TaxTMI 
TaxTMI 
TaxTMI 
2013 (9) TMI 77
X X X X Extracts X X X X
X X X X Extracts X X X X
....n certain sales transactions with its related company and such loss not being genuine, the Assessing Officer was justified in rejecting the books of account and estimating the profits of the business. 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the Commissioner of Incometax (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored." The assessee is a private limited company. It is engaged in the manufacture of CNC machine parts. For the assessment year 2007-08, the assessee filed return of income declaring taxable income of Rs. 20,72,668. In the course of assessment proceedings, the Assessing Officer noticed that the assessee sold to M/s. Pragathi Automation P. Ltd., (M/s. PAP), which is a sister-concern of the assessee, at a price which was much less than the price at which similar products were sold by the assessee to the third parties. The assessee submitted before the Assessing Officer that the assesseecompany was promoted by ex-employees of M/s. Pragathi Automation P. Ltd. and they hold shares to the extent of 50 percent The assessee further submitted th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cost of sales" As per assessee itself 77,71,704 Profit 18,15,696 Percentage 18.9% Total sales to others (BTH/ATH products) 38,57,400 Less : "All inclusive cost of sales" As per assessee itself 25,31,033 Profit 13,26,667 Percentage 34% Total sales to Pragati (TD range of products) 1,76,75,700 Less : "All inclusive cost of sales" As per assessee itself 1,47,94,949 Profit 28,80,751 Percentage 16% Total sales to Pragati (BTH/ATH products) 74,42,500 Less : "All inclusive cost of sales" As per assessee itself 67,67,231 Profit 6,21,269 Percentage 8.9% Average profit percentage 19.4% Thereafter, the Assessing Officer has drawn the following conclusion : "From the elaborate discussion above, the following issues become obvious ; (a) The assessee-company is the sister-concern of M/s. Pragathi Automation P. Ltd., (b) The assessee-company sells more than half its produce to M/s. Pragati and sometimes it sells at price lesser than the cost itself. For example, profit of BTH/ATH range of products, when sold to others is 28 percent whereas when sold to M/s. Pragati is 1.1 percent In some items, there i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd law does not require the assessee to do so. But the assessee has not been asked to furnish profitability of each and every transaction but only on products. The profitability of product is very vital for the very survival of any business and assessee cannot state that it cannot furnish the same. (j) As per profit and loss account schedule 7 income, the assessee has shown raw material sales of Rs. 2,74,36,365 blackening sales of Rs. 9,26,654 and labour charges sales of Rs. 3,18,86,679 totalling to Rs.6,02,49,968. Whereas on October 20, 2009, the accountant submitted details of total sales of Rs. 3,85,63,300 vide letter dated November 11, 2009, the assessee has arrived at sales including labour charges at Rs. 5,96,48,000. Thus, no there is no clarity in the figures submitted by the assessee and the books of account. (k) Despite sufficient opportunities, the assessee has in writing, expressed its inability to give accurate statements as to cost and profitability. It only means that books of account of the company do not reflect the true income of the assessee and caste a shadow of doubt on correctness and completeness of the accounts of the assessee. (l) Though the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssing Officer exceeded his jurisdiction in putting himself in the shoes of the businessman and demanding that the assessee should supply his product at a price that the Assessing Officer finds satisfactory. While this exercise may be permitted in an international transaction, it is not so in case of a domestic one. (c) The Assessing Officer has not defined what he understands by the term 'sister-concerns' and his action of rejecting the books of account and determining the pet profit is bad in law, mechanical and without application of mind inasmuch as it was based on mere suspicion and a pre-conceived notion that the transactions between the parties were entered into in such a way as to divert the profits of the appellant to Pragati, without bringing on record any evidence for the same. (d) Notwithstanding the above, there was nothing to be gained by diverting he profits of the appellant to another company, since both are resident tax paying companies which were not claiming any taxfree or exempt incomes. Under these conditions, profits in the hands of either company would be tax neutral." The Commissioner of Income-tax (Appeals) after considering the submissions of the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cer to make additions on the basis of mere suspicion and assumptions. The decision cited by the authorised representative in Deputy CIT (Assessment) v. Microtex Separators Ltd. [2007] 293 ITR 451 (Karn) is by the Karnataka High Court which is the jurisdictional court in the case. Therefore, respectfully following the decision of the hon'ble Karnataka High Court along with the decisions of the hon'ble Supreme Court and the facts of the case, I hold that the action of the Assessing Officer in rejecting the books of account and determining the net profit ratio is unwarranted and accordingly, the addition made on this account is deleted." Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue has preferred the present appeal before the Tribunal. We have heard the submissions of the learned Departmental representative, who reiterated the stand of the Revenue as reflected in the order of the Assessing Officer. Learned counsel for the assessee reiterated the submissions as were made before the Commissioner of Income-tax (Appeals). Reliance was also placed on the decision of the hon'ble Supreme Court in the case of CIT v. Glaxo Smithkline Asia P. Ltd. [2010] 236 ....