TMI Blog2012 (9) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... s at which the goods are actually sold and the value which in the opinion of the Assessing Officer is correct value. Further, Supreme Court in case of CIT V. Glaxo Smithkline Asia (P) Ltd (2010 (10) TMI 21 - SUPREME COURT OF INDIA ) has itself agreed that certain amendments are required to be made in Section 40A(2) if Transfer Pricing Regulations were required to be applied to domestic transactions between related parties. In view of aforesaid, provisions of section 40A(2) cannot be attracted for making addition on account of difference in sale value effected by the assessee in comparison to the fair market value - Decided in favor of assessee. Undervaluation of closing stock - Held that:- Stock has to be valued at cost or market value whichever is lower and the sale value cannot be applied for valuation of closing stock - Decided in favor of assessee - ITA No. 360/Chd/2012 - - - Dated:- 26-6-2012 - SHRI T.R. SOOD, AND Ms. SUSHMA CHOWLA, JJ. Appellant by: Shri Ajay Jain Assessee by: Shri Akhilesh Gupta ORDER PER T.R. SOOD, A.M In this appeal the assessee has raised the following grounds:- 1 The Assessing Officer has grossly erred in law in invoking prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Shanker Rice Co. V. ITO, 72 ITD 139 has held that books of account cannot be rejected just because there is a small variation in the yield. He further contended that husk is a bi-produce which is subject to deterrent on quality over a period of time and that is why the assessee had adopted estimated realizable value for the purpose of value of closing stock which has been followed from year to year. 5. On the other hand, the ld. DR for the revenue submitted that apart from low yield the assessee had not maintained stock register of paddy. Therefore, rejection of books of account was justified. 6. After considering the rival submissions we find that Special Bench of the Tribunal in case of Shanker Rice Co. V. ITO, 72 ITD 139 has held as under:- The following facts emerging from the record are not challenged by Revenue (1) Regular books of accounts are maintained and are duly audited by chartered accountants; (2) Statutory registers prescribed by the Government are maintained and these are periodically subjected to check by the Department of Food Civil Supplies. These registers are (i) register showing purchases, receipts and disposal of paddy; (ii) milling regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the next two assessment years has accepted yield at 64.60% and 64.53% no doubt under s. 143(1) but nothing prevented the AO from making a scrutiny assessment in the light of the view expressed in asst. yr. 1989-90 making an addition on account of yield of rice. In the final analysis, proviso to s. 145(1) was not applicable and there was no material on record with the Department to show that the yield of rice was higher than the figure stated by the assessee and that there was any sale outside the regular books of accounts maintained.-Jhandu Mai Tara Chand Rice Mills vs. CIT (1969) 73 ITR 192 (P H) and Pandit Bros, vs. CIT (1954) 26 ITR 159 (P H) relied on; Chhabildas Tribhuwandas Shah Ors. vs. CIT (1966) 59 ITR 733 (SC), Punjab Trading Co. Ltd, vs. CIT (1964) 53 ITR 335 (P H), CST vs. H.M. Esufali H.M. Abdulali 1973 CTR (SC) 317 : (1973) 90 ITR 271 (SC), S.N. Namasivavam Chetiar vs. CIT (1960) 38 ITR 579 (SC), Sree Shanmuqar Mills Ltd, vs. CIT (1974) 96 ITR 411 (Mad), Dabros Industrial Co. (P) Ltd, vs. CIT (1977) 108 ITR 424 (Cal), Orissa Fisheries Development Corpn. Ltd, vs. CIT (1978) 111 ITR 923 (Ori), Bharat Milk Products vs. CIT (1981) 20 CTR (All) 164 : (1981) 128 ITR 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerns were at comparable rates and therefore, no interference is called for. However, the Assessing Officer did not accept the submissions and adopted average rate of Rs. 668/- per qtl, the sale value of 2389.95 qtls of rice bran at Rs. 3,31,763/- and value the closing stock at Rs. 24,832/- and addition on this account totaling to Rs. 3,56,596/- was made to the profits of the assessee. 9. On appeal action of the Assessing Officer was confirmed by the ld. CIT(A). 10. Before us, the ld. counsel of the assessee submitted that law does not oblige any business entity to sell goods at maximum rates. Further the sale value of the goods depends upon the quality of the goods which in case of rice bran depends upon the content of oil. He further submitted that there is no provision in the Act to make an addition on account of difference in sale price because Section 40A(2) deals with the expenses and not with the revenue. In this regard, he relied on the decision of Hon'ble Madras High Court in case of CIT V. A.K. Subbaraya Chetty Sons, 123 ITR 592 (Mad). He also invited our attention to the observations made by the Hon'ble Supreme Court in case of CIT V. Glaxo Smithkline Asia (P) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) 28 ITR 952 followed. Moreover the Hon'ble Supreme Court in case of CIT V. Glaxo Smithkline Asia (P) Ltd (supra) where the issues arose whether the Transfer Pricing Regulations can be extended to domestic transactions. The Hon'ble Supreme Court observed as under: However, a large issue is involved in this case. The main issue which needs to be addressed is, whether Transfer Pricing Regulations should be limited to cross-border transactions or whether the Transfer Pricing Regulations be extended to domestic transactions? In the case of domestic transactions, the under-invoicing of sales and over-invoicing of expenses ordinarily will be revenue neutral in nature, except in two circumstances having tax arbitrage (i) If one of the related Companies is loss making and the other is profit making and profit is shifted to the loss making concern, and (ii) If there are different rates for two related units (on account of different status, area based incentives, nature of activity, etc.) and if profit is diverted towards the unit on the lower side of tax arbitrage. For example, sale of goods or services from non-SEZ area (taxable division) to SEZ unit (Non taxable unit) at a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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