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TMI Blog2025 (1) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment : Shri Poojan Rana, Sr. DR ORDER PER SATBEER SINGH GODARA, J.M: This assessee s appeal for assessment year 2014-15 arises against Commissioner of Income-tax (Appeals)-1, New Delhi s order dated 06.08.2019, in case no. 432/16-17, in proceedings u/s 143(3) of the Income-tax Act, 1961, hereinafter referred to as the Act . Heard both the parties at length. Case file perused. 2. The assessee pleads the following substantive grounds in the instant appeal: 1. That on facts and law involved, the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] has erred in not deleting the entire disallowance of Rs. 1,26,54,000/- made by the Learned Assessing Officer (Ld. AO) by invoking provisions of section 40A(2)(b) and in restricting the disallowance to the extent of Rs. 82,80,000/-. 2. That on facts and law involved, the Ld. CIT(A) has erred in not deciding the issue of reasonableness of the transaction of purchase of poppy seeds from the AE being at Arm's length Price as per Indian transfer pricing regulations and accordingly, in not deleting the entire disallowance of Rs. 1,26,54,000/- as made by the Ld. AO u/s 40A(2)(b) of the Act 3. That the Ld. CIT(A) has erred in not decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned representatives invite our attention to the learned CIT(A) s lower appellate discussion particularly upholding the Assessing Officer s action invoking section 40A(2)(b) disallowance of Rs. 82,80,000/- as under: 7.4 The AO had asked the appellant company vide note sheet entry dated 16.09.2016 to furnish explanation as to why section 40A(2)(b) of the IT Act, 1961 should not be invoked in purchase of poppy seeds from M/s Arushi Exports (related party) and Yumurtacilar, Turkey. The AO had further asked the appellant company vide note sheet entry dated 28.09.2016 to furnish explanations regarding quality difference in purchase of poppy seeds and extra expenses Incurred on purchase at higher rate with justification. The AO had also asked the appellant company vide note sheet entry dated 24.10.2016 to furnish explanations in respect of the following queries: (1) Purchase, sales, stock, etc. of PS(poppy seeds) of M/s Arushi Exports, Purchase-bills of M/s Arushi Exports, import cost, if any, purchase order copy, batchwise /lot wise purchase, quality of PS, sale bills, parties other than Astra to which sales were made, rate quality, (ii) detalled qualitative difference in poppy seeds pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance, Government of India, import is permitted of the quantity permitted in the license and the quantity has to be imported within the period specified in the license. On expiry of license period fresh license has to be taken and it takes a long process and tune to import the same. The appellant has also submitted that at the time of purchase of Poppy seeds from Arushi, the appellant company had no stock of Poppy seeds. As such the purchase of Poppy sends was made from the local market at the prevailing domestic market prices to meet the customers' demand. The appellant has submitted that in case of Import the assesses company has to incur much import related direct expenses such as license fee, Insurance, clearing expenses, ocean freight and transportation etc. Apart from this, there is also indirect cost such as storage and inventory holding cost which further adds to the import cost of goods imported. 7.6 As regards the purchase of poppy seeds of M/s Arushi Exports, filed by the appellant, the AO noted from the ne Invoice that M/s Arushi Exports itself has purchased the poppy seeds from M/s Yumurtacilar, Turkey, the entity with which the appellant company has directly pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port with direct cost only is considered, the same comes to Rs. 208.35 per Kg. as against Rs. 159.40 considered by the AO. Ld. AR has stated that if the correct amount even as per AO is taken at Rs 208.35, the excess price comes to Rs. 82,80,000/- as against Rs 1,26,54,000/-, I have carefully considered the submission of Ld. AR. It is found that expenses upto port, expenses from port to godown/shop, other expenses on purchases like storage have not been considered by the AO. If expenses upto port, expenses from port to godown/shop, other expenses on purchases like storage considered, Net Purchase Rate comes to Rs 208.35 per Kg instead of Rs. 159.40 per Kg. The difference per Kg comes to Rs 92/- [300-208]. The total quantity is 90,000 Kg. Thus the disallowance u/s 40A(2)(b) is determined at Rs. 82,80,000/- [ Rs 92 x 90,000 1. Accordingly, the disallowance u/s 40A(2)(b) is restricted to Rs. 82,80,000/- instead of Rs 1,26,54,000/- and the appellant gets a relief of Rs 43,74,000/-. Ground No. 1, 2, 3, 4 and sub-ground number 4.1, 4.2, 4.3 4.4 are partly allowed. 4. We have given our thoughtful consideration to the vehement rival contentions so far as the assessee s sole substantive gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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