The Income Tax Appellate Tribunal (ITAT), Chennai Bench, has recently in an appeal filed before it, held that the value of goods declared for central excise purpose shall be considered before concluding upon under- invoicing of products.
The aforesaid observation was made by the Tribunal when appeals were filed before it by the assessee M/s. Kamivisa Products, directed against separate, but identical orders of the Commissioner of Income Tax (Appeals), Puducherry, all dated 19.02.2018 for the relevant assessment years 2008-09 to 2012-13.
The relevant facts of the case were that the assessee firm was engaged in the business of manufacturing and sale of absorbent wicks, filters etc and that it had filed its return of income for the impugned assessment years u/s.139(1) of the Income Tax Act.
Having two units, one at Puducherry and the another at Guwahati, the Puducherry unit of the assessee had claimed deduction u/s.80IB of the Income Tax Act, 1961, while the Guwahati unit had claimed deduction u/s.80IC of the Income Tax Act, 1961.
However, during the course of the assessment proceedings, it was so noticed by the Assessing Officer that the Guwahati unit had purchased wicks at a lower cost price from Puducherry, whereas the very same products has been purchased from M/s. Aeroaroma Home Care Products, Puducherry at a higher price.
Accordingly, the Assessing Officer called upon the assessee to explain as to why under-invoicing of the products to Guwahati unit cannot be reworked for the purpose of deduction u/s.80IB of the Income Tax Act, 1961, in response to which it was submitted by the assessee that although it had purchased the very same product from two different suppliers, one from its own unit at Puducherry at a lesser rate, when compared to the purchase from third party by paying higher price, the fact remains that products supplied by the assessee’s own unit at Puducherry are at semi-finished stage, whereas products supplied by third party supplier are fully finished goods which are ready for next level of production.
It was also contended by the assesse that the Guwahati unit had spent further amount towards making products purchased from Puducherry ready for use at the next level, and that if the said cost is considered, then the purchase price paid by the assessee to its Puducherry unit and purchase price paid to third party, is almost equal and that thus, the question of making additions towards under-invoicing does not even arise.
However, the Assessing Officer was not convinced with the explanation furnished by the assessee and according to him the assessee had shifted profit from Puducherry unit to Guwahati unit to claim higher tax benefit by way of deduction u/s.80IC of the Income Tax Act, 1961 @ 100% profit which is evident from fact that Puducherry unit is claiming deduction u/s.80IB of the Act @ 25%, whereas Guwahati unit is claiming 100% deduction towards profit derived from the business.
Therefore, the Assessing Officer opined that the assessee had shifted profit to get tax benefit and hence, compared price paid by the assessee to its Puducherry unit with price paid to third party supplier M/s.Aeroaroma Home Care Products and made additions to total income.
Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A), who rejected the arguments of the assessee and thereby sustained the additions made by the Assessing Officer towards under-invoicing of products to Guwahati unit, leaving the assesee aggrieved to prefer the instant appeal before the Tribunal.
With Mr. N.Arjunraj, C.A and Mr.S.Sridhar, the advocate for the assesse submitting that the Assessing Officer except stating that there is difference in the price charged by the assessee when compared to third party supplier, could not bring on record any other evidence to justify his findings that the assessee has under-invoiced its products to Guwahati unit to claim higher benefit tax incentives allowed in terms of section 80IC of the Income Tax Act, 1961, it was argued by Mr.S.Chandrasekaran, JCIT , on behalf of the Revenue that it is the assessee who could not file any evidence to justify its argument that the products supplied by Puducherry unit are further processed at Guwahati unit to make it ready for next level of production.
Hearing the opposing contentions of both the sides and perusing the materials available on record, the Tribunal consisting of V.Durga Rao, the Judicial Member and G.Manjunatha, the Accountant Member, observed as follows :
“If you consider total cost incurred for the product supplied from Puducherry unit to total cost incurred for products purchased from third party supplier, there is minor difference of Rs.0.02 per unit and said difference may arise for various reasons and thus, in our considered view, the Assessing Officer has completely erred in making additions towards suppression of income.”
“The learned CIT(A), without considering the above facts, has simply sustained additions made by the Assessing Officer, and hence, we reverse the findings of the learned CIT(A) and direct the Assessing Officer to delete the additions made towards suppression of income on account of under valuation of stock supplied to Guwahati unit for the assessment years 2008-09 to 2012-13”, allowing the assessee’s appeal, the Bench ruled.
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