Sh. Gautam Garg, Ludhiana V. ACIT, Ludhiana

ITA 390/CHANDI/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80944 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 15-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Fair market value; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI. BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI. T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 390/CHD/2014 ASSESSMENT YEAR: 2008-09 SH. GAUTAM GARG, VS. THE ACIT C/O M/S AMRIT IRON STORE CIRCLE-V LUDHIANA LUDHIANA, PAN NO. ADDPG8465B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI MAHAVIR SINGH DATE OF HEARING : 17/09/2014 DATE OF PRONOUNCEMENT : 08/10/2014 ORDER PER T.R.SOOD, A.M. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-II, LUDHIANA DATED 04.02.2014. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- 1. THAT THE LEARNED CIT(A)-II, LUDHIANA HAS ERRED IN CONFIRMING THE ADDITION OF RS. 5,21,500/- U/S 40A(2 )(B) OF THE ACT AS MADE BY THE LEARNED ASSESSING OFFICER BY DIS ALLOWING DISCOUNT TO M/S V.G. STEEL INDUSTRIES. 2. THAT THE ABOVE SAID ADDITION HAS BEEN CONFIRMED BY THE LD. CIT(A)-II, LUDHIANA IS AGAINST THE FACTS AND CIRCUM STANCES AND BY NOT CONSIDERING OUR SUBMISSIONS PROPERLY. 2 3. THAT THE LD. CIT(A)-II, LUDHIANA HAS ERRED IN NOT C ONSIDERING THAT DISCOUNT OF RS. 5,21,500/- AS ALLOWED TO M/S. V.G. STEEL INDUSTRIES WAS FOR COMMERCIAL EXPEDIENCY CONSIDERIN G THE FACTS THAT BOTH THE APPELLANT AND M/S V.G STEEL IND USTRIES BEING TAXED @ 30% AND AS SUCH THERE BEING NO LOSS T O THE REVENUE AND THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF M/S. SIYA RAM GARG HUF 23 7 CTR 321 IS CLEARLY APPLICABLE. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE HAS SHOWN TOTAL SALES OF RS. 38,83,93,848/- OUT OF WHICH SALES AMOUNTING TO RS. 4,33,88,641/ - WERE MADE OUT OF M/S V.G. STEEL INDUSTRY WHICH IS A PARTNERSHIP FIRM WHERE FATHER O F THE ASSESSEE SHRI AMIT KUMAR GUPTA WAS HAVING 33% SHARE, THEREFORE, FIRM W AS COVERED BY THE DEFINITION OF PERSONS MENTIONED U/S 40A(2(B). IT WAS FURTHER NOTED THAT ASSESSEE HAS GIVEN A DISCOUNT OF RS. 5,21,500/- AS QUANTITY DISCOUNT TO THIS FIRM, THEREFORE, ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY THE DISCOUNT. IN RESPONSE, IT AS STATED VIDE DATED 29.11.2010 AS UND ER:- THAT REGARDING DISCOUNT OF RS. 521500/- TO M/S V.G . STEEL INDUSTRY, IT IS SUBMITTED THAT THE ASSESSEE SOLD GO ODS WORTH RS. 4,33,88,641/- DURING THE YEAR UNDER ASSESSMENT AND A QUANTITY DISCOUNT OF RS. 521500/- WAS ALLOWED AS MU TUALLY AGREED UPON AMONGST THE PARTIES. COPY OF ACCOUNT OF M/S. V.G. STEEL INDUSTRY, AS APPEARING IN BOOKS OF ACCOU NTS IS ENCLOSED. THE SAID QUANTITY DISCOUNT HAS BEEN REFLE CTED AS DIRECT INCOME IN PROFIT & LOSS ACCOUNT BY M/S V.G. STEEL INDUSTRY, WHO IS BEING ASSESSED TO INCOME-TAX IN WA RD-III(2), LUDHIANA. IT IS PERTINENT TO ADD THAT SH. AMRIT KUM AR, FATHER OF THE ASSESSEE, WAS PARTNER IN M/S. V.G. STEEL IND USTRY, ONLY HAVING 33% SHARE IN PROFIT & LOSSES OF THE SAID CON CERN I.E, M/S V.G. STEEL INDUSTRY AND REST OF THE PARTNERS I. E. SH. AMIT GUPTA AND SH. SANJAY GUPTA WERE OUTSIDERS AND DID N OT RELATE TO THE ASSESSEE AT ALL EVEN FROM A DISTANT RELATION AND THE AFFAIRS OF M/S V.G. STEEL INDUSTRY WERE MANAGED BY SH. AMIT 3 GUPTA AND SH. SANJAYA GUPTA AND FATHER OF THE ASSES SEE DID NOT PARTICIPATED IN DAY TO DAY MANAGEMENT OF THE BU SINESS AFFAIRS OF THE V.G. STEEL INDUSTRY. FURTHER, AS EAR LIEST SUBMITTED THAT THE SAID QUANTITY DISCOUNT RS. 52150 0/- HAS BEEN SHOWN AS DIRECT INCOME IN THE PROFIT & LOSS AC COUNT, WHICH IS ALSO BEING TAXED @30% IN THE CASE OF M/S V .G. STEEL INDUSTRY. BALANCE SHEET OF M/S V.G. STEEL INDUSTRY IS BEING PRODUCED FOR YOUR KIND PERUSAL. FURTHER, M/S. V.G. STEEL INDUSTRY GENERALLY MADE WELL ADVANCE PAYMENTS TO M/ S G.G. STEEL ROLLING MILLS FOR SUPPLY OF GOODS RESULTING A HUGE SAVING OF INTEREST EXPENDITURE IN THE HANDS OF M/S G.G. STEEL ROLLING MILLS. SO, GRANT OF QUANTITY DISCOUNT TO M/ S V.G. STEEL INDUSTRY TO MEET OUT THE BUSINESS COMMERCIAL EXPEDI ENCY. 4. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THI S REPLY AND OBSERVED THAT DISCOUNT WAS GIVEN ONLY TO ONE FIRM I.E. M/S V.G. S TEEL INDUSTRY. HE FURTHER NOTED THAT ASSESSEE HAS SOLD GOODS IN EXCESS OF RS. 5 LAKHS TO 31 PARTIES TO WHOM NO DISCOUNT HAS BEEN GIVEN. IT WAS FURTHER NO TED THAT IN THE CASE OF M/S V.G. STEEL INDUSTRY, THE RETURNED INCOME FOR THIS Y EAR WAS ONLY RS. 3,17,188/- WHICH INCLUDE THE QUANTITY DISCOUNT WHICH CLEARLY S HOWS THAT THE SAID FIRM WAS A LOSS MAKING UNIT. IN THE LIGHT OF THESE OBSERVATIO NS, THE ASSESSING OFFICER ADDED A SUM OF RS. 5,21,500/- TO THE INCOME OF THE ASSESSEE. 5. ON APPEAL BEFORE CIT(A), SUBMISSIONS MADE BEFORE ASSESSING OFFICER WERE REITERATED AND FURTHER RELIANCE WAS PLACED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V SI YA RAM GARG 237 CTR (P&H) 321. THE LD. CIT(A) DID NOT FIND FORCE IN THE SUBMISSIONS AND OBSERVED THAT WHAT HAS TO BE SEEN IS WHETHER A PARTICULAR EX PENDITURE IS EXCESSIVE OR UNREASONABLE. IN THE PRESENT CASE FAIR MARKET VALUE COULD BE COMPARED BY COMPARING THE SALE OF M/S V.G. STEEL WITH OTHER PAR TIES. HE ALSO OBSERVED THAT DECISION OF CIT V SIYA RAM GARG (SUPRA) WAS NOT AP PLICABLE BECSAE M/S V.G. STEEL INDUSTRY HAS SHOWN PROFIT OF RS. 3,17,188/- A ND IF SUCH DISCOUNT WAS NOT 4 GIVEN THAT FIRM WOULD HAVE BEEN A LOSS MAKING UNIT. THE CONTENTION THAT M/S V.G. STEEL INDUSTRIES HAS MADE HUGE ADVANCE TO ASSE SSEE WAS ALSO REJECTED BECAUSE THERE WAS A CONTINUOUS DEBIT BALANCE IN THE ACCOUNT. 6. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERATE D THE SUBMISSION MADE BEFORE THE ASSESSING OFFICER AND CIT. HE FURTHER S UBMITTED THAT ASSESSEE HAD SOLD THE GOODS TO M/S V.G. STEEL INDUSTY IN HUGE QU ANTITY AND TO NO OTHER CUSTOMER SUCH QUANTITY WAS SOLD. FURTHER, HE ALSO R EFERRED TO THE COPY OF ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S V.G. ST EEL INDUSTRY AND SHOWED THAT PARTY HAD GIVEN LOT OF ADVANCES TO THE ASSESSEE WH ICH BECOMES CLEAR FROM THIS ACCOUNT BECAUSE THERE IS CONTINUOUSLY A DEBIT BALA NCE FROM T HE START OF THE YEAR TILL 27.8.2007. HE ALSO RELIED ON THE DECISION OF CIT V SIYA RAM GARG (SUPRA) AND CIT VS. M/S GLAXO SMITHKLINE ASIA(P) LTD 236 CT R 113 (SC) 7. THE LD. DR STRONGLY SUPPORTED THE ORDER OF CIT(A ). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT ASSESSEE FIRM HAD MADE SALES OF RS. 4.33 CRORES TO THE SISTE R CONCERN. THE DISCOUNT WAS GIVEN IF RS. 5,21,000/- AND HAS BEEN DESCRIBED AS Q UANTITY DISCOUNT. THIS COMES OUT TO LESS THAN 1.25%. THE ASSESSING OFFICER HAS HIMSELF OBSERVED THAT THOUGH SALES HAVE BEEN MADE OF MORE THAN RS. 5 LAKHS TO 31 PARTIES BUT TO NONE OF THE PARTIES SALES HAVE BEEN MADE AT SUCH A HIGH LEVEL A S M/S V.G. STEEL INDUSTRY. WHEN LARGE QUANTITY IS SOLD TO A PARTICULAR FIRM OB VIOUSLY THE OTHER FIRM IS GOING TO BARGAIN AND DISCOUNT @ 1.25% DOES NOT SEEM TO BE UNREASONABLE. IN ANY CASE THE OTHER FIRM HAD ALSO PAID TAX @ 30%. THE ONLY OB JECTION RAISED BY THE LD. CIT(A) IS THAT IF THIS DISCOUNT WAS NOT THERE THEN THE OTHER FIRM WOULD HAVE BEEN A LOSS MAKING CONCERN IS NOT MATERIAL PARTICULARLY KEEPING THE LARGE VOLUME OF SALES, THE DISCOUNT SEEMS TO BE JUSTIFIED. THEREFO RE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DELETE THE ADDITION. 5 9. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/10/2014 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 08/10/ 2014 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR