THE DCIT, GANDHINAGAR CIRCLE,, GANDHINAGAR vs. M/S. WESTERN AGRI SEEDS LTD.,, GANDHINAGAR

Date of hearing : 11-09-2020 Date of pronouncement : 07-10-2020 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-

This revenue’s appeal for A.Y. 2012-13, arises from order of the CIT(A), Gandhinagar, Ahmedabad dated 19-07-2018, in proceedings under section 143(3) r.w.s. 147 of the Income Tax Act, 1961; in short “the Act”.

2. The ld.CIT(A) has erred in law and on facts in allowing the disallowance of Rs. 1,60,27,926/- u/s. 40A(2) in respect of purchase of seeds from Green India Seeds Co.”

Page No 2 Dy. CIT vs. M/s. Western Agri Seeds Ltd.

2019. The decision of the Co-ordinate Bench vide is reproduced as under:- “5. We have heard both the sides and perused the material on record carefully. With the assistance of ld. representatives, we have gone through the decision of Co-ordinate Bench in the case of the assessee itself vide ITA Nos. 2795 & 2796/Ahd/2016 and noticed that identical issue on similar facts has been adjudicated in favour of the assessee. Relevant part of the decision of aforesaid Co-ordinate Bench is reproduced as under:- In respect of addition made on account of rate difference, relevant part of decision of Co- ordinate Bench in the aforesaid decision is reproduced as under:- “7. We have heard the representative of the respective parties. We have also perused the relevant materials available on record. It appears that the assessee duly submitted the ledger account along with the complete details of the parties which is also part of annexure before us in the paper book the details whereof is also before us at Page No.37 of the Paper Book. The list of the parties and the ledger accounts of those parties are also reflecting from Page 38 to 190 of the Paper Book. We have gone through the same; the entire payment made by the assessee is reflected in those ledger accounts as on record before us which has not been alleged as non-genuine by the Learned AO. So far as the rate discount of Rs.1,89,160/- paid to M/s. Samarth Baparam Seeds Corporation is concerned the detail submission is also available in this respect made by the assessee at Page 4 & 5 of the assessment order. It appears that sufficient details were submitted by the appellant in support of his claim. Further that while allowing the claim of the assessee by deleting the addition made by the Learned AO the Learned CIT(A) observed as follows: “On careful consideration of entire facts it is observed that Appellant has established its business to provide high value research and hybrid seeds to farmers as a brand name "Western" since last twenty years. In any business, discount/rate difference is allowed to customers as per policy of the business and for which trade circulars are issued on time to time basis. The entire payment made by Appellant is duly reflected in ledger account of various dealers and supported by evidences. Even AO has not pointed out any defect in such evidences produced by Appellant. During the course of assessment proceedings, AO has raised one query relating to discount and rate difference of Rs.1,89,160/- paid to Shri Samarth Baparam Seeds Corporation and said query is reproduced at page No. 3 of the assessment order. Against this query, Appellant has made detailed submission, which is also reproduced on page-4 and 5 of the assessment order. On the basis of such submission, AO has not drawn any adverse inference which is apparent in the assessment order. The issue was raised from the details submitted by appellant, which prove that Appellant has produced evidences in support of its claim. It is pertinent to note that ratio of discount to turnover in A.Y. 2008-09 was 6.25%, 7.02 % in A.Y. 2009-10 and 6.66% in year under consideration, which supports the contention of the Appellant that discount/rate difference are allowed consistently. Further, in AY 2009-10, AO has made partial disallowance of such expenditure on the ground that there was increase in such expenditure, which was deleted by undersigned vide Order dated 10/12/2013 in Appellate Order No. CIT(Appeals)/ GNR/367/2012-13. Further, gross profit ratio of Appellant for the year under, consideration has improved and same is accepted by AO. The AO has not brought out any evidences which can suggest that payment made by Appellant is non-genuine or in fact, not received by dealers and made addition on hypothecation basis. Thus, on holistic Page No 4 Dy. CIT vs. M/s. Western Agri Seeds Ltd. consideration of entire facts, addition of Rs.2,14,47,109/- made by the AO is deleted. The grounds of appeal are allowed.” Taking into consideration the entire aspect of the matter we do not find any infirmity in the observation made by the Ld. CIT(A). Hence the ground of appeal preferred by revenue being devoid of merit is hereby dismissed.” In respect of addition made u/s. 40(A)(2)(b), relevant part of decision of Co-ordinate Bench in the aforesaid decision is reproduced as under:-

12. Heard the Ld. Counsel appearing for the parties, perused the relevant materials available on record. It was an admitted fact that the AO failed to give any instances which can prove that such purchases made by the assessee are excessive, unreasonable and hence disallowance u/s. 40(A)(2)(b) on estimated gross profit is not sustainable in the eye of law. The Ld. CIT(A)A holding the said view relying upon the judgment passed by the Hon’ble Apex Court in the matter of CIT vs. Glaxo Smithkline Asia Pvt. Ltd. reported in 195 Taxman 35 observed as follows in favour of the assessee: “It is an undisputed fact that appellant and its associated concern are assessed to tax at maximum marginal rate hence even if for sake of argument, it is assumed that appellant has purchased goods at excessive rate, its associated concern has sold goods at such rate and offered higher income and paid higher taxes. The Hon’ble Supreme Court in the case of CIT vs. Glaxo Smithkline Asia Limited 195 Taxman 35 relied upon by appellant has held as under:- “However, a larger issue was involved n the instant case. The main issue which needed to be addressed was, whether Transfer Pricing Regulations should be limited to cross-broker transactions or be extended to domestic transactions. In the case of domestic transactions the under-involving of sales or over-invoicing of expenses ordinarily would be revenue neutral in nature, except in the following two circumstances having tax arbitrage- (i) If one of the related companies is a loss making company and the other is a profit making company and profit is shifted to the loss making concern; and (ii) If there are different rates for two related units [on account of different status, area-based incentives, nature of activity, etc.] and if profits is diverted towards the unit on the lower side of the tax arbitrage. For example, sale of goods or services from non-SEZ area, [taxable division] to SEZ unit [non-taxable unit] at a price below the market price so that taxable division will have less taxable profit and non-taxable division will have a higher profit exemption.[Para 4] As the case of the appellant is snot falling in the exception as provided by Hon’ble Supreme Court, disallowance u/s. 40A(2)(b) made by the AO for Rs. 86,39,915/- is deleted. This ground of appeal is allowed.” We find no infirmity in the observation made by the CIT(A) in holding that in the present facts and circumstances of the case disallowance u/s. 40(A)(2)(b) is not permissible in the absence of any instances and/or observation made by the AO that purchases made by the assessee are excessive unreasonable with that of the fair market value of goods. Hence, the decision arrived at by the Ld. CIT(A) is hereby uphold. Revenue’s appeal is thus dismissed.” Respectfully relying upon the aforesaid decision of Co-ordinate Bench of the ITAT, we uphold the order of ld. CIT(A), therefore, both the grounds of appeal of the revenue are dismissed.”

Page No 5 Dy. CIT vs. M/s. Western Agri Seeds Ltd.

Respectfully following the decision of the Co-ordinate Bench as cited above on similar facts and circumstances, we uphold the decision of ld. CIT(A). Therefore, both the grounds of appeal of the revenue are dismissed.

Order pronounced in the open court on 07-10-2020 Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) VICE PRESIDENT ACCOUNTANT MEMBER Ahmedabad : Dated 07/10/2020 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file.