2017 (9) TMI 1521 - AT - Income Tax

Selling of goods at lower rates - addition on difference in sale price for the goods sold to M/s. Hamilton Housewares Pvt. Ltd.(HHPL) - Held that - AO/FAA had not brought on record any evidence to prove that higher price was received by the assessee than what was stated in the books of accounts. We would also like to mention that both the authorities have emphasised that by charging lesser price the assessee had helped the buyer to claim higher 80IB deduction. But,they have ignored the basic fact that deduction under that section is available only for manufactured goods. Thus,the one of the reasons for rejecting the claim of the assessee has no basis at all. Apart from the presumption,based on the relationship between HHPL and the assessee-company,there was no other material before both the revenue authorities to come to the conclusion that the sale price charged by the assessee from HHPL was not reasonable. It is a fact that the assesse had incurred negligible expenses under the heads transportation and advertisement, i.e.1.04% and 0.74% of the sales respectively. Whereas,HHPL had incurred substantial expenditure on account of those two heads. The assessee was suffering losses and it decided to charge lesser price in lieu of certain expenses incurred by the purchaser then the decision cannot be challenged by anybody. Revenue authorities are not entitled to step in to the shoes of the assessee and decide the issue as to how to run its business and which expenses to incur or not to incur. - Decided in favour of assessee. Disallowance made u/s. 14A - assessee had not earned exempt income - Held that - As per the settled principles no disallowance u/s. 14A of the Act can be made if the assessee had not earned exempt income. In the case under consideration the AO had mentioned that the assessee had made investments. In other words, he also accepted the assessee had not claimed any exempt income against which expenditure was booked. Therefore, we are of the opinion that there was no justification for making any disallowance as per the provisions of section 14 A read with rule 8D. Reversing the order of the FAA,we decide the effective ground of appeal in favour of the assessee.

Summary

Issues involved:
1. Addition on account of difference in sale price for goods sold to related concern.
2. Disallowance made under section 14A of the Income-tax Act.

Analysis:

Issue 1: Addition on account of difference in sale price for goods sold to related concern:
The case involved the assessee challenging the addition of ?5.86 crores due to a difference in sale price for goods sold to a related concern. The AO found that the assessee had sold goods at a discounted rate to the related concern, leading to alleged tax evasion. The FAA upheld the AO's decision after considering detailed comparative analysis and lack of satisfactory explanations from the assessee. The AR contended that the AO lacked the authority to make such additions and highlighted the expenses incurred by the related concern. The Tribunal noted that the assessee's decision to charge lower prices was justified, considering the financial positions of both entities. The Tribunal emphasized that revenue authorities cannot dictate how a business should be run and upheld the assessee's explanation for the pricing strategy, citing relevant legal precedents. Ultimately, the Tribunal ruled in favor of the assessee, overturning the FAA's decision.

Issue 2: Disallowance made under section 14A of the Income-tax Act:
The second issue pertained to the disallowance made under section 14A of the Act concerning expenses related to investments. The AO disallowed ?1.39 crores, alleging that the assessee had not provided details regarding expenditure related to investments. The FAA upheld the disallowance, citing precedents. However, the AR argued that the disallowance was unwarranted as the assessee had not earned any tax-free income during the relevant period. The Tribunal concurred with the AR, emphasizing that no disallowance under section 14A can be made if the assessee has not earned exempt income. As the investments did not yield any exempt income, the Tribunal ruled in favor of the assessee, overturning the FAA's decision.

In conclusion, the Tribunal allowed the appeals for both assessment years, highlighting the justifications provided by the assessee in both instances and emphasizing the importance of considering the specific circumstances of each case in tax assessments.

This comprehensive analysis provides a detailed overview of the judgment, addressing each issue involved and the Tribunal's reasoning behind its decisions.