DCIT, Bangalore V. M/s Sphoorti Machine Tools Pvt. Ltd., Bangalore

ITA 928/BANG/2011

• Counselvise Citation: 92821114 RSA 2011
• Duration Of Justice: 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 24-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Business income; Depreciation; Transfer pricing; International transaction; Assessment record
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRI BNAL BANGALORE BENCH C, BANGALORE BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.928(BNG.)/2011 (ASSESSMENT YEAR : 2007-08 ) THE DY. COMMISSIONER OF INCOME-TAX, M/S SPHOORTI MA CHINE TOOLS (P)LTD., CIRCLE-12(3), SITE NO.18, PLOT NO.467/468/469 BANGALORE 12 TH CROSS, IV PHASE, PEENYA INDUSTRIAL AREA, BANGALORE-560 058 PAN NO. AADCS9937J VS APPELLANT RESPONDENT REVENUE BY : SHRI FARHAT HUSSAIN QURESHI, JCIT ASESSEE BY SHRI R.E.BALASUBRAMANYAM, CA DATE OF HEARING : 18 -09-2012 DATE OF PRONOUNCEMENT : 28- 09-2012 O R D E R PER SHRI N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 11-07- 2011OF CIT(A)-III, BANGALORE RELATING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS OF APPEAL OF THE REVENUE READS AS FO LLOWS; 1. THE ORDER OF THE LD.CIT(A) IS OPPOSED TO LAW AN D FACTS OF THE CASE 2. THE CIT(A) ERRED IN DELETING ADDITION OF RS.54, 39,297/- TO THE NET PROFIT DECLARED BY THE ASSESSEE, WITHOUT AP PRECIATING THAT THE AO REJECTED THE BOOKS OF ACCOUNT AND ESTIM ATED THE PROFITS AS PRICING OF SOME OF THE ITEMS PRODUCTS SO LD TO PRAGATHI AUTOMATION PVT.LTD., WHICH IS THE SISTER CONCERN OF THE ASSESSEE, AS DISCUSSED IN THE ASSESSMENT ORDER, WAS LESS THAN THE COST TO THE ASSESSEE. ITA NO.928(B)/2011 2 3. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT T HAT IT WAS UNUSUAL THAT THE ASSESSEE INCURRED LOSS ON CERTAIN SALES TRANSACTIONS WITH ITS RELATED COMPANY AND SUCH LOSS NOT BEING GENUINE, THE ASSESSING OFFICER WAS JUSTIFIED IN REJ ECTING THE BOOKS OF ACCOUNT AND ESTIMATING THE PROFITS OF THE BUSINESS. 4.FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT( A) IN SO FQR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE AO MAY BE RESTORED. 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT IS ENCAGED IN MANUFACTURE OF CNC MACHINE PARTS. FOR THE ASSESSMEN T YEAR 2007- 08, THE ASSESSEE FILED RETURN OF INCOME DECLARING T AXABLE INCOME OF RS.20,72,668/-. IN THE COURSE OF ASSESSMENT PROCEED INGS, THE AO NOTICED THAT THE ASSESSEE SOLD TO M/ PRAGATHI AUTOM ATION PVT.LTD., ( M/S PAP ) WHICH IS A SISTER CONCERN OF THE ASSESSEE AT A P RICE WHICH WAS MUCH LESS THAN THE PRICE AT WHICH SIMILAR PRODU CTS WERE SOLD BY THE ASSESSEE TO THIRD PARTIES. THE ASSESSEE SUBMIT TED BEFORE THE AO THAT THE ASSESSEE COMPANY WAS PROMOTED BY EX-EMPLOY EES OF M/S PAP AND THEY HOLD SHARES TO THE EXTENT OF 50%. THE ASSE SSEE FURTHER SUBMITTED THAT SINCE THE MAJOR CUSTOMER OF THE ASSE SSEE WAS M/S PAP THEY HAVE TO SELL TO THEM AT A LOWER PRICE. THE ASS ESSEE FURTHER SUBMITTED THAT AS A BUSINESSMAN, THE ASSESSEE IS FR EE TO DECIDE THE PRICE AT WHICH THE PRODUCTS WERE TO BE SOLD TO A PA RTICULAR CUSTOMER. THE ASSESSEE ALSO SUBMITTED THAT IT CANNOT BE PRESU MED THAT THE PRICE AT WHICH THE ASSESSEE SELLS PRODUCTS TO OUTSIDER IS A STANDARD PRICE AND THAT PRODUCTS WHICH WERE SOLD TO SISTER CONCERN S AT A PRICE LESS THAN THE PRICE AT WHICH THE PRODUCTS WERE SOLD TO O UTSIDER IS DONE WITH AN INTENTION TO SUPPRESS INCOME. THE ASSESSEE ALSO GAVE DETAILED CALCULATION OF COSTS AND DEMONSTRATED BEFORE THE AO THAT THE PRICE CHARGED TO M/S PAP WAS ALSO PROFITABLE TO THE ASSES SEE. 4. THE AO WAS OF THE VIEW THAT HE HAD THE POWER TO INVESTIGATE AND FIND WHETHER THE TRANSACTION HAVE BEEN ARRIVED IN S UCH A WAY WHEREBY, THE ASSESSEE INCURS NOTIONAL LOSS. THE A O THEREAFTER, FOUND THAT 50% OF THE PRODUCTS MANUFACTURED BY THE ASSESS EE ARE EXPORTED ITA NO.928(B)/2011 3 AND 70% OF THE 50% SO EXPORTED IS SOLD TO MS/ PAP W HICH IN TURN VARIOUS PRODUCTS SOLD BY THE ASSESSEE TO M/S PAP AN D TO OUTSIDERS. THESE ARE GIVEN IN PAGE-5 TO 7 OF THE ASSESSMENT OR DER. THEREAFTER, THE AO ARRIVED AT THE FOLLOWING PERCENTAGE OF PROFITS D ERIVED BY THE ASSESSEE ON IT VARIOUS PRODUCTS GENERALLY AND SUCH PRODUCTS SOLD TO OUTSIDER AND TO M/S PAP. HOWEVER, ON EXAMINATION OF COSTING OF THE ABOV E PRODUCTS AND SALE PRICE TO PRAGATI AND OTHERS, ONE MORE STAR TLING FACT CAME TO THE NOTICE OF THE UNDERSIGNED. THE ASSESSEE COMPANY BEFORE THIS OFFICE, FURNISHED PRODUCT WISE ALL INCL USIVE COST ON 20-10-2009. THIS IS EVIDENT IF WE REFER TO ABOVE CH ART. THE ASSESSEE COMPANY IN ITS SUBMISSION, BESIDES, RAW M ATERIAL AND PROCESS COST, HAS APPORTIONED PER UNIT EMPLOYEE COST, ADMINISTRATION COST ALONGWITH INTEREST AND DEPRECIA TION AND ARRIVED AT TOTAL COST PER UNIT AND HENCE TOTAL COST TO THE ITEMS PRODUCED AND SOLD THERE AFTER. THE PRODUCT WISE SALE PRICE AND PROFIT THEREON IS ALSO INDICATED BY THE CHART A BOVE DISCUSSED. FROM THE ABOVE, THE FOLLOWING CONCLUSION S CAN BE DRAWN. TOTAL SALES TO OTHERS (TD RANGE OF PRODUCTS) RS.99, 87,400 LESS: ALL INCLUSIVE COST OF SALES AS PER ASSESSEE ITSELF RS.77,71,704 PROFIT RS.18,15,696 PERCENTAGE 18.9% --------------------------------------------------- ------------------------------------------ TOTAL SALES TO OTHERS (BTH/ATH PRODUCTS) RS.38,57, 400 LESS: LESS: ALL INCLUSIVE COST OF SALES AS PER ASSESSEE ITSELF RS.25,31,033 PROFIT RS.13,26,667 PERCENTAGE 34% --------------------------------------------------- ------------------------------------------ TOTAL SALES TO PRAGATI (TD RANGE OF PRODUCTS)RS.1,7 6,75,700 LESS: ALL INCLUSIVE COST OF SALES ITA NO.928(B)/2011 4 AS PER ASSESSEE ITSELF RS.1,47,94,949 PROFIT RS.28,80,751 PERCENTAGE 16% --------------------------------------------------- ----------------------------------------- TOTAL SALES TO PRAGATI(BTH/ATH PRODUCTS) RS.74,42, 500 LESS: LESS: ALL INCLUSIVE COST OF SALES AS PER ASSESSEE ITSELF RS.67,67,231 PROFIT RS.6,21,269 PERCENTAGE 8.9% --------------------------------------------------- -------------------------------------- AVERAGE PROFIT PERCENTAGE 19.4% ------------------------------------------------- -------------------- 5. THEREAFTER, THE AO HAS DRAWN THE FOLLOWING CONC LUSION; FROM THE ELABORATE DISCUSSION ABOVE, THE FOLLOWING ISSUES BECOME OBVIOUS; A) THE ASSESSEE COMPANY IS THE SISTER CONCERN OF M/S PRAGATI AUTOMATION PVT. LTD., B) THE ASSESSEE COMPANY SELLS MORE THAN HALF ITS PRODUCE TO M/S PRAGATI AND SOMETIMES IT SELLS AT PR ICE LESSER THAN THAT OF THE COST ITSELF. FOR EXAMPLE PROFIT OF BTH/ATH RANGE OF PRODUCTS, WHEN SOLD TO OTHERS IS 28% WHERE AS WHEN SOLD TO M/S PRAGATI IS 1.1%. IN SOME ITEMS, THERE IS LOSS ALSO AS PER THE WORK SHEETS PROVIDED. ALL THE TABLES, C OST WORK SHEETS ARE PART OF THE ASSESSMENT RECORD. C) M/S PARAGTI AUTOMATION PVT.LTD., HAS DISCLOSED PROF IT OF 12.5% D) WHEN THIS ANOMALY WAS ENQUIRED IN TO, THE ASSESSEE VIDE LETTER DATED 25-09-2009 SOUGHT TO QUESTION THE AUTHORITY OF THE ASSESSING OFFICER TO DETERMINE THE ACTUAL BU SINESS PROFITS. FURTHER, WITH REGARD TO PRICE DIFFERENTI AL TO M/S PRAGATI AND OTHERS, THE ASSESE SOUGHT TO STATE THAT AS THE ORDERS FROM M/S PRAGATI ARE ALWAYS HIGHER THAN BY O THERS, THE PRICE CHARGED TO THEM IS LESS THAN OTHERS. ITA NO.928(B)/2011 5 E) AS THE UNDERSIGNED WAS NOT SATISFIED BY THE VAGUE REPLIES OF THE ASSESSEE, THE ASSESSEE WAS ASKED TO FURNISH IN TABLE FORMAT, THE COST PER PRODUCT, THE PRICE TO M/ S PRAGATI AND OTHERS AND PROFIT THEREON. IN RESPONSE, THE AC COUNTANT OF THE ASSESSEE COMPANY, HAS FURNISHED THE SAME ON 20- 10- 2009. THEY ARE DULY SIGNED AND ARE PART OF THE AS SESSMENT RECORD, THE GIST OF THE ABOVE IS ALREADY FURNISHED ABOVE. F) THE WORKINGS SO FURNISHED INCLUDE RAW MATERIAL COST , PROCESS COST, AND PROPORTIONATE INDIRECT EXPENSES B EING EMPLOYEE COST, ADMINISTRATION COST, DEPRECIATION AN D INTEREST (FINANCIAL COST). THE COST AND PROFITABILITY PRODUC T WISE AS FURNISHED ARE PART OF THE ASSESSMENT RECORD. G) THE ASSESSEE VIDE LETTER DATED 11-11-2009 SOUGHT TO DISPUTE, THE ABOVE COSTING AND HAS FURNISHED REWORK ED COST SHEET AND PROFIT THEREOF. EVEN THIS IS MUCH MORE THAN THE PROFIT OFFERED BY THE ASSESSEE IN THE RETURN OF INC OME. NO EXPLANATION WITH SUBSTANTIATING EVIDENCE IS FURNISH ED FOR THE VARIATION. H) INSTEAD, THE ASSESSEE HAS SOUGHT TO ARGUE THAT, COS T SHEETS ARE PREPARED BASED ON PAST EXPERIENCE AND WI TH THE INFORMATION AVAILABLE ESTIMATES ARE PREPARED. BUT ESTIMATES ARE PREPARED FOR FUTURE. WHAT IS ASKED HEREIN IS AC TUAL COST BASED ON THE DETAILS FOR THE YEAR WHICH HAS ALREADY BEEN OVER. THUS, WHAT IS ASKED FOR THE ASSESSEE IS ACTUA LS. THE ASSESSEE IS CONTRADICTING ITSELF IN THIS REGARD. BE CAUSE VIDE LETTER DATED 25-09-2009, THE ASSESSEE HAS STATED TH AT IT MAINTAINS DETAILED COST SHEETS AND RELIED ON THEM T O EXPLAIN THE PROFITABILITY. BUT, IN LETTER DATED 11-11-200 9 THE ASSESSEE STATES THAT COST SHEETS ARE NOT TOTALLY RE LIABLE BUT ARE ESTIMATES ONLY. I) THE ASSESSEE ARGUES THAT IT IS NOT FEASIBLE TO DETE RMINE THE PROFIT MADE ON EACH AND EVERY TRANSACTION AND LAW D OES NOT REQUIRE THE ASSESSEE TO DO SO. BUT THE ASSESSEE HA S NOT BEEN ASKED TO FURNISH PROFITABILITY OF EACH EVERY TRANSA CTION BUT ONLY ON PRODUCTS. THE PROFITABILITY OF PRODUCT IS V ERY VITAL FOR THE VERY SURVIVAL OF ANY BUSINESS AND ASSESSEE CANN OT STATE THAT IT CANNOT FURNISH THE SAME. J) AS PER P & L ACCOUNT SCHEDULE -7 INCOME, THE ASSES SEE HAS SHOWN RAW MATERIAL SALES OF RS.2,74,36,365/- BLACKE NING SALES OF RS.9,26,654/- AND LABOUR CHARGES SALES OF RS.3,18,86,679/- TOTALING TO RS.6,02,49,968/-. WHER EAS ON 20-10-2009, THE ACCOUNTANT SUBMITTED DETAILS OF TOT AL SALES OF RS.3,85,63,300/- VIDE LETTER DATED 11-11-2009, THE ASSESSEE HAS ARRIVED AT SALES INCLUDING LABOUR CHARGES AT ITA NO.928(B)/2011 6 RS.5,96,48,000/-. THUS, NO THERE IS NO CLARITY IN THE FIGURES SUBMITTED BY THE ASSESSEE AND THE BOOKS OF ACCOUNTS . K) DESPITE OF SUFFICIENT OPPORTUNITIES, THE ASSESSEE H AS IN WRITING, EXPRESSED ITS INABILITY TO GIVE ACCURATE S TATEMENTS AS TO COST AND PROFITABILITY. IT ONLY MEANS THAT BOOK S OF ACCOUNTS OF THE COMPANY DO NOT REFLECT THE TRUE INCOME OF TH E ASSESSEE AND CASTE A SHADOW OF DOUBT ON CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. L) THOUGH, THE ASSESSEE HAS FURNISHED WORKINGS ON 20-10- 2009 AND REVISED WORKING ON 11-11-2009 STATES THAT NOTHING THERE IN IS INDICATIVE OR HAS ANY BEARING ON THE FI NAL TAXABLE INCOME. IN THAT CASE, WHAT IS INDICATIVE OF THE FIN AL TAXABLE INCOME. THE ASSESSEE HAS NOT CLARIFIED/ANSWERED HE QUESTIONS RAISED BY THIS OFFICE, INSTEAD, IT IS DOU BTING ITS STATEMENTS FILED BEFORE THIS OFFICE. L) VIDE LETTER DATED 11-11-2009, THE ASSESSEE REQUEST ED FOR A QUESTIONNAIRE IN WRITING. AS PER ASSESSEES REQUES T ON 13-11- 2009, A QUESTIONNAIRE, WAS ISSUED AND DISPATCHED TO THE ASSESSEE ON 13-11-2009 ITSELF, REQUIRING IT TO CLAR IFY/ANSWER THE ISSUES RAISED THEREON ON OR BEFORE 23-11-2009. IT IS IMPORTANT TO NOTE THAT THE SAID LETTER WAS SENT TO THE ADDRESS AS GIVEN BY THE ASSESSEE ITSELF, BUT NO REPLY HAS B EEN RECEIVED TILL DATE OF THE ORDER AND HENCE IT IS PRE SUMED THAT THE ASSESEEE HAS NOTHING MORE TO SAY IN THIS REGARD . 6. FOR ALL THE ABOVE REASONS, THE AO HELD THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT CORRECT AND COMPLETE AND HE THEREFORE, REJECTED THE BOOKS OF ACCOUNTS. THEREAFTER, THE AO ESTIMA TED THE PROFIT OF THE ASSESSEE AS FOLLOWS; THE ASSESSEE HAS SUBMITTED ORIGINAL WORKINGS ON 20 -10-2009 AND REVISED WORKING ON 11-11-2009. EVEN AS PER THE REVISED WORKING OF THE ASSESSEE ITSELF, THE AVERAGE PROFITS WORKS OUT T BE 11.96%. IT IS IMPORTANT TO NOTE OVER HERE THAT TH IS PROFIT PERCENTAGE IS ARRIVED AT AFTER CONSIDERING RAW MATE RIAL COST, PROCESS COST, EMPLOYEE COST, ADMINISTRATION COST, I NTEREST COST AND EVEN DEPRECIATION. EVEN THE PROFIT PERCENTAGE OF M/S PRAGATI AUTOMATION PVT.LTD.,WHICH DEALS IN SAME PRO DUCT PURCHASED FROM ASSESSEE COMPANY IS ALSO 12.5%. CO NSIDERING THESE FACTS AND CIRCUMSTANCES, IT IS FAIR, JUST AND PROPER TO ADOPT PROFIT RATE OF 11.96% IN THIS CASE. IN THE RESULT, THE NET TAXABLE INCOME IS ARRIVED AT RS.74,84,427/- AS AGAINST RS.2 0,45,200/- DECLARED BY THE ASSESSEE. ITA NO.928(B)/2011 7 7. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A), BEFORE THE CIT(A) THE ASSESSEE S UBMITTED AS FOLLOWS; A) THE PRICES CHARGED BY THE APPELLANT TO PRAGAT I ARE IN CONFORMITY WITH NORMAL COMMERCIAL PRACTICES, WHEREB Y THE CUSTOMER WHO PLACES ASSURED ORDERS FOR LARGER QUANT ITIES GETS A BETTER PRICING STRUCTURE. B) THE AO EXCEEDED HIS JURISDICTION IN PUTTING HIM SELF IN THE SHOES OF THE BUSINESSMAN AND DEMANDING THAT THE ASS ESSEE SHOULD SUPPLY HIS PRODUCT AT A PRICE THAT THE AO FI NDS SATISFACTORY. WHILE THIS EXERCISE MAY BE PERMITTED IN AN INTERNATIONAL TRANSACTION, IT IS NOT SO IN CASE OF A DOMESTIC ONE. C) THE AO HAS NOT DEFINED WHAT HE UNDERSTANDS BY T HE TERM SISTER CONCERNS AND HIS ACTION OF REJECTING THE B OOKS OF ACCOUNTS AND DETERMINING THE PET PROFIT IS BAD IN L AW, MECHANICAL AND WITHOUT APPLICATION OF MIND INASMUCH AS IT WAS BASED ON MERE SUSPICION AND A PRE-CONCEIVED NOT ION THAT THE TRANSACTIONS BETWEEN THE PARTIES WERE ENTERED I NTO IN SUCH A WAY AS TO DIVERT THE PROFITS OF THE APPELLAN T TO PRAGATI, WITHOUT BRINGING ON RECORD ANY EVIDENCE FOR THE SAM E. D) NOTWITHSTANDING THE ABOVE, THERE WAS NOTHING TO BE GAINED BY DIVERTING HE PROFITS OF THE APPELLANT TO ANOTHER COMPANY, SINCE BOTH ARE RESIDENT TAX PAYING COMPANI ES WHICH WERE NOT CLAIMING ANY TAX FREE OR EXEMPT INCO MES. UNDER THESE CONDITIONS, PROFITS IN THE HANDS OF EIT HER COMPANY WOULD BE TAX NEUTRAL. 8. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD A FOLLOWS; 5. I HAVE CONSIDERED THESE SUBMISSIONS CAREFULLY AN D ALSO PERUSED HE EVIDENCES AND OTHER DOCUMENTS FILED. FR OM THE COMPARATIVE TABLE FILED BY THE APPELLANT, IT IS CLE AR THAT THE ORDERS PLACED BY PRAGATI IN RESPECT OF MAJORITY OF THE PRODUCTS IS SUBSTANTIALLY MORE THAN THE QUANTITY PURCHASED B Y ALL OTHER CUSTOMERS PUT TOGETHER AND HAVE BEEN GIVEN A HIGHER TRADE DISCOUNT ON THE LIST PRICE AS COMPARED TO OTHERS. AS REGARDS OTHER CUSTOMERS TOO, I FIND THAT THE APPELLANT HAS ALLOWED DIFFERENT RATES OF DISCOUNT TO DIFFERENT CUSTOMERS DEPENDING ON THE QUANTITY OF ORDER PLACED BY THEM. IN RESPE CT OF THE PRODUCT NAMED TDS IT IS ALSO SEEN THAT PRAGATI HAVE BEEN ACTUALLY CHARGED HIGHER THAN OTHER CUSTOMERS, SINCE THEIR OFF- ITA NO.928(B)/2011 8 TAKE FOR THIS PRODUCT HAS BEEN LESSER THAN THE OTHE RS. FROM THIS IT IS APPARENT THAT THE APPELLANT IS FOLLOWING A HIGHER THE ORDER, HIGHER THE DISCOUNT POLICY. THE APPELLANT H AS ALSO SUBMITTED THAT IT IS SEEKING TO GAIN ENTRY IN EUROP EAN AND OTHER OVERSEAS MARKET WHEREIN IT HAS TO COMPETE WIT H CHINESE PRODUCTS. IN ORDER TO ACHIEVE THIS, IT HA S TO PERFORCE OFFER ITS COMPONENTS AT A PRICE WHICH IS VERY COMPE TITIVE, TILL SUCH TIME IT ESTABLISHES ITS PRESENCE IN THE INTERN ATIONAL MARKET. OFFERING HIGHER DISCOUNTS FOR LARGER ORDER S IS NEITHER UNCOMMON NOR AN UNREASONABLE BUSINESS PRACTICE. ADMITTEDLY, EVERY INDUSTRY HAS ITS OWN MARKET DYNAM ICS AND IT IS BEST LEFT TO THE BUSINESSMAN TO TAKE POLICY D ECISIONS. 5.1 FROM THE ASSESSMENT ORDER, I ALSO OBSERVE THA T IT IS NOT THE CASE OF THE AO THAT THE APPELLANT HAS SUPPRESSE D ITS SALES OR HAS REALIZED MORE THAN WHAT IT HAS ACCOUNTED IN ITS BOOKS. THE AO HAS PROCEEDED ON THE ASSUMPTION THAT SOMETHI NG IS AMISS, ONLY BECAUSE THE APPELLANT HAS OFFERED ITS P RODUCTS TO DIFFERENT CUSTOMERS AT DIFFERENT RATES, WHICH I MY OPINION CANNOT BE JUSTIFIED. I ALSO FIND THE ARGUMENT PUT FORTH BY THE AR THAT THE TRANSACTIONS BETWEEN THE APPELLANT AND PRAGATI IS TAX NEUTRAL CONVINCING. THE CERTIFICATE PROVIDED BY PRAGATI CONFIRMS THAT THEY ARE NOT CLAIMING ANY TAX EXEMPTI ONS AND IS IN FACT THE BIGGER COMPANY. THE VARIOUS DECISIONS RELIED UPON BY THE APPELLANT WOULD ALSO CLEARLY SHOW THAT IN TH E ABSENCE OF A SPECIFIC FINDING BY THE AO THAT THE TRANSACTIO NS WERE ENTERED INTO DEFRAUD THE REVENUE, IT IS NOT PERMISS IBLE FOR THE AO TO MAKE ADDITIONS ON THE BASIS OF MERE SUSPICION AND ASSUMPTIONS. THE DECISION CITED BY THE AR IN 293 ITR 451 IS BY THE KARNATAKA HIGH COURT WHICH IS THE JURISDICTI ONAL COURT IN THE CASE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIGH COURT ALONG WITH THE DEC ISIONS OF THE HONBLE SUPREME COURT AND THE FACTS OF THE CASE , I HOLD THAT THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT AND DETERMINING THE NET PROFIT RATIO IS UNWARRANTED AND ACCORDINGLY, THE ADDITION MADE ON THIS ACCOUNT IS D ELETED. 9. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HA PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED D R, WHO REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE ORDER OF THE AO. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS AS WERE MADE BEFORE THE CIT(A). RELIANCE WAS ALSO PLACED O N THE DECISION OF ITA NO.928(B)/2011 9 THE HONBLE SUPREME COURT IN THE CASE OF CIT VS GLA XO SMITHKLINE ASIA (P) LTD., 236 CTR 113(SC). THE HONBLE SUPREM E COURT IN THE AFORESAID DECISION EXPRESSED THE VIEW EVEN IN THE C ASE OF DOMESTIC TRANSACTION BETWEEN THE RELATED PERSONS IT WAS NECE SSARY TO EXAMINE WHETHER THERE WAS ANY MOTIVE TO SHIFT THE PROFIT MA KING CONCERN TO A LOSS MAKING CONCERN. IT WAS SUBMITTED THAT IN THE PRESENT CASE THERE WAS NO MOTIVE TO SHIFT PROFITS. IT WAS ALSO SUBMIT TED THAT ULTIMATELY THE EXERCISE SOUGHT TO BE DONE BY THE REVENUE WILL BE REVENUE NEUTRAL IN THE SENSE THAT THE PROFITS OF M/S PAP SHOULD BE REDUCED TO THE EXTENT THE ASSESSEES PROFITS IS SOUGHT TO BE INCRE ASED. 11. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. THE PRIMARY CONDITION FOR REJECTING THE BOOK RESULT S AS LAID DOWN U/S 145 OF THE INCOME TAX ACT, 1961 (THE ACT) IS THAT THE AO SHOULD BE SATISFIED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT COMPLETE AND CORRECT. AS CAN BE SEEN FROM THE F INDINGS GIVEN BY THE AO IN THE ORDER OF ASSESSMENT, THE AO HAS MEREL Y PROCEEDED ON A SURMISE THAT THE PROFITS OF THE ASSESSEE ARE SOUGHT TO BE REDUCED BY SELLING ITS PRODUCTS TO M/S PAP, THE ASSESSEES SIS TER CONCERN AT A LESSER PRICE. THERE IS NO INSTANCE OF FALSITY OR I NCOMPLETENESS OF THE BOOKS OF ACCOUNTS POINTED OUT BY THE AO IN THE ORDE R OF ASSESSMENT. THE BOOKS OF ACCOUNTS REFLECT THE TRUE STATE OF AFF AIRS OF THE ASSESSEE. THE FACT THAT THE ASSESSEE HAS SOLD ITS PRODUCTS TO ITS SISTER CONCERNS AT A PRICE LESSER THAN THE PRICE AT WHICH THE SAME PRODUCT IS SOLD TO THIRD PARTIES, IN OUR OPINION, WOULD NOT BE A SUFFI CIENT GROUND TO COME TO A CONCLUSION THAT THE BOOKS OF ACCOUNTS OF THE A SSESSEE ARE NOT COMPLETE AND CORRECT. THERE IS NO EVIDENCE BROUGHT ON RECORD THAT OVER AND ABOVE THE PRICE SHOWN IN THE BOOKS OF ACCO UNTS, THE ASSESSEE RECEIVED SOMETHING MORE FROM M/S PAP. AS RIGHTLY C ONTENDED ON BEHALF OF THE ASSESSEE IT IS FOR THE BUSINESSMAN TO DECIDE THE PRICE AT WHICH HE HAS TO SELL ITS PRODUCTS TO ITS CUSTOMERS. THE LAW IS WELL SETTLED THAT THE REVENUE CANNOT INSIST ON THE WAY I N WHICH BUSINESSMEN SHOULD CONDUCT HIS BUSINESS. THE REVEN UE CANNOT ITA NO.928(B)/2011 10 COMPEL A BUSINESSMAN TO SELL ITS PRODUCTS AT A PART ICULAR PRICE, SO THAT THE ASSESSEE DERIVES MAXIMUM PROFIT. THE COST CALCULATION, ON WHICH THE AO HAS PLACED RELIANCE, HAS NOTHING TO DO WITH THE COMPLETENESS AND CORRECTNESS OF THE BOOKS OF ACCOUN TS OF THE ASSESSEE. THERE IS ONE ALLEGATION BY THE AO IN THE ORDER OF ASSESSMENT (POINT J ) THAT THE SALE OF RAW MATERIALS, BLACKEN ING SALES AND LABOUR CHARGES SALES DO NO TALLY AS PER THE BOOKS AND AS P ER THE DETAILS FURNISHED BY THE ASSESSSEE BEFORE THE AO IN THE COU RSE OF ASSESSMENT PROCEEDINGS. THIS IS A VERY VAGUE ALLEGATION. THE AO HAS ULTIMATELY CONCLUDED THAT THERE IS NO CLARITY IN FIGURES SUBMI TTED BY THE ASSESSEE AND THE BOOKS OF ACCOUNTS. THIS ALLEGATION ON WHICH THE LEARNED DR PLACED RELIANCE, IN OUR VIEW, COULD NOT BE SUFFICIE NT TO REJECT THE BOOK RESULTS. WE AGREE WITH THE CONCLUSION OF THE CIT (A) THAT THE AO HAS PROCEEDED ON THE ASSUMPTION THAT SOMETHING IS AMISS , ONLY BECAUSE THE ASSESSEE HAD OFFERED ITS PRODUCTS TO ITS DIFFER ENT CUSTOMERS AT DIFFERENT RATES. THE CIT(A) FOUND THAT M/S PAP WAS NOT CLAIMING ANY TAX EXEMPTION WHICH NECESSITATES THE ASSESEEE SHIFT ING PROFITS TO M/S PAP. IN THE CIRCUMSTANCES, WHEN THERE IS NO EVIDE NCE REGARDING INCOMPLETENESS AND INCORRECTNESS OF BOOKS OF ACCOUN TS OR FACTS SUFFICIENT TO COME TO A CONCLUSION THAT THE ASSESSE E HAS ATTEMPTED TO DEFRAUD THE REVENUE, WE ARE OF THE VIEW THAT THE CO NCLUSION DRAWN BY THE CIT(A) ARE CORRECT AND DO NOT CALL FOR ANY INTE RFERENCE. CONSEQUENTLY, THE APPEAL FILED BY THE REVENUE IS DI SMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 28 TH SEPT., 2012. SD/- SD/- (JASON P BOAZ) (N.V.VASUD EVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE: D A T E D : 28-09-012 AM* ITA NO.928(B)/2011 11 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-IV, BANGALORE. 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE (1+1) BY ORDER SR. PRIVATE SECRETARY ITAT, BANGALORE