2003 (6) TMI 13 - HC - Income Tax

High Court upholds Tribunal's decision on tax avoidance without revenue loss evaluation, ruling for Revenue.

The High Court affirmed the Tribunal's decision on tax avoidance without the need to assess revenue loss, ruling in favor of the Revenue. The Court held ... Tax avoidance - 'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in finding that tax was avoided without ascertaining whether there is any revenue loss on account of non-inclusion of the income in question in the assessee's assessment and its inclusion in the assessment of the sister concerns?' - the Tribunal was right when it came to the conclusion that tax was avoided and for coming to the said conclusion it was not necessary for the Tribunal to ascertain whether any loss was caused to the Revenue - we answer the question in the affirmative, that is, in favour of the Revenue and against the assessee. Issues:- Whether the Tribunal was right in finding tax avoidance without ascertaining revenue loss due to non-inclusion of income in the assessee's assessment and its inclusion in the sister concerns' assessment.Analysis:The case involved a partnership firm manufacturing chemicals, where a significant portion of sales were made through sister concerns at prices below market rates, leading to suspicion of tax avoidance. The Assessing Officer found that the transactions between the assessee and sister concerns were sham, with no real commercial basis, resulting in diversion of profits to avoid tax payment. The Tribunal upheld the Assessing Officer's decision, prompting the reference to the High Court.The main contention was whether the Tribunal correctly concluded tax avoidance without determining if there was any revenue loss due to the transactions. The assessee argued that since the sister concerns paid tax on the profits earned, there was no actual tax avoidance. On the other hand, the Revenue contended that once tax avoidance was established, it was irrelevant whether others paid the tax or the overall tax receipt by the Revenue.The High Court analyzed the facts, noting the low prices at which goods were sold to sister concerns, immediate resale at higher rates, and direct delivery to third parties. The Court emphasized that the Tribunal's finding of tax avoidance was based on established facts and not challenged for being perverse. It opined that once tax avoidance was proven, there was no need to assess revenue loss or consider who paid the tax. The Court held that the Tribunal was correct in concluding tax avoidance without delving into the revenue impact.In conclusion, the High Court ruled in favor of the Revenue, affirming the Tribunal's decision on tax avoidance without requiring an assessment of revenue loss. The reference was disposed of accordingly.