JUDGMENT
This is an assessee's appeal against the order passed by the authorities adding a sum of Rs. 6,58,965/- as an additional income of the assessee on account of sale of rice bran to a concern.
2. The appeal was admitted to consider the following substantial question of law:
Whether the Tribunal was Justified in law in confirming the addition of Rs. 6,58,965/- on account of transaction with M/s. Nicko Agro Industries, Omalur being deemed additional sale price without any basis and consequently recorded a perverse finding?
3. The assessee purchased 139.24 MT of rice bran from M/s. Nicko Agro Industries, Omalur for a total sum of Rs. 5,41,695/-. The average purchase price comes to Rs. 3,890/- per MT. During the same year, the assessee sold 408.495 MT of rice bran to M/s. Nicko Agro Industries for a sum of Rs. 9,30,080/- and the average selling price comes to Rs. 2,277/- per MT. The Assessing Authority was of the view that the assessee purchased rice bran from M/s. Venkata Padmavathi Paddy & Rice, Nellore at a higher rate and sold the rice bran to M/s. Nicko Agro Industries at a very low rate. By such sales, the assessee reduced the profit and passed on the benefit to this concern, which also operates from the adjacent premises. Therefore, the Assessing authority proceeded under Section 145(3) of the Income tax Act and rejected the accounts maintained by the assessee. Thereafter, he proceeded to value 408.495 MT of rice bran sold by him at the rate of Rs. 3,890/- per MT based on the average purchase price and thus the difference was arrived at in a sum of Rs. 6,58,965/- and that was treated as an additional income of the assessee and taxed. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals), who too dismissed the appeal. The second appeal preferred by the Assessee also met the same fate. That is how the assessee is before this Court.
4. We have heard the learned counsel appearing for the parties. The Apex Court in the case of Commissioner of Income-Tax, West Bengal v. Calcutta Discount Co. Ltd., reported in 1973 (91) ITR 8 has held that “where a trader transfers his goods to another trader at a price less than the market price and the transaction is a bonafide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the profit from the transaction. An assessee can so arrange his affairs as to minimize his tax burden”.
5. Similarly, the Gujarat High Court in the case of Commissioner of Income-Tax, Gujarat v. Keshavlal Chandulal reported in 1966 (LIX) ITR 120 has observed that “where a person disposes of his goods at a lesser value than their market price, or at a concessional price, there is nothing in the income tax law which compels him to sell at a price which is the price realisable in the market”.
6. The only exception in this rule is, if the goods fall under Section 40(A)(2a) where there exists a relationship as set-out in the said provision between the parties. It is not the case of the Department that though the shops are adjoining each other, they are related in any manner. That provision is not invoked.
7. In the light of the aforesaid statement of law, the authorities were not justified in adding the income, taking the difference between the price at which the rice bran is purchased and rice bran is sold. Therefore, the substantial question of law is answered in favour of the assessee and against the revenue. Accordingly, we pass the following order:
(a) Appeal is allowed.
(b) The impugned orders are hereby set-aside.
(c) The impugned order in respect of issue of Rs. 6,58,965/- relating to the difference in price of rice bran is hereby set-aside.
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