2015 (1) TMI 1217 - HC - Income Tax

Addition on deemed additional sale price - Held that - The Apex Court in the case of CIT v. Calcutta Discount Co. Ltd. 1973 (4) TMI 6 - SUPREME Court has held that where a trader transfers his goods to another trader at a price less than the market price and the transaction is a bonafide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the profit from the transaction. An assessee can so arrange his affairs as to minimize his tax burden . The authorities were not justified in adding the income, taking the difference between the price at which the rice bran is purchased and rice bran is sold. Therefore, the substantial question of law is answered in favour of the assessee and against the revenue.

Summary

Issues involved:
Assessment of additional income on sale of rice bran based on deemed additional sale price without basis.

Analysis:
The appellant challenged the addition of Rs. 6,58,965 as additional income due to the sale of rice bran to a concern. The Assessing Authority contended that the appellant bought rice bran at a higher rate and sold it at a lower rate to reduce profit, benefiting the concern operating adjacent to the appellant. Consequently, the Assessing Authority rejected the appellant's accounts under Section 145(3) of the Income Tax Act. The appellant's appeal to the Commissioner of Income-tax (Appeals) and subsequent second appeal were both dismissed, leading to the current appeal.

The court referred to the case of CIT v. Calcutta Discount Co. Ltd., where it was established that if a trader sells goods at a price below market value in a genuine transaction, tax authorities cannot ignore the actual price received to determine profit. The court also cited the case of CIT v. Keshavlal Chandulal, emphasizing that there is no obligation under income tax law to sell goods at market price if sold at a concessional rate. The court noted that the exception under Section 40(A)(2a) did not apply as there was no relationship specified between the parties.

Based on the legal precedents, the court concluded that the authorities were unjustified in adding income based on the price difference of rice bran purchased and sold. The court ruled in favor of the appellant, setting aside the impugned orders and the addition of Rs. 6,58,965 as income related to the rice bran price difference. The appeal was allowed, and the appellant succeeded in challenging the deemed additional sale price assessment.