DCIT -5 (1)(1), MUMBAI V. AAURA PERSONAL PRODUCTS PVT. LTD., MUMBAI

ITA 3263/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3665 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 16-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MICHAEL JERALDLD
• Assessee Lawyers: NEHA PARANJPE LD ARS
• Keywords: Fair market value; Corroborative evidences; Tax effect; Onus to prove; Reason to believe
• Section: 143(3)

Judgement Text

1 ITA NO.3263/MUM/2018 M/S. AAURA PERSONAL PRODUCTS P.LTD. ASSESSMENT YEAR-2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.3263/MUM/2018 ( / ASSESSMENT YEAR:2012-13) DCIT - 15(1)(1) ROOM NO.470, 4 TH FLOOR AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020. / VS. M/S. A AURA PERSONAL PRODUCTS PVT.LTD. 1 ST FLOOR, CECIL COURT MAHAKAVI BHUSHAN MARG COLABA, MUMBAI-400 001. ! ./ ./PAN/GIR NO. AAECA-5760-C ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) ASSESSEE BY : SHRI K. GOPAL & MS. NEHA PARANJPE - LD.AR S REVENUE BY : SHRI S. MICHAEL JERALD - LD.DR / DATE OF HEARING : 16/10/2019 / DATE OF PRONOUNCEMENT : 13/11/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-24, 2 ITA NO.3263/MUM/2018 M/S. AAURA PERSONAL PRODUCTS P.LTD. ASSESSMENT YEAR-2012-13 MUMBAI, [IN SHORT REFERRED TO AS CIT(A)], APPEAL NO.CIT(A)-24/AIT- 15(1)(1)/IT-94/2015-16 DATED 14/02/2018 ON FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER , IN RESPECT OF PAYMENT OF RS.1,62,27,450/- MADE TO PERSONS SPECIFIED U/S 40(A )(2)(A) OF THE INCOME TAX ACT, WITHOUT APPRECIATING THAT THE ASSESSEE COULD NOT EX PLAIN THE REASONABLENESS OF THE TRANSACTIONS WITH SUPPORTING EVIDENCES WITH REGARD TO THE FAIR MARKET VALUE AND COMPARATIVE RATES AND THE ASSESSEE'S REFUSAL TO JUS TIFY THE COST WAS SUFFICIENT REASON TO BELIEVE THE MALA-FIDE INTENTION OF THE ASSESSEE.' 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER , IN RESPECT OF EXCESS INTEREST EXPENDITURE OF 1% AMOUNTING TO RS.L5036/- PAID TO THE GROUP ENTITY BEING PERSONS SPECIFIED U/S 40(A)(2)(A) OF THE INCOME TAX ACT.' 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ), MUMBAI ON THE ABOVE DIRECTIONS BE SET- ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED .' 2.1 FACTS ON RECORD WOULD REVEAL THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED IN MANUFACT URING OF CHEMICALS, TOILETRIES AND PERSONAL CARE PRODUCTS WAS ASSESSED FOR YEAR UNDER CONSIDERATION U/S 143(3) ON 28/03/2015 WHEREIN THE INCOME WAS ASSESSED AT RS.162.42 LACS AFTER SOLE DISALLOWANCE U/S 40A(2 )(A) FOR RS.162.42 LACS AS AGAINST NIL RETURN E-FILED BY THE ASSESSEE ON 28/09/2012. 2.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE MADE PAYMENT OF RS.162.27 LACS TOWARDS PURCHASES OF PACK ING MATERIAL AND INTEREST PAYMENT OF RS.15.03 LACS TO AN ENTITY NAME LY M/S BHARAT CONTAINERS (NAGPUR) PVT. LTD. THE SAID ENTITY WAS A SPECIFIED PERSON WITHIN THE MEANING OF SEC. 40A(2)(B) OF THE ACT. HENCE, TH E ASSESSEE WAS SHOW- CAUSED TO JUSTIFY THE REASONABLENESS OF THE EXPENDI TURE HAVING REGARDS TO THE FAIR MARKET RATES AND COMPARATIVE RATES. THE AS SESSEE SUBMITTED THAT INPUT RATES WERE FINALIZED BETWEEN THE SUPPLIERS AN D ASSESSEES PRINCIPAL 3 ITA NO.3263/MUM/2018 M/S. AAURA PERSONAL PRODUCTS P.LTD. ASSESSMENT YEAR-2012-13 AND THE ASSESSEE WAS ONLY A CONVERTOR OF RAW MATERI AL AS PER THE DIRECTIONS OF ITS PRINCIPAL. 2.3 THE LD.AO NOTED THAT THE ASSESSEE WAS ADMITTEDL Y A CONTRACT MANUFACTURER FOR VARIOUS MULTINATIONAL AND CORPORAT E CLIENTS AND AS SUCH EXPENDITURE INCURRED ON BEHALF OF ITS CLIENTS / PRI NCIPALS WAS LIABLE TO BE REIMBURSED. HOWEVER, THE RECORD AND DETAILS FILED B Y THE ASSESSEE WOULD NOT SHOW ANY SUCH RECOVERIES AND THEREFORE, THE ASS ESSEE MADE THESE PURCHASES ONLY WITH A VIEW TO INFLATE THE COST UNRE ASONABLY TO SUPPRESS THE PROFIT AND ITS INCOME. THEREFORE, THE ENTIRE EXPEND ITURE WAS CONSIDERED AS UNREASONABLE WITHIN THE MEANING OF SEC. 40A(2)(A) A ND ADDED TO ASSESSEES INCOME. 2.4 REGARDING INTEREST PAYMENT, THE ASSESSEE SUBMIT TED THAT IT PAID INTEREST @13.5% TO SISTER CONCERN WHICH WAS THE SAM E RATE AS PAID ON WORKING CAPITAL LOANS OBTAINED FROM BANKERS. HOWEVE R, NOTICING THAT THE ASSESSEE PAID INTEREST @12.5% TO ONE OF THE BANKERS AS AGAINST RATE OF 13.5% PAID TO SISTER CONCERN, LD. AO WORKED OUT PRO PORTIONATE DISALLOWANCE OF RS.15,036/- U/S 40A(2)(A). 3.1 AGGRIEVED, THE ASSESSEE AGITATED BOTH THE DISAL LOWANCES BEFORE FIRST APPELLATE AUTHORITY BY WAY OF ELABORATE SUBMISSIONS . THE ASSESSEE EXPLAINED THAT THE ASSESSEE WAS ENGAGED IN MANUFACT URING OF CONSUMER PRODUCTS VIZ. DEODORANTS / PERFUMES FOR AMWAY INDIA PRIVATE LTD. [AMWAY] AND WAS REQUIRED TO PROCURE RAW MATERIAL INCLUDING PACKAGING MATERIAL FROM ITS SUPPLIERS. THE AMOUNT OF RS.162.42 LACS WAS SPE NT ON PURCHASING CANS WHICH WERE REQUIRED TO FILL THE FRAGRANCE AND LD. A O PROCEEDED ON WRONG 4 ITA NO.3263/MUM/2018 M/S. AAURA PERSONAL PRODUCTS P.LTD. ASSESSMENT YEAR-2012-13 FOOTING THAT THE SAID EXPENDITURE WAS REIMBURSABLE IN NATURE. AS PER THE TERMS OF AGREEMENT ENTERED INTO BY THE ASSESSEE WIT H AMWAY, THE ASSESSEE WAS REQUIRED TO SUPPLY GOODS AS PER SPECIF ICATIONS GIVEN BY AMWAY AND ALSO AT THE COST APPROVED BY THEM. HOWEVE R, THE ASSESSEE WAS REQUIRED TO PURCHASE RAW MATERIAL AND PACKAGING MAT ERIAL ON ITS OWN ACCOUNT WHICH WAS EVIDENT FROM CLAUSE 2.6 OF AGREEM ENT DATED 03/11/2011. THE GOODS WERE SUPPLIED AT THE PRICES AGREED TO BY AMWAY ONLY AND COST OF PURCHASES OF ALL RAW MATERIAL INCLUDING PACKING MAT ERIAL WAS RECOVERED IN THE SELLING PRICES ONLY. THESE COSTS VERY MUCH FORM PART OF THE MANUFACTURING COSTS OF THE ASSESSEE. SIMILARLY, REG ARDING INTEREST RATE, IT WAS SUBMITTED THAT THE LOANS FROM SISTER CONCERN WA S UNSECURED AND INTEREST WAS PAYABLE ON ANNUAL BASIS AS AGAINST THE BANK LOAN WHICH WAS SECURED AND INTEREST WAS PAYABLE AT THE END OF EACH MONTH. 3.2 THE LEARNED CIT(A), FINDING BOTH THE ISSUES TO BE IN ASSESSEES FAVOR BY THE ORDER OF ITS PREDECESSOR FOR AY 2010-11, DEL ETED THE ADDITION. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] SUBMITT ED THAT THE ASSESSEE COULD NOT PROVE THE REASONABLENESS OF THE EXPENDITURE. IT WAS ALSO SUBMITTED THAT APPEAL IN AY 2010-11 WAS NOT PR EFERRED BY REVENUE DUE TO LOW TAX EFFECT. ON THE OTHER HAND, LD. AUTHORIZE D REPRESENTATIVE FOR ASSESSEE (AR), SHRI K.GOPAL, SUBMITTED THAT THE IMP UGNED ADDITIONS WERE MADE ON THE WRONG FOOTING THAT THE SAID COSTS WERE NOT RECOVERED FROM THE PRINCIPAL. THE ATTENTION WAS DRAWN TO THE FACT THAT PACKING MATERIAL WAS PROCURED BY THE ASSESSEE ALONG WITH OTHER RAW MATER IAL AND THE 5 ITA NO.3263/MUM/2018 M/S. AAURA PERSONAL PRODUCTS P.LTD. ASSESSMENT YEAR-2012-13 MANUFACTURING COST WAS RECOVERED IN THE SELLING PRI CES ONLY. THE ATTENTION WAS DRAWN TO THE FACT THAT THERE WAS NO CHANGE IN A SSESSEES NATURE OF BUSINESS AND NO SUCH ADDITION WAS MADE FOR AY 2013- 14 WHILE FRAMING ASSESSMENT U/S 143(3). IN THE ABOVE BACKGROUND, LD. AR SUBMITTED THAT THE INGREDIENTS OF SECTION 40A(2)(A) WERE NEITHER ATTRA CTED NOR DEMONSTRATED TO BE FULFILLED BY LD. AO AND THEREFORE, THE ADDITIONS WERE RIGHTLY DELETED. 5. UPON DUE CONSIDERATION, WE FIND THAT UNDISPUTEDL Y THE ASSESSEE WAS ENGAGED IN MANUFACTURING OF GOODS FOR ITS PRINCIPAL . AS PER THE TERMS OF AGREEMENT, THE ASSESSEE WAS REQUIRED TO PROCURE RAW MATERIAL AS WELL AS PACKING MATERIAL FOR ITS PRINCIPAL AND THE COST OF MANUFACTURING INCLUDING PACKING MATERIAL WAS IN-BUILT IN PRE-DETERMINED SEL LING PRICES AND NOT SEPARATELY RECOVERABLE FROM THE PRINCIPAL. AS NOTED BY LD. FIRST APPELLATE AUTHORITY, IN ORDER FOR AY 2010-11, THE PRODUCTS BE ING MANUFACTURED BY THE ASSESSEE WERE REQUIRED TO BE PACKED IN ALUMINUM CAN S AND PLASTIC BOTTLES AS PER THE REQUIREMENTS OF THE CUSTOMERS. IT IS ALS O NOTED THAT NO SUCH ADDITION HAS BEEN MADE IN AY 2013-14 BY LD. AO WHIL E FRAMING ASSESSMENT U/S 143(3). 6. PROCEEDING FURTHER, THE PROVISIONS OF SEC.40A(2) (A) ENVISAGES DISALLOWANCE OF ONLY SO MUCH OF EXPENDITURE, WHICH IN THE OPINION OF LD. AO, WAS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET PRICE OF GOODS. WE FIND THAT THE ONUS TO PROVE THE UNREAS ONABLENESS OF EXPENDITURE WAS ON REVENUE. HOWEVER, NO SUCH EXERCI SE IS SHOWN TO HAVE BEEN CARRIED OUT BY LD. AO. RATHER, THE LD. AO, IN THE PROCESS OF APPLYING THE PROVISIONS OF SEC.40A(2)(A), DISALLOWED ENTIRE EXPENDITURE CLAIMED BY 6 ITA NO.3263/MUM/2018 M/S. AAURA PERSONAL PRODUCTS P.LTD. ASSESSMENT YEAR-2012-13 THE ASSESSEE AS IF THE EXPENDITURE WAS ENTIRELY BOG US AND THE GOODS WERE NOT, AT ALL, PROCURED BY THE ASSESSEE IGNORING THE FACT THAT THE PURCHASE OF PACKING MATERIAL WAS AS PER THE TERMS OF THE AGREEM ENT. 7. SIMILARLY, THERE WAS MARGINAL DIFFERENCE IN RATE OF INTEREST BEING PAID BY THE ASSESSEE TO ASSOCIATED CONCERN IN COMPARISON TO INTEREST PAID TO BANK WHICH STOOD EXPLAINED BY THE FACT THAT THE LOA NS OBTAINED FROM BANK WAS SECURED LOAN AND INTEREST WAS PAYABLE ON MONTHL Y BASIS AS AGAINST LOAN OF SISTER CONCERNS WHICH WAS UNSECURED AND INT EREST WAS PAYABLE ON ANNUAL BASIS. THE EXPLANATION FURNISHED BY THE ASSE SSEE COULD BE TERMED AS PLAUSIBLE EXPLANATION KEEPING IN VIEW THE DIFFER ENCE IN TWO INTEREST RATES. 8. THEREFORE, ON THE FACTS AND CIRCUMSTANCES, WE SE E NO REASON TO INTERFERE WITH THE IMPUGNED ORDER. ACCORDINGLY, THE APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13TH NOVEMBER , 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 13/11/2019 SR.PS:-JAISY VARGHESE 56 76 / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 7 ITA NO.3263/MUM/2018 M/S. AAURA PERSONAL PRODUCTS P.LTD. ASSESSMENT YEAR-2012-13 2. $%!# / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. O P $ Q , Q , / DR, ITAT, MUMBAI 6. P RST / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.