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.
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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
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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
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(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
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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
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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
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