Vivek P Talwar, Mumbai vs Assessee

ी जो ग दर संह, या यक सद य एवं ी संजय अरोड़ा, लेखा सद य के सम ।

BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA, AM

आयकर अपील सं./I.T.A. No. 2336/Mum/2013 ( नधा रण वष / Assessment Year: 2003-04)

Vivek P. Talwar Dy. CIT, Central Circle - 46, 17-B, II Palazzo, Ridge Road, बनाम/ Mumbai Malabar Hill, Mumbai-400 006 Vs.

थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAAPT 3994 Q (अपीलाथ" /Appellant) : (#$यथ" / Respondent)

अपीलाथ" क% ओर से / Appellant by : Shri Vimal Punmiya

#$यथ" क% ओर से/Respondent by : Shri Pawan Kumar Beerla

सुनवाई क% तार,ख / : 9.12.2014 Date of Hearing घोषणा क% तार,ख / : 27.02.2015 Date of Pronouncement

आदे श / O R D E R Per Sanjay Arora, A. M.:

This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-38, Mumbai ('CIT(A)' for short) dated 31.12.2012, dismissing the assessee's appeal contesting its assessment u/s.144 r/w s. 254 of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2003-04 vide order dated 15.12.2011.

2. This is the second round before the Tribunal. In the first round, it finding anomalies and discrepancies in the sales and purchases of marble, i.e., as booked in the assessee's proprietary concern, M/s. Maharshtra Marble Co., vide paras 11 to 13 of its order dated 04.11.2010 (at PB-1 pages 47-55), was of the view that the issue 2 ITA No. 2336 /Mu m/2 013 (A.Y . 2 003 -0 4) Vivek P. Talwar vs. Dy. CIT

requires further examination. The assessee contending that the transactions between it and Nitco Tiles Ltd., an associate concern, and with whom the bulk of the transactions of purchase and sale had taken place, were trading transactions, without any processing, and only with a view to book profit in the assessee-firm and avail loan/s (recorded at paras 14, 15 of its order), which the Tribunal found as un-evidenced. Whether it was so, or a case of real suppression of sales, as contended by the Revenue, would require being examined from the stand-point and in view of the transactions with Nitco Tiles Ltd. (para 15). It, accordingly, restored the matter back to the file of the Assessing Officer (AO) for the purpose. In the set aside proceedings, the assessee failing to furnish any details or materials, i.e., as required vide paras 14 & 15 of the tribunal's order dated 04.11.2010, the assessment was framed by adopting the suppression of sales at Rs. 1,01,57,840/-, i.e., in respect of the trading transactions of Maharashtra Marble Co. with Nitco Tiles Ltd., being the only adjustment to the returned income, vide order u/s. 144 of the Act. In appeal, the learned CIT(A) was of the view that the objections, if any, to the mistakes stated by the assessee to have crept in the order by the tribunal supra while observing discrepancies or anomalies in its' purchases and sales, could only be addressed in the rectification proceedings before the tribunal. Further, the assessee was under a legal obligation to file all the relevant details/material and provide proper assistance to the assessing authority, which it had failed to. Nitco Tiles Ltd. (NTL) was a related party u/s. 40A(2)(b) of the Act and, accordingly, the burden of proof was upon the assessee to show that the price paid was not excessive or reasonable, relying on the decision in the case of CIT v. Shatrunjay Diamonds [2003] 261 ITR 258 (Bom). The assessment being confirmed thus, the assessee, aggrieved, is in second appeal.

3. We have heard the parties, and perused the material on record.

It would be relevant to summarize the transactions of purchase and sale for the year, being the subject matter of controversy arising in the instant case, as under:

3 ITA No. 2336 /Mu m/2 013 (A.Y . 2 003 -0 4) Vivek P. Talwar vs. Dy. CIT

Particulars Opening Purchases Purchase return Sales Closing Remarks Stock Stock No. Sq.ft. No. Sq.ft. No. No. Sq.ft. No. Sq.ft.

C1 38 1403 70 2583 27 996 43 1586 38 1404 (@ (@ (@120/- (@ (@ 120/-) 120/-) ) 350 /- ) 120/-) C2 - - 180 4244 180 4244 (@ - - - - (@ 120/-) 120/-) C3 - - 2250 104206 40 1853 (@ 2210 102346 - - (@ 120/- (@ 120/-) 150/-)

Note:

1. 'Particulars' represent the different categories (marked C1 to C3), which are essentially the different sizes in which the marble pieces are cut, as under:

C1 => 116.25 x 45.7 C2 => 67.90 x 50 C3 => 118.04 x 56.5

2. The figures are of quantity, both in terms of the number of pieces (slabs) and in square feet.

3. The figures in brackets are of the rate per sq. ft.

We observe that the transactions of purchase and sale are not disputed per se, being only per bills raised on and by the assessee. The dispute in fact is not with regard to the quantity purchased or sold, but the rate/s at which it is. Here, again, it is the sale rate of the marble, the commodity/product in which the assessee trades, sold to NTL that stands impugned for being under-priced and, accordingly, suppression of sales and, thus, of income, inferred in consequence. In this view of the matter, the discrepancies/anomalies observed by the tribunal would be of little consequence; the Revenue neither drawing any inference from, or even otherwise there-from, nor issuing any finding of fact on the basis of, the given data. Its' case continues to be one of suppression of sales. In fact, the entire purchases and sales are from the same party, i.e., NTL, so that, as clarified by the ld. AR during hearing, the 'discrepancies' were only in the nature of preliminary observations by the tribunal, and not well-founded, having arisen in the absence of complete information. Even otherwise, it stands to reason that if the said observations were findings, where was the need for the tribunal to restore the matter back to the file of the AO, so that the clarifications/information furnished by the assessee in the restored proceedings were relevant, and could not have been, as he did, brushed aside by the ld. CIT(A). We have in any case clarified that the only issue arising in this appeal is the suppression of sales, i.e., the 4 ITA No. 2336 /Mu m/2 013 (A.Y . 2 003 -0 4) Vivek P. Talwar vs. Dy. CIT

underpricing, if any, of the goods sold by the assessee to NTL, so that the quantitative details or dates on which the purchases and sales thereto, or from/to other parties, were made, is not in dispute.

The Revenue's case is that the goods sold to NTL ought to have been at a higher rate of Rs. 350 per sq. ft., i.e., as against the billed rate of Rs. 150 per sq. ft. This is stated on the basis that the sale of the said goods to another concern, M/s. Autum, has been at that rate, with the assessee being unable to establish that either the said goods were of a superior quality, or processed prior to their sale thereto, yielding it, on that account, a higher rate. We completely unimpressed. True, it is apparent that the sales to M/s. Autum, which were claimed to be, in the main (38 pcs.), out of opening stock, is of the same goods (C-1), i.e., as purchased by the assessee, which comprise the balance sale of 5 pcs. of the said goods sold to the said party. There is as such no basis to claim the goods lying in the opening stock as being of a higher quality, which contention of the assessee also did not find favour with the tribunal in the first round, though on account of being un-evidenced, and which continues to be case even in the second round as well.

So, however, firstly, the said goods are of a different category (C-1), no part of which stands sold to NTL. Two, even considering that the difference between the different categories, as we infer from the material on record, is only of the sizes in which the marble pieces are cut, causing no impact, or at least materially, to the sale price, how we wonder could it lead to the inference of the fair market value of the goods sold (C-3) to NTL being at Rs. 350 per sq. ft. That is, even ignoring the difference in the product, what is there, i.e., apart from a solitary transaction of sales for a nominal sum, so that it could be, as contended, a one-off transaction, to show that the same represents the fair market value ('fmv' for short) of the said goods. One fallow does not make a summer. Then, again, their abnormally low purchase of Rs. 120/-, would itself contradict the inference of the fmv, and at the same time, being at Rs. 350/- , i.e., about 3 times higher. That is, what is the basis for the said goods being purchased at a much lower rate of Rs. 46.31 in the first place? Couple this with the fact that the said goods were purchased from NTL itself, i.e., to whom the suppressed sales is alleged, and the Revenue's case becomes a non-starter. This is as under-

5 ITA No. 2336 /Mu m/2 013 (A.Y . 2 003 -0 4) Vivek P. Talwar vs. Dy. CIT

pricing of sales thereto would only imply a transfer of profits of the assessee's enterprise to that firm, while both the purchases and sales are from the very same concern, so that treating one of them as the fair value, as the Revenue does the purchases, defeats it's case inasmuch as there is no basis or reason for the abnormal profit that would arise to the assessee (66%), i.e., assuming the sale price sought to be imputed to the sales. In other words, the Revenue not disputing the purchase rate of Rs. 120/-, which therefore is be taken as the fair market value of the said goods, and which in fact is also in agreement with the purchase cost of the said goods by NTL, imported by it, what could possibly lead to a sudden spurt in their price, resulting in an unexplained, abnormal profit of nearly 66%. Why, in that case, would NTL sell the said goods to the assessee at the below par rate. All this gives credence to the assessee's claim that the transactions were in fact booked only to generate some profit in the assessee's hands for some ulterior purpose, viz. to obtain loan/s, etc., which again has not been impugned by the Revenue. There is also, it may clarified, no benefit on account of the tax rates; rather, to the contrary, a disadvantage, inasmuch as the tax rate for NTL, a corporate entity, is constant irrespective of the income level and, further, at the maximum tax rate. The reliance on the decision in the case of Shatrunjay Diamonds (supra) by the ld. CIT(A) is again misplaced inasmuch as that is a case of disallowance u/s. 40A(2)(a), which has no application in the instant case, which is of suppression of income, onus to prove which, if only prima facie, is on the Revenue, and not of disallowance u/s. 40A(2)(a), which could only be of an expenditure. We have in any case decided the controversy arising by issuing definite findings of fact. The Revenue's case, on whom the burden to exhibit suppression in sales lies, is wholly unsubstantiated; rather, unfounded on facts. We decide accordingly.

4. In the result, the assessee's appeal is allowed.

प1रणामतः नधा41रती क% अपील वीकृत क% जाती है ।

Order pronounced in the open court on February 27th, 2015

Sd/- Sd/-

(Joginder Singh) (Sanjay Arora) या यक सद य / Judicial Member लेखा सद य / Accountant Member 6 ITA No. 2336 /Mu m/2 013 (A.Y . 2 003 -0 4) Vivek P. Talwar vs. Dy. CIT

मुंबई Mumbai; 8दनांक Dated : 27.02.2015

व. न.स./Roshani, Sr. PS and S.K.

आदे श क# $ त&ल'प अ(े'षत/Copy of the Order forwarded to :

1. अपीलाथ" / The Appellant

2. #$यथ" / The Respondent

3. आयकर आयु9त(अपील) / The CIT(A)

4. आयकर आयु9त / CIT - concerned

5. <वभागीय # त न ध, आयकर अपील,य अ धकरण, मुंबई / DR, ITAT, Mumbai

6. गाड4 फाईल / Guard File आदे शानस ु ार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai