Commissioner Of Income Taxi, Ludhiana v. M/S Mansarover Impex (Regd.), Ludhiana

IN THE HIGH COURT FOR THE STATES OF PUNJAB AND HARYANAAT CHANDIGARH ITA No.131 of 2013 (O&M)Date of decision: July 22, 2013. -Commissioner of Income TaxI, Ludhiana ... Appellant v. M/s Mansarover Impex (Regd.), Ludhiana ... Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLAHON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present:Shri Rajesh Katoch, Advocate, for the appellant. Rajive Bhalla, J. (Oral): The revenue, challenges order dated 10.4.2012, passed byIncome Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh onseven questions, styled as substantial questions of law, which read asfollows:- “(i) Whether the ITAT was correct in law as well as factsand circumstances of the case in confirming the order ofCommissioner of Income Tax (Appeals) therefore, ignoringthat assessee firm has purchased the goods at higher pricefrom its sister concern, which is claimed to be justified forbeing superior and different in quality, while the sale pricehas been put on parity with the so called inferior quality goods purchased from other unrelated independentconcern? (ii)Whether ITAT was correct in law as well as facts andcircumstances of the case by confirming the order ofCommissioner of Income Tax (Appeals) by wronglyappreciating the justification given by assessee firm forpurchase from sister concern at higher price beingsuperior in quality, cannot be relied, as nodetail/description has been given on purchase bills andsimilarly assessee firm is also not giving any descriptionof goods with regard to superior quality as the goods arebeing sold at one and the same price irrespective ofquality of goods purchased?circumstances of the case by confirming the order ofCommissioner of Income Tax (Appeals) by wronglyappreciating the justification given by assessee firm forpurchase from sister concern at higher price beingsuperior in quality, cannot be relied, as nodetail/description has been given on purchase bills andsimilarly assessee firm is also not giving any descriptionof goods with regard to superior quality as the goods arebeing sold at one and the same price irrespective ofquality of goods purchased? (iii) Whether ITAT was correct in law as well as facts andcircumstances of the case in not appreciating thatavailability of superior and inferior grades of goods instock are not verifiable as no detailed stock register isbeing maintained by the firm, the fact which has beenpointed out by the statutory auditor in his tax auditreport?circumstances of the case in not appreciating thatavailability of superior and inferior grades of goods instock are not verifiable as no detailed stock register isbeing maintained by the firm, the fact which has beenpointed out by the statutory auditor in his tax auditreport? (iv) Whether ITAT was correct in law as well as facts andcircumstances of the case by confirming the order ofCommissioner of Income Tax (Appeals) ignoring onecircumstances of the case by confirming the order ofCommissioner of Income Tax (Appeals) ignoring one important aspect that assessee firm has entered intotransaction of purchase at higher price with sisterconcern to shift the profit of the taxable unit to the unitenjoying tax exemption u/s 80IB of I.T. Act, 1961? (iv) Whether ITAT was correct in law as well as facts andcircumstances of the case by confirming the order ofCommissioner of Income Tax (Appeals) ignoring onecircumstances of the case by confirming the order ofCommissioner of Income Tax (Appeals) ignoring one important aspect that assessee firm has entered intotransaction of purchase at higher price with sisterconcern to shift the profit of the taxable unit to the unitenjoying tax exemption u/s 80IB of I.T. Act, 1961? (v) Whether ITAT was correct in law as well as facts andcircumstances of the case by accepting the argument ofassessee concern ignoring the basic fact that although therate of tax may be same in both unit but yet thetransaction was not revenue neutral as transfer of profitfrom taxable to exempted unit was being effected byentering into the transaction of purchases at higher pricewith sister concern by ignoring the arms length principleand which leads to evasion of tax?circumstances of the case by accepting the argument ofassessee concern ignoring the basic fact that although therate of tax may be same in both unit but yet thetransaction was not revenue neutral as transfer of profitfrom taxable to exempted unit was being effected byentering into the transaction of purchases at higher pricewith sister concern by ignoring the arms length principleand which leads to evasion of tax? (vi) Whether ITAT was correct in law as well as facts andcircumstances of the case by confirming the order ofCommissioner of Income Tax (Appeals), but ignored thevital facts that although no tax is to be paid by theassessee in his sister concern M/s Mansarovar ForgingsPvt. Ltd., Ludhiana being exempted u/s 80IB of I.T. Act,1961, yet the sister concern of the instant assessee firmhas resorted to methods which lead to evasion of tax asthe income from other sources disclosed during thesurvey operation amounting to Rs. 1 crore has falselycircumstances of the case by confirming the order ofCommissioner of Income Tax (Appeals), but ignored thevital facts that although no tax is to be paid by theassessee in his sister concern M/s Mansarovar ForgingsPvt. Ltd., Ludhiana being exempted u/s 80IB of I.T. Act,1961, yet the sister concern of the instant assessee firmhas resorted to methods which lead to evasion of tax asthe income from other sources disclosed during thesurvey operation amounting to Rs. 1 crore has falsely been claimed exempted as business income u/s 80IB andwhich has been added back by the A.O. during thescrutiny assessment and quantum as well as concealmentpenalty stand confirmed upto ITAT. Therefore, it is clearthat assessee group is in habit of resorting to practicewhich leads to evasion of tax due to exchequer and theinstant methodology of profit shifting from taxable toexempted sister unit is example of one such fraudulentmeans with malafide intention and shows utter disregardthe assessee has when it comes to comply the provisionsof fiscal laws? (vii) Whether ITAT was correct in law as well as facts andcircumstances of the case by overlooking to the facts thatonly very small percentage of tax return is being pickedup for scrutiny and knowing well this facts of the govt.policy that most of the returns are being accepted by theI.T. Department without scrutiny the assessee group hastried to take chance by claiming false exemption and alsotried to take favour of various lower appellate courts bysuppressing the facts of sister unit of assessee groupbeing exempted thus the argument taken by the assesseethat same rate of tax being applicable in both unit isimmaterial. This principle of law with regard to the malafide intention of assessee has also been enumeratedby Hon'ble Delhi High Court in CIT Vs. ZoomCommunication (327 ITR, 510 (Delhi HC)?” (vii) Whether ITAT was correct in law as well as facts andcircumstances of the case by overlooking to the facts thatonly very small percentage of tax return is being pickedup for scrutiny and knowing well this facts of the govt.policy that most of the returns are being accepted by theI.T. Department without scrutiny the assessee group hastried to take chance by claiming false exemption and alsotried to take favour of various lower appellate courts bysuppressing the facts of sister unit of assessee groupbeing exempted thus the argument taken by the assesseethat same rate of tax being applicable in both unit isimmaterial. This principle of law with regard to the malafide intention of assessee has also been enumeratedby Hon'ble Delhi High Court in CIT Vs. ZoomCommunication (327 ITR, 510 (Delhi HC)?” We would, before dealing with the controversy, like toimpress upon the Department that it must take care in framing“substantial questions of law”, as it is the quality of a question and nottheir quantity that invites attention of a Court. We have come acrossvarious appeals where questions of fact, howsoever small, are sought tobe altered into a substantial question of law. In the present case theonly question that may arise, has been divided into seven differentquestions. Counsel for the appellant submits that as the assesseepurchased finished goods from a sister concern at a much higher ratethan the rate offered to other similarly situated units, the AssessingOfficer was right in disallowing excess payment made to the sisterconcern. The findings recorded by Commissioner of Income Tax(Appeals), affirmed by the Income Tax Appellate Tribunal, are contraryto the facts on record and have no foundation, whether in fact or in lawand may, therefore, be set aside. The mere fact that the sister concernsold these items to other entities, at higher rates, is insufficient to allowthe assessee to evade responsibility and to claim the amount paid to thesister concern, as valid business expense. We have heard counsel for the appellant, perused the impugned orders and find no reason to hold that any question of law,much less a substantial question of law, arises for adjudication. Aperusal of orders passed by the Income Tax Appellate Tribunal and theCommissioner of Income Tax (Appeals) reveals that after dueconsideration of the entire gamut of the dispute, including the remandreport forwarded by the Assessing Officer, a clear finding has beenrecorded, from the chart filed by the assessee that the assessee's sisterconcern has charged higher rates from the assessee as well as from allother entities, to which it supplied similar finished goods. In order toplace our conclusion in its correct perspective, it would be appropriateto reproduce a relevant extract from the order passed by theCommissioner of Income Tax (Appeals):- “5. ... Perusal of this chart reveals that factually whateverhas been stated by the A.O. is in as much as the rates ofpurchase of the appellant from the sister concern arehigher than the rates of the purchases from the outsidepartes. But at the same time the contention of the appellantis also correct that the sister concern has been makingsales to outside parties at higher rate as compared to thesale rate offered by the sister concern to the appellant. TheAssessing Officer in his remand report has failed tocomment upon this important issued raised by the learnedcounsel for the appellant. Perusal of the record suggests that the appellant has made these very submissions evenbefore the Assessing Officer during the course ofassessment proceedings vide letter dated 06.11.2008. “5. ... Perusal of this chart reveals that factually whateverhas been stated by the A.O. is in as much as the rates ofpurchase of the appellant from the sister concern arehigher than the rates of the purchases from the outsidepartes. But at the same time the contention of the appellantis also correct that the sister concern has been makingsales to outside parties at higher rate as compared to thesale rate offered by the sister concern to the appellant. TheAssessing Officer in his remand report has failed tocomment upon this important issued raised by the learnedcounsel for the appellant. Perusal of the record suggests that the appellant has made these very submissions evenbefore the Assessing Officer during the course ofassessment proceedings vide letter dated 06.11.2008. 5.1 The learned counsel has taken me through the writtensubmissions filed by him vide letter dated 15.12.2009. Hehas highlighted that the G.P. Rate of the appellant has goneup to 7.65% during the year under appeal as compared to6.69% during the earlier year. He has also taken methrough the comparative charts of purchase price ofvarious items purchased from outside parties and also fromthe sister concern M/s Mansarovar Forgings Pvt. Ltd., andalso comparison with sales made by M/s MansarovarForgings Pvt. Ltd., to other parties. He also took methrough photocopies of the relevant bills which have beenfiled along with the written submissions. He explained indetail that the variation in prices is consequential upon thedifference arising from the thickness, finishing, quality ofnickel polishing, hardening, tempering, barreling,grinding, etc. He also highlighted the fact that the goodspurchased from its sister concern where of a superiorquality and heavier weight. He specifically draw myattention to the chart showing comparative sale rateswhich is being reproduced below:- 5.2 Keeping in view the facts and above stated position ofthe case, I am of the view that the submissions made by theappellant's counsel are fully justified. The rate of aproduct depends upon the quality, the weight, the finenessetc. Further, M/s Mansarovar Forgings Pvt. Ltd., madesales to outside parties at higher rate than the appellantfirm. Moreover, the said sister concern is also paying taxat the same rate as that paid by the appellant, there couldhave been no incentive for the sister concern to supply thegoods at a higher rate than the market rate because it would go to increase its profits. I have also gone throughthe judgment of the Hon'ble Punjab and Haryana HighCourt in the case of CIT vs. Siya Ram Garg HUF reportedin 49 DTR P126 on the same identical situation. The G.P.Ratio of the appellant is also higher than in earlier years.The Assessing Officer has not been able to pin-point anydefect in the stand put forward by the appellant. I am,thus, inclined to agree with submissions of the appellant'scounsel and direct to delete the disallowance ofRs.45,88,653/-.” The order passed by the Commissioner of Income Tax(Appeals) has been affirmed by the Income Tax Appellate Tribunalafter taking into consideration the aforementioned facts. The findingrecorded in the above order and order passed by the Income TaxAppellate Tribunal do not suffer from any error of jurisdiction or lawso as to raise a substantial question of law, much less the questionsframed by the revenue. In view of what has been recordedhereinabove, the appeal is dismissed. [ Rajive Bhalla ] Judge July 22, 2013. kadyan [Dr. Bharat Bhushan Parsoon] Judge