9911796707
TMI Blog2023 (9) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... ; - Rs. 14,51,27,465/- AY 2016-17 - Rs. 9,90,68,577/- AY 2017-18 - Rs. 6,61,95,594/- AY 2018-19 - Rs. 9,56,47,560/- 3. Besides this, additional issue of disallowance u/s. 14A r.w.r. 8D has been challenged in the A.Y. 2013-14 and A.Y. 2016-17 which CIT (A) has deleted on the ground that disallowance should be restricted to exempt income. We are taking up the appeal for the A.Y. 2013-14 and our finding given therein will apply mutatis mutandis in the appeals for A. Yrs. 2014-15 to 2018-19. 4. Brief facts qua the issue of addition on account of higher price charged with HHPL are that Assessee Company is engaged in manufacturing of thermoware products. During the year, assessee has made sales of Rs. 37,93,23,333/- to HHPL which according to the ld. AO was a related concern of the assessee, in the sense that, it is a family concern run by relative of the Directors of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution by incurring heavy freight and transportation cost. No agreement for such arrangement with M/s. HHPL has been filed to support the claim of the assessee that it will bear the cost of transportation, nor any bills / invoices have been filed. He also noted that analysis made by the assessee is not correct. The relevant finding of the AO reads as under:- "Further, the contention is also not correct as the assessees itself has computed such cost at about 15% and as it was a sick company it should not have given such a heavy discount to the HHPL at its own cost. Assessed has made an analysis of total sales fetal expenses and 5% of the same with total sales including sale to HHPL and excluding sale to HHPL) and has come to the conclusion that assessee has benefitted from the transaction. But what the assessed has done is not a correct method of comparison. The assesses has computed the % of expenses with the sale made to other portion and has applied the same to the total sales and has concluded as above. The same comparison is not correct an assessee has sold Almost 80% of material to HHPL and hence the % of expenses assessee would be making would not be as compared to the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal interest burden. 8. It was also submitted that the assessee company has incurred Rs. 75.61 lacs (1.96% of total sales) towards Freight & Transportation Cost, Rs. 14.38 lacs (0.37% of total sales) on Advertisement & Sales Promotion and Marketing Expenses. Normally for a consumer products company such costs form approximately 15% of the Sales. To justify its contention, assessee submitted an analysis of the proportion of Selling & Distribution Expenses for Consumer Durable/Fast Moving Consumer Goods Companies and also the proportion of such expenses incurred by the assessee company. 9. The ld. CIT (A) following the order of the Tribunal had deleted the said addition after quoting the relevant passage of the Tribunal order, which for sake of ready reference is reproduced hereunder:- "2.3. We have heard the rival submissions and perused the material before us. We find that the assessee had sold goods to HHPL at lower rates, that it had filed explanation in that regard to the AO and the FAA, that both the authorities rejected the justification filed by it. Prima facie it may appear that the transaction entered into by the assessee with HHPL were not at arm's length. But, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands: income which he could have, but has not earned, is not made taxable as income accrued to him. By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee, and if the income has escaped tax in a previous assessment, a case for commencing a proceeding for reassessment under section 147(b) may be made out. Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income- tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented." In the case under consideration the AO/FAA had failed to prove that there was any avoidance of tax liability. It was a simple and plain case of offering a discount to the buyer in lieu of reduced transportation and advertisement expenses. It was the proverbial 'Ek Haath le Ek Haath de'dealin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifference in the market price and the sale price. It was not a case of charging lesser price for shifting burden of certain expenses to the buyer. 10. Before us, the ld. CIT DR submitted that nowhere assessee could give proper justification as to why such a huge discounted price on sales have been given to a related concern. Merely stating that assessee was running into losses, therefore, to get a bulk contract assessee has sold the products at a large discounted price to related party. The plea taken by the assessee had incurred huge expenditure on sales promotion etc. while making the sales to related party, is not correct because sales promotion expenses to the extent of 9% as per the audited accounts. She further, submitted that such a huge variation is uncalled for in a comparable third party scenario even if sales promotion expenses are to be factored into. He further submitted that the ld. AO in the assessment order for A.Y. 2014-15 has also analysed the MOU entered between the assessee and HHPL on 04/04/2013 wherein the ld. AO on a very cogent reason has rejected the said MOU which according to ld. AO is an afterthought. She strongly relied upon the order of the AO and fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is, non HHPL sales. Further, it is also important to note that the prices one could charge from a number of individual buyers could be much higher as compared to the price charged from a bulk buyer to whom about 80% (this year) are sold. The total sales this year are 47.94 crores out of which 37.93 crores are to HHPL, which is about 80% of the total sales. It is these two factors, namely, the selling and distribution expenses and the possible margins which account for the difference. 15. The ld. AO has made a point that there is no agreement to the effect that HHPL is to incur the selling and distribution expenses. The figures clearly demonstrate that qua the sales made to HHPL, the same have been incurred by HHPL. In the next year, that is, AY 2014-15, an agreement has been entered into between the assessee and HHPL whereby the assessee has become an exclusive contract manufacturer for HHPL. Even that agreement is not accepted by the ld. AO. In other words, when there is no agreement, the learned AO makes the addition saying that there is no agreement. Even when there is an agreement, he does not accept the same as genuine. This is a case of having the cake and eating it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om A.Y. 2013-14 to 2018-19, most of the sales have been made to HHPL which is evident from the following figures:- AY 2013-14 Total Sales 47,95,04,897 100% Sales To HHPL 37,93,23,333 79% Sales to Others 10,01,81,564 21% Total expenses &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; 93,83,800 55,88,56,026 100% 46,94,39,062 84% 8,94,16,964 16% AY 2015-16 Total Sales 56,35,12,066 100% Sales To HHPL 51,83,12,375 92% Sales to Others 4,51,99,691 8% Total expenses &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29,10,50,148 Add: excise duty 7,75,80,664 36,86,30,812 Less: selling and dist exp (Others) 57,35,196 36,28,95,616 100% 35,56,37,704 98% 72,57,912 2% AY 2017-18 Sales To HHPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in profit margin and in order to save various costs like transportation cost, advertisement and sales promotion cost etc. which is there in the case of sales made to the third parties, we do not find any reason to compare the sale price with the other parties to hold that assessee has to charge same price with the party who is major purchaser of the goods, when there is no deeming provision to tax the sale price or any kind of statutory SAAR provision. 23. In any case, any prudent businessman will give heavy discount to a party who has made bulk purchase which is almost ranging from 80%-98%. The department cannot force the assessee that it should have not give discount or should have sold on a higher profit. The transaction with the third parties is very miniscule and in subsequent period has even evaporated; and assessee's explanation and reason for selling at a higher price due to various costs which it had to incur on such sales cannot be rejected while making the sales to the third parties. All the sales promotion expenses, transportation as well as advertisement expenses are not to be incurred or are very less in case of sales made to HHPL. The assessee has given a working th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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