Commissioner of Income Tax-I vs Jyoti Industries

Adarsh Kumar Goel, J.—The revenue has preferred this appeal u/s 260A of the income tax Act, 1961 (for short, ""the Act"") against order of

the income tax Appellate Tribunal, Chandigarh dated 19-11-2009 in ITA No. 484/CHD./2009 for the assessment year 2005-06, proposing

following substantial questions of law :

(1) Whether on the facts and circumstances of the case, the Hon''ble income tax Appellate Tribunal is justified in law in upholding the decision of

learned CIT(A) in deleting the addition of Rs. 6,18,910 made by the Assessing Officer on account of purchases made from its sister concern being

specified person u/s 40A(2)(b) of the income tax Act, 1961 on the rates higher than the market rate.

(2) Whether on the facts and circumstances of the case, the Hon''ble income tax Appellate Tribunal is justified in law in upholding the decision of

learned CIT(A) in deleting the addition of Rs. 51,35,244 made by the Assessing Officer on account of sales made to its sister concern being

specified person u/s 40A(2)(b) of the income tax Act, 1961 on the rates lower than the market rate.

The Assessee is a manufacturer of alloys/non-alloys steel ingots and is also engaged in trading of scrap. In the course of assessment, the

Assessee claimed loss in manufacture of steel ingots. The Assessee made purchases of raw material from its sister concern at rates higher than the

market rates. Similarly, sale of finished goods were made at rates lower than the market rate. The Special Auditor stated that the Assessee

adopted estimated cost method of valuation and on that basis, the Assessing Officer made addition, invoking Section 40A(2)(b) of the Act,

alleging undervaluation of the scrap. On appeal, the addition was set aside with the observation that explanation of the Assessee that rates paid to

the sister concern were comparable to the market, as shown in the Bulletin of Steel Town (weekly). The CIT(A) held as under:

... These details do show that quality of raw material, though called iron scrap in general, in all such cases, may be different for the purchases made

from different parties. It is on that the Appellant had paid different rates for purchases made on the same day. As seen from these details,

difference in rate for purchases is only with respect to purchases made from the said sister concern and other parties but it is a normal case even

for purchases made between other parties also. Keeping in view the above discussed position, the contention of the Appellant that difference in

purchase rate was on account of quality of raw material etc., is duly verifiable from these details and the same cannot be rejected out rightly.

Therefore, the contention that the raw material purchased by the Appellant from the sister concern being end cuttings scrap could be of better

quality appears to be correct and the Appellant could very well have made purchases of the same by paying higher rate as being claimed.

Further, as brought out in the written submissions, the rate of scrap purchased by the Appellant from the sister concern is quite comparable to the

rates for such scrap published in St eel Town (weekly) in which such rates are published on day to day basis. Therefore, from that angle also, the

purchases made by the Appellant from the sister concern could not be termed to have been made at an excessive price.

The examples given by the Appellant in respect of different varieties of raw material at different rates also prove that there is definitely a difference

in the quality of raw material purchased from different concerns and, therefore, the rates paid might be different....

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I have carefully considered the contention of the learned Counsel for the Appellant and perused the relevant record. Here again the Assessing

Officer has made this addition mainly in account of her not accepting the contention of the Appellant that the less rate might have been charged

from its sister concern on account of lower quality of material sold to it as compared to quality of material sold to other parties. Though the

Appellant has not furnished any specific evidence in this regard and the Assessing Officer has also not discussed as to in the absence of exact

chemical analysis how the contention of the Appellant could be rejected, the contention otherwise seems to be not without any force. The

Appellant has furnished the details of date-wise comparison of sale of non-allow steel ingots and alloy steel ingots during the relevant period. These

are given in Annexures A & B to this order. From, these details, it is seen that at times on the same day, sales of same product i.e., allow steel

(ingots) and non-alloy steel (ingots) have been made at different rates. For example on 3-11-2004 sales have been made to the sister concern of

the Appellant by two bills first being at the rate of Rs. 23027 per MT and whereas the second at the rate of Rs. 24728 per MT. Similarly on 4-11-

2004, whereas sales have been made to sister concern by bill Nos. 523 and 524 at the rate of Rs. 23027 per MT, on the same day sale has been

made to the same sister concern at the rate of Rs. 21383 per MT vide Bill No. 525, she has ignored the rates for Bill Nos. 523 and 524. Similar

position could be seen at a number of other places. For example; on 9-11-2003, sales have been made to the sister concern at the rate of Rs.

22273 per MT whereas sale has also been made at the rate Rs. 26283 per MT. Coming to the sales made to other parties, sales on 16-11-2004

has been made to T.K. Steel Rolling Mills at the rate of Rs. 22224 per MT whereas the sales to M/s. Kanika Steel Rolling Mills has been made on

the same day at the rate of Rs. 31183 per MT on 30-11-2004, sales to M/s. Atma Ram Mela Ram Steel (P.) Ltd. Has been made at the rate of

Rs. 21383 per MT whereas on the same day sales has been made to Modi Wire Products at the rate of Rs. 20581 per MT. The details given in

Annexure A to this order are full of such instances. Similar is the position for the sale of allow steel as per details given in Annexure B to this order.

As per these details, sales to M/s. Ajar Amar Steels has been made on 23-11-2004 vide Bill No. 472 at the rate of Rs. 22006 per MT whereas

on the same day sales to the same concern has been made vide Bill No. 574 at the rate of Rs. 23120 per MT. 23-12-2004, sales to M/s. Ajar

Amar Steels has been at Rs. 22274 per MT whereas to M/s. T.K. Steel Rolling Mills Ltd. sales on the same day at the rate of Rs. 23312 per MT

have been shown. Even in the case of sister concern, sales have been made at different rates even on the same day. For example on 6-1-2005 sale

vide Bill Nos. 678, 679 and 680 has been made to sister concern at the rate of Rs. 23165 per MT. Whereas on the same day sales vide Bill No.

681 has been made at the rate of Rs. 24056 per MT. Further, on 16-2-2005 sales vide Bill No. 765 has been made at the rate of Rs. 23877 per

MT whereas sales vide Bill No. 766 has been made at the rate of Rs. 24056 per MT. Similar is the position with regard to other sales instance

brought out in these details. Therefore, these details do show that there has to be some difference in the quality of the material sold to different

parties or to the sister concern which might be the reason for difference in the rates charged for the sales made on the same day etc. as discussed

above. Though the product being sold is some i.e. alloy steel ingots or non-alloy steel ingots as per the above details there is substantial differences

in the sale rate of some product on the same day. This does show that there is difference in the quality of the products as being claimed. In view of

the above details, the observations of the Assessing Officer that there could not be any difference in quality of the products manufactured by the

Appellant and which could be ground for charging lesser rates for the sales made to sister concern does not appear to be justified. As far as the

action of the Assessing Officer in considering the sales made to sisters concerned at 6 per cent lower in the case of non-alloys and 6.55 per cent in

the case of alloy steel, the same could not be held to be justified. The Assessing Officer has also compared the rates for working out the difference

for the sales made one day apart. However, what to talk of one day apart, even there has been difference in the sale rates charged from different

parties on the same day. Even different rates have been charged for the sale made to the sister concern itself also in respect of sale made on the

same date vide different bills as already discussed. Therefore, it cannot be said that the Assessing Officer has proved that the Appellant has sold

the same quality of the finished products to its sister concern at price lesser than that at which the same quality product was sold to other parties.

Details submissions of the learned Counsel, in this regard, which have been reproduced in the submissions above, also support the case of the

Appellant.

On further appeal, the Tribunal affirmed the above findings.

We have heard learned Counsel for the Appellant.

The finding recorded concurrently by CIT(A) as well as the Tribunal is pure finding of fact as to the genuineness of the valuation in transaction

between the sister concerns, which is not shown to be perverse.

No substantial question of law arises.

The appeal is dismissed.