2013 (4) TMI 191 - HC - Income Tax

Provisions of Section 40A - Addition on account of difference in rate of sale as compared to Sister & non-sister concerns - Held that - The learned Tribunal has found that the sister concerns have paid tax at the rate of 33.6% as compared to 30.6% paid by the assessee - The provisions of Section 40-A of the Act could not have been invoked as no payment has been made to the sister concerns for any item of expenditure, which the assessee might have claimed as revenue expenditure - The Tribunal found that a tax payer can manage his affairs to reduce tax liability within the frame work of law and that the sale of goods at a lesser price to the sister concerns than to the non-sister concerns, does not violate any provision of law. - Decided against the revenue.

Summary

Issues:
1. Interpretation of Section 260A of the Income Tax Act, 1961
2. Justification of upholding the order of the Ld. CIT(A) in deleting the addition of Rs.60,72,118
3. Application of Section 40-A of the Act in the case
4. Assessment of tax liability in sales to sister concerns at lower rates

Analysis:
1. The judgment pertains to an appeal under Section 260A of the Income Tax Act, 1961, challenging an order passed by the Income Tax Appellate Tribunal, Chandigarh, for the assessment year 2006-07. The primary issue raised was whether the Tribunal was justified in upholding the order of the Ld. CIT(A) in deleting the addition of Rs.60,72,118 made by the Assessing Officer on account of sales to sister concerns at lower rates than those to non-sister concerns.

2. The assessee had initially shown an income of Rs.5,12,954 in the return of income filed. The Assessing Officer later made an addition of Rs.60,72,118 on account of profit at the rate of 15% for sales made to sister concerns, citing a difference in sale rates compared to non-sister concerns. However, the Commissioner of Income Tax (Appeals) and subsequently the Tribunal set aside this addition. The Tribunal noted that the Assessing Officer's decision was solely based on the lower sale price to sister concerns, without any payment made for expenditure claimed as revenue expenditure.

3. The Tribunal's decision emphasized that the provisions of Section 40-A of the Act could not be invoked in this scenario as no payments were made to the sister concerns for any expenditure claimed by the assessee. It was highlighted that a taxpayer has the right to manage affairs to reduce tax liability within the legal framework, and selling goods at a lesser price to sister concerns does not contravene any law.

4. Upon review, the High Court concurred with the Tribunal's findings, stating that no substantial question of law was raised. The Court affirmed that the assessee did not violate any legal provision by selling goods to sister concerns at lower rates than to non-sister concerns. Consequently, the Court dismissed the appeal, concluding that no interference was warranted in the matter.

In conclusion, the judgment provides a detailed analysis of the application of tax laws in the context of sales to sister concerns and underscores the importance of compliance within the legal framework while managing tax liabilities.