9911796707
TMI Blog2011 (1) TMI 941X X X X Extracts X X X X X X X X Extracts X X X X ..... attending the case are that the assessee-company, a manufacturer and exporter of coir products, is a subsidiary of M/s. William Goodacre & Sons (P.) Ltd., Alappuzha. During the course of the assessment of the said company for the current year, it was found that there was a stock transfer for Rs. 82.47 lakhs from the assessee-company, whose accounts, however, showed an opening stock balance (as on 1-4-2002) at nil, even as the closing stock as on 31-3-2002 stood at Rs. 60,98,509. In view of the same, the assessee's assessment for the year was reopened by the issue of notice under section 148 of the Income-tax Act, 1961 ('the Act' hereinafter) on 5-1-2007. During the assessment proceedings, thus initiated, the assessee explained that it was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue, while the same ought to have been at the market rate. The assessee's gross (trading) profit for the immediately preceding year and the current year as per its audited accounts is at the rate of 28 per cent and 20 per cent respectively. He, accordingly, applied a rate of 20 per cent on the value of the stock transfer, estimating the suppressed trading profit at Rs. 16,49,364, and assessed the assessee's income at Rs. 44,82,540 as against the returned income of Rs. 6,84,860 vide order dated 27-9-2007. 2.2 In appeal, the assessee was able to explain, with reference to its accounts, that the stock of raw materials and stores aggregating to Rs. 21,48,317 stood recorded in its accounts for the year ending 31-3-2002, duly shown under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y found that it was not practical for it to carve out a separate operating space within the existing premises, nor viable to locate the production facility at another place and, therefore, deemed it fit that the said operations be henceforth (with effect from 1-4-2002) undertaken by its holding company. As such, here was no basis for inferring earning of profit on the stock transferred. On an enquiry by the Bench, it was averred by him that the holding company has 66 per cent shareholding in the assessee's subsidiary, with the balance being with the foreign participants. As regards it non-accounting of raw materials and stores transferred by the assessee, toward which the addition for Rs. 21.48 lakhs stands made, the ld. CIT(A) has rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21-11-2008). 4.2 Examining the issue on merits, the first thing that we observe in the matter is that there is no dispute with regard to the stock transfer, which is for a total value of 82,46,826, including raw materials and stores at Rs. 21,48,317. The ld. CIT(A) has, with reference to the assessee's accounts, found the same to be duly accounted for in its books. Non-reflection of the same in the P&L account would not imply it being unaccounted, as the said account is essentially to be debited only for the cost of the goods sold, so that the stock not forming part of the said cost could be directly taken to the Balance-Sheet, as has been the case. In fact, had it been not so, and the stock actually unaccounted, the transfer at a higher v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not in any manner represent a continuance of the operations. That the assessee should have continued the trading operations, at least in respect of the stock in hand, which is what the argument by the ld. DR amounts to, we find as not valid both in law and on facts. The assessee is a manufacturer and not a trader, and the manufacturing facilities stand licensed out as these could not be carried out by it at its existing premises. Does the revenue imply that the goods being now produced by the holding company should be sold to the assessee, which in turn would supply the same to the overseas buyers? The revenue's case could only be for suppression of profit/income, and toward which we find that no case is made out. The discontinuance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being divided and proportioned. However, this is not actually a case of separation, but only of, as aforestated, reorganization, which stands carried out bona fide. The finding of suppression of income can only be validated on the basis of strong circumstantial evidence/s. There is no case of any tax avoidance, as (say) on account of differential rate of tax or there being losses in one firm which could be adjusted through the transfer of profits, or the transferee concern being exigible to a lower rate of tax, etc. In fact, there is no charge of tax avoidance in any manner. The charge of tax can only be on the real, and not notional, income, i.e., what it might or ought to have been. The law in the matter, i.e., of only the real income/a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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