2020 (1) TMI 1108 - AT - Income Tax

TP Adjustment - upward adjustment u/s. 92C r.w.s. 92(1) in respect of sale price of plant and machinery - HELD THAT - As gone through the judicial pronouncement in the case of ACIT vs. Koch Chemical Technology Group (India) Ltd. 2015 (11) TMI 16 - ITAT MUMBAI wherein it is held that when assessee submitted a report from approved value indicating fair market value of machineries purchased, before rejecting such valuation report, TPO was duty bound to refer valuation of machineries to DVO as per procedure laid down under statute - Moreover, there being no other material brought on record by TPO demonstrating that he made enquiry of any kind to ascertain fair market value of machineries. Thus assessing officer is not justified in taking written down value without considering any comparable cases in the uncontrolled transaction and simply taken the arms length price on the basis of written down value of the machinery. Even, the TPO has not carried out any exercise to determine the arms length price of the machinery on the basis of comparable cases in the uncontrolled market. Therefore, we consider that ld. CIT(A) is not justified in sustaining upward adjustment made by the assessing officer by adopting written down value as ALP under the cup method and this ground of appeal of the assessee is allowed. Suppressed sale - difference in the quantity - unaccounted sale by taking average cost of batteries @ ₹ 4/- - HELD THAT - The difference has arised only on account of action of the assessing officer for adding batteries distributed free of cost towards sales scheme. These submissions made by the assessee are placed at page no. 151 of the paper book and at para 5.21 of the submission it has been submitted that the batteries distributed towards sales schemes has already been considered in the excise record, therefore, further addition is not required to be made, the same are not excisable. Further these were distributed free to educational institutions and sales samples were not sold out of the books of account. As noticed that assessing officer himself has worked out the production as 23,95,42,769 pieces as against 23,83,38,363 pieces reported in the return filed with the Central Excise after duly excluding the pieces distributed free of cost towards sale samples - We consider that ld. CIT(A) is not justified in partly sustaining the disallowance, therefore, this ground of appeal of the assessee is allowed.

Issues Involved:
1. Upward adjustment under section 92C r.w.s. 92(1) of the Income Tax Act, 1961.
2. Addition for suppressed sales.
3. Addition of gross amount of sales instead of profit.
4. Charging of interest under section 234B of the Income Tax Act, 1961.
5. Charging of interest under section 234D of the Income Tax Act, 1961.
6. Initiation of penalty proceedings under section 271(l)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Upward Adjustment under Section 92C r.w.s. 92(1):
The first ground of appeal concerns the CIT(A)'s decision to sustain the AO's upward adjustment of ?1,23,27,565/- in respect of the sale price of plant and machinery. The TPO determined that the assessee sold old plant and machinery to its associate concern at ?7,30,40,500/-, whereas the written down value (WDV) was ?8,53,68,065/-. The TPO considered the WDV as the arm's length price (ALP) and made the upward adjustment. The assessee contended that the machinery's cost increased due to foreign exchange losses and that the sale price was above the original cost. The assessee also provided an independent valuer's certificate indicating a fair value of ?6,86,43,750/-. The Tribunal found that the TPO did not consider comparable uncontrolled prices and relied solely on the WDV, which is not justified. The Tribunal referenced judicial pronouncements supporting that WDV cannot be the sole determinant for ALP. Consequently, the Tribunal allowed the assessee's appeal on this ground.

2. Addition for Suppressed Sales:
The second and third grounds of appeal relate to the addition of ?21,61,176/- for alleged suppressed sales. The AO observed a discrepancy between the production quantities reported in the cost audit report and those filed with the Central Excise. The AO treated the difference of 8,72,769 units as unaccounted sales, valuing them at ?4/- per unit, resulting in an addition of ?34,91,076/-. The CIT(A) partly allowed the appeal, reducing the addition to ?21,61,176/-, explaining that the discrepancy of 542,094 units remained unexplained. The Tribunal examined the records and submissions, noting that the discrepancy arose from the AO's inclusion of free samples and sales schemes in the production figures. The Tribunal found that the assessee had adequately explained the differences and that the AO's addition was not justified. Therefore, the Tribunal allowed the assessee's appeal on this ground.

3. Addition of Gross Amount of Sales Instead of Profit:
This issue is closely related to the second ground. The Tribunal's decision to allow the appeal on the suppressed sales ground implies that the addition of the gross amount of sales instead of the profit included therein was also unjustified. Thus, this ground of appeal was allowed in favor of the assessee.

4. Charging of Interest under Section 234B:
The fourth ground of appeal concerns the charging of interest under section 234B of the Income Tax Act, 1961. The Tribunal's decision to allow the appeal on the main grounds implies that the consequential interest charged under section 234B would also be adjusted accordingly.

5. Charging of Interest under Section 234D:
Similarly, the fifth ground of appeal pertains to the charging of interest under section 234D of the Income Tax Act, 1961. The Tribunal's favorable decision on the primary issues would necessitate a corresponding adjustment in the interest charged under section 234D.

6. Initiation of Penalty Proceedings under Section 271(l)(c):
The sixth ground of appeal relates to the initiation of penalty proceedings under section 271(l)(c) of the Income Tax Act, 1961. Given the Tribunal's decision to allow the appeal on the substantive grounds, the basis for initiating penalty proceedings under section 271(l)(c) would no longer hold, thereby nullifying the penalty proceedings.

Conclusion:
In conclusion, the Tribunal allowed the appeal of the assessee on all grounds. The upward adjustment under section 92C, the addition for suppressed sales, and the related issues of interest and penalty were all decided in favor of the assessee. The Tribunal emphasized the need for proper comparables and the inadequacy of relying solely on WDV for determining ALP. The decision underscores the importance of thorough and justified assessments in tax proceedings.

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