9911796707
TMI Blog2024 (11) TMI 1068X X X X Extracts X X X X X X X X Extracts X X X X ..... India Pvt. Ltd. v. DCIT. The said appeal was preferred by the respondent (Assessee) assailing an order dated 18.06.2018 passed by the learned Commissioner of Income Tax (Appeals)-35, New Delhi [CIT(A)] in Appeal No.534/2016-17, which in turn was filed by the Assessee assailing an assessment order dated 26.12.2016 passed under Section 143(3) of the Act. 2. The Assessee is engaged in the business of manufacturing and sale of automotive parts and components. The Assessee had filed its return in respect of AY 2014 -15 declaring a loss of Rs.28,09,72,605/-. It is also material to note that the Assessee was incorporated on 23.11.2011 and thus, the financial year (FY) 2013-14 was effectively the second year of its operations. 3. The Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it had done. HCIL had purchased the dies at a negotiated price. 6. The learned AO had found that the said transaction was a sham transaction and the Assessee's loss from the said transaction was, thus, an artificial loss. The said conclusion was founded on the basis that HTIPL was a "sister concern" of HCIL and there was no necessity for the Assessee to have first sold the tools and dies to HCIL and then receive it back for manufacture of the parts. Paragraph 6.3 of the assessment order, which sets out the reasoning of the AO is set out below: "6.3 In respect of the said loss, the assessee company was show caused as to why the said loss must not be disallowed being sham transaction on the following grounds; a. Majority of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is evident from paragraph 6.5 of the assessment order, which reads as under: "6.5 The submission of the assessee has been considered but has been found unacceptable on the following grounds- a. That in ordinary course, it would have been HCIL who would have purchased tools and dies. However, only for this transaction, assessee was compelled to deviate from this ordinary course of business practice. No reasons have been given for this one time exception made by the assessee. b. That assessee's assertion that HCIL had lower quotes is yet unsubstantiated as no business correspondence to this effect has been submitted before the undersigned. In ordinary course, particularly when the subject products had to be purchased from a sister c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim that the loss suffered was a genuine business loss is set out below: "4.4.3.2. The Appellant has submitted that with reference to Note 34 of the Notes forming part of financial statements, the Company manufactures the parts for Honda Cars India Limited as per specification and design submitted by them. The company requires the dies to manufacture such parts and in industry. Hence, either the Company who manufactures the parts purchases the dies as required to manufacture those parts and capitalize such Dies and charge the depreciation on the same. Hence, the appellant Company requests the customer to provide the Dies to manufacture the specific parts as required by them to minimize the risk/cost as mentioned above. In this case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpelled the appellant to enter into a loss making transaction." 13. Notwithstanding the aforesaid explanation, the CIT(A) did not delete the addition of the loss as claimed by the Assessee. 14. However, the learned ITAT had accepted that the loss incurred by the assessee company was a genuine loss. It had allowed the Assessee's appeal in this regard. Paragraphs 9 to 13 of the said order are set out below: "9. The Bench is of considered opinion that Ld. Tax Authorities below have not appreciated the fact that the company was incorporated on 23.11.2011 and its existence and sustenance primarily was dependent upon the contract to manufactures certain parts to be used in the cars manufactured by HCIL. The case of assessee is that as there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loss. However, as appreciated by the Bench the Tax Authorities had failed to take into consideration the business prudence of the assessee for incurring certain losses in initial year for a sustainable and longer partnership with HCIL and which has given rise to generation of profits in subsequent years and which have been tendered for taxation. 12. There is substance in the contention of Ld. Counsel that the major purchase of dies were from Tri Inter Thailand and not from Honda Trading Corporation India Pvt. Ltd. thus, alleging that the transaction was to benefit Honda Trading Corporation India Pvt. Ltd., which is subsidiary of HCIL is based on mere conjectures. 13. Consequent to aforesaid discussion the ground raised are sustained ..... X X X X Extracts X X X X X X X X Extracts X X X X
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