) WHILE DECIDING THE APPEAL PREFE RRED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE LD.AO OBSERVED THAT THE PAYMENT S MADE TO THE ASSOCIATE CONCERN WERE EXCESSIVE AND UNREASONABLE AND UPHELD THE ADDI TION MADE BY THE LD. AO. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 5. AT THE TIME OF THE HEARING OF THE MATTE R THE LD. AR SUBMITTED BEFORE US THAT THE ASSOCIATE CONCERN HAS GOOD CREDENTIALS AND CORPOR ATE PROFILE STRUCTURE, HAVING GOOD CREDIT FACILITY IN THE MARKET AND FOR THE INTEREST OF THE ASSESSEE PURCHASE AGREEMENT HAS BEEN EXECUTED WITH THE SUPPLIER THROUGH THE SAID AS SOCIATE CONCERN. FURTHER THAT THE ASSOCIATE CONCERN HAS DEPOSITED RS.75,00,000/- IN THE YEAR 2008 WITHOUT INTEREST TO THE SUPPLIER. THE ASSOCIATE CONCERN ALWAYS MAKES PAYM ENTS IN ADVANCE TO THE SUPPLIER FOR SUPPLY OF HYDROGEN GAS. THE SUPPLIER ISSUES INVOIC ES TO THE ASSOCIATE CONCERN ON DAILY BASIS WHEREAS IT ISSUES INVOICES TO THE ASSESSEE ON MONTHLY BASIS. HE FURTHER CONTENDED BEFORE US THAT THE FARMSON ANALGESIC HAS TAKEN VARI OUS RISK AND INCURRED COSTS TO PROVIDE THE GAS TO THE ASSESSEE AND THUS CHARGED HANDLING C OST OF RS.1/- PER QUANTITY ON AND ABOVE THE SUPPLIERS RATE OF RS.10/- PER M 3 . ACCORDING TO HIM THE PRICE PAID BY THE ASSESSEE TO THE ASSOCIATE CONCERN IS NOT EXCESSIVE OR UNREASONABLE AND SUCH PAYMENT HAS BEEN MADE LOOKING TO THE LEGITIMATE NEEDS OF THE AS SESSEE. THE LD.AO HAS ALSO TAKEN US - 4 - ITA NO.2475/AHD/2014 M/S. JNP PRODUCTS VS. JT.CIT ASST.YEAR 2011-12 TO THE SUBMISSION MADE BY THE ASSESSEE ON 17.01.201 4 WHERE IT APPEARS FROM THE INVOICE OF A THIRD-PARTY NAMELY M/S.GOYAL M.G. GASES PVT.LT D. HAS QUOTED RS 15/- PER M 3 OF HYDROGEN GAS FOR THE PERIOD UNDER CONSIDERATION WHI CH IS MUCH HIGHER THAN THAT OF THE RATE CHARGED BY THE ASSOCIATE CONCERN. 6. THE LD. AR VEHEMENTLY ARGUED IN SUPPORT OF THE CLAIM OF THE ASSESSEE THEREBY POINTING OUT THE FAILURE AND/OR NON-APPLICATION OF MIND OF THE LD. AR IN CONSIDERING ALL ASPECTS OF THE MATTER WHILE DECIDING THE ISSUE AND ERRONEOUSLY MADE DISALLOWANCE WHICH WAS CONFIRMED BY THE LD. CIT(A) WITHOUT ASSIGNING ANY REASON. 7. ON THE OTHER HAND, THE LEARNED REPRESENTAT IVE OF THE DEPARTMENT RELIED UPON THE ORDER PASSED BY THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE REPRESENTATIVE OF THE R ESPECTIVE PARTIES. WE HAVE PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE FIND THA T THE MAIN CONTENTIONS MADE BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW FOR CHARGING RUPEES ONE EXTRA PER QUANTITY BY THE ASSOCIATED CONCERN NAMELY FARMSON ANALGESIC IS FOR VARIOUS SERVICES PROVIDED BY IT TO THE ASSESSEE FOR PROCURING HYDROGEN GAS THOUGH FROM THE ADJACENT COMPANY THROUGH PIPE LINES. FROM THE ORDER PASSED BY THE LD. AO AND THE LD. CIT(A) AS WELL IT APPEARS THAT THE AUTHORITIES BELOW HAVE TAKEN DUE CARE OF THE POINTS RAISED BY THE ASSESSEE TOWARDS CREDIBILITY AND REPUTATION OF THE ASSOCIATE CONCER N, ITS GOOD CREDIT FACILITY IN THE MARKET, THE FACT OF MAKING ADVANCE PAYMENT TO THE SUPPLIE R FOR SUPPLY OF HYDROGEN GAS. IN FACT THE ADVANCE HAS BEEN MADE BY THE ASSESSEE ITSELF TO THE SUPPLIER DIRECTLY INSTEAD OF MAKING PAYMENTS TO THE ASSOCIATE-CONCERN. WHETHER THAT THE ASSOCIATE CONCERN PAYING HIGH RATE OF TAX THAN THAT OF THE ASSESSEE IS NOT A CONCERN OF THE REVENUE WHILE CONSIDERING THE PROVISION OF SECTION 40A(2)(A) OF THE ACT AS RA ISED BY THE ASSESSEE AS RIGHTLY POINTED OUT BY THE LD. CIT(A). IT ALSO APPEARS THAT THE BU SINESS TURNOVER OF THE ASSESSEE HAS INCREASED BY RS 6.60 CRORES. THE DEPOSIT OF RS.75 L AKHS IN THE YEAR 2008 MADE BY THE - 5 - ITA NO.2475/AHD/2014 M/S. JNP PRODUCTS VS. JT.CIT ASST.YEAR 2011-12 ASSOCIATE CONCERN HAS NO RELEVANCE IN THE YEAR UNDE R CONSIDERATION AS ALSO OBSERVED BY BOTH THE AUTHORITIES BELOW WHICH ACCORDING TO US JU ST AND PROPER. BUT SINCE THE HYDROGEN GAS SUPPLIED DIRECTLY TO THE ASSESSEE VIA PIPELINE FROM THE ADJACENT SUPPLIER WE ALSO DO NOT FIND ANY RISK AS CLAIMED TO BE INCURRED BY TH E ASSOCIATE CONCERN AND NEITHER WE FIND ANY JUSTIFICATION OF CHARGING EXTRA RS.1/- FOR TH E SAME BY FARMSON ANALGESIC. WHEN MATERIAL IS RECEIVED THROUGH PIPELINE FROM ADJOININ G UNIT OF THE ASSESSEE, ASSOCIATE- CONCERN HAS NO DEMONSTRABLE ROLE TO PLAY TO CHECK T HE QUALITY AND QUANTITY OF SUCH MATERIAL. THE QUESTION OF BEARING PURCHASE COST B Y THE ASSOCIATE CONCERN, IN OUR CONSIDERED VIEW, DOES NOT AND CANNOT ARISE AT ALL. MORESO, THE ASSOCIATE CONCERN DOES NOT HAVE ANY INVOLVEMENT FOR ANY SERVICE WHICH NEEDS SP ECIFIC EXPERTISE. THE ASSESSEE ALREADY HAS TAKEN CARE OF THAT ASPECT BY APPOINTING EX-PART PROFESSIONALS IN THIS FIELD. IN THAT VIEW OF THE MATTER, WE FIND THAT PAYMENT MADE TO THE ASSOCIATE CONCERN ARE EXCESSIVE AND UNREASONABLE PARTICULARLY TAKING INTO CONSIDERATION THE LOCATION OF THE ASSESSEE AND THE SUPPLIER AND THE RISK FACTORS INCU RRED BY THE ASSOCIATE- CONCERN WHICH WAS ALSO DISCUSSED IN DETAIL BY THE AUTHORITIES BEL OW. WE HAVE GONE THROUGH THE RATE OF HYDREGEN GAS QUOTED BY A THIRD PARTY NAMELY, M/S.G OYAL M.G.GASES PVT.LTD. AT RS.15/- PER M 3 FOR THE SAME PERIOD UNDER CONSIDERATION I.E. FROM 0.04.2010 TO 31.03.2011 WHICH INTEND TO SHOW THAT THE MARKET RATE OF HYDREGEN GAS FOR THE PERIOD UNDER CONSIDERATION IS MUCH HIGHER THAN THAT OF THE PRICE CHARGED BY THE A SSOCIATE-CONCERN, FURTHER TO SHOW THAT THE PAYMENT MADE TO THE ASSOCIATE-CONCERN IS NOT EX CESSIVE OR UNREASONABLE AS COMPARED TO THE MARKET RATE BUT WE FIND THAT THE SAID M/S.GO YAL M.G.GAS PVT.LTD. IS NOT A LOCAL SUPPLIER. NATURALLY, THE RATE INCLUDES THE TRANSPO RTATION COST TO BE INCURRED BY THE SUPPLIER TO SUPPLY HYDREGEN GAS TO THE ASSESSEE AT JHAGADIA AND THEREFORE THE PRICE QUOTED IS MUCH HIGHER THAN THE LOCAL PRICE OF RS.10 /- PER M 3 WHICH IS PAID BY THE ASSOCIATE-CONCERN TO THE SUPPLIER M/S.SHRI RAM ALKA LIES & CHEMICALS TO SUPPLY THE SAME TO THE ASSESSEE. WE, THEREFORE, FIND NO JUS TIFICATION IN INTERFERING WITH THE ORDER PASSED BY THE LD. CIT(A) IN CONFIRMING THE DISALLOW ANCE MADE BY THE LD. AO UNDER - 6 - ITA NO.2475/AHD/2014 M/S. JNP PRODUCTS VS. JT.CIT ASST.YEAR 2011-12 SECTION 40A(2) OF THE ACT AND THUS WE DISMISS THESE GROUNDS OF APPEAL PREFERRED BY THE ASSESSEE. 9. THE FOURTH GROUND RELATES TO THE CHARGING IN TEREST U/S.234D OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE AND HENCE DISMISSED. 10. THE LAST GROUND OF APPEAL IS AGAINST INITIA TION OF PENALTY U/S.271(1)(C) OF THE ACT. THE GROUND BEING PREMATURE IS NOT ENTERTAINED AND R EJECTED AS SUCH. THIS GROUND IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 08/08/2018 SD/- SD/- ( PRADIP KUMAR KEDIA ) ( MS . MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 08/ 08 /2018 .., .../ T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-II, BARODA 5. !'# , $ , / DR, ITAT, AHMEDABAD 6. #() *+ / GUARD FILE. / BY ORDER, ! //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !'#, / ITAT, AHMEDABAD 1. DATE OF DICTATION ..20/26.6.18 (DICTATION-PAD 9 + 4PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20/26.6.187.8.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.8.8.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8.8.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER