The ACIT, Circle-6, Surat V. M/s. Sahyog Roadways, Surat

ITA 1610/AHD/2011

• Counselvise Citation: 161020514 RSA 2011
• Duration Of Justice: 4 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 13-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G C DAXINI
• Assessee Lawyers: R N VEPARI
• Keywords: Fair market value
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: S H RI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHR I S.S. GODARA , JUDICIAL MEMBER ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE 6, SURAT, ROOM NO. 607, AAYAKAR BHAVAN, MAJURA GATE, SURAT (APPELLANT) VS M/S. SAHYOG ROADWAYS, 50 GAJANAND INDUSTRIAL ESTATE, ANJANA BHESTAN, SURAT, PAN: AAKFS0609R (RESPONDENT) REVENUE BY : S H RI G.C. DAXINI , SR. D . R. ASSESSEE BY: S H RI R.N. VEPARI , A.R. DATE OF HEARING : 29 - 09 - 2 015 DATE OF PRONOUNCEMENT : 21 - 10 - 2 015 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS REVENUE S APPEAL FOR A.Y. 2007 - 08, AR ISES FROM ORDER OF THE CIT(A) - IV, SURAT DATED 09 - 02 - 2011 IN APPEAL NO. CAS - IV /166 /09 - 10, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHOR T THE ACT . I T A NO . 1610 / A HD/20 11 A SSESS MENT YEAR 200 7 - 08 I.T.A NO. 1610 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. M/S. SAHYOG ROADWAYS 2 2. THE REVENUE S FIRST SUBSTANTIVE GROUND PLEADS THAT THE CIT(A) HAS WRONGLY DELETED DISALLOWANCE OF RS. 4,95,500/ - OF SERVICE CHARGES PAID TO M/S SAHYOG TRANSPORT COMPANY. WE FIND THAT THE LOWER APPELLA TE ORDER ELABORATELY DISCUSSES ASSES SEES S AND ASSESSING OFFICER S OBSERVATIONS IN ASSESSMENT ORDER DATED 22 - 12 - 2009 AS UNDER: - 2. GROUND NO. 1 OF APPEAL IS AGAINST THE A.O. DISALLOWING RS.4,95,500/ - OUT OF SERVICE CHARGES PAID TO SAHYOG TRANSPORT CO., AN ASSOCIATE CONCERN. THE A.O. OBSERV ED THAT THE APPELLANT HAD PAID SERVICE CHARGES @ 18% TO ITS SISTER CONCERN M/S. SAHYOG TRANSPORT CO. WHICH ACCORDING TO THE ASSESSEE WAS LOOKING AFTER BOOKING, DISPATCH AND OTHER DAY TO DAY ACTIVITY OF THE ASSESSEE IN SURAT UP TO JULY, 2006. THE TOTAL AMOU NT OF SERVI CE CHARGES PAID WAS RS.6,86,082/ - . THE BOOKING OFFICE OF THE ASSESSEE OPERATED FROM 50 - GAJANAN INDL. ESTATE, BHESTAN, SURAT WHICH BELONG TO ONE SHRI SANJAY BABUBHAI SHINDE. AS PER THE COPY OF AGREEMENT BETWEEN M/S. SAHYOG TRANSPORT CO. AND SHRI SANJAY BABUBHAI SHINDE, SHRI SHINDE WAS TO LOOK AFTER THE BOOKINGS, DISPATCH, STORAGE OF GOODS DEALING WITH GOVT. AGENCY, ACCOUNTS ETC. FOR WHICH HE WAS TO RECEIVE FIXED PAYMENT OF RS.15,000/ - P.M. AFTER JULY, 2006, THE APPELLANT ENTERED INTO AN AGREEMENT DIRECTLY WITH SHRI SANJAY BABUBHAI SHINDE TO CARRY OUT THE SAME ACTIVITIES AS LISTED IN THE EARLIER AGREEMENT FOR FIXED PAYMENT OF RS. 17,000/ - P.M. THE A.O. WAS OF THE OPINION THAT ALL ACTIVITIES OF THE APPELLANT WHICH WERE CARRIED OUT BY THE ASSOCIATE C ONCERN M/S, SAHYOG TRANSPORT CO COULD BE GOT PERFORMED FOR RS. 15,000/ - P.M. AND LATER FOR RS. 17,000/ - P.M. HE THEREFORE PROPOSED TO RESTRICT PAYMENT TO M/S. SAHYOG TRANSPORT CO TO RS. 15,000/ - P.M. 2.1. IN ITS REPLY BEFORE THE A.O. IT WAS SUBMITTED THAT THE AGREEMENT BETWEEN M/S. SAHYOG TRANSPORT CO AND SHRI SANJAY BABUBHAI SHINDE WAS ENTERED ON 11.05.1999. SHRI SANJAY I.T.A NO. 1610 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. M/S. SAHYOG ROADWAYS 3 BABUBHAI SHINDE WAS OWNER OF WAREHOUSE NEAR TEXTILE MARKET AND TWO PARTIES ENTERED INTO AGREEMENT TO DO BUSINESS TOGETHER. SHRI SANJA Y BABUBHAI SHINDE, OWNER OF GODOWN WAS LOOKING AFTER THE TRANSPORTATION BUSINESS AS A STORE KEEPER ONLY AND NOT THE BUSINESS OF M/S. SAHYOG TRANSPORT CO WHICH HAD ITS OWN STAFF AND OTHER ARRANGEMENTS. IT WAS ALSO SUBMITTED THAT M/S. SAHYOG TRANSPORT CO. WA S A BOOKING AGENT OF THE ASSESSEE SINCE 1997 AND WAS BEING PAID SERVICE CHARGES SINCE THEN @ 18%. IT WAS ALSO EXPLAINED THAT THE BOOKING AGENT CARRIES OUT THE WORK OF BOOKING OF GOODS, PREPARATION OF DELIVERY MEMO, HIRING TRUCKS, SENDING GOODS TO RESPECTIV E DELIVERY POINTS, COLLECT ACCOUNT STATEMENTS, COLLECT PAYMENTS, ATTEND COMPLAINTS OF CLIENTS, BANK RELATED WORK, ACCOUNTS WERE LIAISON WITH GOVT. AUTHORITY, FILING SERVICE TAX RETURNS, ETC. IT WAS FURTHER EXPLAINED THAT M/S. SAHYOG TRANSPORT CO. WAS ONLY PAYING SERVICE CHARGES TO MR. SHINDE AND HAD INCURRED ALL OTHER ADMINISTRATIVE EXPENSES WHICH WAS OVER AND ABOVE PAYMENTS TO MR. SHINDE, IT WAS FURTHER EXPLAINED THAT THE QUANTUM OF WORK HANDLED BY BOOKING AGENT AND THE RISK INVOLVED IS NOT POSSIBLE TO BE HANDLED BY ONE PERSON AT A F IXED REMUNERATION OF RS. 15,000/ - P.M. AND THAT TOO INCLUSIVE OF GODOWN RENT, SALARY TO EMPLOYEES, TELEPHONE EXPENSES, ELECTRICITY EXPENSES ETC. IT WAS THEREFORE ARGUED THAT IRRESPECTIVE OF THE CONTENT OF THE AGREEMENT BETWEEN M R. SHINDE AND M/S. SAHYOG TRANSPORT CO., THE WORK HANDLED BY MR. SHINDE WAS PROVIDING GODOWN SPACE AND ITS SECURITY. 2. 2. THE SAID EXPLANATION DID NOT FIND FAVOUR WITH THE A.O. WHO WAS OF THE OPINION THAT ALL DAY TO DAY BUSINESS ACTIVITIES FOR M/S. SAHYO G TRANSPORT CO, WERE TO BE CARRIED OU T BY SHRI SHINDE FOR RS. 15,000/ - P.M. AND THEREFORE THE PAYMENT MADE TO THE ASSOCIATE CONCERN [M/S. SAHYOG TRANSPORT CO.] BY THE ASSESSEE WAS EXCESSIVE. THE ARGUMENT OF THE APPELLANT THAT M/S. SAHYOG TRANSPORT CO. HAD INCURRED SUBSTANTIAL ADMINISTRATIVE AND SALARY EXPENSES IN ADDITION TO PAYMENTS MADE TO SHRI SHINDE AND THAT THIS SHOWS THAT NOT ALL ACTIVITIES WERE CARRIED OUT BY MR. SHINDE., DID NOT WASH THE A.O. WHO WAS OF THE OPINION THAT THESE EXPENSES MAY HAVE BEEN INCURRED BY M/S. SAHYOG TRANSPORT CO. FOR ITS OTHER BUSINESS ACTIVITIES. THE I.T.A NO. 1610 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. M/S. SAHYOG ROADWAYS 4 A.O. THEREFORE RESTRICTED THE PAYMENTS OF SERVICE CHARGES TO 5% AND MADE A DISALLOWANCE OF RS.4,95,500/ - TREATING IT AS EXCESS PAYMENT. 2.3. DURING THE COURSE OF APPEAL PROCEEDIN GS, SIMILAR ARGUMENTS AS IN ASSESSMENT WERE FORWARDED. IT WAS ALSO POINTED OUT THAT VIDE THEIR LETTER DATED 14.12.2009, THE APPELLANT HAD CATEGORICALLY DENIED ACCEPTING THAT SHRI SHINDE WAS RUNNING DAY TO DAY BUSINESS OF THE APPELLANT. IT WAS FURTHER POINT ED OUT THEREIN THAT AGREEMENT WITH MR. SHINDE, WAS FOR WAREHOUSE SERVICES ONLY. IT WAS ALSO EXPLAINED TO THE A.O. THAT AREA OF THE WAREHOUSE WAS APPROX. 10000 SQ.FT. WHICH WORKED OUT TO RS.1.5 PER SQ.FT. P.M. AND HE CANNOT BE EXPECTED TO ALSO HANDLE BOOKIN G OFFICE FUNCTIONS FOR SUCH SMALL CONSIDERATION. IT WAS ALSO SUBMITTED THAT THE APPELLANT HAD RELIED ON THE DECISIONS IN THE CASE MARGABHAI KISABHAI PATEL & CO. 108 ITR 54 (GUJ), S.K. ENGG. 103 ITD (BANG.), DR. R.N. GOEL 16 DTK 157 (DEL). IN ADDITION TO WHAT WAS PLACED BEFORE THE; A.O., BEFORE ME, IT WAS SUBMITTED THAT THE A.O. HAS NOT DISPUTED THE FACT OF SERVICES BEING RENDERED BY M/S. SAHYOG TRANSPORT CO TO THE APPELLANT BUT ACCORDING TO HIM THE PAYMENT SHOULD HAVE BEEN MADE AT 5% AND NOT AT 18%. IT WA S ARGUED THAT SINCE THERE WAS NO DISPUTE REGARDING SERVICES HAVING BEEN RENDERED AND PAYMENT MADE, NO DISALLOWANCE CAN BE MADE U/S. 37. THE DISALLOWANCE, IF U/S. 40A(2) THEN FOR THE A.O. TO FORM AN, OPINION THAT AN EXPENSE WAS EXCESSIVE, HE HA S TO TAKE INTO CONSIDERATION LEGITIMATE NEEDS OF THE BUSINESS, BENEFIT DERIVED BY THE BUSINESS AND FAIR MARKET VALUE OF THE GOODS AND SERVICES. THE A.O. HAS MADE THE DISALLOWANCE STATING THAT PAYMENTS BY THE ASSESSEE WERE VERY HIGH WITH THE INTENTION OF PROVIDING UNDUE ADVANTAGE TO SISTER CONCERN. IT WAS SUBMITTED THAT THE A.O. HAS CLAIMED THAT PAYMENT IS EXCESSIVE AND UNREASONABLE AND THEREFORE IT WAS FOR HIM TO BRING OUT A COMPARATIVE CASE TO SHOW WHAT CAN BE THE COMPARABLE VALUE OF SUCH SERVICES. THIS HAS NOT BEEN DONE BY THE A.O. AND THEREFORE DISALLOWANCE CANNOT BE SUSTAINED. THE APPELLANT RELIED ON SEVERAL DECISIONS. IT WAS ALSO SUBMITTED THAT THE SAME RATE OF SERVICE CHARGES WERE BEING PAID TO THE ASSOCIATE CONCERN IN EARLIER YEARS ALSO AND NO DISA LLOWANCE WAS MADE. I.T.A NO. 1610 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. M/S. SAHYOG ROADWAYS 5 3. HEARD BOTH SIDES IT IS TO BE SEEN THAT THE ASSESSING OFFICER TAKES INTO ACCOUNT DAY TO DAY AND OTHER REGULAR EXPENSES THAT THE ASSESSEE S PAYEE M/S SAHYOG TRANSPORT CO. WOULD HAVE INCURRED FOR BUSINESS FOR ASSESSEE S FIRM; TO REST RICT THE SAME FROM 18% TO 5% ONLY RESULTING IN THE IMPUGNED DISALLOWANCE OF RS. 4,95,500/ - U/S. 40A(2)(B) OF THE ACT. A PERUSAL THEREOF REVEALS THAT THIS STATUTORY PROVISION COMES INTO PLAY ONLY WHEN THE ASSESSING OFFICER IS OF AN OPINION THAT SUCH EXPEND ITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE. IN OTHER WORDS, IT IS A MANDATORY CONDITION THAT SUCH A COMPONENT SHOULD BE OVER AND ABOVE FAIR MARKET VALUE OF THE G OODS AND SERVICES IN QUESTION. THE ASSESSING OFFICER IN THE INSTANT CASE NOWHERE REFERS TO THIS EXCESSIVE ELEMENT IN ASSESSMENT ORDER. HE SIMPLY OBSERVES THAT THE PAYEE WOULD HAVE INCURRED COST OF 5% ONLY IN PERFORMING ASSESSEE S SERVICES. THIS COURSE O F ACTION OF ADOPTING COST FORMULA IS NOWHERE PROVIDED IN THE RELEVANT STATUTORY PROVISION . WE REITERATE THAT THIS IS A DISALLOWING PROVISION IN TAXING STATUTE TO BE STRICTLY INTERPRETED. WE OBSERVE IN THESE FACT S THAT THE ASSESSING OFFICER S ACTION DESER VES TO BE REVERSED ON THIS COUNT ALONE. THE CIT(A) S FINDINGS EXTRACTED HEREINABOVE ARE ACCORDINGLY CONFIRMED. THE REVENUE S FIRST SUBSTANTIVE GROUND FAILS. 4. THE REVENUE S SECOND SUBSTANTIVE GROUND SEEKS TO RESTORE DISALLOWANCE OF SERVICE CHARGES OF RS. 6,66,894/ - AS PAID TO ITS I.T.A NO. 1610 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. M/S. SAHYOG ROADWAYS 6 OUTSTATION SISTER CONCERNS. THE ASSESSING OFFICER AGAIN RESTRICTS THE ABOVE STATED SERVICES CHARGES RANGING FROM 10 TO 20% TO THAT @ 5% ONLY RESULTING IN THE IMPUGNED DISALLOWANCE. THER E IS NO EXERCISE CONDUCTED FOR ASCERTA INING MARKET RATE AS WELL EXCESSIVE COMPONENT PAID TO ASSESSEE S PAYEES BEFORE INVOKING THE IMPUGNED DISALLOWANCE . WE FOLLOW OUR REASONING GIVEN IN REVENUE S GROUND NO. 1 IN PRECEDING PARAGRAPH AND REJECT THIS SECOND GRIEVANCE AS WELL. 5. THE REVENUE S THIRD AND LAST SUBS TAN TIVE GROUND CHALLENGES LOWER APPELLATE ORDER DELETING SALARY EXPENSES OF RS. 2,69,000/ - AS MADE BY THE ASSESSING OFFICER IN ASSESSMENT ORDER. THE CIT(A) OBSERVES THAT THE ASSESSING OFFICER NEVER ISSUED ANY SHOW CAUSE NOTICE PROPOSI NG TO DISALLOW THE IMPUGNED SALARY AMOUNT. HE THEREAFTER TAKES NOTICE OF HIS FINDINGS IN GROUND NO. 1 HOLDING THE SALARY PAID TO BE REASONABLE. THE REVENUE FAILS TO REBUT BOTH THESE FINDINGS OF FACT. WE ACCORDINGLY REJECT THIS THIRD GROUND . 6. THIS R EVENUE S APPEAL IS ACCORDINGLY DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 21 - 10 - 2015 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 21 /10 /2015 A K I.T.A NO. 1610 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ACIT VS. M/S. SAHYOG ROADWAYS 7 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,