ACIT, CHENNAI V. M/s. Prakash Impex, CHENNAI

ITA 321/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61389 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 15-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SHUKLA
• Assessee Lawyers: T BANUSEKAR
• Section: 143(3)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 321/MDS/2012 ASSESSMENT YEAR : 2008 - 09 THE ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE XI, KANNAMMAI BUILDING, NO. 611, ANNA SALAI, CHENNAI 600 006. VS. M/S. PRAKASH IMPEX, NO. 58E (N/P), SIDCO, INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 098. [PAN: AAAFP5388G] (APPELLANT) (RESPONDENT) APPELLANT BY : MS. ANUPAMA SHUKLA, CIT RESPONDENT BY : SHRI T. BANUSEKAR, C.A. DATE OF HEARING : 1 8 . 0 7 .201 2 DATE OF PRONOUNCEMENT : 26.07.2012 ORDER PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IV, CHENNAI DA TED 17.11.2011 IN ITA NO. 110/10-11/A.IV FOR THE ASSESSMENT YEAR 2008 -09. MS. ANUPAMA SHUKLA, CIT REPRESENTED ON BEHALF OF THE REVENUE AN D SHRI T. BANUSEKAR, C.A. REPRESENTED ON BEHALF OF THE ASSESSEE. 2. THE ONLY ISSUE IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.321 321321 321/M/ /M/ /M/ /M/12 1212 12 2 MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(2) TOWARDS DIFFERENCES IN PRICE OF LEATHER PURCHASED FROM RELATED PARTIES AND THIRD PARTIES. 3. THE REVENUE ALSO RAISED THE GROUND THAT THERE I S VIOLATION OF PROVISIONS OF RULE 46A, AS NO OPPORTUNITY WAS GIVEN TO THE ASSESSING OFFICER TO EXAMINE THE FRESH EVIDENCE FILED BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 4. FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FI RM ENGAGED IN THE BUSINESS OF MANUFACTURING LEATHER AND LEATHER GARME NTS, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ADMITTING TO TAL INCOME OF ` .33,15,090/-. THE ASSESSING OFFICER COMPLETED THE A SSESSMENT UNDER SECTION 143(3) OF THE ACT BY ORDER DATED 23.12.2010 ASSESSING THE TOTAL INCOME AT ` .4,90,85,650/-. WHILE COMPLETING THE ASSESSMENT, TH E ASSESSING OFFICER DISALLOWED ` .2,12,77,744/- TOWARDS DIFFERENCES BETWEEN PRICE AT WHICH LEATHER WAS PURCHASED FROM RELATED PARTIES AN D THE PRICE AT WHICH LEATHER WAS PURCHASED FROM UNRELATED PARTIES, UNDER SECTION 40A(2)(B) AS EXCESSIVE AND UNREASONABLE. THE ASSESSING OFFICER H ELD THAT THE AVERAGE COST OF LEATHER PURCHASED FROM RELATED PARTIES WERE HIGHER THAN THE COST OF LEATHER PURCHASED FROM UNRELATED PARTIES. THE ASSES SING OFFICER STATED THAT THE ASSESSEE HAD PURCHASED LEATHER AT AN AVERAGE CO ST OF ` .217/- PER PIECE AS AGAINST ` .120/- PER PIECE FROM UNRELATED PARTIES. THEREFORE, HE CONCLUDED THAT THERE IS EXCESS PAYMENT TO RELATED PARTIES TO AN EXTENT OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.321 321321 321/M/ /M/ /M/ /M/12 1212 12 3 ` .2,12,72,744/- AND DISALLOWED THE SAME INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 5. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE MATERIALS P LACED BEFORE HIM HELD THAT THERE IS NEITHER ANY SUSPICIOUS TRANSACTION NO R ANY EVIDENCE TO SHOW THAT THE ASSESSEE HAD PAID MORE THAN WHAT IT WAS PA YING TO THE RELATED PARTIES AND THEREFORE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE OBSERVATION OF THE COMMISSIONER OF INC OME TAX (APPEALS) AT PARA 5 AS UNDER: 5. THE SECOND DISALLOWANCE MADE BY THE APPELLANT IS UNDER SECTION 40A(2)(B) WHERE THE APPELLANT HAD PURCHASED SOME FINISHED AND SEMI-FINISHED GOODS FROM A PROPRIETORY CONCERN WHICH IS A RELATED PARTY. THIS ISSUE WAS ALSO SENT FOR REMAND PROCEEDINGS AT THE TIME OF APPEAL. IN THIS REMAND R EPORT, THE ASSESSING OFFICER MENTIONS THAT THE APPELLANT HAS N OT FURNISHED DETAILS RELATING TO THE PURCHASES MADE BY THE APPEL LANT FROM THE RELATED PARTY. BUT THE LEARNED AUTHORISED REPRESENT ATIVE MR. T. BANUSEKAR, IN THE REJOINDER TO THE REMAND REPORT, S UBMITTED THAT THEY HAVE GIVEN ALL THE INFORMATION AND THEY COULD NOT UNDERSTAND WHY THE ASSESSING OFFICER HAS SENT SUCH A REMAND RE PORT. IN FACT, THEY VOLUNTEERED TO SHOW SOME OF THE PURCHASE INVOI CES OF THE APPELLANT WITH RELATED CONCERN AS WELL AS UNRELATED CONCERNS. I HAVE PERUSED THESE PURCHASE INVOICES. THERE IS NEIT HER ANY SUSPICIOUS TRANSACTION NOR THERE IS ANY EVIDENCE TO SHOW THAT THE APPELLANT HAS PAID MORE THAN WHAT HE WAS PAYING TO THE RELATED PARTY. IN VIEW OF THE SAME, THE ADDITION MADE BY TH E APPELLANT IS DELETED. 6. AGAINST THIS ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS), THE REVENUE IS IN APPEAL BEFORE US. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.321 321321 321/M/ /M/ /M/ /M/12 1212 12 4 7. THE COUNSEL FOR THE REVENUE SUBMITS THAT THE AS SESSEE PURCHASED LEATHER FROM VARIOUS PARTIES AND IN THE COURSE OF S UCH PURCHASE OF LEATHER, IT HAD MADE PAYMENTS TO RELATED PARTIES IN EXCESS OF M ARKET PRICE AS IT WAS PAYING TO THE UNRELATED PARTIES. THEREFORE, SINCE T HERE IS EXCESS PAYMENT TO THE RELATED PARTIES, THE ASSESSING OFFICER IS CORRE CT IN MAKING THE DISALLOWANCE UNDER SECTION 40A(2)(B) OF THE ACT. TH E COUNSEL FOR THE REVENUE SUBMITS THAT THE ASSESSEE HAS FILED CERTAIN INFORMATION BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) FOR THE FIRST TIME, WHICH WAS NOT PRODUCED BEFORE THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS AND BASED ON SUCH MATERIALS, THE COMMIS SIONER OF INCOME TAX (APPEALS) CONCLUDED THAT THERE WAS NO EXCESS PAYMEN T TO THE RELATED PARTIES AND ALLOWED THE RELIEF TO THE ASSESSEE. THEREFORE, THE COUNSEL FOR THE REVENUE SUBMITS THAT THERE IS VIOLATION OF PROVISIO NS OF RULE 46A AS NO OPPORTUNITY WAS GIVEN TO THE ASSESSING OFFICER TO E XAMINE THOSE MATERIALS. 8. IN REPLY, THE COUNSEL FOR THE ASSESSEE REFERRIN G TO PAGE 8 OF THE PAPER BOOK SUBMITS THAT THE ASSESSEE FILED PETITION UNDER RULE 46A ALONG WITH COPIES OF INVOICES FOR PURCHASE OF VARIOUS TYPES OF LEATHER FROM BOTH RELATED AND UNRELATED PARTIES AND THE COMMISSIONER OF INCOM E TAX (APPEALS) FORWARDED THE SAME TO THE ASSESSING OFFICER AND CAL LED FOR A REMAND REPORT AND THE REMAND REPORT WAS ALSO SUBMITTED BY THE ASS ESSING OFFICER. THEREFORE HE SUBMITS THAT SINCE THE COMMISSIONER OF INCOME TAX (APPEALS) I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.321 321321 321/M/ /M/ /M/ /M/12 1212 12 5 HAS FORWARDED ALL THE INFORMATION TO THE ASSESSING OFFICER AND CALLED FOR A REMAND REPORT, THERE IS NO VIOLATION OF RULE 46A AN D THE COMMISSIONER OF INCOME TAX (APPEALS), AFTER HAVING CONSIDERED THE R EMAND REPORT AND THE DETAILS FURNISHED BY THE ASSESSEE, CAME TO THE CONC LUSION THAT THERE IS NO EXCESS PAYMENT MADE BY THE ASSESSEE TO THE RELATED PARTIES. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER WENT WRONG IN TAKING THE AVERAGE COST OF LEATHER PURCHASED AND COMPARING WIT H THE PRICES AT WHICH THE PURCHASES WERE MADE FROM UNRELATED PARTIES. HE SUBMITS THAT THE ASSESSEE PURCHASED VARIOUS TYPES OF LEATHER I.E. EI GOAT SKINS, RAW SHEEP SKINS, SHEEP FINISHED LEATHER, EI SHEEP SKINS, SHEE P CRUST, GOAT NAPLAN, SHEEP PICKLE SKIN, AND GOAT FINISHED LEATHER AND TH E PRICE FOR SUCH LEATHER VARIES FROM TYPE TO TYPE. THEREFORE, THE AVERAGE CO ST OF ALL THESE LEATHERS CANNOT BE TAKEN AT ALL FOR COMPARISON. 9. WE HAVE HEARD BOTH SIDES, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL PLACED BEFORE US. THE ASSESSING OFFICER DI SALLOWED ` . 2,12,72,744/- ON THE GROUND THAT THE ASSESSEE HAD PURCHASED LEATH ER FROM RELATED PARTIES AT AN HIGHER PRICE THAN THE MARKET PRICE PAID ON TH E PURCHASES MADE FROM UNRELATED PARTIES. FROM THE DETAILS FURNISHED BEFOR E US, WE COULD SEE THAT THE ASSESSING OFFICER FAILED TO CONSIDER THAT THE P URCHASES FROM RELATED PARTIES WERE OF FINISHED AND SEMI-FINISHED LEATHER AND WHEREAS, THE PURCHASES FROM UNRELATED CONCERNS WERE OF RAW LEATH ER. MOREOVER, THE TYPES I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.321 321321 321/M/ /M/ /M/ /M/12 1212 12 6 AND QUALITY OF SKIN PURCHASED WERE ALSO DIFFERENT. IGNORING ALL THESE ASPECTS, THE ASSESSING OFFICER CONCLUDED THAT PRICE PAID TO RELATED CONCERNS WAS UNREASONABLE AND EXCESSIVE. THE ASSESSEE HAS SUBMIT TED THE FOLLOWING TABLE OF COMPARISON OF RATES AT WHICH VARIOUS ITEMS WERE PURCHASED FROM RELATED PARTIES AND UNRELATED PARTIES: 1. EI GOAT SKINS (REFER ANNEXURE 2) PARTY PRICE RANGE ( ` . PER SQ.FT.) M/S. PRAKASH OVERSEAS (RELATED PARTY) ` .30.50 PER SQ.FT. TO ` 38/- PER SQ.FT. M/S. CHENDUR LEATHERS (UNRELATED PARTY) `. 30 PER SQ.FT. TO ` . 39 PER SQ.FT. M/S. K.A.R. LEATHERS PVT. LTD. (UNRELATED PARTY) ` .33 PER SQ.FT. AND ` .34.50 PER SQ.FT. 2. RAW SHEEP SKINS (REFER ANNEXURE 3) PARTY PRICE RANGE ( ` . PER PC) M/S. CHAMUNDI LEATHERS (RELATED PARTY) ` .225 PER PC TO ` 237/- PER PC. M/S. MAHALAKSHMI TRADERS (UNRELATED PARTY) `. 240 PER PC TO `. 250 PER PC. 3. SHEEP FINISHED LEATHER (REFER ANNEXURE 4) PARTY PRICE RANGE ( ` . PER DCM) M/S. PRAKASH OVERSEAS (RELATED PARTY) ` .6.00 PER DCM M/S. NAGARJUNA LEATHERS P. LTD. (UNRELATED PARTY) `. 6.90 PER DCM M/S. VAIGAI LEATHERS CORPORATION (UNRELATED PARTY) ` . 6.50 PER DCM M/S. COLOUR TAN & TRADERS ` . 6.50 PER DCM I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.321 321321 321/M/ /M/ /M/ /M/12 1212 12 7 4. EI SHEEP SKINS (REFER ANNEXURE 5) PARTY PRICE RANGE ( ` . PER SQ.FT.) M/S. PRAKASH OVERSEAS (RELATED PARTY) ` .45.00 PER SQ.FT. M/S. TRICHY LEATHER COMPANY (UNRELATED PARTY) ` .49.00 PER SQ.FT. M/S. OPELL LEATHERS (UNRELATED PARTY) ` .42.00 PER SQ.FT. 5. SHEEP CRUST (REFER ANNEXURE 6) PARTY PRICE RANGE ( ` . PER SQ.FT.) M/S. PRAKASH OVERSEAS (RELATED PARTY) ` .52.00 PER SQ.FT. M/S. TRICHY LEATHER COMPANY (UNRELATED PARTY) ` .54.00 PER SQ.FT. M/S. A.R. ENTERPRISES (UNRELATED PARTY) ` .55.00 PER SQ.FT. M/S. SRI KARPAGA LEATHERS (UNRELATED PARTY) ` .62.00 PER SQ.FT. 6. GOAT NAPLAN (REFER ANNEXURE 7) PARTY PRICE RANGE ( ` . PER DCM) M/S. PRAKASH OVERSEAS (RELATED PARTY) ` .6.00 PER DCM M/S. CAPRINE EXPORTS (UNRELATED PARTY) ` .6.15 PER DCM M/S. SRI BALAJI EXPORTS (UNRELATED PARTY) ` .6.45 PER DCM 7. SHEEP PICKLE SKIN (REFER ANNEXURE 8) PARTY PRICE RANGE ( ` . PER PC) M/S. CHAMUNDI LEATHERS (RELATED PARTY) ` .208 PER PC TO ` 272/- PER PC. M/S. PAKBOD CO. LTD. (UNRELATED PARTY) ` .276 PER PC I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.321 321321 321/M/ /M/ /M/ /M/12 1212 12 8 8. GOAT FINISHED LEATHER (REFER ANNEXURE 9) PARTY PRICE RANGE ( ` . PER PC) M/S. PRAKASH OVERSEAS (RELATED PARTY) ` .40.00 PER PC TO `. 50.00 PER PC. M/S. OPELL LEATHERS (UNRELATED PARTY) `. 50.00 PER PC. M/S. LEATHER INDIA (UNRELATED PARTY) `. 52.00 PER PC. 10. ON GOING THROUGH THE ABOVE INFORMATION FURNISH ED, IT IS EVIDENT THAT IN RESPECT OF EACH ITEM, THE RATE ON WHICH THE PURCHAS ES WERE MADE FROM THE RELATED PARTIES FALLS WITHIN THE PRICE RANGE OF THE UNRELATED PARTIES. THUS, IT IS SEEN THAT THE PRICE PAID TO RELATED PARTIES ARE NOT EXCESSIVE OR UNREASONABLE. WITHOUT GOING INTO THESE DETAILS, THE ASSESSING OFF ICER MERELY CONSIDERED THE AVERAGE RATE OF PURCHASES AND REACHED A CONCLUS ION THAT THE PRICES PAID TO THE RELATED PARTIES WERE EXCESSIVE FOR WHICH THE RE IS NO BASIS. EVEN WHILE SENDING THE REMAND REPORT TO THE COMMISSIONER OF IN COME TAX (APPEALS), THE ASSESSING OFFICER DID NOT CONSIDER ALL THESE AS PECTS INSPITE OF ALL THE DETAILS WERE AVAILABLE WITH HIM. THEREFORE, IN OUR VIEW, THE COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFIED IN HOLDING THAT T HERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS PAID MORE TO THE RELATED PART IES THAN WHAT IT WAS PAYING TO THE UNRELATED PARTIES. HENCE, WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E DISALLOWANCE MADE UNDER SECTION 40A(2)(B). THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.321 321321 321/M/ /M/ /M/ /M/12 1212 12 9 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED ON THURSDAY, THE 26 TH OF JULY, 2012 AT CHENNAI. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER CHENNAI, DATED, THE 26.07.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.