Durga Rice & Gen. Mills, Ishmailabad V. A.O., Kaithal

ITA 360/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60900 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 23-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Fair market value; Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI T.R. SOOD, AM AND MS. SUSHMA CHOWLA, JM ITA NO. 360/CHD/2012 ASSESSMENT YEAR: 2007-08 DURGA RICE & GEN MILLS V ASSESSING OFFICER VILLAGE AJRAWAR WARD 3, KAITHAL ISMAILABAD PAN: (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AJAY JAIN ASSESSEE BY: SHRI AKHILESH GUPTA DATE OF HEARING: 21.06.2012 DATE OF PRONOUNCEMENT: 26 .06.2012 ORDER PER T.R. SOOD, A.M IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS:- 1 THE ASSESSING OFFICER HAS GROSSLY ERRED IN LAW I N INVOKING PROVISIONS OF SECTION 145(3) WITHOUT POINTING OUT A NY PATENT DEFECT, DEFICIENCY OR BRINGING OUT ANY POSITIVE MATERIAL TO POVE THAT THE BOOKS ARE NOT RELIABLE. 2. THE ASSESSING OFFICER HAS GROSSLY WORKED AGAINST LAW IN MAKING ADDITION ON THE BASIS OF MERELY COMPARING AVERAGE S ALES REALIZATION OF ASSESSEE WITH FEW OTHERS, WHEN EACH AND EVERY SALES TRANSACTION IS FULLY VOUCHED AND VERIFIABLE. THE ASSESSING OFFICER HAS REJECTED THE ARGUMENT OF THE ASSESSEE WITHOUT GOING IN TO ARGUME NTS. 3. THE LD. CIT(A) AND ASSESSING OFFICER HAD COMPLET ELY FAILED IN DISCHARGING THEIR ONUS TO PROVE THAT THE SALES MADE TO SISTER CONCERN IS INCORRECT OR IN GENUINE OR OF DIFFERENT VALUE THAN SHOWN IN THE BOOKS OF APPELLANT. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE FIRM WHICH IS ENGAGED IN THE BUSINESS OF RUNNING A RICE MILL, HAD DECLARED YIELD OF 17.55%. IT WAS SEEN THAT MANY OTHER RICE MILLS HAVE DECLARED Y IELD OF 18% TO 19%. IT WAS FURTHER NOTED THAT THE ASSESSEE HAD VALUED THE CLOS ING STOCK OF HUSK AT ESTIMATED REALIZABLE VALUE OF RS. 75/- PER QTL WH EREAS AVERAGE SALE PRICE CAME TO RS. 98.54 PER QTL. IN RESPONSE TO A QUERY IT WA S STATED THAT VARIATION IN THE YIELD WAS QUITE NEGLIGIBLE AND DEPENDS ON THE QUALI TY OF THE PADDY AND VARIOUS 2 OTHER FACTORS LIKE VARIATION IN MOISTURE, MIX OF TH E PADDY AND QUALITY OF PADDY ITSELF. IN RESPECT OF VALUE OF CLOSING STOCK OF HU SK, IT WAS STATED THAT SALE VALUE IN THE MONTH OF APRIL AND MAY WAS BETWEEN RS. 75 TO 85 PER QTL AND THE METHOD WAS REGULARLY FOLLOWED, THEREFORE, THE METHOD WAS CORRECT. THE ASSESSING OFFICER DID NOT FIND FORCE IN THE SUBMISSIONS AND R EJECTED THE BOOKS OF ACCOUNT. HE CONSIDERED 18% YIELD AS REASONABLE AND ACCORDING LY ADDED A SUM OF RS. 14,682/- ON ACCOUNT OF TRADING RESULTS AND RS. 2,3 2,300/- ON ACCOUNT OF LOWER VALUE OF THE HUSK. 3. ON APPEAL VARIOUS CONTENTIONS WERE RAISED AND UL TIMATELY THE LD. CIT(A) CONFIRMED THE ADDITION ON ACCOUNT OF YIELD. HOWE VER, AS FAR AS VALUATION OF THE CLOSING STOCK OF HUSK IS CONCERNED, THE SAME WAS DI RECTED TO BE VALUED AT RS. 80/- PER QTL. AGAINST REDUCTION OF THIS VALUE, THE REVENUE HAS NOT FILED ANY APPEAL. 4. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A ) AND FURTHER SUBMITTED THAT SPECIAL BENCH OF THE TRIBUNAL IN CASE OF SHANKER RI CE CO. V. ITO, 72 ITD 139 HAS HELD THAT BOOKS OF ACCOUNT CANNOT BE REJECTED J UST BECAUSE THERE IS A SMALL VARIATION IN THE YIELD. HE FURTHER CONTENDED THAT H USK IS A BI-PRODUCE WHICH IS SUBJECT TO DETERRENT ON QUALITY OVER A PERIOD OF TI ME AND THAT IS WHY THE ASSESSEE HAD ADOPTED ESTIMATED REALIZABLE VALUE FOR THE PURPOSE OF VALUE OF CLOSING STOCK WHICH HAS BEEN FOLLOWED FROM YEAR TO YEAR. 5. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UBMITTED THAT APART FROM LOW YIELD THE ASSESSEE HAD NOT MAINTAINED STOCK REG ISTER OF PADDY. THEREFORE, REJECTION OF BOOKS OF ACCOUNT WAS JUSTIFIED. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT SPECIAL BENCH OF THE TRIBUNAL IN CASE OF SHANKER RICE CO. V. ITO, 72 ITD 139 HAS HELD AS UNDER:- THE FOLLOWING FACTS EMERGING FROM THE RECORD ARE NO T CHALLENGED BY REVENUE (1) REGULAR BOOKS OF ACCOUNTS ARE MAINTAINED AND AR E DULY AUDITED BY CHARTERED ACCOUNTANTS; (2) STATUTORY REGISTERS PRES CRIBED BY THE GOVERNMENT ARE MAINTAINED AND THESE ARE PERIODICALLY SUBJECTED TO CHECK BY THE DEPARTMENT OF FOOD & CIVIL SUPPLIES. THESE REGISTER S ARE (I) REGISTER SHOWING PURCHASES, RECEIPTS AND DISPOSAL OF PADDY; (II) MILLING REGISTER; AND (III) RICE REGISTER; (3) PURCHASES AND SALES ARE RE GULATED BY THE RELEVANT PROVISIONS OF THE PUNJAB AGRICULTURAL PRODUCE MARKE TS ACT, 1961; (4) PADDY IS LIABLE TO PURCHASE TAX UNDER THE PUNJAB CENTRAL SALES-TAX ACT AND THE 3 PURCHASES MADE HAVE BEEN DULY ACCEPTED BY THE EXCIS E & TAXATION DEPT., GOVERNMENT OF PUNJAB. THE TAX AUTHORITIES HAVE CLEA RLY IGNORED THE AFORESAID FACTS AND PROCEEDED TO REJECT THE BOOKS O F ACCOUNTS ON GROUNDS WHICH ARE NOT VALID AND SOME OF THESE ARE CLEARLY I N THE REALM OF SURMISES AND CONJECTURES. SUBMISSION OF THE DR THAT THE BOOK S OF ACCOUNTS AND RECORDS MAINTAINED BY THE ASSESSEE WERE 'MANUFACTUR ED' IS A HIGHLY IRRESPONSIBLE STATEMENT UNSUPPORTED BY ANY MATERIAL OR EVIDENCE. THERE IS A MORE IRRELEVANT SUBMISSION SINCE THE SYSTEM OF TEST CHECK/PERIODICAL .CHECK ENVISAGES RANDOM EXAMINATION AND WHATEVER IS FOUND CORRECT ON CHECK LEADS TO A VERY SAFE ASSUMPTION THAT THE REST IS AL SO CORRECT. NO ASSESSEE WOULD HOPE THAT HE CAN MAKE CORRECT AND WRONG ENTRIES ON DIFFERENT DATES AND PRAY THAT ONLY THE CORRECT ONES ARE VERIFIED AN D NOT THE OTHERS. IT IS HOPED THAT SUCH ARGUMENTS ARE IN FUTURE NOT FOISTED UPON THE TRIBUNAL UNLESS THERE IS CONCLUSIVE EVIDENCE TO SUPPORT THEM AND IT MUST BE EMPHASISED THAT THIS IS A SPECIAL BENCH CONSTITUTED TO DEAL WITH IM PORTANT ISSUES. IT WOULD BE GREAT HARDSHIP TO AN ASSESSEE CARRYING ON A PARTICU LAR TRADE IF HIS TRADING RESULTS ARE REJECTED AND PROVISO TO S. 145(1) IS AP PLIED JUST BECAUSE SOME OTHER ASSESSEE IN THE SAME TRADE IS SHOWING SOMETHI NG MORE MAY BE EVEN LESS THAN 1%. AFTER ALL THE FACTS OF ONE'S OWN CASE CANNOT BE IGNORED AND AUDITED ACCOUNTS AND CHECKING BY STATE AUTHORITIES OF STATUTORY REGISTERS CANNOT BE BRUSHED ASIDE IN A CASUAL MANNER. JUST BECAUSE T HE AO FEELS THAT SO AND SO FACT IS NOT CORRECT AND HE SHOULD STRAIGHTAWAY D RAW ADVERSE INFERENCE. SEC. 145(1) IS NOT TO BE CASUALLY INVOKED AND ASSUM PTIONS AND PRESUMPTIONS HAVE NO ROLE TO PLAY WHERE THE BOOKS ARE TO BE REJE CTED. THE AO MUST PROCEED ON POSITIVE EVIDENCE AND MATERIAL AND THERE IS NOTH ING TO SHOW THAT THE YIELD WAS MORE THAN THE FIGURE STATED AND THAT IT HAD BEE N SOLD OUTSIDE THE BOOKS OF ACCOUNTS. NO DETAILED ENQUIRY HAS BEEN MADE BY T HE AO IN THE PRESENT CASE TO PROVE THAT THE YIELD OF RICE WAS MORE THAN THE F IGURE SHOWN AND THAT THE SAME WAS SOLD OUTSIDE THE BOOKS OF ACCOUNTS AND INC IDENTALLY THE AO HIMSELF IN THE NEXT TWO ASSESSMENT YEARS HAS ACCEPTED YIELD AT 64.60% AND 64.53% NO DOUBT UNDER S. 143(1) BUT NOTHING PREVENTED THE AO FROM MAKING A SCRUTINY ASSESSMENT IN THE LIGHT OF THE VIEW EXPRES SED IN ASST. YR. 1989-90 MAKING AN ADDITION ON ACCOUNT OF YIELD OF RICE. IN THE FINAL ANALYSIS, PROVISO TO S. 145(1) WAS NOT APPLICABLE AND THERE WAS NO MATER IAL ON RECORD WITH THE DEPARTMENT TO SHOW THAT THE YIELD OF RICE WAS HIGHE R THAN THE FIGURE STATED BY THE ASSESSEE AND THAT THERE WAS ANY SALE OUTSIDE TH E REGULAR BOOKS OF ACCOUNTS MAINTAINED.-JHANDU MAI TARA CHAND RICE MIL LS VS. CIT (1969) 73 ITR 192 (P&H) AND PANDIT BROS, VS. CIT (1954) 26 ITR 159 (P&H) RELIED ON; CHHABILDAS TRIBHUWANDAS SHAH & ORS. VS. CIT (1966) 59 ITR 733 (SC), PUNJAB TRADING CO. LTD, VS. CIT (1964) 53 ITR 335 (P&H), CST VS. H.M. ESUFALI H.M. ABDULALI 1973 CTR (SC) 317 : (1973) 90 ITR 271 (SC), S.N. NAMASIVAVAM CHETIAR VS. CIT (1960) 38 ITR 579 (SC), SREE SHANMUQAR MILLS LTD, VS. CIT (1974) 96 ITR 411 (MAD), DABROS INDUSTRIAL CO. (P) LTD, VS. CIT (1977) 108 ITR 424 (CAL), ORISSA FISHERIES DEVELOP MENT CORPN. LTD, VS. CIT (1978) 111 ITR 923 (ORI), BHARAT MILK PRODUCTS VS. CIT (1981) 20 CTR (ALL) 164 : (1981) 128 ITR 682 (ALL), CIT VS. PAREC K BROTHERS (1987) 63 CTR (PAT) 371 : (1987) 167 ITR 344 (PAT), AMIYA KUMAR R OY & BROS, VS. CIT (1994) 206 ITR 306 (CAL), BASTIRAM NARAYANDAS MAHES HRI VS. CIT (1994) 117 CTR (BOM) 198 : (1994) 210 ITR 438 (BOM) AND VA ZHAKKALA ESTATES (P) STATE OF KERALA (1994) 119 CTR (KER) 158 : (1994) 209 ITR 461 (KER ) DISTINGUISHED. THEREFORE, SIMPLY BECAUSE THE YIELD HAS BEEN MARGIN ALLY LESS IN CASE OF THE ASSESSEE, THE BOOKS OF ACCOUNT COULD NOT HAVE BEEN REJECTED. THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO S HOW THAT ACTUAL YIELD WAS HIGHER IN CASE OF THE ASSESSEE. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION OF RS. 14,682/-. AS FAR AS ADDITION IN RESPECT OF VALUATION OF CLOSING STOCK OF HUSK IS CONCERNED, IN OUR OPINION, THE CORRECT VALUE OF STOCK HAS TO BE ADOPTED EVEN IF BOOKS ARE NOT RE JECTED. SINCE WE HAVE NOT 4 UPHELD THE REJECTION OF BOOKS OF ACCOUNT STILL ADDI TION ON ACCOUNT OF CORRECT VALUE OF CLOSING STOCK CAN BE MAINTAINED. FURTHER THE LD. COUNSEL OF THE ASSESSEE COULD NOT PRODUCE ANY INVOICE TO SHOW THAT THE ASSESSEE HAS SOLD HUSK AT RS. 75/- OR THERE ABOUT IN THE MONTH OF MAR CH, 2007 . THEREFORE, WE ARE OF THE OPINION THAT THE LD. CIT(A) HAS ALREADY ALLOWED THE REASONABLE RELIEF BY DIRECTING THE ASSESSING OFFICER TO VALUE THE HUS K AT RS. 80 PER QTL AND ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 8. GROUNDS NO. 2 & 3 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THA T DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN SALES OF RICE BRAN AT RS. 529.18 PER QTL. THE MAJOR SALES WERE MADE TO THE SISTER CONCERN M/S T.C. AGRO (P) L TD. HE FURTHER OBSERVED THAT OTHER CONCERNS HAVE SOLD RICE BRAN AT MUCH HIG HER RATE AND GAVE THE FOLLOWING EXAMPLES:- S NO NAME AND ADDRESS AVERAGE SALE RATE I M/S ANKIT TRADING CO., ISMAILABAD RS. 659.40 PER QTL II M/S SHIVA GANESH INDS. SHAHBAD RS. 666.00 PER QTL III M/S KOCHAR RICE MILL, ISMAILABAD RS. 679.31 PER QTL THEREFORE, A QUERY WAS RAISED WHY CORRECT VALUE O F SALES SHOULD NOT BE ADOPTED. IN RESPONSE IT WAS STATED THAT SALE VALUE OF RICE BRAN DEPENDS UPON THE QUALITY OF RICE BRAN WHICH IN TURN DEPENDS ON T HE CONTENT OF OIL AND OTHER FACTORS. IT WAS FURTHER STATED THAT SALES MADE TO SISTER CONCERNS WERE AT COMPARABLE RATES AND THEREFORE, NO INTERFERENCE IS CALLED FOR. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSIONS AN D ADOPTED AVERAGE RATE OF RS. 668/- PER QTL, THE SALE VALUE OF 2389.95 QTLS O F RICE BRAN AT RS. 3,31,763/- AND VALUE THE CLOSING STOCK AT RS. 24,832/- AND ADD ITION ON THIS ACCOUNT TOTALING TO RS. 3,56,596/- WAS MADE TO THE PROFITS OF THE A SSESSEE. 9. ON APPEAL ACTION OF THE ASSESSING OFFICER WAS CO NFIRMED BY THE LD. CIT(A). 5 10. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT LAW DOES NOT OBLIGE ANY BUSINESS ENTITY TO SELL GOODS AT MAXIMUM RATES. FURTHER THE SALE VALUE OF THE GOODS DEPENDS UPON THE QUALITY OF THE GOODS WHICH IN CASE OF RICE BRAN DEPENDS UPON THE CONTENT OF OIL. HE FURTHER S UBMITTED THAT THERE IS NO PROVISION IN THE ACT TO MAKE AN ADDITION ON ACCOUNT OF DIFFERENCE IN SALE PRICE BECAUSE SECTION 40A(2) DEALS WITH THE EXPENSES AND NOT WITH THE REVENUE. IN THIS REGARD, HE RELIED ON THE DECISION OF HON'BLE M ADRAS HIGH COURT IN CASE OF CIT V. A.K. SUBBARAYA CHETTY & SONS, 123 ITR 592 (MAD). HE ALSO INVITED OUR ATTENTION TO THE OBSERVATIONS MADE BY THE HON'BLE S UPREME COURT IN CASE OF CIT V. GLAXO SMITHKLINE ASIA (P) LTD SLP IN CIVIL APPEAL NO. 18121/07 WHEREIN AFTER DETAILED DISCUSSION IT WAS SUGGESTED THAT IF THE REVENUE WANTS TO MAKE ADDITION ON ACCOUNT OF DIFFERENCE IN SALES THEN SU ITABLE AMENDMENTS SHOULD BE MADE TO SECTION 40A(2). THIS OBSERVATION CLEARLY S HOWS THAT NO ADDITION CAN BE MADE ON ACCOUNT OF DIFFERENCE IN SALES. IN RESP ECT OF ADDITION TO THE CLOSING STOCK HE SUBMITTED THAT STOCK HAS TO BE VALUED AT C OST OF MARKET VALUE WHICH EVER IS LOWER AND THE SALE VALUE CANNOT BE APPLIED FOR VALUATION OF CLOSING STOCK. 11. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE STRONGLY SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY A ND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. TH E ASSESSING OFFICER HAS MADE TWO FOLD ADDITIONS BASED ON THE SALE VALUE DON E BY OTHER PARTIES BY OBSERVING THAT THE ASSESSEE HAS SOLD GOODS TO THE S ISTER CONCERN AT THE LOWER VALUE AND HAVE ALSO VALUED THE CLOSING STOCK AT LOW ER RATES. THE ASSESSING OFFICER HAS CALCULATED THE RATE OF RS. 668/- PER QT L AS FAIR MARKET VALUE ON THE BASIS OF SALES MADE BY FOLLOWING PARTIES: S NO NAME AND ADDRESS AVERAGE SALE RATE I M/S ANKIT TRADING CO., ISMAILABAD RS. 659.40 PER QTL II M/S SHIVA GANESH INDS. SHAHBAD RS. 666.00 PER QTL III M/S KOCHAR RICE MILL, ISMAILABAD RS. 679.31 PER QTL 6 THEREAFTER HE HAS FOUND THE DIFFERENCE IN THE SALES AS THE ASSESSEE HAS SOLD 2389.95 QTS RICE BRAN AT RS. 529.18. HOWEVER, IT I S SETTLED LAW THAT SECTION 40A(2) CAN NOT BE APPLIED FOR MAKING ADDITION FOR T HE DIFFERENCE IN VALUE OF SALES AT WHICH THE GOODS ARE ACTUALLY SOLD AND THE VALUE WHICH IN THE OPINION OF THE ASSESSING OFFICER IS CORRECT VALUE. HON'BLE MA DRAS HIGH COURT IN CASE OF CIT V. A.K. SUBBARAYA CHETTY & SONS, 123 ITR 592 (M AD) HAS OBSERVED AS UNDER :- THE TRIBUNALS FINDING ON THE FACTS WAS THAT THE AS SESSEE HAD CHARGED ONLY THE NET PRICE AND THAT THERE WAS NO DISCOUNT O R REBATE GIVEN TO THE PURCHASERS. THE BONA FIDES OF THE TRANSACTION ARE NOT IN DISPUTE. IN THESE CIRCUMSTANCES AND IN VIEW OF THE FINDING OF T HE TRIBUNAL AS TO WHAT HAPPENED BETWEEN THE SELLER AND THE PURCHASER IN TH E PRESENT CASE, IT HAS TO BE HELD THAT THERE WAS NO EXPENDITURE WHICH COULD BE DISALLOWED BY REFERENCE TO SECTION 40A(2)(A) SRI RAMALINGA C HOODAMBIKAI MILLS LTD. V. CIT (1955) 28 ITR 952 FOLLOWED. MOREOVER THE HON'BLE SUPREME COURT IN CASE OF CIT V . GLAXO SMITHKLINE ASIA (P) LTD (SUPRA) WHERE THE ISSUES AROSE WHETHER THE TRANSFER PRICING REGULATIONS CAN BE EXTENDED TO DOMESTIC TRANSACTION S. THE HON'BLE SUPREME COURT OBSERVED AS UNDER: HOWEVER, A LARGE ISSUE IS INVOLVED IN THIS CASE. THE MAIN ISSUE WHICH NEEDS TO BE ADDRESSED IS, WHETHER TRANSFER PRICING REGULATIONS SHOULD BE LIMITED TO CROSS-BORDER TRANSACTIONS OR WHETHER THE TRANSFER PRICING REGULATIONS BE EXTENDED TO DOMESTIC TRANSACTIONS? IN THE CASE OF DOMESTIC TRANSACTIONS, THE UNDER-INVOICING OF SALES AND OVER-INVOICING OF EXPENSES ORDINARILY WILL BE REVENUE NEUTRAL IN NATU RE, EXCEPT IN TWO CIRCUMSTANCES HAVING TAX ARBITRAGE (I) IF ONE OF THE RELATED COMPANIES IS LOSS MAKING AND THE OTHER IS PROFIT MAKING AND PROFIT IS SHIFTED TO THE LOSS MAK ING CONCERN, AND (II) IF THERE ARE DIFFERENT RATES FOR TWO RELATED U NITS (ON ACCOUNT OF DIFFERENT STATUS, AREA BASED INCENTIVES, NATURE OF ACTIVITY, ETC.) AND IF PROFIT IS DIVERTED TOWARDS THE UNIT ON THE LOWER SI DE OF TAX ARBITRAGE. FOR EXAMPLE, SALE OF GOODS OR SERVICES FROM NON-SEZ ARE A (TAXABLE DIVISION) TO SEZ UNIT (NON TAXABLE UNIT) AT A PRICE BELOW THE MARKET PRICE SO THAT TAXABLE DIVISION WILL HAVE LESS PROFIT TAXABLE AND NON-TAXABLE DIVISION WILL HAVE A HIGHER PROFIT EXEMPTION. ALL THESE COMPLICATIONS ARISE IN CASE WHERE FAIR MA RKET VALUE IS REQUIRED TO BE ASSIGNED TO THE TRANSACTIONS BETWEEN RELATED PARTIES IN TERMS OF SECTION 40A(2) OF THE INCOME-TAX ACT, 1961 (ACT F OR SHORT). TO GET OVER THIS SITUATION, WE ARE OF THE VIEW THAT THE MATTER NEEDS TO BE EXAMINED BY CENTRAL BOARD OF DIRECT TAXES (CBDT, FOR SHORT). WE ARE INFORMED THAT THE MATTER HAS BEEN EXAMINED BY CBDT AND IT IS OF T HE VIEW THAT AMENDMENTS WOULD BE REQUIRED TO THE PROVISIONS OF T HE ACT IF SUCH TRANSFER PRICING REGULATIONS ARE REQUIRED TO BE APP LIED TO DOMESTIC TRANSACTIONS BETWEEN RELATED PARTIES UNDER SECTION 40A(2) OF THE ACT. 7 IN ORDER TO REDUCE LITIGATION, WE ARE OF THE VIEW T HAT CERTAIN PROVISIONS OF THE ACT, LIKE SECTION 40A(2) AND SECT ION 80IA(10), NEED TO BE AMENDED EMPOWERING THE ASSESSING OFFICER TO M AKE ADJUSTMENTS TO THE INCOME DECLARED BY THE ASSESSEE HAVING REGARD TO THE FAIR MARKET VALUE OF THE TRANSACTIONS BETWEE N THE RELATED PARTIES. FROM THE ABOVE IT IS CLEAR THAT REVENUE HAS ITSELF AGREED THAT CERTAIN AMENDMENTS ARE REQUIRED TO BE MADE IN SECTION 40A(2 ) IF TRANSFER PRICING REGULATIONS WERE REQUIRED TO BE APPLIED TO DOMESTIC TRANSACTIONS BETWEEN RELATED PARTIES. SINCE THE HON'BLE SUPREME COURT H AS EXPRESSED THAT SECTION 40A(2) COULD NOT BE APPLIED FOR SALES TRANSACTIONS AND REVENUE HAS ALSO AGREED TO MAKE AMENDMENTS, WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 40A(2) CANNOT BE ATTRACTED FOR MAKING ADDITION ON A CCOUNT OF DIFFERENCE IN SALE VALUE EFFECTED BY THE ASSESSEE IN COMPARISON TO THE FAIR MARKET VALUE. AS FAR AS THE VALUE OF CLOSING STOCK IS CONCERNED, IT IS S ETTLED POSITION THAT THE SAME CANNOT BE VALUED AT FAIR MARKET VALUE WHICHEVER IS LOWER AND SINCE THE ASSESSEE HAS VALUED AT COST AND THE ASSESSING OFFIC ER CAN NOT HAVE SUBSTANTIATED THIS WITH FAIR MARKET VALUE. IN THES E CIRCUMSTANCES WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION OF RS. 3,56,596/-. 13. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 26 .06. 2012 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26 .06.2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/ THE DR 8