Hi-Choice Processors Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(2), Surat

ITA 1646/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9849 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 13-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Keywords: Unexplained cash credit
• Section: 133(6); 145; 37

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH, JM AND D.C.AGRAWAL, AM HI-CHOICE PROCESSORS (P) LTD., 262, GIDC, SACHIN, SURAT. VS. INCOME-TAX OFFICER, WD-1(2), SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI HARDIK VORA, AR RESPONDENT BY:- SHRI R. K. DHANESTA, DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL :- (1) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADTION OF THE AO IN MAKING ADDITION OF RS.1,88,506/- AS ALLEG ED UNDERVALUATION OF CLOSING STOCK OF WORK IN PROGRESS . (2) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS.3,26,000/- FOR CESS ATION OF LIABILITIES U/S 41(1) OF THE IT ACT. (3) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS.1,48,323/- AS ALLEG ED UNEXPLAINED CREDITORS. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT, THE LD. CIT(A) HAS ERRED IN CONFIRM ING THE ACTION ITA NO.1646/AHD/2008 ASST. YEAR :2004-05 ITA NO.1646/AHD/2008 ASST. YEAR 2004-05 2 OF THE AO IN MAKING ADDITION OF RS.13,14,047/- AS A LLEGED EXCESSIVE PAYMENT TO SISTER CONCERN. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAG ED IN THE BUSINESS OF DYEING AND PRINTING OF FABRICS ON JOB WORK BASIS. T HE ASSESSEE DECLARED TURNOVER OF RS.13,25,99,998/- GIVING A GP OF RS.2,2 1,12,212/- AT A GP RATE OF 16.66%. IN THE IMMEDIATELY PREVIOUS YEAR TU RNOVER WAS RS.13,63,10,809/- GIVING GP OF RS.2,12,76,459/- AT A GP RATE OF 15.61%. THE AO CONSIDERED THAT THE ASSESSEE HAS UNDERVALUED THE WORK-IN- PROGRESS. STOCK OF FINISHED FABRICS WHICH WAS READY FOR DISPATCH, WAS 76628/-.75 METERS. ITS VALUE WAS SHOWN AT RS.4 PER METER. ON THE OTHER HAND, TOTAL JOB CHARGES REALIZATION IN THE MONTH OF MARCH, 2004 WAS RS.95.55 LAKHS ON TOTAL SALE OF 11,15,432.00 METERS OF CLOTH WHICH GAVE AVERAGE JOB CHARGES REALIZATION AT RS.7.76 PER METE R. THE AO ALLOWED THE MARGIN OF GP RATE OF 16.66% PER MT. TO THIS AND FO UND THAT COST OF PRODUCTION IS RS.6.46 PER METER. SINCE IT HAS SHOWN VALUATION OF WORK-IN- PROGRESS AT RS.4 PER METER THE AO INFERRED THAT THE RE IS UNDER VALUATION OF WORK-IN-PROGRESS BY RS. 2.46 PER METER ON THE CLOS ING STOCK OF 76628.75 METERS. AFTER REJECTING THE REPLY OF THE ASSESSEE, THE AO WORKED OUT THE ADDITION OF RS.1,88,506/- CALCULATED ON 76628.75 ME TERS @ RS.2.46 PER METER. THE LD. CIT(A) CONFIRMED THE ADDITION BY HOL DING THAT ASSESSEE HAS VALUED THE WORK-IN-PROGRESS ONLY BY INCLUDING T HE VALUE OF COLOUR AND CHEMICALS AND DYES. THE VALUE OF LABOUR INPUTS AND OTHER DIRECT EXPENSES LIKE POWER AND FUEL HAVE NOT BEEN CONSIDERED. 3. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED BY THE AO. NO DEFECT S HAVE BEEN POINTED OUT. THE ASSESSEE HAS BEEN FOLLOWING THE SAME SYSTE M OF VALUATION OF CLOSING STOCK CONSISTENTLY IN EARLIER YEARS ALSO. T HEREFORE, ADDITION COULD NOT HAVE BEEN MADE. ITA NO.1646/AHD/2008 ASST. YEAR 2004-05 3 4. THE LD. DR ON THE OTHER HAND, RELIED ON THE ORDE RS OF AUTHORITIES BELOW. ACCORDING TO HIM UNDERVALUATION OF STOCK IS A DEFECT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW ADDITION IN THE T RADING ACCOUNT/MANUFACTURING ACCOUNT CANNOT BE MADE WITHOU T ACTUALLY REJECTING THE BOOKS. ADDITION BY WORKING OUT THE UNDERVALUATI ON IN THE STOCK IS ONE METHOD OF ESTIMATING THE INCOME BUT AS SUCH IT CANN OT BE CALLED A DEFECT UNLESS AO COLLECTS COMPLETE DATA SHOWING WHAT IS DI RECT AND WHAT IS INDIRECT COST WHICH HAVE GONE INTO MAKING OF CLOSIN G STOCK. SO FAR INVOKING OF SECTION 145(3) IS CONCERNED IT ONLY REL ATES TO ACCOUNTING METHODS AND DEFECTS IN ACCOUNTING. FOR THE SAKE OF CONVENIENCE WE REPRODUCE SECTION 145 AS UNDER :- [METHOD OF ACCOUNTING : SEC.145 (1) INCOME CHARGEABLE UNDER THE HEAD PROF ITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURC ES SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN A CCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY E MPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTIN G STANDARDS AS NOTIFIED UNDER SUB-SECTION (2) HAVE NOT BEEN REGULA RLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSM ENT IN THE MANNER PROVIDED IN SECTION 144.] A BARE READING OF THIS SECTION MAKES IT CLEAR THAT AO HAS TO GIVE A FINDING THAT ASSESSEE HAS NOT FOLLOWED ACCOUNTING STANDARD WHICH WAS ITA NO.1646/AHD/2008 ASST. YEAR 2004-05 4 MANDATORILY REQUIRED TO BE FOLLOWED AS PER SECTION 145(2). SECONDLY AO HAS TO BE SATISFIED THAT ACCOUNTS OF THE ASSESSEE A RE NOT CORRECT OR COMPLETE OR THIRDLY AO HAS TO GIVE A FINDING THAT M ETHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE THIS YEAR IS NOT THE ONE R EGULARLY FOLLOWED BY THE HIM IN EARLIER YEARS. IN OTHER ORDERS THERE IS INCO NSISTENCY IN METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. IF AO IS ABLE TO GIVE FINDING ON EITHER OF THE THREE INGREDIENTS AS MENTIONED IN SEC TION 145(3) THEN AO CAN RESORT TO MAKE THE ASSESSMENT IN THE MANNER PROVIDE D UNDER SECTION 144. IF NO SUCH FINDING IS GIVEN THEN AO HAS TO COMPUTE THE INCOME OF THE ASSESSEE IN ACCORDANCE WITH SYSTEM OF ACCOUNTING RE GULARLY FOLLOWED BY THE ASSESSEE. IN THE PRESENT CASE WE NOTICE THAT NO SUCH FINDING HAS BEEN GIVEN BY THE AO EXCEPT INFERRING THAT WORK-IN-PROGR ESS IS UNDER VALUED. THIS COULD BE SUFFICIENT BASIS FOR ESTIMATING THE I NCOME BUT THIS CANNOT BE SUFFICIENT BASIS FOR HOLDING THAT ASSESSEE HAS NOT FOLLOWED ANY ACCOUNTING STANDARDS OR ACCOUNTS OF THE ASSESSEE ARE NOT CORRE CT OR COMPLETE OR ASSESSEE HAS NOT FOLLOWED ANY SYSTEM OF ACCOUNTING REGULARLY. THEREFORE, WE HOLD THAT AO HAS NEITHER REJECTED THE BOOKS NOR THERE ARE BASIS COMING OUT FROM THE ASSESSMENT ORDER THAT BOOKS CAN BE REJ ECTED AND PROFITS CAN BE ESTIMATED. OUR VIEW IS SUPPORTED BY THE FOLLOWIN G DECISIONS:- MADANI CONSTN. CORPN. (P) LTD. VS. CIT (2008) 296 I TR 45 (GAU) CIT VS. RAJNI KANT DAVE (2006) 281 ITR 6(ALL) ASHOKE REFRACTORIES (P) LTD. VS. CIT (2005) 279 ITR 457 (CAL) ACCORDINGLY, WE DELETE THE ADDITION SUSTAINED BY TH E AUTHORITIES BELOW. 6. THE NEXT ISSUE IS ABOUT ADDITION UNDER SECTION 4 1(1). THE AO FOUND THAT ASSESSEE HAS OLD CREDITORS AS UNDER :- SL. NO. NAME NATURE OF OUTSTANDING ENTRY AMOUNT REASON 1. INSITE COMMUNICATION TRADE CREDITOR 264000 DUE T O DEFECTIVE MATERIAL & POOR ITA NO.1646/AHD/2008 ASST. YEAR 2004-05 5 SERVICE GIVEN 2 AIREFF DETOX INC. TRADE CREDITOR 62,000 PROPER S ERVICE NOT PROVIDED 3. M.A.N. INDUSTRIES TRADE CREDITOR 12502 PROPER SE RVICE NOT PROVIDED HE ISSUED LETTERS UNDER SECTION 133(6) WHICH HE REC EIVED UNSERVED IN RESPECT OF FIRST TWO PARTIES. THE AO REQUIRED THE A SSESSEE TO PROVE LIABILITIES BUT ASSESSEE DID NOT ADDUCE ANY EVIDENC E IN THIS REGARD. THE AO HELD THAT THE ONUS IS ON THE ASSESSEE TO PROVE T HE LIABILITY AND THAT IT IS PAYABLE IN FUTURE. HE FAILED TO DISCHARGE THE SAME. HE REJECTED THE ARGUMENTS OF THE ASSESSEE THAT LIABILITIES ARE NOT WRITTEN OFF AND THEY ARE STILL PAYABLE. BUT THE AO REJECTED HIS ARGUMENT AND HELD THAT LIABILITIES ARE VERY OLD AND CREDITORS ARE NOT FOUND AND ASSESS EE COULD NOT ADDUCE ANY EVIDENCE ABOUT EXISTENCE OF THE CREDITORS AND E XISTENCE OF LIABILITY. HE ACCORDINGLY MADE THE ADDITION UNDER SECTION 41(1 ). 7. THE LD. CIT(A) CONFIRMED THE ADDITION BY OBSERVI NG AS UNDER :- 3.4 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. ADMITTEDLY, BOTH THE CREDITO RS ARE MORE THAN THREE YEARS OLD. IT IS FURTHER SEEN THAT THE ASSESSEE HAS PROVIDED ADDRESS OF THESE TWO PARTIES IN RESPECT OF WHOM THE AO ISSUED LETTERS U/S 133(6). THE LETTERS WERE RECEIVED UNSERVED. HENCE THE PARTIES W ERE NOT ON THE ADDRESS. THE AO CONFRONTED THIS FACT TO THE ASSESSE E WHO COULD NOT GIVE ANY NEW ADDRESS. THEREFORE, FOLLOWING IMPORTANT THI NGS ARE NOTICED IN THIS CASE : I) THE CREDITORS ARE MORE THAN THREE YEARS OLD. II) THE ASSESSEE DOES NOT HAVE THE LATEST ADDRESS OF TH ESE TWO CREDITORS. III) THESE CREDITORS HAVE NOT CONTACTED THE ASSESSEE IN THE LAST THREE YEARS. IV) THE AO HAS STATED THAT THESE CREDITORS ARE BOGUS. 3.5 THE DECISION OF THE HON. GUJARAT HIGH COURT IN THE CASE OF AMBICA MILLS (SUPRA) APPLIES ONLY WHEN THE CREDITORS ARE G ENUINE AND THE ASSESSEE IS SHOWING THESE LIABILITIES IN THE BALANC E SHEET. ON SUCH FACTS THE GUJARAT HIGH COURT HAS STATED THAT EVEN IF THE CREDITS HAVE BECOME TIME BARRED SINCE THE ASSESSEE HAS INCLUDED THEM IN THE BALANCE SHEET, CESSION OF LIABILITY CANNOT BE ASSUMED. IN THE PRES ENT CASE THE FACTS ARE ITA NO.1646/AHD/2008 ASST. YEAR 2004-05 6 ENTIRELY DIFFERENT AS STATED ABOVE. THE APPELLANT H AS NOT BEEN ABLE TO GIVE THE CORRECT ADDRESS OF THESE PARTIES. HENCE IT IS C LEAR THAT NOT ONLY THESE CREDITORS ARE TIME BARRED BECAUSE OF PASSAGE OF TIM E BUT THE ASSESSEE DOES NOT KNOW THE WHEREABOUTS OF THESE PARTIES AND HENCE THESE CREDITS HAVE CEASED FOR ALL PRACTICAL PURPOSES AND HENCE TH E DISALLOWANCE MADE BY THE AO IS CONFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. 8. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR SUSTAINING THE ADDITION. IF CREDITORS ARE STANDING IN THE BALANCE SHEET FOR LONG PERIOD T HEN IT DOES NOT MEAN THAT THE LIABILITY IS CEASED TO EXIST. MERELY BECA USE LIABILITY IS OUTSTANDING FOR SEVERAL YEARS IT CANNOT BE PRESUMED THAT IT IS ASSESSABLE UNDER SECTION 41(1). IT IS SO HELD BY HON. PUNJAB AND HARYANA HIG H COURT IN CIT VS. SITADEVI JUNEJA ITA NO.619 (2002) PRONOUNCED ON DEC EMBER, 2009. THE SAME HIGH COURT IN CIT VS. G.P. INTERNATIONAL I.T. NO.618 (2009) DECEMBER 2009 HELD THAT PROVISIONS OF SECTION 41(1) AND EXPLANATION THERETO ARE NOT APPLICABLE WHERE ASSESSEE IS STILL SHOWING THE SAME AMOUNT AS LIABILITY IN ITS BOOKS AND HAS NOT WRITTE N THEM OFF. IN VIEW OF ABOVE, WE HOLD THAT THE INGREDIENTS OF SECTION 41(1 ) ARE NOT SATISFIED AND, THEREFORE, ADDITION UNDER SECTION 41(1) CANNOT BE M ADE. THIS GROUND OF ASSESSEE IS, THEREFORE, ALLOWED. 9. GROUND NO.3 RELATES TO ADDITION ON ACCOUNT OF UN EXPLAINED CREDITORS. THE AO FOUND THAT ASSESSEE HAS SHOWN THE CREDITS IN THE NAME OF M/S EVEREST FAB AMOUNTING TO RS.1,48,323/-. THE ASSESSEE FAILED TO PRODUCE ANY CONFIRMATION FROM THE CREDITOR. REPEATE D OPPORTUNITIES WERE GIVEN TO THE ASSESSEE TO PRODUCE THE CREDITORS AND GIVE ITS CONFIRMATION AND ALSO TO PRODUCE DOCUMENTARY EVIDENCE IN THIS RE GARD BUT NO COMPLIANCE WAS MADE. THE AO ACCORDINGLY MADE THE AD DITION. THE LD. CIT(A) WHILE CONFIRMING THE SAME HAS GIVEN FOLLOWIN G REASONS:- ITA NO.1646/AHD/2008 ASST. YEAR 2004-05 7 4.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. THE APPELLANT HAS ADMITTED THAT IT HAS NOT FILE D CONFIRMATION OF THE CREDIT/LOAN FROM THE PARTIES WITH M/S EVEREST FAB. THE REASON G IVEN IS THAT THE BOOKS OF ACCOUNTS OF THE CREDITORS ARE DESTROYED IN THE FLOOD. THIS R EASON IS ABSOLUTELY UNACCEPTABLE BECAUSE EVEN IF THE BOOKS OF ACCOUNTS ARE DESTROYED IN FLOOD THE ASSESSEE SHOULD HAVE PROVED THE CREDIT THROUGH ITS OWN BOOKS OF ACCOUNTS AND BANK STATEMENT OF CREDITOR. EVEN IF THE BOOKS OF ACCOUNTS HAVE BEEN DESTROYED T HE ASSESSEE COULD HAVE PRODUCED THE CREDITOR BEFORE THE AO. IN THE ABSENCE OF ANY I NFORMATION/DETAILS/DOCUMENTS TO PROVE THE CREDIT, THE ACTION OF THE AO HAS TO BE CO NFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. 10. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). IT IS BECAUSE ONUS IS ON THE A SSESSEE TO SHOW HOW THE LIABILITY WAS CREATED AND WHETHER THE CREDITOR ACCE PTS THE LIABILITY. IN ABSENCE OF ANY EVIDENCE TO THE CONTRARY ABOUT THE I DENTITY OF PARTY, ITS CREDITWORTHINESS AND THE NATURE OF TRANSACTION, WE ARE UNABLE TO TAKE A CONTRARY VIEW. THUS THE ADDITION IS ACCORDINGLY CON FIRMED. 11. GROUND NO.4 RELATES TO ADDITION UNDER SECTION 4 0A(2)(B). ACCORDING TO THE AO THE ASSESSEE CLAIMED JOB CHARGE S TO THE EXTENT OF RS.34,74,821/- PAID TO SISTER CONCERN AMAR PROJECTS (P) LTD. ON ACCOUNT OF USE OF MACHINERY OF THE SISTER CONCERN. THE ASSE SSEE PAID MACHINERY RENT AS JOB CHARGES. THE MACHINERY RENT/JOB CHARGES HAVE BEEN PAID AT THE RATE OF RS.0.50 PER MT. UPTO OCTOBER, 2003 AND AT T HE RATE OF RS.0.25 PER MT. AFTER OCTOBER 2003 TO MARCH, 2004 AND HENCE THE RE IS SHARP DECLINE IN THE RATE OF JOB CHARGES IN THE SAME YEAR IN THE LAT TER HALF. INITIALLY THE ASSESSEE INFORMED THE AO THAT AMAR PROJECTS (P) LTD IS NOT A SISTER CONCERN UNDER SECTION 40A(2)(B). HE CLAIMED THAT SA ME TYPE OF PAYMENTS WERE MADE TO ANOTHER PERSON. THE AO, HOWEVER, DISAL LOWED JOB CHARGES @ RS.0.25 PER METER IN THE FIRST HALF AND PROPOSED THE ADDITION UNDER SECTION 40A(2)(B). THE LD. CIT(A) CONFIRMED THE ADD ITION BY GIVING FOLLOWING REASONS :- ITA NO.1646/AHD/2008 ASST. YEAR 2004-05 8 5.4 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. IN THIS CASE THE FACTS HAVE NOT BEEN DISPUTED AT ALL. AS PER THE AGREEMENT MADE UPTO OCTOBER THE ASSESSEE HAS PAID RS.0.50 PER METRE WHEREAS FROM NOVEMBER TO MARCH THE ASSESS EE HAS PAID RS.0.25 PER METRE. NEITHER DURING THE ASSESSMENT PR OCEEDINGS NOR DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS JUSTIFI ED THE DIFFERENCE IN THE RATES DURING THESE TWO PERIODS FOR THE SAME SERVICE S. HENCE THE END CONCLUSION IS THAT THERE IS NO JUSTIFICATION FOR MA KING SUCH PAYMENT. THE AO HAS NOT MENTIONED THAT THIS DISALLOWANCE HAS BEE N MADE U/S 40A(2)(B). BUT CLEARLY IT IS STATED THAT THE ASSESS EE HAS ADMITTED THAT THE OTHER COMPANY IS MANAGED BY THE BROTHER OF THE DIRE CTOR OF THE ASSESSEE COMPANY. EVEN UNDER SECTION 37 IT CAN BE CONSIDERED THAT THIS EXPENDITURE IS NOT WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF BUSINESS SINCE THE ASSESSEE HAS FAILED TO JUSTIFY THE HIGHER RATE PAID UPTO OCTOBER 2003. HENCE IN VIEW OF THESE REASONS THE DECISION O F HON. SUPREME COURT AND GUJARAT HIGH COURT CITED ABOVE ARE NOT APPLICAB LE. IN THE PRESENT CASE THE ASSESSEE HIMSELF HAS PAID TO THE SAME PART Y TWO DIFFERENT RATES DURING THE SAME YEAR IN TWO DIFFERENT PERIODS. HENC E THE DISALLOWANCE MADE BY THE AO IS CORRECT AND THE GROUND OF APPEAL IS DISMISSED. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). THE REASONS ARE THAT THIS ADDI TION IS NOT RELATED TO REJECTION OF BOOKS AND IS NOT CONSEQUENCE THEREOF. SECTION 40A IS SPECIFIC PROVISION AND IF CONDITIONS LAID DOWN THEREIN ARE S ATISFIED THEN ADDITION CAN BE MADE. IT IS IRRESPECTIVE OF THE FACT WHETHER THE BOOKS ARE REJECTED UNDER SECTION 145 OR NOT. IF BOOKS ARE REJECTED THE N IT MAY BE DEBATABLE WHETHER PROVISIONS OF SECTION 40A CAN BE INVOKED. B UT WE HAVE HELD ITA NO.1646/AHD/2008 ASST. YEAR 2004-05 9 ABOVE THAT AO HAS NOT REJECTED THE BOOKS, THEREFORE , THERE IS NO QUESTION OF HOLDING THAT PROVISIONS OF SECTION 40A CANNOT BE INVOKED. WE CONFIRM THE ACTION OF THE AO IN INVOKING SECTION 40A(2)(B). FURTHER, WE NOTICE THAT CONDITIONS LAID DOWN UNDER SECTION 40A(2)(B) A RE SATISFIED IN THIS CASE. THE PARTY M/S AMAR PROJECTS (P) LTD. IS SISTE R CONCERN AS ASSESSEE AND THIS CONCERN HAVE A COMMON DIRECTOR. ACCORDINGL Y IT IS COVERED UNDER SECTION 40A(2)(B). SECONDLY CHARGES PAID TO THE SIS TER CONCERN ARE HIGHER IN THE FIRST HALF OF THE YEAR AS COMPARED TO SECOND HALF OF THE YEAR. NO REASONABLE EXPLANATION HAS BEEN FURNISHED AS TO WHY HIGHER CHARGES HAVE BEEN PAID IN THE FIRST HALF EXCEPT STATING THAT ASS ESSEE DISCOVERED HIGHER CHARGES AND, THEREFORE, PERSUADED THE OTHER PARTY F OR LOWER CHARGES AND ACCORDINGLY AGREEMENT WAS EXECUTED IN THE LATTER HA LF. WE ARE NOT CONVINCED WITH THIS ARGUMENT BECAUSE ONCE THERE ARE COMMON DIRECTORS THEN THEY KNOW AS TO WHAT SHOULD BE THE PROPER RATE WHETHER IN THE FIRST HALF OR IN THE SECOND HALF. THERE IS NO BASIS FOR H OLDING THAT THE ASSESSEE DISCOVERED THE HIGHER PAYMENT ONLY IN THE SECOND HA LF. APPARENTLY RATES PAID IN THE FIRST HALF ARE HIGHER AND FOR THIS THER E IS NO SATISFACTORY EXPLANATION. ACCORDINGLY AUTHORITIES BELOW WERE JUS TIFIED IN DISALLOWING EXCESSIVE PAYMENT TO THE SISTER CONCERN. 13. THE LD. AR RELIED ON THE DECISION OF CO-ORDINAT E BENCH IN THE CASE OF MAHAVIR DYEING & PRINT MILLS (P) LTD. VS. ITO I N ITA NO.1261/AHD/2007 FOR ASST. YEAR 2004-05. IN THAT CA SE THERE WAS NO BASIS FOR FINDING OUT WHAT SHOULD BE THE MARKET VAL UE OF THE SERVICES RENDERED. ACCORDINGLY, THE TRIBUNAL DISALLOWED THE ADDITION MADE UNDER SECTION 40A(2)(B) BUT IN THE PRESENT CASE MARKET VA LUE OF THE SERVICES RENDERED BY THE SISTER CONCERN IS KNOWN BY THE PAYM ENT MADE IN THE SECOND HALF OF THE YEAR. ACCORDINGLY THE DECISION R ENDERED BY THE CO- ITA NO.1646/AHD/2008 ASST. YEAR 2004-05 10 ORDINATE BENCH IN MAHAVIR DYEING & PRINT MILLS (P) LTD. VS. ITO (SUPRA) IS NOT APPLICABLE. THUS WE DISMISS THIS GROUND OF A SSESSEE. 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 30/9/10. SD/- SD/- (MAHAVIR SINGH) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT ME MBER AHMEDABAD, DATED : 30/9/10. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR 1.DATE OF DICTATION 21/9/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 27/9/2010 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER.. ITA NO.1646/AHD/2008 ASST. YEAR 2004-05 11