The DCIT.Circle-1, Surat V. M/s. Himson Fadis Machinery Pvt.Ltd., Surat

ITA 1800/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9326 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 29-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Maximum Marginal Rate; Fair market value

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' (BEFORE S/SHRI H.L.KARWA AND A.N.PAHUJA) ITA NO.1800 /AHD/2009 (ASSESSMENT YEAR: 2006-2007) DCIT, CIRCLE -1, SURAT V/S M/S. HIMSON FADIS MACHINERY PVT. LTD. HIRALAL COLONY, ASHWANIKUMAR ROAD, SURAT. (APPELLANT) (RESPONDENT) APPELLANT BY :- SHRI C.K.MISHRA, DR RESPONDENT BY:- WRITTEN SUBMISSION O R D E R PER H.L.KARWA (JUDICIAL MEMBER): THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) -1, SURAT DATED 16.03.2009 RELATING TO ASSESSMENT YEAR (AY) 2006-2007. 2. THE ONLY GROUND RAISED BY REVENUE IN THIS APPEAL READS AS UNDER:- (1). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A)-1, SURAT HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS.6,39,746/- UNDER SECTION 40A(2)(B) OF THE I.T.AC T, 1961 (IN SHORT THE ACT). 2 3. THE RELEVANT FACTS NOTED BY THE CIT(A), ARE AS UNDER:- 3.1. THIS IS REGARDING DISALLOWANCE OF RS.6,39,746 /- @10% OF THE JOB CHARGES PAID TO PERSONS UNDER SECTION 40A(2)(B). IN THE ASSESSMENT ORDER, THE A.O . HAS STATED THAT THE ASSESSEE HAS MADE PAYMENT TO PERSONS SPECIFIED UNDER SECTION 40A(2)(B) TOTALING TO RS.63,97,463/- FOR JOB WORK. THE A.O. HAS STATED TH AT THE ASSESSEE HAS MADE THIS PAYMENT TO ITS SISTER CONCERN WITHOUT INVITING ANY TENDERS AND WITHOUT VERIFYING THE RATES PREVAILING IN THE MARKET. THE A .O. ASKED TO FURNISH JUSTIFICATION OF THE RATES AND WHY EXCESSIVE AND ENHANCEMENT OF EXPENSES MAY NOT BE DISALLOWED. THE ASSESSEE STATED BEFORE THE A.O. THA T THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE I.T.A.T. IN THEIR OWN CASE AND HENCE NO ADDITION SHOULD BE MADE. THE A.O. DID NOT ACCEPT THIS EXPLANATION AND FOR THE REASONS GIV EN ABOVE, HE MADE AN ADHOC DISALLOWANCE OF 10% OF THE TOTAL EXPENSES. THE DISALLOWANCE AMOUNTED TO RS.6,39,746/-. 4. ON APPEAL, THE CIT(A) DELETED THE ADDITION FOLLO WING THE ORDER OF THE TRIBUNAL DATED 25 TH OCTOBER 2008, PASSED IN ITA 2706/AHD/2008 PASSED IN ASSESSEES IN OWN CA SE FOR A.Y. 2005-06. 3 5. BEING AGGRIEVED WITH THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ISSUE IS CLEARLY COVERED IN FAVOUR OF THE ASSES SEE AND AGAINST THE REVENUE BY THE DECISION OF ITAT, AHMEDA BAD BENCH C DATED 11 TH JUNE 2008 PASSED IN ITA NO.4117/AHD/2007 IN ASSESSEES CASE RELATING TO ASSESSMENT YEAR 2004-05, WHEREIN THE TRIBUNAL HELD THAT THE CIT(A) WAS FULLY JUSTIFIED IN DELETING THE DISA LLOWANCE OF 10% OF THE JOB CHARGES AMOUNTING TO RS.6,77,926/ - WHICH WAS MADE BY THE A.O. ARBITRARILY WITHOUT BRIN GING ANY RELEVANT MATERIAL ON RECORD. THE TRIBUNAL DISMI SSED THE GROUND OF APPEAL OF THE REVENUE. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 8. HAVING HEARD THE LEARNED DR WE FIND THAT THE INSTANT CASE THE ASSESSEE HAS MADE PAYMENT OF JOB CHARGES OF RS.67,79,260/- TO ITS 4 SISTER CONCERNS. THE A.O. WAS OF THE VIEW THAT BEFORE GETTING THE JO B WORK FROM THE SISTER CONCERNS THE ASSESSEE HAD NOT INVITED ANY TENDER. FURTHER THE ASSESSEE DID NOT ENQUIRE FROM THE MARKET ABOUT THE RATE FOR THE JOB DONE THROUGH THE SISTER CONCERNS IN ORDER TO ASCERTAIN THE FAIR MARKET VALUE OF THE SAME. THEREFORE, IN HIS OPINION THE JOB CHARGES PAID TO T HE SISTER CONCERNS WAS EXCESSIVE. HE BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT MADE DISALLOWANCE OF 10% OF JOB CHARGES PAID TO SISTER CONCERNS. THE CIT(A) DELETED THE SAID ADDITION. THE CONTENTION OF THE ASSESSEE IS THAT THE JOB WORK DON E THROUGH THE SISTER CONCERNS WAS NOT AVAILABLE IN TH E MARKET. THE ASSESSEE FURTHER EXPLAINED THAT BY ALLOTTING THE WORK TO THE SISTER CONCERNS. THE SIST ER 4 CONCERNS HAVE NOT DERIVED ANY UNDUE ADVANTAGE FROM THE ASSESSEE AS THEY WERE ASSESSED TO INCOME TAX AT THE MAXIMUM MARGINAL RATE. THEREFORE, IT CANNOT BE HELD THAT THE ASSESSEE HAS PAID ANY EXCESS JOB CHARGES TO THE SISTER CONCERNS FOR CLAIMING DEDUCTION OF THE SAME FROM THE INCOME OF THE ASSESSEE. IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED VIEW THAT MERELY BECAUSE THE JOB WORK WAS ALLOTTED TO THE SISTER CONCERNS CANNOT BE A GROUND FOR MAKING DISALLOWANCE OF THE EXPENDITURE CLAIMED BY THE ASSESSEE. OUR THIS VIEW FINDS SUPPORT FROM THE DECISION OF THE HONBLE GAUHATI HIGH COURT IN THE CASE OF SHREE CONSTRUCTIONS & INVESTMENT CO. VS. ACIT (2003) 263 ITR 73(GAU) WHERE THE HONBLE HIGH COURT HAS OBSERVED THAT IT IS WELL KNOWN FACT THAT IN BUSINESS CIRCLE WHEN WORK IS ALLOCATED PREFERENCE IS GIVEN TO ONES RELATIVE OR A NEAR ONE IF IT IS SO POSSIBLE CONSIDERING THE CONFIDENTIALITY O F THE BUSINESS CONCERN. SIMPLY BECAUSE SOME OF THE PARTNERS OF THE FIRM ARE CLOSE RELATIVES OF THE DIRECTORS OF THE CONSULTANCY COMPANY, THE CONSULTANCY CHARGES CANNOT BE DISALLOWED WHICH HAS BEEN PAID IN ACCORDANCE WITH THE CONTRACT ENTERED INTO BETWEEN THE PARTIES. FURTHER, IT IS SETTLED POSITION OF LAW THAT TO MAKE A DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT THE A.O. HAD TO BRING MATERIAL ON RECORD TO SHO W THAT THE PAYMENT MADE BY THE ASSESSEE FOR THE SERVICES IS MORE THAN THE COST OF SERVICE AVAILABLE IN THE MARKET. IN THE INSTANT CASE NOT SUCH MATERIAL H AS BEEN BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE JOB CHARGES PAID TO THE SISTER CONCERNS ARE EXCESSIVE OR UN-REASONABLE. KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE IN OUR CONSIDERED OPINION THE CIT(A) WAS FULLY JUSTIFIED I N DELETING THE DISALLOWANCE OF 10% OF THE JOB CHARGES AMOUNTING TO RS.6,77,926/- WHICH WAS MADE BY THE A.O. ARBITRARILY WITHOUT BRINGING ANY RELEVANT MATE RIAL ON RECORD. HENCE, WE DISMISS THE GROUND OF APPEAL OF THE REVENUE. 5 7. THE FACTS OF THE PRESENT YEAR ARE EXACTLY SIMILA R TO THAT OF ASSESSMENT YEAR 2004-05, AND THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (S UPRA), WE DISMISS THE GROUNDS RAISED BY THE REVENUE. 5 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31-08-2009 SD/- SD/- (A.N.PAHUJA) ACCOUNTANT MEMBER (H.L.KARWA) JUDICIAL MEMBER DATE : 31-08-2009 PARAS* COPY OF THE ORDER FORWARDED TO : 1. THE RESPONDENT 2. THE DCIT, CIRCLE-1, SURAT, (APPELLANT). 3. THE CIT CONCERNED 4. THE CIT(A)-II, SURAT 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR, IT AT, AHMEDABAD