SSD INDUSTTRIES, MUMBAI V. ACIT 21(2), MUMBAI

ITA 2906/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1628 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 24-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Assessee Lawyers: PARESH SHAPAIRA
• Keywords: Maximum Marginal Rate; Arm length price; Set aside
• Section: 143(3); 80IB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.2906/M/2017 ASSESSMENT YEAR: 2009-10 M/S. SSD INDUSTRIES, PLOT NO.109D, MAHENDRA INDUSTRIAL PREMISES, GALA NO.4, 1 ST FLOOR, NEXT TO VVF LTD., SION (E), MUMBAI 400 022 PAN: AATFS3950L VS. ACIT 21(2), C-11, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI 400051 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI PARESH SHAPAIRA, C.A. REVENUE BY : SHRI CHAUDHARY ARUNKUMAR SINGH, D.R . DATE OF HEARING : 15.07.2019 DATE OF PRONOUNCEMENT : 11.09.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 16.01.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) ERRED IN CONFIRMING THE AD DITION MADE TO NET PROFIT BY AMOUNT OF RS.88,90,4677- BY ESTIMATING THE NET PROFIT @56% AS AGAINST THE NET PROFIT DECLARED @26.48% WITHOUT APPRECIATING THAT PROPER E XPLANATION AND SUPPORTING WAS FILED TO JUSTIFY THE FALL IN NET PROFIT AND WIT HOUT REJECTING THE SAME BY COGENT REASONS AND WITHOUT REJECTING THE BOOKS OF ACCOUNT OF THE APPELLANT, THE ADDITION MADE OF RS.88,90,467/- BY ESTIMATING NET PROFIT @56 % IS WITHOUT ANY JUSTIFICATION AND IS LIABLE TO BE DELETED. 2. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE PURCHASE OF RAW MATERIAL FROM SISTER CONCERN M.K. TRADERS WAS AT ARMS-LENGTH PRIC E I.E. THE PRICE AT WHICH THE SISTER CONCERN SOLD THE GOODS TO OTHER THIRD PARTIE S AND WITHOUT POINTING OUT ANY ITA NO.2906/M/2017 M/S. SSD INDUSTRIES 2 EXCESSIVE PRICE PAID TO SISTER CONCERN AND MERELY O N THE GROUND THAT COST PRICE IS INFLATED AS THE PURCHASE OF GOODS IS FROM SISTER CO NCERN, THE ADDITION MADE OF RS.88,90,467/- TO THE DECLARED NET PROFIT IS WITHOU T ANY JUSTIFICATION AND LIABLE TO BE DELETED. 3. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE SISTER CONCERN M.K. TRADERS WAS CARRYING OUT THE BUSINESS SINCE PAST SEVERAL YEARS AND HAS BEEN TAXED AT THE MAXIMUM MARGINAL RATE WITHOUT ANY BENEFIT OF DEDUCT ION U/S.80IB OF THE ACT WHEREAS THE APPELLANT IS ENTITLED TO BENEFIT OF DED UCTION U/S.80IB OF THE ACT AND THUS, THERE IS NO BENEFIT BY PURCHASING RAW MATERIA L AT HIGHER PRICE FROM THE SISTER CONCERN AND HENCE, THE ADDITION MADE OF RS.88,90,46 7/- TO THE DECLARED NET PROFIT IS WITHOUT ANY JUSTIFICATION AND LIABLE TO BE DELET ED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER , AMEND ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE ONLY ISSUE RAISED IN THE VARIOUS GROUNDS OF APPEAL IS AGAINST THE ADDITION OF RS.88,90,467/- BY THE AO BY ESTIMATING THE NET PROFIT AT 56% AS AGAINST THE NET PROFIT DEC LARED BY THE ASSESSEE OF 26.48% WITHOUT APPRECIATING THE FACT TH AT PURCHASE OF RAW MATERIAL FROM THE SISTER CONCERN WAS MADE AT AN ARM LENGTH PRICE AND ALSO BY IGNORING THE FACT THAT BO TH THESE ENTITIES ASSESSEE AS WELL AS SISTER CONCERN HAVE BE EN ASSESSED TO TAX AT MAXIMUM RATE. 4. THE FACTS IN BRIEF ARE THAT THE PRESENT APPEAL H AS BEEN FILED AGAINST THE APPELLATE ORDER CONFIRMING ORDER PASSED BY THE AO UNDER SECTION 143(3) READ WITH SECTION 263 OF THE A CT. THE ASSESSEE HAS NOT CHALLENGED THE REVISIONARY ORDER P ASSED BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT. IN THE REVISIONARY PROCEEDINGS, THE CRUX OF ISSUE WAS THAT THE PR. CI T WAS OF THE VIEW THAT THE ASSESSEE WAS NOT CARRYING ON ANY MANU FACTURING ACTIVITIES. BESIDES THE NP HAS FALLEN TO 26% DURIN G THE YEAR UNDER CONSIDERATION VIS--VIS 56% IN THE EARLIER YE AR AND ALSO CITING SOME SALES DIFFERENCE IN THE LEDGER COPY OF M/S. PARLE BISCUITS LTD. VIS--VIS THE BOOKS OF ACCOUNTS OF TH E ASSESSEE. ITA NO.2906/M/2017 M/S. SSD INDUSTRIES 3 THE AO IN THE SET ASIDE PROCEEDINGS ACCEPTED THAT T HE ASSESSEE IS ENGAGED IN MANUFACTURING AND TRADE OF FOOD CHEMI CAL, ESSENTIAL OILS, FLAVOURS, BLENDS, LACTIC ACID AND I TS DERIVATIVES, HOWEVER, MADE THE ADDITION ON ACCOUNT OF NP DIFFERE NCE BETWEEN THE CURRENT YEAR VIS--VIS PRECEDING YEAR. THE AO OBSERVED THAT DURING THE PRECEDING THREE YEARS THE NP OF THE ASSE SSEE RANGED BETWEEN 50% TO 56% WHEREAS IN THE CURRENT YEAR IT H AS DWINDLED 26.48% AND ACCORDINGLY ASKED THE ASSESSEE TO JUSTIFY THE FALL IN NP. THE ASSESSEE REPLIED TO THE QUERY OF THE AO BY SUBMITTING THAT THE PROFITS HAVE COME DOWN DUE TO I NCREASE IN COST OF MATERIAL WHICH THE ASSESSEE HAD TO BUY FROM M/S. M.K. TRADERS A SISTER CONCERN AS COMPARED TO EARLIER M/S . PURAC ASIA PACIFIC. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE SUPPLY OF RAW MATERIAL FROM THE MANUFACTURER M/S. PURAC ASIA PACIFIC WAS DISCONTINUED DUE TO EXPIRY OF MOU ENTERED INTO WITH M/S. PURAC ASIA PACIFIC. THUS THE ASSESSEE HAD TO PURCHASE TH E MATERIAL AT A HIGHER PRICE FROM M/S. M.K. TRADERS WHO IS SOLE AUTHORISED STOCKIEST OF GOODS OF M/S. PURAC ASIA PACIFIC IN IN DIA. THE ASSESSEE ALSO SUBMITTED THAT THE RATES AT WHICH THE MATERIALS WERE PURCHASED FROM M/S. M.K. TRADERS WERE AT AN AR M LENGTH PRICE AND THEREFORE THERE IS GENUINE DECREASE IN TH E PROFITS OF THE ASSESSEE AND HAS NOT INCREASED IN ANY WAY THE INCO ME OF THE RELATED PARTY. HOWEVER, THE AO DID NOT ACCEPT THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE AND CALCULATED THE ADDITION AT RS.88,90,467/- BY COMPARING THE NET PROFIT IN THE C URRENT YEAR TO THE IMMEDIATELY PRECEDING YEAR. THE AO ALSO NOT ED THAT M/S. M.K. TRADERS HAS NOT CLAIMED ANY DEDUCTION UNDER CH APTER VIA OF THE INCOME TAX ACT WHEREAS THE ASSESSEE WAS ELIG IBLE TO CLAIM DEDUCTION @ 25% UNDER SECTION 80IB OF THE ACT. THE SAID ADDITION WAS DETERMINED BY THE AO BY CALCULATING TH E NET PROFIT ITA NO.2906/M/2017 M/S. SSD INDUSTRIES 4 AT RS.1,79,43,532/- ON A GROSS RECEIPT OF RS.3,20,4 2,022/- IN THE CURRENT YEAR BY TAKING THE NP OF 56% AND THUS A DDED THE DIFFERENCE TO THE NET PROFIT OF THE ASSESSEE. 5. THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSES SEE BY UPHOLDING THE ORDER OF AO BY ACCEPTING THE VARIOUS REASONING GIVEN FOR MAKING SUCH ADDITION. 6. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE US THAT THE ORDER PASSED BY THE AO WAS GROSSLY WRONG. SIMILARLY THE L D. CIT(A) HAS ALSO ERRED IN UPHOLDING THE SAID ORDER BY NOT A PPRECIATING THE FACTS CORRECTLY. THE LD. A.R. SUBMITTED THAT T HE FINDINGS OF THE AUTHORITIES BELOW ARE CONFLICTING AND CONTRADIC TORY AND HAVE LED TO ABSURD AND MEANINGLESS CONCLUSION BY THE AUT HORITIES BELOW. THE LD. A.R. SUBMITTED THAT IN THE REVISION ARY ORDER THE MAIN FOCUS OF THE LD. PR. CIT WAS THAT ASSESSEE WAS NOT CARRYING ON ANY MANUFACTURING ACTIVITY WHEREAS THE AO WHILE PASSING THE ASSESSMENT HAS ACCEPTED THE MANUFACTURING ACTIVITY OF THE ASSESSEE. THE LD. A.R. SUBMITTED THAT ASSESSEE DUL Y EXPLAINED THE FALL IN GP AND NP DURING THE YEAR VIS--VIS THE PRECEDING YEARS. THE LD. A.R. SUBMITTED THAT THE GP AND NP O F THE ASSESSEE ARE FALLING DURING THE YEAR DUE TO NON SUP PLY OF MATERIAL FROM M/S. PURAC ASIA PACIFIC AS THE MOU HA S EXPIRED WITH THAT COMPANY DURING THE YEAR AND CONSEQUENTLY THE SUPPLY OF MATERIAL WAS TAKEN FROM M/S. M.K. TRADERS A SIST ER CONCERN WHO HAPPENS TO BE SOLE AUTHORISED STOCKIEST OF M/S. PURAC ASIA PACIFIC IN INDIA. THE LD. A.R. SUBMITTED BEFORE TH E BENCH THAT THE PURCHASES FROM THE SISTER CONCERN WERE MADE AT AN ARM LENGTH PRICE AND AO HAS NOT BROUGHT ANY COMPARABLE CASES ON RECORD WHILE MAKING THE ADDITION TO PROVE THAT THE PRICE CHARGED ITA NO.2906/M/2017 M/S. SSD INDUSTRIES 5 BY THE SISTER CONCERN IS UNREASONABLE AND EXCESSIVE AS COMPARED TO THE MARKET PRICES. THE LD. A.R. DREW O UR ATTENTION TO PAGE NO.1 OF THE PAPER BOOK WHEREIN THE WORKING IN RESPECT OF GP AND NP AND THE CALCULATION OF ADDITION MADE BY T HE AO ON THE BASIS OF NP WERE GIVEN IN DETAIL. THE LD. A.R. WHILE REFERRING TO THE SAID WORKING SUBMITTED BEFORE THE BENCH THAT THE NET PROFIT DURING THE YEAR HAS COME DOWN TO 28.25% VIS- -VIS 56.65% IN 2008-09. THE LD. A.R. FURTHER ANALYSED T HE SALES INTO MANUFACTURING SALES AND TRADING SALES. IN THE MANUF ACTURING SALES THE GP WAS 39.04% VIS--VIS 56.16% IN A.Y. 20 08-09 WHEREAS IN THE TRADING SALES THE GP WAS 31.28% VIS- -VIS NIL IN THE A.Y. 2008-09 AS THERE WAS NO SALES. THE LD. A. R. SUBMITTED THAT THE AO CALCULATED THE GP AT 56% AND DETERMINE D THE NP AT RS.1,79,43,532/- AND AFTER DEDUCTING THERE FROM THE NET PROFIT DECLARED BY THE ASSESSEE AT RS.90,53,065/-, THE DIF FERENTIAL AMOUNT WAS ADDED TO THE INCOME OF THE ASSESSEE OF RS.88,90,467/-. THE LD. A.R. SUBMITTED THAT THE AO HAS GROSSLY IGNORED THE FACT THAT THE TOTAL AMOUNT OF PURCHASES FROM THE SISTER CONCERN WERE ONLY OF RS.85,60,723/- WHEREAS THE DISALLOWANCE AS CALCULATED FOR SUPPRESSION OF PROFI T BY PURCHASING THE MATERIAL FROM SISTER CONCERN WAS RS.88,90,467/-. THE LD. A.R. ALSO TOOK US THROUGH THE PAGE NO.2 OF THE PAPER BOOK WHICH CONTAINED THE DETAILS OF COMPARATIVE GP ON VARIOUS ITEMS. THE LD. A.R. POIN TED OUT THAT THE ITEMS ON WHICH THE ASSESSEE WAS MAKING HIGHER G P IN THE EARLIER YEARS WERE NOT THERE IN THE CURRENT YEAR. THE LD. A.R. ALSO BROUGHT BEFORE THE BENCH THE INSTANCES OF SALE S BY M/S. M.K. TRADERS TO THE ASSESSEE AND TO THIRD PARTIES A ND DEMONSTRATED THAT THE PRICES OF THE MATERIAL SOLD T O THE ASSESSEE VIS--VIS THIRD PARTY WERE COMPETITIVE AND COMPARAB LE. THE COPY ITA NO.2906/M/2017 M/S. SSD INDUSTRIES 6 OF SAID DETAILS ARE FILED AT PAGE NO.68 OF THE PAPE R BOOK. SIMILARLY, THE LD. A.R. ALSO DREW OUR ATTENTION TO PAGE NO.67 AND 68 WHEREIN THE DETAILS OF SUPPLIES BY M/S. M.K. TRA DERS TO THE ASSESSEE WERE GIVEN AND SUBMITTED THAT THESE WERE M ADE AT A VERY COMPETITIVE AND COMPARABLE PRICES. THE LD. A. R. THEREFORE SUBMITTED THAT THE CONCLUSION OF THE AO THAT THE P ROFIT HAS BEEN SUPPRESSED BY THE ASSESSEE BY MAKING PURCHASES FROM THE SISTER CONCERN WAS WITHOUT ANY BASIS AND DEVOID OF MERIT. THE SECOND ARGUMENT TAKEN UP BY THE LD. A.R. IS THAT TH E BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED BY THE AO AND THERE FORE THE ADDITION MADE BY APPLYING GP RATE TO ESTIMATE THE I NCOME IS BAD IN LAW AND CAN NOT BE SUSTAINED. EVEN ON THE PRINC IPLE OF CONSISTENCY, THE ORDER OF THE CIT IS BAD IN LAW AS BOTH THE PARTIES WERE ASSESSED TO TAX AT MAXIMUM MARGINAL R ATE AND THERE IS NO LOSS OF REVENUE TO THE REVENUE. IN DEF ENCE OF HIS ARGUMENT THE LD. A.R. RELIED ON A SERIES OF DECISIO NS. FINALLY THE LD.AR PRAYED BEFORE THE BENCH THAT THE APPEAL OF TH E ASSESSEE MAY KINDLY BE ALLOWED BY SETTING ASIDE THE ORDER OF CIT(A). 7. THE LD DR ON THE OTHER HAND RELIED ON THE ORDER AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS DONE TRA NSACTIONS AT UNREASONABLE HIGH PRICES AND THUS THE PROFITS OF TH E ASSESSEE CAME DOWN SUBSTANTIALLY. THE LD DR PRAYED BEFORE TH E BENCH TO AFFIRM OF THE ORDER OF CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS ON RECORDS. WE OBSERVE THAT THE FALL IN G P AND NP WAS BECAUSE OF EXPIRY OF MOU WITH SUPPLIER M/S. PURAC ASIA PACIFIC A FOREIGN ENTITY DURING THE YEAR. WE FIND THAT THE ASSESSEE THEN BOUGHT THE MATERIALS FROM ITS SISTER CONCERN WHO WA S THE SOLE ITA NO.2906/M/2017 M/S. SSD INDUSTRIES 7 AUTHORIZED STOCKIEST IN INDIA OF THE FOREIGN SUPPLI ER. WE ALSO OBSERVE THAT THE PRICES CHARGED BY THE SISTER CONCE RN ARE COMPETITIVE AND COMPARABLE AS IS APPARENT FROM THE RECORDS AND THE AO HAS NOT BROUGHT ANY MATERIALS ON RECORDS TO SUBSTANTIATE THE ALLEGATION OF HIGH PRICES. THE ASSESSEE HAS AL SO PROVED BEFORE US THAT THE ITEMS ON WHICH GP WAS HIGH WERE ONLY IN THE EARLIER YEARS AND NOT IN THE CURRENT YEARS. WE THER EFORE CONSIDERING THE FACTS OF THE CASE, ARE OF THE OPIN ION THAT THE ORDER OF LD. CIT(A) IS INCORRECT AND CAN NOT BE SUS TAINED. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION. 9. IN RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.09.2019. SD/- SD/- ( AMARJIT SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 11.09.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.