M/S. SAMEER LINKAGES (EXPORTS) PVT.LTD.,BARODA vs. INCOME TAX OFFICER-4, BARODA

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ITA 3496/AHD/2014Status: DisposedITAT Ahmedabad22 September 2017AY 2011-124 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that Section 40A(2)(b) of the Income Tax Act is not applicable when the purchase price is lower than the market price. The addition made by the Assessing Officer was not found to have merit.

What were the facts?

The assessee purchased raw material from an associate concern at a price lower than the market price. The Assessing Officer made an addition to the total income alleging inflation of profit.

What were the issues?

Whether the purchase of raw material from an associate concern at a price lower than the market price can lead to an addition for inflated profit under Section 40A(2)(b).

Which sections of the Income-tax Act were involved?

Section 40A(2)(b)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH, AHMEDABAD

ITA No. 3496/Ahd/2014 Sameer Linkages (Exports) Pvt Ltd vs. The Recovery Officer Assessment year: 2011-12 Page 1 of 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH, AHMEDABAD [Coram: Pramod Kumar AM and Rajpal Yadav JM] ITA No.3496/Ahd/2014 Assessment year: 2011-12 M/s. Sameer Linkages (Exports) Pvt Ltd .......…………......Appellant 623, GIDC Industrial Estate, Makarpura, Vadodara-390010 [PAN: AAECS 9430 M] Vs. The Tax Recovery Officer-4 .......................Respondent Baroda Appearances by: Shraddha for the appellant Mudit Nagpal for the respondent Date of concluding the hearing : 21.09.2017 Date of pronouncing the order : 22.09.2017 O R D E R Per Pramod Kumar, AM: 1. This is an appeal filed by the assessee appellant and is directed against the order dated 08.10.2014 passed by the CIT(A)-III, Baroda in the matter of assessment under Section 143(3) of the Income-tax Act, 1961 for the Assessment Year 2011-12. 2. Grievance raised by the assessee-appellant is as follows:- “The learned Commissioner of Income Tax (Appeals)-III, Baroda [“the CIT(A)”] erred in fact and in law in confirming the action of the Tax recovery Officer-4, Baroda (‘the AO’) in making an addition of Rs.29,75,670/- to the total income of the Appellant on alleged ground of inflation of profit of the company.”

3.

Learned representatives fairly agree that the above grievance is covered, in favour of the assessee, by the decision dated 27.02.2017 of the Co-ordinate Bench of this Tribunal in assessee’s own case for the assessment years 2007-08 to 2010- 2011 wherein the Tribunal has, inter alia, observed as follows:- “10. We have given a thoughtful consideration to the orders of the authorities below. It is true that the A.O. has examined the transaction with associate concern within the parameters laid down u/s. 40A(2) of the Act which reads as under:- (a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause

ITA No. 3496/Ahd/2014 Sameer Linkages (Exports) Pvt Ltd vs. The Recovery Officer Assessment year: 2011-12 Page 2 of 4 (b) of this sub-section, and the [Assessing] Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction: [provided that no disallowance, on account of any expenditure being excessive or unreasonable having regard to the fair market value, shall be made in respect of a specified domestic transaction referred to in section 92BA, if such transaction is at arm's length price as defined in clause (ii) of section 92F.]

(b) The person referred to in clause (a) are the following, namely :- (i) where the assessee is an individual any relative of the assessee; (ii)where the assessee is a company, firm any director of the company, association of persons or Hindu un- partner of the firm, or member Divided family of the association or family, or any Relative of such director, partner or Member; (iii) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member [or any other company carrying on business or profession in which the first mentioned company has substantial interest]; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) any person who carried on a business or profession,- (A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or (B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director or such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person. Explanation- For the purpose of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,- (a) in a case where the business or profession is carried don by a company, such person is, at any time during the previous year, the

ITA No. 3496/Ahd/2014 Sameer Linkages (Exports) Pvt Ltd vs. The Recovery Officer Assessment year: 2011-12 Page 3 of 4 beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and (b) in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession.

11.

A perusal of the afore-stated section shows that the provisions are triggered when the A.O. finds that the assessee has incurred any expenditure in respect of which payment has been made which in the opinion of the Assessing Officer is excessive or unreasonable having regard to the fair market value of the goods. The facts on record show that the only allegation of the revenue authorities is that the assessee has purchased raw material from the associate concern at a price which is lower than the market price. We fail to understand, when the price paid by the assessee is lower than the market price how the provisions of section 40A(2)(b) apply on the given facts of the case in hand. It is also true that the assessee has shown better profit results then its associate concern. Therefore the transaction of the purchase of raw materials cannot be said to be at unreasonable price. We also do not find that due to the impugned transaction of the purchase of raw materials from the associate concern, the transaction has provided more than ordinary profits, when the margins of profit of the assessee and the associate concern are almost at par.

12.

In our considered opinion, the impugned transaction has not resulted into any extraordinary profit to the assessee. Further, in our considered opinion, the provisions of Section 40A(2)(b) of the Act do not apply on the facts of the case in hand. Considering the facts of the case in hand from all possible angles, we do not find any merit in the impugned additions made by the A.O. We, accordingly set aside the findings of the ld. CIT(A) and direct the A.O. to delete the additions from all the assessment years under appeal.”

4.

We see no reason to take any other view of the matter than the view so taken by the co-ordinate bench. Respectfully following the same, we uphold the grievance of the assessee and delete the impugned addition of Rs.29,75,670/- made by the Assessing Officer on the ground of inflation in profit.

5.

In the result, the appeal is allowed. Pronounced in the open court today on the 22nd day of September, 2017.

Sd/- Sd/-

Rajpal Yadav Pramod Kumar (Judicial Member) (Accountant Member) Ahmedabad, the 22nd day of September, 2017 **bt

ITA No. 3496/Ahd/2014 Sameer Linkages (Exports) Pvt Ltd vs. The Recovery Officer Assessment year: 2011-12 Page 4 of 4 Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order

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