Relief to Bajaj Herbals: ITAT deletes Income Tax Addition on account of under-invoicing of Sales to sister concern [Read Order]

In a relief of  Bajaj Herbals, the Income Tax Appellate Tribunal (ITAT), Ahmedabad deleted that addition made on account of under-invoicing of sales to sister concern.

During the previous year the appellant, M/s. Bajaj Herbals Pvt. Ltd. made export sales of Rs. 34,72,784/- to M/s. Bajaj Herbal FZE LLP (BHFZE) which is the appellant’s associated concern. The appellant also exported similar products to third parties. The Ld. AO compared the sale prices made to the sister concern i.e. M/s. BHFZE and other such concerns and tabulated the average price of sales with difference and worked out percentage of under-invoicing and its average. The AO determined that the average difference of percentage of under-invoicing is 50% made to the sister concern rejecting the explanation of the assessee that sale price to the sister concern is as per prevailing market price of that relevant time including other factors like terms of payment, quantity supplied, debtors realization, quality of product etc.

In appeal the appellant objected to the methodology adopted by the AO to work out such 50% under-invoicing on the basis of average. The appellant before the First Appellate Authority submitted the breakup export sales with comparison, sample copy of the bills of sister concern, the ledger account of the sister concern namely M/s. BHFZE and other such concerns too. The assessee objected before the appellate authority the method of comparison and estimation adopted by the AO in making such a huge addition. The appellant further relied upon a series of judgments where such methods of comparison and estimation were made by the AO has been held by the unscientific and improper. The CIT(A) held that the issue was in favour of the assessee.

“The working of 49.50% under invoicing is also an estimate with no basis. As per settled legal preposition the A.O. cannot entered in the shoes of any business man and can direct/dictate about how to conduct such business. All the export transaction are genuine and in comparison to such export to other parties of Rs. 18.88 crore the export to M/s. M/s. BHFZE is only Rs. 0.35 crore. It is important to note here that during survey proceedings u/s. 133A of the Act on 22/02/2010 no evidences reflecting such modus operandi were found. I am inclined with the ratio of various case laws relied on appellant that unless and until such export are sham transaction no addition for under invoicing can be made. It is therefore the addition so made by A.O. are not legally sustainable. The A.Q. is directed to delete the addition so made of Rs. 3404016/-. The appellant gets relief accordingly. This ground is treated as allowed,” the CIT (A) observed.

The coram of Accountant Member, Waseem Ahmed and Judicial Member, Madhumita Roy held that assessee are duly audited all books of accounts. After taking into consideration the entire aspect of the matter, the CIT(A) has rightly deleted the impugned disallowance. Hence, in the absence of any merit.

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