Market Creators Limited, Baroda V. The Income Tax Officer, Ward-2(1)(1), Vadodara

ITA 1023/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6033 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 25-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Question of law; Fair market value
• Section: 143(3)

Judgement Text

ITA NO.1023/AHD/2016 ASSESSMENT YEAR: 2008-09 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S.S. GODARA JM] ITA NO.1023/AHD/2016 ASSESSMENT YEAR: 2008-09 MARKET CREATORS LIMITED, ..................APPELLANT CREATIVE CASTLE, 70, SAMPATRAO COLONY, PRODUCTIVITY ROAD, BARODA 390 007. [PAN : AABCM 3439 R] VS. INCOME TAX OFFICER, WARD 2(1)(1), VADODARA. ............................RESPONDENT APPEARANCES BY URVASHI SHODHAN FOR THE APPLICANT MUDIT NAGPAL FOR THE RESPONDENT HEARING CONCLUDED ON: 09.02.2018 ORDER PRONOUNCED ON : 13.02.2018 O R D E R PER PRAMOD KUMAR, AM: BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS C HALLENGED CORRECTNESS OF THE ORDER DATED 24 TH FEBRUARY, 2016 PASSED BY THE LEARNED CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 R.W.S. 2 54 OF THE INCOME TAX ACT 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR 2008-09. 2. GRIEVANCE OF THE ASSESSEE, IN SUBSTANCE, IS AGAI NST LEARNED CIT(A)S CONFIRMING THE DISALLOWANCE OF RS.10,35,000/- BEING 50% OF THE FINANCIAL CHARGES PAID TO SPECIFIED PERSONS, UNDER SECTION 40A(2)(B) OF THE ACT. 3. THIS IS SECOND ROUND OF PROCEEDINGS. IN THE FIR ST ROUND OF PROCEEDING, THIS MATTER HAS TRAVELLED UP TO THE TRIBUNAL BUT WAS REMITTED B ACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION DE NOVO IN THE LIGHT OF CERTAIN OBSERVATIONS. ITA NO.1023/AHD/2016 ASSESSMENT YEAR: 2008-09 PAGE 2 OF 5 4. WHEN THIS APPEAL WAS TAKEN UP FOR HEARING, IT WA S NOTICED THAT THE ASSESSING OFFICER HAD DISALLOWED 50% OF FINANCIAL CHARGES PAI D TO THE SPECIFIED PERSONS, BUT THERE WAS NO CATEGORICAL FINDING AS TO WHAT IS THE FAIR M ARKET VALUE OF THE SERVICES PROVIDED BY THESE SPECIFIED PERSONS. SUCH AN ADHOC DISALLOWANC E UNDER SECTION 40A(2)(B), IN OUR CONSIDERED VIEW, IS NOT PERMISSIBLE UNDER THE SCHEM E OF THE ACT. WE, THEREFORE, ASKED THE PARTIES TO ADDRESS US ON THIS FUNDAMENTAL AND B ROAD LEGAL PROPOSITION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 6. WE FIND THAT A CO-ORDINATE BENCH OF THIS TRIBUNA L AND SPEAKING THROUGH ONE OF US (I.E. THE ACCOUNTANT MEMBER), IN THE CASE OF ACIT V S. ASHOK J. [PATEL [(2013) 59 SOT 53 (AHD)] HAD OBSERVED AS FOLLOWS :- 7. IT IS PLAIN ON PRINCIPLE THAT, SO FAR AS DISAL LOWANCE UNDER SECTION 40A(2) FOR PAYMENT BEING EXCESSIVE OR UNREASONABLE CAN ONLY BE MADE WHEN THE PAYMENT IS MADE TO THE 'SPECIFIED PERSONS' UNDER CLAUSE 40A (2)(B) AND 'THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET PRICE OF THE GOODS , SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE'. THE OPINION OF THE ASSESSING OFFICER FOR THE EXPENDITURE BEING EXCESSIVE OR UNREASONABLE IS TO BE FORMED VIS -A-VIS FAIR MARKET PRICE OF SUCH GOODS SERVICES OR FACILITIES. IT IS THUS SINE QUA NON FOR MAKING A DISALLOWANCE UNDER SECTION 40(A)(2) THAT THE ASSESS ING OFFICER HAS TO ASCERTAIN THE FAIR MARKET PRICE OF SUCH GOODS, SERVICES OR FA CILITIES, AND THEN MAKE A 'DISALLOWANCE FOR THE AMOUNT WHICH IS IN EXCESS OF FAIR MARKET VALUE OF SUCH GOODS, SERVICES OR FACILITIES. UNLESS THERE IS A CA TEGORICAL FINDING ABOUT THE 'FAIR MARKET VALUE' AND THE ASSESSEE HAS AN OPPORTUNITY T O BE HEARD ON ASSESSING OFFICER'S FINDINGS ABOUT SUCH 'FAIR MARKET VALUE', THERE CANNOT BE AN OCCASION TO MAKE A DISALLOWANCE UNDER SECTION 40A(2). THE VERY SCHEME OF SECTION 40A(2) DOES NOT ENVISAGE AN ADHOC DISALLOWANCE AS HAS BEEN MADE IN THE PRESENT CASE. FOR THIS SHORT REASON ALONE, THE IMPUGNED DEL ETION OF DISALLOWANCE MUST STAND CONFIRMED. THERE IS, HOWEVER, ONE MORE REASON FOR DOING SO. AS EVIDENT FROM A PLAIN READING OF THE ASSESSMENT ORDER, THE A SSESSING OFFICER HAD CALLED UPON THE ASSESSEE TO DEMONSTRATE THAT THE PAYMENT M ADE BY THE ASSESSEE TO THE SPECIFIED PERSONS IS NOT UNREASONABLE OR EXCESS IVE, AND IT IS THUS FAILURE OF THE ASSESSEE WHICH HAS RESULTED IN DISALLOWANCE UND ER SECTION 40A(2). HOWEVER, PROVING A NEGATIVE, AS THE ASSESSEE HAS BEEN CALLED UPON TO DO IN THIS CASE, IS AN IMPOSSIBLE ONUS TO PERFORM. IN ANY EVENT, THIS O NUS IS ON THE ASSESSING OFFICER AND THE AO HAS FAILED TO DISCHARGE THE SAID ONUS. FOR THIS REASON ALSO, THE DISALLOWANCE IS UNSUSTAINABLE IN LAW. AS REGARD S THE DISCREPANCY IN THE FIGURES OF THE TAX AUDIT REPORT AND THE ASSESSEE, N EITHER SUCH A SITUATION CAN BE A REASON ENOUGH TO MAKE A DISALLOWANCE UNDER SECTION 40A(2) NOR THE ONUS OF EXPLAINING SUCH A VARIATION IS ON THE ASSESSEE. A T AX AUDITOR IS AN INDEPENDENT PROFESSIONAL AND ANY ERRORS IN HIS REPORT CANNOT BE PUT TO ASSESSEE'S DISADVANTAGE. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF ITA NO.1023/AHD/2016 ASSESSMENT YEAR: 2008-09 PAGE 3 OF 5 THE CASE, WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 7. THE VIEWS SO EXPRESSED BY THE CO-ORDINATE BENCH WERE DULY APPROVED BY HONBLE JURISDICTIONAL HIGH COURT, IN THE JUDGEMENT REPORTED AS CIT VS. ASHOK J PATEL [(2014) 43 TAXMANN.COM 227 (GUJ.)]. WHILE SO APPRO VING THE VIEWS OF THE CO-ORDINATE BENCH, THEIR LORDSHIPS HAVE INTER ALIA OBSERVED AS FOLLOWS : 8. THAT THE ASSESSEE WHO IS IN THE BUSINESS OF TR ANSPORTATION CLAIMED DISALLOWANCE WITH RESPECT TO MOTOR BUS RENT PAID TO VARIOUS PERSONS FOR TRANSPORTATION CONTRACTS. THE AO WAS OF THE VIEW TH AT THE ASSESSEE HAS FAILED TO PRODUCE ANY COMPARATIVE MARKET PRICE AND THAT THE N ATURE OF WORK CARRIED OUT BY THE AFORESAID PERSONS IS GENERAL IN NATURE. THE AO DISALLOWED RS.15,49,163/- FOR AY 2005-06 AND RS.14,97,668/- FOR AY 2006-07 OUT OF THE TOTAL PAYMENT OF BUS RENT UNDER SECTION 40A(2)(B). WITH RESPECT TO AY 20 06-07 AO ALSO MADE DISALLOWANCE OF RS.93,25,426 MADE UNDER SECTION 40( A)(IA) OF THE ACT BY HOLDING THAT THE AMENDMENT CARRIED OUT BY FINANCE ACT, 2010 CAN BE HELD TO BE RETROSPECTIVE FROM AY 2005-06. NOW, SO FAR AS THE DISALLOWANCE MADE UNDER SECTION 40A(2)(B) OF THE ACT ON THE GROUND OF MOTOR BUS RENT IS CONCERNED, IT APPEARS T HAT THE AO DISALLOWED 5% OF THE TOTAL PAYMENTS TOWARDS MOTOR BUS RENT BY OBSERV ING THAT THE ASSESSEE HAS FAILED TO RECONCILE THE DIFFERENCE IN PAYMENTS AS P ER TAX AUDIT REPORT AND AS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS AND HAD ALSO NOT PRODUCED ANY COMPARATIVE PRICES. THE LEARNED CIT(A) DELETED THE SAID DISALLOWANCES BY OBSERVING THAT THE AO HAS NOT MADE OUT ANY CASE FOR EXCESSIVE OR UNREASONABLE PAYMENTS TO THE RELATED PURPOSE TOWARDS THE MOTOR B US RENT. THE LEARNED CIT(A) ALSO OBSERVED THAT NO COMPARATIVE PRICES FOR SIMILA R TRANSPORT SERVICES WAS CITED BY THE AO AND THEREFORE, WAS NOT JUSTIFIED IN MAKIN G AD-HOC DISALLOWANCE OF 5% UNDER SECTION 40A(2)(B) OF THE ACT AND THEREFORE, T HE CIT(A) AS SUCH RIGHTLY DELETED THE DISALLOWANCES MADE UNDER SECTION 40A(2) (B) OF THE ACT. CONSIDERING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT AND THE EVIDENCE ACT, IF THE AO WAS OF THE OPINION THAT THE PAYMENT FOR WHICH DISAL LOWANCE IS CLAIMED, IS EXCESSIVE OR UNREASONABLE. IN THAT CASE, IT WAS FOR THE AO TO ASSESS FAIR MARKET PRICE AND GIVE COMPARATIVE INSTANCES FOR PAYMENT FO R SIMILAR TRANSPORT SERVICE. IN ABSENCE OF SUCH COMPARATIVE CASES BROUGHT ON RECORD , AS RIGHTLY OBSERVED BY THE ITAT IT WAS NOT OPEN FOR THE AO TO MAKE DISALLO WANCE UNDER SECTION 40A(2)(B) OF THE ACT. WHILE DELETING DISALLOWANCE M ADE BY THE AO UNDER SECTION 40A(2)(B) OF THE ACT, THE LEARNED ITAT HAS OBSERVED AND HELD IN PARA 7 AS UNDER : '7. IT IS PLAIN ON PRINCIPLE THAT, SO FAR AS DISAL LOWANCE UNDER SECTION 40A(2) FOR PAYMENT BEING EXCESSIVE OR UNREASONABLE CAN ONLY BE MADE WHEN THE PAYMENT IS MADE TO THE 'SPECIFIED PERSONS' UNDER CLAUSE 40A(2)(B) AND 'THE ASSESSING OFFICER IS OF THE OPIN ION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO THE FAIR MARKET PRICE OF THE GOODS, SERVICES OR FACILITIES FOR WHIC H THE PAYMENT IS MADE'. THE OPINION OF THE ASSESSING OFFICER FOR THE EXPEND ITURE BEING EXCESSIVE OR UNREASONABLE IS TO BE FORMED VIS-A-VIS FAIR MARK ET PRICE OF SUCH GOODS SERVICES OR FACILITIES. IT IS THUS SINE QUA NON FOR MAKING A DISALLOWANCE ITA NO.1023/AHD/2016 ASSESSMENT YEAR: 2008-09 PAGE 4 OF 5 UNDER SECTION 40(A)(2) THAT THE ASSESSING OFFICER H AS TO ASCERTAIN THE FAIR MARKET PRICE OF SUCH GOODS, SERVICES OR FACILITIES, AND THEN MAKE A 'DISALLOWANCE FOR THE AMOUNT WHICH IS IN EXCESS OF FAIR MARKET VALUE OF SUCH GOODS, SERVICES OR FACILITIES. UNLESS THERE IS A CATEGORICAL FINDING ABOUT THE 'FAIR MARKET VALUE' AND THE ASSESSEE HAS AN OPPORTUNITY TO BE HEARD ON ASSESSING OFFICER'S FINDING ABOUT SUCH 'FA IR MARKET VALUE', THERE CANNOT BE AN OCCASION TO MAKE A DISALLOWANCE UNDER SECTION 40A(2). THE VERY SCHEME OF SECTION 40A(2) DOES NOT ENVISAGE AN ADHOC DISALLOWANCE AS HAS BEEN MADE IN THE PRESENT CASE. FOR THIS SHOR T REASON ALONE, THE IMPUGNED DELETION OF DISALLOWANCE MUST STAND CONFIR MED. THERE IS, HOWEVER, ONE MORE REASON FOR DOING SO. AS EVIDENT F ROM A PLAIN READING OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER, HAD CA LLED UPON THE ASSESSEE TO DEMONSTRATE THAT THE PAYMENT MADE BY TH E ASSESSEE TO THE SPECIFIED PERSONS IS NOT UNREASONABLE OR EXCESSIVE, AND IT IS THUS FAILURE OF THE ASSESSEE WHICH HAS RESULTED IN DISALLOWANCE UND ER SECTION 40A(2). HOWEVER, PROVING A NEGATIVE, AS THE ASSESSEE HAS BE EN CALLED UPON TO DO IN THIS CASE, IS AN IMPOSSIBLE ONUS TO PERFORM. IN ANY EVENT, THIS ONUS IS ON THE ASSESSING OFFICER AND THE AO HAS FAILED TO DISC HARGE THE SAID ONUS. FOR THIS REASON ALSO, THE DISALLOWANCE IS UNSUSTAIN ABLE IN LAW. AS REGARDS THE DISCREPANCY IN THE FIGURES OF THE TAX AUDIT REP ORT AND THE ASSESSEE, NEITHER SUCH A SITUATION CAN BE A REASON ENOUGH TO MAKE A DISALLOWANCE UNDER SECTION 40A(2) NOR THE ONUS OF EXPLAINING SUC H A VARIATION IS ON THE ASSESSEE. A TAX AUDITOR IS AN INDEPENDENT PROFESSIO NAL AND ANY ERRORS IN HIS REPORT CANNOT BE PUT TO ASSESSEE'S DISADVANTAGE . IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF TH E CASE, WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER.' WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKEN BY THE ITAT AND THE OBSERVATIONS MADE BY THE LEARNED ITAT WHILE DELETIN G DISALLOWANCES MADE BY THE AO UNDER SECTION 40A(2)(B) OF THE ACT ON MOTOR BUS RENT. NO ERROR HAS BEEN COMMITTED BY THE LEARNED ITAT WHICH CALLS FOR INTER FERENCE OF THIS COURT. NO QUESTION OF LAW MUCH LESS ANY SUBSTANTIAL QUESTION OF LAW ARISES. 8. QUITE CLEARLY, THEREFORE, THE PRESENT LEGAL POSI TION IS THAT AN ADHOC DISALLOWANCE UNDER SECTION 40A(2)(B) IS INHERENTLY UNSUSTAINABLE IN LAW. FOR THIS SHORT REASON ALONE, WE DELETE THE IMPUGNED DISALLOWANCE OF RS.10,35,000 /- UNDER SECTION 40A(2)(B). THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 9. WE MAY ALSO ADD THAT EVEN THOUGH IT IS SECOND RO UND OF PROCEEDING BEFORE THE TRIBUNAL, AND THIS ASPECT OF THE MATTER WAS NOT EXA MINED IN THE FIRST ROUND OF PROCEEDING, IN OUR CONSIDERED VIEW, THIS ASPECT CAN BE TAKEN UP FOR CONSIDERATION EVEN AT THIS STAGE. WHETHER AN ADHOC DISALLOWANCE UNDER SECTION 40A(2)(B) CAN BE MADE AT ALL OR NOT IS SOMETHING WHICH GOES TO THE ROOT OF T HE MATTER, AND IN THE LIGHT OF LAW LAID DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF IN VENTORS INDUSTRIAL CORPORATION LIMITED VS. CIT [(1992) 194 ITR 548 (BOM)] SUCH ISS UES CAN BE RAISED AT ANY POINT OF TIME. ITA NO.1023/AHD/2016 ASSESSMENT YEAR: 2008-09 PAGE 5 OF 5 10. AS THE GRIEVANCE OF THE ASSESSEE IS UPHELD FOR THE ABOVE SHORT REASON, WE SEE NO NEED TO ADDRESS OURSELVES TO OTHER ASPECTS OF TH E MATTER. 5. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCE D IN THE OPEN COURT ON THIS 13 TH DAY OF FEBRUARY, 2018. SD/- SD/- S.S. GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEM BER) DATED: 13 TH FEBRUARY, 2018. PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD