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Dy. Commissioner of Income Tax, Circle 6(1), Room No. 413, CR Building, New Delhi vs. Maharani Paints India Pvt. Ltd., TA-3/146-C, Tuglakabad Extn.,New Delhi
May, 22nd 2012
                                                                 ITA NO. 1346/DEL/2011


                      IN THE INCOME TAX APPELLATE TRIBUNAL
                             DELHI BENCH "E", NEW DELHI
                      BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
                                          AND
                     SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
                               I.T.A. No. 1346/Del/2011

                                     A.Y. : 2006-07


Dy. Commissioner of Income Tax,            vs. Maharani Paints India Pvt. Ltd.,
Circle 6(1), Room No. 413, CR                  TA-3/146-C, Tuglakabad Extn.,
Building, New Delhi                            New Delhi
                                               (PAN/GIR NO. : AAACM 6316Q)
(Appellant )                                   (Respondent )

               Assessee by                  :   Sh. Ashwani Taneja, Adv. & Sh.
                                                Somil Agarwal, CA
           Department by                    :   Sh. R.S. Negi, Sr. D.R.


                                  ORDER
PER SHAMIM YAHYA: AM
      This appeal by the Revenue is directed against the order of the

Ld. Commissioner of Income Tax (Appeals)-IX, New Delhi                        dated

26.11.2010 pertaining to assessment year 2006-07.


2.    The grounds             raised in the appeal by the      Revenue read as

under:-


               "1.     The   order   of   Ld.   Commissioner    of   Income      Tax

                       (Appeals) is erroneous and contrary to facts and law.




                                           1
                                                       ITA NO. 1346/DEL/2011


           2.    On the facts and in the circumstances of the case and

                 in law, the Ld. Commissioner of Income Tax (Appeals)

                 has erred in deleting the addition of ` 17,91,874/-

                 made by Assessing Officer     on account of purchases

                 made from sister concern.


           2.1   The Ld.     Commissioner of    Income Tax     (Appeals)

                 ignored the finding recorded by the Assessing Officer

                 and the fact that the disallowance was correctly made

                 by the Assessing Officer    in accordance quality and

                 quantity of goods purchased from sister concerns with

                 comparable market rates.


           3.    The appellant craves leave to add, to alter, or amend

                 any grounds of the appeal raised above at the time of

                 hearing."


3.    In this case the return of income in this case was filed by the

assessee company on 25.11.2006 declaring total income of `

6,74,81,720/- and the same was processed u/s. 143(1) of the Act on

28.3.2008 at the returned income. The case was selected for scrutiny

by DCIT Circle 6(1), New Delhi and notice u/s. 143(2) was issued asking

for clarification on various issues. During the year under consideration


                                   2
                                                         ITA NO. 1346/DEL/2011


the assessee was engaged in the manufacturing of paints.                 The

company made purchases from M/s C. Dass Chemical (P) Ltd. which is

a related party within the meaning of section 40A(2)(b).        During the

year total purchases from the said company were to the extent of

` 1,79,18,739/-. The Assessing Officer, therefore, asked the assessee

to furnish justification for the rates and the details of purchases.

Rejecting the arguments of the assessee, the Assessing Officer

concluded that the group company was charging 10% extra for the

purchases as well as services.     The Assessing Officer,        therefore,

disallowed ` 17,91,874/- holding the same to be excessive payment

invoking section 40A(2)(b) of the Act.





4.   Upon assessee's appeal Ld. Commissioner of Income Tax

(Appeals) elaborately considered the issue. He observed that in order

to verify the contention of the assessee that the goods were not

purchased from the sister concern viz. M/s C. Das Chemicals at higher

prices, the Ld. Authorised Representative was asked to produce the

copies of bills for the purchases from the said concern for the date or

near about when the same goods were purchased from other parties.

The Ld. Authorised Representative        was also requested to prepare a

chart mentioning the dates, quantities and the rates of the       goods so

purchased.    Referring to the charts, Ld. Commissioner of Income Tax


                                    3
                                                        ITA NO. 1346/DEL/2011


(Appeals) observed that it can be seen form the said two chartes that

barring one occasion each for the purchase of two products. i.e.

toluene and xylene, the rates paid to the sister concern were always

lower than those paid to the unrelated parties.        The assessee has

also submitted the average rates of the two products from the sister

concern and other parties during the year as under:-


      Product          Rate of purchases         Rate of purchases
                       From sister concern       from other concerns

      Toluene          ` 41.33                          ` 44.56
      Xylene           ` 42.96                          ` 45.61

      Referring to     the above, Ld. Commissioner of Income Tax

(Appeals) observed that Assessing Officer    has wrongly formed the

opinion that the purchases made from the sister concern were at

higher rates.        Thus, Ld. Commissioner of Income Tax (Appeals)

concluded that there was no merit in the addition made by the

Assessing Officer.

4.1   Ld. Commissioner of Income Tax (Appeals) further noted that the

assessee has placed reliance on the judgement of the Hon'ble

Supreme Court in the case of        M/s Glaxo Smithline Asia (P) Ltd.

whereby it has been held that in the cases of related partly

transactions the authorities must examine whether there is any loss of

revenue.    And, if the authorities find that he exercise is revenue


                                    4
                                                           ITA NO. 1346/DEL/2011


neutral, than the matter may be decided accordingly.             In the case

under consideration, it has been submitted that both the assessee as

well as the sister concern are taxpaying corporate entities and are

regularly assessed to tax. Under the circumstances, the contention of

the assessee that though there was no over payment to M/s C. Dass

Chemicals (P) Ltd., yet even if for the sake of argument, it is assumed

that it was on the higher site, it was revenue neutral exercise having

no tax implication. Ld. Commissioner of Income Tax (Appeals) found

that it is a valid argument and cannot be ignored in the light of the

Hon'ble   Apex   court's   decision   cited   above.      Accordingly,      Ld.

Commissioner of Income Tax (Appeals) concluded that addition made

by the Assessing Officer in this case was liable to be deleted.

5.   Against the above order the Revenue is in appeal before us.

6.   We have heard the rival contentions in light of the material

produced and precedent relied upon.       We find that Ld. Commissioner

of Income Tax (Appeals) has given a           finding   after obtaining the

necessary details from the assessee that rates paid to the sister

concern were always lower than those paid to the unrelated parties.

In view of the above facts, there is no basis on which addition can be

sustained.   Furthermore, Ld. Commissioner of Income Tax (Appeals)

has referred to the decision of the Hon'ble Supreme Court in the case


                                      5
                                                        ITA NO. 1346/DEL/2011


of M/s Glaxo Smithline Asia (P) Ltd. On the basis of ratio emanating

from the above said decision, Ld. Commissioner of Income Tax

(Appeals) has given a finding that yet even if for the sake of argument,

it is assumed that it was on the higher side, it was revenue neutral

exercise having no tax implication, as the assessee as well as the

sister concern are     taxpaying   corporate entities and are regularly

assessed to tax.       Accordingly, in the background of the aforesaid

discussion and precedent, we do not find any infirmity in the order of

the Ld. Commissioner of Income Tax (Appeals), accordingly, we uphold

the same.

7.    In the result, the appeal filed by the Revenue stands dismissed.

      Order pronounced in the open court on 18/5/2012.

       Sd/-                                             SD/-

       JAIN]
 [A.D. JAIN]                                [SHAMIM YAHYA]
JUDICIAL MEMBER                             ACCOUNTANT MEMBER

Date 18/5/2012
"SRBHATNAGAR"
Copy forwarded to: -
1.    Appellant 2.     Respondent           3.    CIT   4.     CIT (A)
5.    DR, ITAT


                            TRUE COPY
                                                  By Order,
                                                    Assistant Registrar,
                                                    ITAT, Delhi Benches
                                    6
 
 
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