SED Engineers & Fabricators Private Limited, Chandigarh V. DCIT, Chandigarh

ITA 138/CHANDI/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9177 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 05-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SH. PRASHANT MAHARSHI, ACCOUNTANT MEMBER ITA NO. 138/CHD/2015 ASSESSMENT YEAR: 2010-11 M/S SED ENGINEERS & VS THE DCIT, FABRICATORS PVT. LTD., CIRCLE 1(1), PLOT NO. 25, INDL AREA, CHANDIGARH. PHASE-2, CHANDIGARH. PAN: AAJCS8554R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINEET AGGARWA L RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 08.08.2016 DATE OF PRONOUNCEMENT : 11.08.2016 O R D E R PER BHAVNESH SAINI, JM THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-1, CHANDIGARH DATED 21.11.2014 FOR ASSESSMENT YEAR 2010-11 CHALLENGING THE ADDITION OF RS. 77,00,813/-. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSI NG OFFICER NOTICED THAT RATIO OF ERECTION AND COMMISSI ON EXPENSES TO THE TURNOVER WAS 64.45% IN THIS YEAR AS AGAINST 50.77% IN ASSESSMENT YEAR 2009-10 AND 46% I N 2 ASSESSMENT YEAR 2008-09, BECAUSE OF WHICH THE NET PROFIT RATE HAD GONE DOWN TO 0.24% IN THIS YEAR AS AGAINST 4.70% IN THE PRECEDING YEAR AND 7.83% IN TH E YEAR BEFORE THAT. IN VIEW OF THIS DISCREPANCY, ASS ESSING OFFICER PROPOSED TO DISALLOW EXPENSES IN EXCESS OF 53.74% WHICH WAS AVERAGE OF PERCENTAGE EXPENSES OF LAST THREE YEARS INCLUDING YEAR IN QUESTION. THE ASSESSEE SUBMITTED BEFORE ASSESSING OFFICER THAT FO R THE FIRST TIME, ASSESSEE RECEIVED WORK ORDER TO COMPLET E TWO PROJECTS FOR 5000 TCD SUGAR PLANT ON TURNKEY BASIS. TO COMPLETE PROJECT, MANY CONTRACTORS WERE APPOINTED O N SITE FOR WHICH SOME CRANES WERE HIRED AND CRANE CHA RGES OF RS. 1.24 CR ARE PART OF THE PROJECT AT THE SITE EXPENSE. THE ERECTION AND COMMISSION EXPENSES PAID ON THESE TURNKEY PROJECTS WERE RS. 1.93 CR. THE ASSES SING OFFICER, HOWEVER, DID NOT ACCEPT CONTENTION OF THE ASSESSEE. THE ASSESSING OFFICER OBSERVED THAT ASSE SSEE HAS PAID 71% ON THESE EXPENSES, THEN WHAT PROFIT TH E COMPANY HAS EARNED FROM THESE PROJECTS AND WHAT ARE OTHER EXPENSES RELATED WITH THESE PROJECTS, IS NOT CLEAR. THE ASSESSEE HAS RECEIPTS FROM DHANALAXMI PROJECT A ND HEMANUS PROJECT. THE ASSESSEE HAS NOT GIVEN ANY SPECIFIC REASON FOR RE-ALLOCATION OF EXPENSES AND PERCENTAGE OF THESE PROJECTS. THE ASSESSEE IS HAVI NG BUSINESS RELATIONS WITH THESE TWO PARTIES AND PROVI DED THE SAME SERVICES IN EARLIER YEARS. THE ASSESSING OFFICER, THEREFORE, FINDING EXPENSES TO BE EXCESSIV E, DISALLOWED EXPENDITURE ON ERECTION AND COMMISSION O N 3 AVERAGE RATE OF LAST THREE YEARS AND MADE ABOVE ADD ITION UNDER SECTION 40A(2)(A) OF THE INCOME TAX ACT. 3. THE ASSESSEE SUBMITTED BEFORE LD. CIT(APPEALS) THAT NONE OF THE PAYMENTS HAVE BEEN MADE TO ANY OF THE PERSONS MENTIONED IN SECTION 40A(2)(B) OF THE INCOM E TAX ACT. THE FACTS HAVE BEEN EXPLAINED IN THE AUDI T REPORT ALSO, THEREFORE, ADDITION IS UNJUSTIFIED. T HE LD. CIT(APPEALS), CONSIDERING EXPLANATION OF THE ASSESS EE, NOTED THAT THE ASSESSING OFFICER HAD NOTICED SUBSTA NTIAL INCREASE IN THE ERECTION AND COMMISSION EXPENSES TO TURNOVER RATIO AND PROJECT EXPENSES. THE TURNOVER R ATIO AND EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED. ASSESSEE FILED DETAILS OF RE-ALLOCATION OF THE EXPE NSES AND RECEIPTS WHICH WAS NOT ACCEPTED BY THE ASSESSIN G OFFICER. THE LD. CIT(APPEALS) ACCEPTED CONTENTION OF THE ASSESSEE THAT PAYMENTS WERE NOT MADE TO ANY PERSON MENTIONED IN SECTION 40A(2)(B) OF THE ACT. THE LD. CIT(APPEALS), THEREFORE, HELD THAT ASSESSING OFFICE R WAS NOT RIGHT IN MAKING IMPUGNED DISALLOWANCE UNDER SECTION 40A(2)(A) OF THE INCOME TAX ACT BUT FINDING THAT EXPENSES HAVE SUBSTANTIALLY INCREASED, DISMISSED AP PEAL OF THE ASSESSEE. 4. AFTER CONSIDERING RIVAL SUBMISSIONS, WE DO NOT F IND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. THE ASS ESSING OFFICER DISALLOWED THE EXPENDITURE CONSIDERING IT T O BE SUBSTANTIAL INCREASE AS COMPARED WITH THE PRECEDING YEAR BY APPLYING PROVISIONS OF SECTION 40A(2)(A) OF THE 4 INCOME TAX ACT. HOWEVER, LD. CIT(APPEALS) DID NOT APPROVE THESE FINDINGS OF ASSESSING OFFICER BECAUSE SECTION 40A(2)(A) WOULD NOT APPLY IN THIS CASE BECA USE NO AMOUNT HAVE BEEN INCURRED ON ANY PERSON REFERRED TO IN THE ABOVE SECTION. HON'BLE SUPREME COURT IN THE CASE OF UPPER INDIA PUBLISHING HOUSE PVT. LTD. V CI T 117 ITR 569 HELD THAT BEFORE APPLYING PROVISIONS OF 40A(2)(A), IT HAS TO BE FIRST HELD THAT EXPENDITURE WAS EXCESSIVE OR UNREASONABLE. IN THIS CASE, THOUGH THE ABOVE PROVISIONS WOULD NOT APPLY TO THE FACTS OF TH E CASE BUT THE LD. CIT(APPEALS) CONSIDERED THE EXPENDITURE TO BE SUBSTANTIALLY EXCESSIVE AS COMPARED TO THE EARLI ER YEARS. NO FINDINGS HAVE BEEN GIVEN BY THE AUTHORIT IES BELOW AS TO HOW THE EXPENDITURE WAS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS OR SERVICES FOR WHICH PAYMENT IS MADE BY THE ASSESSEE. THE ASSESSING OFFICER MERELY COMPARED TH E EXPENDITURE ON PERCENTAGE BASIS OF LAST THREE YEARS WITHOUT POINTING OUT ANY SPECIFIC DEFECTS IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT OF THE ASSESSEE . MERELY BECAUSE THE PROFIT HAS GONE DOWN IN ASSESSME NT YEAR UNDER APPEAL AS COMPARED TO EARLIER YEARS, BY ITSELF IS NO GROUND TO REJECT THE BOOK RESULTS OF THE ASSE SSEE OR TO FIND OUT THAT EXPENDITURE IS EXCESSIVE. THE EXPLANATION GIVEN BY ASSESSEE WAS PLAUSIBLE AND SIN CE NO SPECIFIC DEFECTS IN BOOKS OF ACCOUNT HAVE BEEN F OUND, THEREFORE, IN OUR VIEW NO ADDITION SHOULD BE MADE AGAINST THE ASSESSEE PARTICULARLY WHEN ASSESSING OF FICER 5 APPLIED WRONG PROVISIONS OF SECTION 40A(2)(A) OF TH E ACT. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION FOR TH E AUTHORITIES BELOW TO DISALLOW THE EXPENDITURE ON ERECTION AND COMMISSION EXPENSES ON COMPARING THE SAME WITH THE EARLIER YEARS. IN THIS VIEW OF THE M ATTER, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DE LETE THE ENTIRE ADDITION. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (PRASHANT MAHARSHI) (BHAVN ESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11 TH AUGUST,2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT/CHD