×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
This appeal is directed against the order passed by the learned Commissioner of Income-tax, Central-III, (in short `the ld.CIT’) u/s 263 of the Income-tax Act, 1961 (hereinafter referred to as `the Act’) dated 29.03.2010, setting aside the order passed by the learned Assistant Commissioner of Income-tax, Central Circle – 35, Mumbai (in short `the ld.AO’) u/s 143(3) of the Act dated 28.12.2007 for the assessment year 2005-2006.
2. Though the assesse has raised various grounds, the only effective issue to be decided is whether the ld.CIT was justified in invoking the revisionary jurisdiction u/s 263 of the Act in the facts and circumstances of the case.
3. The brief facts of this issue are that the assesse is a private limited company engaged in the business of steel rolling and had filed its return of income for the assessment year 2005-2006 on 31.10.2005 declaring total ncome of Rs.4,91,12,940 under the normal provisions of the act and Rs.4,98,26,022 u/s 115JB of the Act. The assessment was completed u/s 143(3) of the Act on 28.12.2007 accepting the returned income. Later, this assessment was sought to be revised by issuance of show cause notice u/s 263 of the Act by the learned Administrative Commissioner (in short `the ld.CIT’), holding that the order passed by the ld.AO is erroneous inasmuch as it is prejudicial to the interest of the revenue, in respect of the following issue:- “It is seen from the Annexure to submissions made dated 28.12.2007, that the assessee company during the financial year relevant to AY 2005-06 paid Rs.4,84,15,406/- in respect of angle conversion charges to seven parties viz M/s.Eagle Steel, Vinar Ispat Ltd, R.S.Industries Ltd., Bhuwalka Steel Industries Ltd., Shri Venkatesh Steel, Industrial Manufacturers and Maharashtra Power Transmission Structures Pvt. Ltd. It is seen from the details of expenses claimed during the year that angle conversion charges have been paid at higher rates to group concerns namely M/s.Eagle Steels, M/s.R.S.Industries and M/s.Bhuwalka Steels Industries Ltd, which is higher by Rs.140/-
, Rs.333/- and Rs.336/- respectively per metric ton as compared to those paid to outside party namely M/s.Vinar Ispat Ltd. Similarly job charges paid to M/s.Maharashtra Power Transmission Structures (P) Ltd. (a subsidiary company) is Rs.1591 per MT more than the labour charges paid to M/s.Industrial Manufacturer. Further no justification has been brought out on record for paying higher conversion charges to related concerns. Accordingly the excess amount was liable to be disallowed u/s 40A(2)(a) of the I.T.Act.”
4. The assessee replied in response to the show cause notice and thesubmissions of the assessee in brief are as under:-
“(i) For the year under consideration, we have got certain work of ours manufactured from outside parties on job work basis.
(ii) Apart from M/s Eagle Steel in which the company is the partner and Maharashtra Power Transmission Structure P Ltd. which is a subsidiary of the company, rest all job workers are the outside / third parties for us.
(iii) The contention as put in by you saying that M/s Bhuwalka Steel Industries Ltd and M/s.R.S.Industries (Rolling Mills Ltd.) are the sister concern of ours on the ground of common directors is totally wrong.
(iv) During the year under consideration, the major job work for us was done by M/s Eagle Steel and M/s Vinar Ispat. The said job work was awarded to the parties taking into consideration the geographical proximity of both these units.
(v) A comparison chart showing the convers on chart paid to the parties enclosed herewith shows that the job work charges paid by us to Eagle Steel was lowest.
(vi) The conversion charges are decided as per `conversion agreement’ entered between the parties, which also decide the burning loss provided to the customers. The said `conversion agreement’ is enclosed herewith.
(vii) The said matters in the appeals too have been decided for AY 2006-07. A copy of the CIT(A) order is enclosed herewith and the Department has not referred any second appeal against the CIT(A) order.”
5. The ld.CIT concluded that the assessee has paid higher prices for the goods and services to its sister concern over the fair market value and hence the same requires to be disallowed u/s 40A(2)(b) of the Act. The assessee also pleaded that majority of the job work during the year had been done by M/s.Eagle Steel and M/s.Vinar Ispat Ltd. The assessee furnished complete rate chart showing total cost incurred with respect to each and every party, more particularly with regard to these two parties. The assessee pleaded that the total cost paid to M/s Eagle Steel (sister concern) is less when compared to that of the payment made to M/s Vinar Ispat Ltd. Accordingly it was pleaded that the provisions of section 40A(2)(b) of the Act cannot be made applicable