TaxTMI 
TaxTMI 
2014 (7) TMI 168
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....rtment has filed appeal before the Hon'ble ITAT against the said appellate order for the assessment year 2006-07. 1.2 On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the addition of Rs. 1,36,51,37,400/- without appreciating the fact that the Assessing Officer has given due allowance for the change in product mix, competition and the assessee's smaller scale of operation while estimating the average profit of 4600/- per Motor Cycle sold and that logical and acceptable comparison has been made with M/s Hero Honda Motors Ltd. whose products are identical to that of the assessee i.e. Motor Cycles and both these companies are operating in the same market condition i.e. Indian Two Wheeler Market. 2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the disallowance of Rs. 19,06,59,918/- made on account of royalty payments by the assessee company to its 100% holding company viz M/s Yamaha Motor Co.Ltd., Japan simply following its own order in the assessee's own case for the assessment year 2006-07 without appreciating the fact that there was no evidence and details of actual services re....
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....ings as detailed in the assessment order of A.Y. 2006-07, I am convinced that the Books of A/cs and the details submitted does not reveal the correct position of profit earned by the assessee company. Therefore, I am constrained to estimate the suppression of profits for the current year at Rs. 136,51,37,400/- being average profit of Rs. 4,600/- (based on average profits per Bike of Hero Honda Motors Ltd) on the total no. of Motorcycles sold by the assessee company. While arriving at the average profit per bike of the assessee company, an allowance @ 14% has been given to the assessee company considering the difference in the level of activity and market share of the assessee company vis-a-vis M/s Hero Honda Motors Ltd." 6. Learned CIT(A) allowed the relief following his own order for AY 2006-07. We find that in AY 2006-07, the Revenue, aggrieved with the order of CIT(A), had filed the appeal. However, the ITAT approved the order of the CIT(A) on this point and rejected Revenue's ground of appeal which was raised against the deletion of the trading addition made by the Assessing Officer in that year by estimating the profit. The relevant finding of the ITAT reads as under:- "....
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....ly rejected by the Assessing Officer. It was in these circumstances, that the ld.CIT(A) held and, in our considered opinion, for the aforegoing discussions, correctly so, that the Assessing Officer had erred in concluding that there had been a difference in the sales and quantitative details of the assessee. 11. Coming to the second ground for rejection of the books of account, the Assessing Officer had observed that the average sales of motorcycles by the assessee during the year was low, as compared to the preceding assessment year. The Assessing Officer, on figures discussed, had computed a suppression of sale value by Rs. 1,461 per motorcycle. This amounted to a total alleged suppression of Rs. 33,77,32,063/-. The ld.CIT(A) noticed that in response to this query by the Assessing Officer, the assessee had replied vide letter dated 23.11.2009, whereafter, no further query was raised by the Assessing Officer in the show cause notice dated 11.12.2009, but in the assessment order, the said reply of the assessee had been totally ignored and the Assessing Officer had, referring to other non-relevant replies of the assessee company, drawn an adverse inference against the assessee. T....
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....jaj Auto Ltd., and by taking Hero Honda Motors as an example, worked out the profit at Rs. 470 per motorcycle, where, on applying a rate of Rs. 4,000/- to 2,65,212 motorcycles sold by the assessee during the year, estimated a profit of Rs. 106,08,48,000/-. The reasons for the loss suffered by the assessee company, as contended, were low market share, low capacity utilization, very high debtors' turnover ratio, high inventory ratio, shift in technology, higher personnel cost due to VRS and labour unions problem, advertisement and publicity cost, high material cost due to low volumes and high overhead cost because of dealer network and after sales service, etc. The Assessing Officer, it was taken note of by the ld.CIT(A), had totally ignored all these contentions of the assessee and in the remand reports, he had not been able to rebut any of such contentions. These contentions were dubbed by the Assessing Officer as being general in nature. No other comment was made. The ld.CIT(A) held such an approach to be no correct. Before us, nothing has been brought to support this action of the Assessing Officer. Obviously, profit can only be made when there is ability to do so. The factors po....
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....well as the TPO's order were found by the ld.CIT(A) to have been ignored by the Assessing Officer. The comparative charge submitted by the assessee had also not been found by the Assessing Officer to contain any discrepancy. In the remand report dated 22.09.2010 also, the Assessing Officer was not found to have entered any rebuttal to the assessee's contentions. After rejoinder to the remand report even in the second remand report, the Assessing Officer was found to have passed only peripheral orders of estimation of profit without answering the assessee's submission. It was on this that the ld.CIT(A) correctly held that in absence of material, the Assessing Officer could not tinker with the price determined by the TPO. 15. It has gone unrebutted before us also, that if the contention of the Assessing Officer were to be accepted, the whole purpose of determination of arm's length price by the TPO would get defeated. To reiterate, the TPO has accepted, vide order dated 13.11.2009 (supra), the prices of export shown by the assessee to be at arm's length. 16. In view of the above, even on this score, the rejection of books of account of the assessee by the Assessing Officer does....
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....h expenditure, which is allowable. Besides, the arm's length price provisions take care of the payment in such transactions being at arm's length, as has been done in the present case by the TPO. The Assessing Officer proceeded merely on assumptions, surmises and conjectures which, undeniably, can never substitute hard evidence, which is entirely absent here. Neither Section 40(a)(i) nor Section 2(22)(e) of the Act are applicable, as observed. Therefore, finding no merit therein, Ground No.4 taken by the department stands rejected." 10. When admittedly the facts of the year under consideration are identical to the assessment year 2006-07, we do not find any justification to take a view different than the view taken by the ITAT for AY 2006-07. We, therefore, respectfully following the above finding of the ITAT in assessee's own case, uphold the order of learned CIT(A) on this point and reject ground No.2 of the Revenue's appeal. 11. Ground No.3 of the Revenue's appeal is against the set off of brought forward business losses from AY 2001-02 onwards and unabsorbed depreciation from AY 1997-98 onwards. On this point also, the Assessing Officer relied upon the finding of the Asse....
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....the assessee before the Assessing Officer : "In this regard, we would like to mention that initially the Assessee Company was incorporated as a 50:50 joint venture between Escorts Ltd. and Yamaha Motor Co., Ltd, Japan (YMC) in 1995. On may 26, 2000, 64,80,000 equity shares of the Assessee Company representing 24% of its total issued and paid up equity share capital were transferred by Escorts Ltd. in favour of YMC. Accordingly, with effect from May 26, 2000, the equity shares of the Assessee Company were held by 70,20,000 equity shares representing balance 26% of the total issued and paid up equity share capital of the Assessee Company, and the Assessee Company became a wholly owned subsidiary of YMC. Accordingly, from the assessment year 2001-2002 onwards, the Assessee Company is entitled to claim accumulated losses, since with effect from May 26, 2000, (at all times) more than 51% of the total issued and paid up equity share capital of the Assessee Company is being held by YMC." 2.6. It can be clearly seen from the above reply that the assessee made it unequivocal that 64,80,000/- equity shares of the assessee company, representing 24% of its total paid up capital, were tra....
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....hree opportunities to examine the assessee's contention about YMC acquiring further 24% shares on 26.5.2000 apart from its original holding of 50%., firstly during the course of assessment proceedings and then during two remand proceedings. The assessee's pointed submission in this regard came to be rejected by the Assessing Officer during the original assessment proceedings without any reason worth the name and the same position continued during the two remand proceedings as well. It is trite that when an assessee furnishes an explanation on a specific query, the same is treated as accepted unless some inconsistencies are found by the AO on its vetting or the assessee fails to substantiate the same on being called upon to do so. If the Officer does not dispute the correctness of the specific explanation tendered by the assessee, the same is considered as correct and binding of the AO. It is totally impermissible to dub the explanation given by the assessee as a cooked up story without any evidence to the contrary. Here is a case in which the Assessing Officer got three opportunities of examining the assessee's contention in this regard. If he was not satisfied with the same, he wa....
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....sment year 2006-07. 1.2 On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the addition of Rs. 1,36,51,37,400/- without appreciating the fact that the Assessing Officer has given due allowance for the change in product mix, competition and the assessee's smaller scale of operation while estimating the average profit of 4400/- per Motor Cycle sold and that logical and acceptable comparison has been made with M/s Hero Honda Motors Ltd. whose products are identical to that of the assessee i.e. Motor Cycles and both these companies are operating in the same market condition i.e. Indian Two Wheeler Market. 2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the disallowance of Rs. 18,23,80,966/- made on account of royalty payments by the assessee company to its 100% holding company viz M/s Yamaha Motor Co.Ltd., Japan simply following its own order in the assessee's own case for the assessment year 2006-07 without appreciating the fact that there was no evidence and details of actual services rendered by the said holding company to the assessee company, in lieu of the royalty. 3. On t....