Commissioner Of Income Taxchennai v. M/S.cauvery Stone Impex Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 02.02.2015 CORAM: THE HONOURABLE MR.JUSTICE R.SUDHAKARandTHE HONOURABLE MRS.JUSTICE S.VIMALA Tax Case (Appeal) No.1062 of 2014 Commissioner of Income TaxChennai ...Appellant versus M/s.Cauvery Stone Impex Pvt. Ltd.,8, 2nd Street, Ganapathy Colony,Chennai - 600 086. ...Respondent PRAYER: Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 as against the order dated 20.06.2014 made inI..T.A..No.1210/Mds/2013 on the file of the Income Tax AppellateTribunal, Madras 'B' Bench for the assessment year 2009-2010. against the order of the Commissioner of Income Tax (Appeal) IX,Chennai - 34, dated 28.02.2013 in ITA No. 174/11-12, and arising outof the assessment order of Assistant Commissioner of Income Tax,Company Circle 1(3), Chennai - 34, dated 16.11.2011 in GIR / PAN No. . For appellant : Mr.T.RavikumarStanding Counsel for Income Tax J U D G M E N T(Judgment of the Court was delivered by R.SUDHAKAR,J.) This Tax Case (Appeal) is filed by the Revenue as against theorder of the Income Tax Appellate Tribunal raising the followingsubstantial questions of law: https://hcservices.ecourts.gov.in/hcservices/ "1. Whether in the facts and circumstances of thecase, the Tribunal was right in deleting the disallowancemade under Section 10B of the Income Tax Act? 2. Whether in the facts and circumstances of thecase, the Tribunal was justified in drawing theconclusion that difference in sale price could bepossible by merely relying on the statement of theassessee and failing to appreciate material evidencerelied on by the Assessing Officer, as to the inflationof profit for 10B deduction? 3. Whether in the facts and circumstances of thecase, the Tribunal was right in not appreciating the factthat the Assessing Officer has fairly drawn hisconclusion that there is shifting of profits to aneligible undertaking based on the material evidence inthe form of tax invoices, showing under billing byrelated party to the assessee?4. Is not the finding of the Tribunal that theAssessing Officer had acted under an apprehension ofshifting of profits wrong and incorrect, when theAssessing Officer had made a very detailed analysis ofthe sale prices of the related party's sale to theassessee and the related party's sale to third partiesand proved under billing by the related party to theassessee for the purpose of inflating the profits of theunit eligible for deduction under Section 10B?" 2. The brief facts of the case are as follows: The assessee is a company engaged in the manufacture and exportof granite monuments. The assessee filed its return of income forthe assessment year 2009-10 admitting a taxable income atRs.25,27,255/- after claiming deduction under Section 10B of theIncome Tax Act. It is seen that the assessee had purchased KashimiriWhite granite blocks from M/s.Coromandel Agencies, M/s.Gem Granitesand M/s.Imperial Granites Pvt. Ltd. While completing the assessment,the Assessing Officer observed that the sale value of the graniteblocks by these three companies to the assessee at the rate ofRs.25,000/- per CBM is lesser than the value of sale by the threecompanies to the unrelated parties at Rs.30,000/- per CBM. Forbetter clarity, we extract the comparative chart as found in theassessment order below: 3. The reasoning given by the Assessing Officer is that thedimensions of the items sold to the related party was larger ascompared to that of the third parties and therefore, there could notbe any difficulty in fixing the rate on higher plank in respect ofothers. He further held that the rates of the granite blocks sold tothe assessee should be higher because of the larger dimension.Hence, the Assessing Officer completed the assessment and reduced asum of Rs.50.00 lakhs from business profits of the assessee andcomputed the deduction allowable under Section 10B of the Income TaxAct on the balance profits on the ground that the profits to theextent of Rs.50.00 lakhs has been shifted from M/s.CoromandelAgencies, which is a related party to the assessee. The AssessingOfficer also disallowed sales commission under Section 40(a)(i) ofthe Income Tax Act paid to overseas agents on the ground that theassessee had not deducted TDS on such overseas commission. 4. The Commissioner of Income Tax (Appeals), on appeal at theinstance of the assessee, deleted the disallowance made under Section40(a)(i) on the commission paid to overseas agents, but upheld thereduction of profits to the extent of Rs.50.00 lakhs while computingdeduction allowable under Section 10B of the Income Tax Act. 5. As against the said order of the Commissioner of Income Tax(Appeals), both the Revenue as well as the assessee went on appealbefore the Income Tax Appellate Tribunal. 6. The Tribunal, after hearing both sides, allowed the appealfiled by the assessee and dismissed the appeal filed by the Revenueholding that it was only an apprehension of the Assessing Officerthat the assessee had shifted profits for the purpose of claimingdeduction under Section 10B of the Act and the analysis made by theAssessing Officer was not a conclusive proof to decline deductionunder Section 10B of the Act. The Tribunal also upheld the order ofthe Commissioner of Income Tax (Appeals) with regard to the deletionof disallowance made under Section 40(a)(i) of the Income Tax Act. 7. Aggrieved by the said order of the Tribunal, the Revenue isbefore this Court raising the above-mentioned substantial questionsof law. 8. Heard learned Standing Counsel appearing for the Revenue andthe learned counsel appearing for the assessee and perused thematerials placed on record. 9. It is seen from the order of the Tribunal that the AssessingOfficer had not made any thorough investigation in this matter andhad not adopted a fair comparison at all. We find that theinvestigation done by the Assessing Officer is awry. Had theOfficer, who passed the assessment order under Section 143(3) of theIncome Tax Act, took a little more effort, the case of the Departmentwould have been more foolproof and it will not suffer the fate beforethe Tribunal, against which the Department is on appeal. 10. 'CBM' means Cubic Meter. 'Dimension', as per the ConciseOxford Dictionary, means 'a measurable extent, such as length,breadth or height'. It is relevant to note that nowhere in theassessment order, which is supposed to be a detailed order based onenquiry and investigation, we find that there is any reference to thedimension of the granite block in the case of the assessee and in thecase of the third parties. It is not known that on what premise and presumption, the Assessing Officer could come to the conclusion thatthe dimension in the case of the assessee is larger than that ofother parties. The Assessing Officer could not confuse the dimensionwith CBM. There is nothing in the assessment order to show that thedimensional granite blocks is of a particular size, so that it shouldbe said as comparable for all purposes. This assumes importance. Itis an admitted case of the assessee herein that the assessee isengaged in the manufacture and export of granite monuments. Thebusiness of the other parties is not known. presumption, the Assessing Officer could come to the conclusion thatthe dimension in the case of the assessee is larger than that ofother parties. The Assessing Officer could not confuse the dimensionwith CBM. There is nothing in the assessment order to show that thedimensional granite blocks is of a particular size, so that it shouldbe said as comparable for all purposes. This assumes importance. Itis an admitted case of the assessee herein that the assessee isengaged in the manufacture and export of granite monuments. Thebusiness of the other parties is not known. 11. The Tribunal had accepted the plea of the assessee that ingranite dimensional blocks trade, price may vary depending upon sizeof the block and uniformity in colour, defects etc., as granite is anatural product and if there is any mole, crack or difference incolour, the same could not be exported and hence there are lot ofwastages. The Tribunal while allowing the appeal of the assesseeheld that the sale of dimensional granite blocks to the assessee bythe three companies was 131.37 CBM, whereas the sale of dimensionalgranite blocks by the three companies to the third parties at 8 to 17CBM. Hence, the huge volume purchased by the assessee could havetilted the sale price in favour of the assessee. The Tribunal was ofthe view that based on the conjectures and surmises, the AssessingOfficer made comparison of the sale price and reduced the profitwhile computing deduction under Section 10B of the Income Tax Act. 12. We find that on fact the Tribunal had clearly come to theright conclusion that there is no reason to accept the findings ofthe Assessing Officer, which is bereft of details and based onincomplete investigation. 13. Being pure question of fact, we find no question of law muchless any substantial question of law arises for consideration in thisappeal. Accordingly, this Tax Case (Appeal) stands dismissed. Nocosts. Sd/-Assistant Registrar(J)//True Copy//Sub Assistant Registrar sl To 1. The Income Tax Appellate Tribunal, Madras 'B' Bench. 2. The Commissioner of Income Tax (Appeals) – IX, Chennai – 34. 3. The Assistant Commissioner of Income-tax, Company Circle-I(3),Chennai – 34. 4. The Assistant Registrar,Income Tax Appellate Tribunal,Rajaji Bhavan, III Floor, Besant Nagar, Chennai - 90. 1 CC to Mr.T.Ravikumar, Advocate SR.No. 5056 Tax Case (Appeal) No.1062 of 2014 TS (CO)PSI (23.02.2015)