TaxTMI 
TaxTMI 
2024 (11) TMI 1068
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....facturing and sale of automotive parts and components. The Assessee had filed its return in respect of AY 2014 -15 declaring a loss of Rs.28,09,72,605/-. It is also material to note that the Assessee was incorporated on 23.11.2011 and thus, the financial year (FY) 2013-14 was effectively the second year of its operations. 3. The Assessing Officer [AO] had found that the loss as declared had arisen on account of transactions of purchase and sale of tools and dies, which were used for cars manufactured by Honda Car India Ltd. [hereafter HCIL]. The assessee company was an OEM (original equipment manufacturer) supplier to HCIL and there is no dispute that the Assessee required the dies for manufacturing the automotive parts, which were to be supplied to HCIL. The Assessee had procured tools and dies for automotive parts from two entities - an Indian company, named, Honda Trading India Pvt. Ltd. [hereafter HTIPL] and a company in Thailand named Tri Inter Thailand Company Ltd. [ hereafter TITC]. 4. There is no cavil as to the transactions relating to the purchase of dies from the said two entities. However, the AO had doubted the transactions of sale of the said dies to HCIL at a p....
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....e dies manufactured. The Assessee submitted that HCIL had also obtained quotation for manufacture of dies from other parties and had restricted the sale consideration payable to the Assessee based on the quotations received by it from other parties. The Assessee had accepted the same as the prospect of manufacturing the parts as an OEM for HCIL was considered as profitable, notwithstanding the initial loss that the Assessee may suffer on account of sale of dies. 8. However, the AO did not accept the said contention, which is evident from paragraph 6.5 of the assessment order, which reads as under: "6.5 The submission of the assessee has been considered but has been found unacceptable on the following grounds- a. That in ordinary course, it would have been HCIL who would have purchased tools and dies. However, only for this transaction, assessee was compelled to deviate from this ordinary course of business practice. No reasons have been given for this one time exception made by the assessee. b. That assessee's assertion that HCIL had lower quotes is yet unsubstantiated as no business correspondence to this effect has been submitted before the undersign....
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....ny requested the Honda Cars India Limited to provide the Dies to manufacture the parts, but were told to provide the quotation of Dies and get the Dies manufactured by the appellant company and sell the same to them and they would pay for the same. Further, it was decided that they had taken the quotation for manufacture of Dies from different parties and they gave the order for supply of the parts to that vendor, who will give the lowest quotation for the cost of Die. Accordingly, after negotiation and discussion, appellant Company has sold the Dies to them and those dies were provided by Honda Cars Indian Limited for manufacture of parts using the said items. The appellant has argued that it was a business decision to get the order for supply of parts, the Company has sold the Dies and in current year also, the turnover from supply of parts has increased to Rs. 112.12 Crores from Rs. 74.13 Crores i.e. by 51%. In ordinary course, tools and dies would be provided by the customer for manufacture of parts. However, in a special case with respect to the transaction under consideration, HCIL had requested appellant to procure the dies and tools on its own accord after providing the quo....
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....ary consideration in the mind of Ld. CIT(A) was that product was purchase from the sister concern of HCIL so that tainted the transaction of loss. However, as appreciated by the Bench the Tax Authorities had failed to take into consideration the business prudence of the assessee for incurring certain losses in initial year for a sustainable and longer partnership with HCIL and which has given rise to generation of profits in subsequent years and which have been tendered for taxation. 12. There is substance in the contention of Ld. Counsel that the major purchase of dies were from Tri Inter Thailand and not from Honda Trading Corporation India Pvt. Ltd. thus, alleging that the transaction was to benefit Honda Trading Corporation India Pvt. Ltd., which is subsidiary of HCIL is based on mere conjectures. 13. Consequent to aforesaid discussion the ground raised are sustained and the appeal of assessee is allowed." 15. We find no infirmity with the decision of the learned ITAT. It is settled law that the AO cannot supplant its view as to the commercial expediency of transactions in place of that of the Assessee. In the present case, the AO's decision to disallow the....