M/s. Harshad Traders , Jalna V. Income tax Officer, Jalna

ITA 567/PUN/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7648 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 08-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Maximum Marginal Rate; Commercial expediency
• Section: 143(3); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 567 /PUN/201 7 / ASSESSMENT YEAR : 20 12 - 13 M/S. HARSHAD TRADERS, C/O. HARSHAD MADANLAL CHORDIYA, KARWA NAGAR, JALNA 431203 PAN : AAEFH3821J ....... / APPELLANT / V/S. THE INCOME TAX OFFICER, WARD 1, JALNA / RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE REVENUE BY : SHRI SUDHENDU DAS / DATE OF HEARING : 1 6 - 05 - 2019 / DATE OF PRONOUNCEMENT : 19 - 0 7 - 2019 / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1, AURANGABAD DATED 30 - 01 - 2017 FOR THE ASSESSMENT YEAR 2012 - 13. 2. THE ASSESSEE IN APPEAL HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON SOLITARY ISSUE OF ADDITION OF RS.30,80,58 6/ - ON ACCOUNT OF DISALLOWANCE OF REBATES AND DISCOUNTS ALLOWED TO M/S. RAJURI STEELS PVT. LTD., JALNA. 2 ITA NO .567/PUN/2017, A.Y. 2012 - 13 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TRADING OF COAL. DURING THE PERIOD RELEVA NT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE SUPPLIED COAL TO VARIOUS PARTIES. THE ASSESSEE OFFERED MARGINAL DISCOUNTS TO THE PURCHASERS OF COAL EXCEPT M/S. RAJURI STEELS PVT. LTD., JALNA. THE ASSESSEE OFFERED SUBSTANTIAL DISCOUNT OF 10 - 11% TO TH E SAID COMPANY. DURING SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS TRANSFERRED ITS PROFITS TO M/S. RAJURI STEELS PVT. LTD. BY OFFERING DISCOUNT MORE THAN ITS MARGIN . THE ASSESSING OFFICER SUSPECTED THE TRANSACTION AS ARRANGEMENT TO REDUCE TAX INCIDENCE AND HENCE , DISALLOWED THE REBATE/DISCOUNT OF RS.30,80,586/ - GIVEN BY THE ASSESSEE TO M/S. RAJURI STEELS PVT. LTD. AGGRIEVED AGAINST THE ASSESSMENT ORDER DATED 31 - 03 - 2015 PASSED U/S. 143(3) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ), THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) INTER ALIA CHALLENGING THE DISALLOWANCE OF DISCOUNT OFFERED BY THE ASSESSEE TO M/S. RAJURI STEELS PVT. LTD. THE FIRST APPELLATE AUTHORITY UPH ELD THE FINDINGS OF ASSESSING OFFICER QUA DISALLOWANCE OF REBATE/DISCOUNT. HENCE, THE PRESENT APPEAL BY THE ASSESSEE. 4. SHRI KISHOR PHADKE APPEARING ON BEHALF OF THE ASSESSEE FILED WRITTEN SUBMISSIONS ASSAILING THE FINDINGS OF AUTHORITIES BELOW IN DISALLOWING REBATE/DISCOUNT OFFERED BY THE ASSESSEE TO M/S. RAJURI STEELS PVT. LTD. THE WRITTEN SUBMISSIONS FILED ON BEHALF OF THE ASSESSEE ARE REPRODUCED HERE - IN - BELOW : SUBMISSION : A) TRANSACTION IN NORMAL COURSE OF BUSINESS: IT IS SUBMITTED THAT THE REBATE & DISCOUNT GIVEN TO M/S. RAJURI STEELS PVT. LTD. IS IN NORMAL COURSE OF BUSINESS. IN THIS REGARD, PURCHASE ORDER WAS GIVEN BY M/S. RAJURI STEELS PVT. LTD. WHEREIN BOTH THE 3 ITA NO .567/PUN/2017, A.Y. 2012 - 13 PARTIES HAD AGREED TO THE REBATE & DISCOUNT TO BE GI VEN BY APPELLANT. COPY OF PURCHASE ORDER IS ATTACHED AT PAGE NO. 88 OF PAPER BOOK - I. B) UN - RELATED PARTY: IT IS SUBMITTED THAT M/S. RAJURI STEELS PVT. LTD. IS NOT RELATED TO APPELLANT OR ITS PARTNER. ALL THE TRANSACTIONS ENTERED WITH M/S. RAJURI STEELS PVT. LTD. ARE AT ARM'S LENGTH AND AS PER THE NORMAL TRADE PRACTICES FOLLOWED IN THE INDUSTRY. C) LOWER RATE TO OTHER PARTIES ALSO : ONE OF THE OBJECTION RAISED BY THE LEARNED A O AND THE LEARNED CIT(A) IS THAT NO SIMILAR REBATE AND DISCOUNT IS GIVEN TO OTHER PARTIES. APPELLANT IS SUBMITTING HEREWITH DETAILS OF QUANTITY, RATE PER MT. AND SALES MADE TO VARIOUS PARTIES. THE SAME IS ATTACHED HEREWITH AND IS MARKED AS ANNEXURE - I. ON P ERUSAL OF THE SAME, IT WILL TRANSPIRE THAT APPELLANT HAS SOLD COAL TO OTHER PARTIES AT ALREADY DISCOUNTED RATE AS COMPARED TO - THAT TO M/S. RAJURI STEELS PVT. LTD. CONSIDERING THE QUANTUM PURCHASED BY M/S. RAJURI STEELS PVT. LTD. AS PER TERMS OF PURCHASE OR DER, ADDITIONAL REBATE AND DISCOUNT WAS GIVEN. D) SAME LEARNED A O HO LDING JURISDICTION ON M/S. RAJURI STEELS PVT. LTD. AS WELL AS ON APPELLANT: DURING THE COURSE OF HEARING BEFORE THE LEARNED CIT(A), APPELLANT VIDE SUBMISSION DATED 05/04/2016, HAD SUBMITTED THAT M/S. RAJURI STEELS PVT. LTD. IS ASSESSED TO TAX WITH SAME INCOME TAX AUTHORITIES, DESPITE THAT NO ANY CROSS EXAMINATION WAS CARRIED OUT T O VERIFY THE APPELLANT'S VERSION. COPY OF SUBMISSION DATED 05/07/2016 IS ATTACHED AT PAGE NO. 22 TO 23 OF PAPER BOOK - I. E) ENQUIRY BY THE LEARNED CIT(A): THE LEARNED CIT(A ) , ISSUED SUMMONS U/S 131 OF THE ITA, 1961 TO M/S. RAJURI STEELS PVT. LTD. TO VERIFY THE GENUINENESS OF REBATE AND DISCOUNT. IN RESPONSE TO THE SAME M/S. RAJURI STEELS PVT. LTD. PROVIDED LEDGER EXTRACT OF APPELLANT IN THEIR BOOKS OF ACCOUNTS. ON THE BASIS OF THE SAID LEDGER EXTRACT, THE LEARNED CIT(A ) RAISED CERTAIN ISSUES AS TO MISMATCH OF BALANCES AND ASKED APPELLANT TO PROVIDE ITS SAY. COPY OF LETTER DATED 10/10/2016 ISSUED BY THE LEARNED C IT(A) IS ATTACHED AT PAGE NO. 24 TO 25 OF PAPER BOOK - I. IN RESPONSE TO THE SAME, APPELLANT MADE SUBMISSION DATED 24/10/2016 BY RECON CILING THE BALANCES. COPY OF SUBMISSION DATED 24/10/2016 IS ATTACHED AT PAGE NO. 26 TO 27 OF PAPER BOOK - I. DESPITE, THE DETAILED ENQUIRY BEEN CARRIED OUT, THE LEARNED C I T(A ) CONFIRMED THE ADDITION ONLY ON THE BASIS OF ASSUMPTION AN D PRESUMPTION AND WITHO UT ANY INFIRMITIES OR DISCREPANCIES. F) NO TAX ARBITRAGE: THE LEARNED A O AND LEARNED C I T(A ) WERE OF THE VIEW THAT APPELLANT HAS PASSED ON ITS PROFIT TO M/S. RAJURI STEELS PVT. LTD. TO REDUCE TAX BURDEN. IN THE PRESENT CASE, THERE IS NO TAX ARBITRAGE, AS APPELLANT AS WELL AS M/S. RAJURI STEELS PVT. LTD. ARE TAXABLE AT MAXIMUM MARGINAL RATE OF 30%. THIS ASPECT WAS STATED BEFORE THE INCOME TAX AUTHORITIES, BUT REMAINED TO BE SPECIFICALLY ADJUDICATED. G) DOUBLE TAXATION: ON PERUSAL OF APPELLANT'S LEDGER EXT RACT IN THE BOOKS OF M/S. RAJURI STEELS PVT. LTD. IT WILL TRANSPIRE THAT M/S. RAJURI STEELS PVT. LTD. HAS ALSO RECORDED FOR THE REBATE AND DISCOUNT RECEIVED OF RS. 30,80,586/ - . AS SUCH, M/S. RAJURI STEELS PVT. LTD. MUST HAVE OFFERED THE SAID AMOUNT TO TAX B Y REDUCING IT FROM PURCHASES. AS SUCH, AGAIN MAKING ADDITION IN THE HANDS OF APPELLANT FOR THE SAME AMOUNT LEADS TO DOUBLE TAXATION. 4 ITA NO .567/PUN/2017, A.Y. 2012 - 13 H) ARMCHAIR TEST: IT IS SUBMITTED THAT, WHEN A TRANSACTION IS ENTERED INTO WITH AN UNRELATED PARTY, ADDITION / DISALLOWANCE SHOULD BE MADE BY CONSIDERING THE ARMCHAIR TEST AS DISCUSSED IN VARIOUS SETTLED COURT RULINGS REFERRED BELOW. IN ALL THESE DECISIONS, THE COURTS HAVE TAKEN A VIEW THAT COMMERCIAL EXPEDIENCY TEST OUGHT TO BE APPLIED FROM THE PERSPECTIVE OF A BUSINESSMAN AN D NO ANY ADDITIONS / DISALLOWANCE SHOULD BE MADE MERELY ON THE BASIS OF SOME SUSPICION. - CIT VS. WALCHAND & CO. P LTD - 65 ITR 381 (SE) - CIT VS. ROCKMAN CYCLE INDUSTRIES (P.) LTD. - 3311TR 401 (P&H) - CIT VS. HARI CHAND SHRI GOPAL - 56 TAXMANN.COM 161 (DELHI) I) FALLACY OF TREATING DISCOUNT AND REBATE OF RS. 30,80,586/ - AS AN EXPENDITURE: IT APPEARS, ABOVE DISCOUNT WAS TREATED AS AN EXPENDITURE AND THAT APPELLANT FAILED TO DISCHARGE THE BURDEN TO SUBSTANTIATE THE SAID EXPENDITURE. IT IS SUBMITTED, THIS DISCOUNT IS AKIN TO TRADE DISCOUNT EXTENDED FOR INCREASE IN SALES. A TRADE DISCOUNT IS TYPICALLY A REDUCTION FROM SALES. IN OTHER WORDS, TRADE DISCOUNT OUGHT TO BE REDUCED FROM SALES. BY A MERE DEBIT OF TRADE DICOUNT TO THE P&L, AN ITEM OF REDUCTION FROM SALES DOES NOT ASSUME CHARACTER / COLOR/NATURE OF AN 'EXPENDITURE'. IT IS SUBMITTED, ON FIRST PRINCIPLES; THE TRADE DISCOUNT IS NOT AN EXPENDITURE. THERE WAS NO OCCASIONS FOR APPELLANT TO PAY THE SAID TRADE DISCOUNT. AS SUCH, ALL OBSERVATIONS / TESTS / CRI TERIA'S AIRED AND RAISED BY THE INCOME TAX AUTHORITIES ARE IRRELEVANT IN PRESENT CAS E. 5. ON THE OTHER HAND SHRI SUDHENDU DAS REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER AND PRAYED FOR DISMISSING THE APPEAL OF ASSESSEE. THE LD. D R SUBMITTED THAT THE REBATE/DISCOUNT OFFERED BY THE ASSESSEE TO M/S. RAJURI STEELS PVT. LTD. IS MERELY AN EYE WASH. IN THE GARB OF DISCOUNT THE ASSESSEE HAS MADE ADJUSTMENT OF PROFITS. A PERUSAL OF DOCUMENTS ON RECORD REVEAL THAT EXCEPT M/S. RAJURI STEELS PVT. LTD. , THE ASSESSEE HAS NOT OFFERED SUCH HUGE DISCOUNT TO ANY OTHER CUSTOMER. THE AGREEMENT AS ALLEGED BETWEEN ASSESSEE AND M/S. RAJURI STEELS PVT. LTD. FOR SUPPLY OF COAL IS AN AFTERTHOUGHT AND A SELF SERVING DOCUMENT. 6. W E HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO EXAMINED THE DOCUMENTS AND THE DECISION ON WHICH THE LD. AR HAS PLACED RELIANCE. THE SOLITARY ISSUE IN APPEAL IS; WHETHER THE DISCOUNT OFFER ED BY 5 ITA NO .567/PUN/2017, A.Y. 2012 - 13 THE ASSESSEE TO M/S. RAJURI STEELS PVT. LTD. IS GENUINE OR IT IS A MODE OF TRANSFER OF PROFITS TO THE SAID COMPANY. 7. IN SO FAR AS SALE OF COAL BY THE ASSESSEE TO M/S. RAJURI STEELS PVT. LTD., JALNA IS CONCERNED , THE SAME HAS NOT BEEN QUESTIONED BY THE REVENUE. THE REVENUE HAS DISALLOWED REBATE/DISCOUNT OFFERED BY THE ASSESSEE TO M/S. RAJURI STEELS PVT. LTD. ONLY FOR THE REASON THAT THE QUANTUM OF DISCOUNT OFFERED BY THE ASSESSEE TO THE SAID FIRM IS ABNORMALLY HIGH AS COMPARED TO OTHER CUSTOMERS OF THE ASSESSEE . OSTENSIBLY, THE ASSESSEE HAS ENTERED INTO AN ARRANGEMENT WITH M/S. RAJURI STEELS PVT. LTD. FOR SUPPLY OF STEAM COAL AT PRE - DETERMINED DISCOUNTS. THE ASSESSEE HAS NO SUCH ARRANGEMENT WITH ANY OF ITS OTHER CUSTOMERS. THE HIGH RATE OF DISC OUNT OFFERED BY THE ASSESSEE TO M/S. RAJURI STEELS PVT. LTD. HAS GIVEN RISE TO SUSPICION OF MALAFIDE IN TRANSFERRING PROFITS BY THE ASSESSEE TO THE THIRD PARTY. 8. THE ASSESSEE HAS RAISED MULTIPRONGED ARGUMENTS TO DEFEND ITS ACTION. THE FIRST ARGUMENT OF THE ASSESSEE IS THAT IT IS A TRANSACTION IN A NORMAL COURSE OF BUSINESS WITH UNRELATED PART Y. WHILE EXAMINING THE ORDERS OF AUTHORITIES BELOW WE FIND THAT NOWHERE IT HAS BEEN MENTIONED THAT M/S. RAJURI STEELS PVT. LTD. IS IN ANY MANNER RELATED TO THE A SSESSEE. NONE OF THE PARTNER S OF ASSESSEE FIRM ARE ON BOARD OF M/S. RAJURI STEELS PVT. LTD. EXCEPT COMMERCIAL RELATION NO OTHER NEXUS BETWEEN M/S. RAJURI STEELS PVT. LTD. AND THE ASSESSEE IS BROUGHT ON RECORD BY THE REVENUE. THUS, THE ARMS LENGTH TRANSACTION BETWEEN THE TWO ENTITIES IS NOT UNDER QUESTION. 9. DURING FIRST APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) SUMMONED M/S. RAJURI STEELS PVT. LTD. U/S. 131 OF THE ACT, TO 6 ITA NO .567/PUN/2017, A.Y. 2012 - 13 VERIFY THE GENUINENESS OF THE DISCOUNT OFFERED BY T HE ASSESSEE. M/S. RAJURI STEELS PVT. LTD. CONFIRMED THE RECEIPT OF DISCOUNT. THOUGH THERE WERE MINOR DISCREPANCIES IN THE BOOKS OF M/S. RAJURI STEELS PVT. LTD. IN SO FAR AS THE SUPPL IES MADE BY THE ASSESSEE. HOWEVER, SUCH DISCREPANCIES WERE NOT OF SUCH NATURE THAT WOULD RAISE SUSPICION ON DISCOUNT ALLOWED BY THE ASSESSEE TO M/S. RAJURI STEELS PVT. LTD. 10. THE NEXT CONTENTION IS THAT M/S. RAJURI STEELS PVT. LTD. AND THE ASSESSEE FIRM ARE TAXABLE AT MAXIMUM MARGINAL RATE OF 30% . HENCE, THERE IS NO QUEST ION OF TAX ARBITRAGE. WE FIND MERIT IN THE CONTENTION OF ASSESSEE. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. INDO SAUDI SERVICES (TRAVEL) (P) LTD. REPORTED AS 310 ITR 306 HAS HELD THAT WHERE THE REVENUE HAS FAILED TO EST ABLISH THAT HIGHER PAYMENTS TO SISTER CONCERN HAS RESULTED IN TAX EVASION, THERE SHOULD BE NO DISALLOWANCE OF ALLEGED EXCESS PAYMENTS. IF THE SAME ANALOGY IS APPLIED TO THE FACTS OF PRESENT CASE, THE ALLEGED HIGH RATE OF DISCOUNT ALLOWED BY THE ASSESSEE T O ITS ONE OF THE CUSTOMERS WHO IS UNRELATED AND THE SAID CUSTOMER HAS REFLECTED THE DISCOUNT IN ITS BOOKS, WOULD NOT RESULT IN LOSS OF REVENUE, AS BOTH THE PARTIES ARE TAXABLE AT SAME RATE. 11. A PERUSAL OF IMPUGNED ORDER SHOWS THAT THE BASIS OF ADDITION IS MERE SUSPICION. THE COMMISSIONER OF INCOME TAX (APPEALS) WHILE REJECTING THE CONTENTIONS OF ASSESSEE ON THIS ISSUE HAS FAILED TO CONSIDER THE FACT THAT THE DISCOUNT OFFERED BY THE ASSESSEE HAS BEEN CONFIRMED BY M/S. RAJURI STEELS PVT. LTD. ON CE, THE TRANSACTION HAS BEEN CONFIRMED THERE WAS NO GROUND TO SUSPECT THE DISCOUNT ALLOWED BY THE ASSESSEE . WE ARE OF CONSIDERED VIEW THAT THE DISALLOWANCE OF DISCOUNT GIVEN BY THE ASSESSEE TO M/S. RAJURI STEELS PVT. LTD. IS PURELY ON CONJECTURE S AND SURM ISES. WE FIND NO REASON TO UPHOLD THE DISALLOWANCE MERELY ON SUSPICION. THE FINDINGS OF 7 ITA NO .567/PUN/2017, A.Y. 2012 - 13 COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE ARE REVERSED AND DISALLOWANCE OF RS.30,80,586/ - IS DELETED. 12. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON FRIDAY, THE 19 TH DAY OF JU LY, 2019. SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 19 TH JU LY, 2019 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 1, AURANGABAD 4. THE PR. COMMISSIONER OF INCOME TAX - 1, AURANGABAD 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE