2023 (9) TMI 1531 - HC - Income Tax

Applicability of Section 50C - multiplicative factor of one (1) OR three (3) applicability to property sold by the appellant assessee - HELD THAT - The record shows that the AO had applied the multiplicative factor of three (3) on the assessee. In the appeal preferred by the assessee before CIT(A) the CIT(A) has reduced the multiplicative factor to one (1). This conclusion of CIT(A) has been sustained by the Tribunal. We would like to hear the counsels for the parties in some detail. Accordingly, issue notice. Disallowance with respect to packaging expenses - The record shows that the respondent/assessee took the stand that the expenses towards packaging were incurred in cash. According to the respondent/assessee, it is in the business of selling electronic goods and uses packaging materials consisting of wooden boxes, tin patti (to tie up the wooden boxes from all sides) and soft materials to be put inside the wooden boxes to preserve the goods that are packed from damage during the transportation. It is the respondent/assessee s case that these wooden packages are sourced generally from persons, available in the market, who do not conduct an organized business. It was the assessee s stand that the payments were not made to another contractor or sub-contractor, as wrongly construed by the AO. Therefore, the respondent/assessee had not deducted tax at source with regard to the payments made for purchasing packaging materials. As noticed above, has been accepted by the CIT(A), as according to him, there was no material available to show that the bills and vouchers produced before the AO were bogus. Given these findings of fact, we are of the view that no substantial question of law arises, insofar as the second issue is concerned.

Summary

Issues:
1. Multiplicative factor applied by the Tribunal concerning the sale of long-term capital assets.
2. Correctness of reducing the disallowance of packaging expenses made by the AO.

Analysis:

Issue 1:
The first issue in the appeal pertains to the multiplicative factor applied by the Tribunal regarding the sale of long-term capital assets. The AO initially applied a factor of three on the assessee, which was subsequently reduced to one by the CIT(A). The Tribunal upheld the CIT(A)'s decision. The appellant/revenue challenged this decision. The Tribunal will further examine this issue as it seeks detailed arguments from both parties.

Issue 2:
The second issue involves the correctness of reducing the disallowance of packaging expenses by the CIT(A). The AO disallowed Rs.95,75,917, which the CIT(A) reduced to Rs.6 lakhs. The Tribunal also affirmed this decision. The CIT(A observed that the AO failed to provide contrary evidence when the burden shifted to him to prove the expenses were bogus. The respondent/assessee claimed that the packaging expenses were incurred in cash for selling electronic goods and were not payments to contractors. The CIT(A accepted this explanation, stating there was no evidence to suggest the bills and vouchers were fake. Consequently, the High Court found no substantial question of law regarding this issue.

In addition, the respondent/assessee raised a point regarding the applicability of Section 50C of the Income Tax Act, 1961. The respondent/assessee contended that this issue was previously raised before the statutory authorities. Therefore, the respondent/assessee sought to file cross-objections, which the Court granted. The matter is listed for further hearing on 06.02.2024.