The ITO,Vapi Ward-4, Nani Daman V. Cello Paper & Staionery, Nani Daman

ITA 1815/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63272 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 20-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 27-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Fair market value; Onus to prove
• Section: 143(3)

Judgement Text

ITA NO 1815 /AHD/2010 A.YR.. 2006 -07. 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AH MEDABAD (BEFORE SHRI MUKUL KR.SHRAWAT JM & SHRI ANIL CHATUR VEDI A.M.) I.T.A. NO. 1815/AHD/2010. (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER, VAPI WARD-4 DAMAN, DR. JEEVANJI HOTEL BUILDING, DEVKA ROAD, KATHIRIA, NANI DAMAN (U.T.) (APPELLANT) VS. M/S. CELLO PAPER & STATIONERY 5 GROUND FLOOR, VAKIL INTERNATIONAL ESTATE, WALBHAT ROAD, GOREGAON (EAST), MUMBAI -400063. (RESPONDENT) PAN: AAEFC 6701E ON BEHALF OF REVENUE : MR. T. SHANKAR, SR. D.R. O BEHALF OF ASSESSEE : MR. PIYUSH CHHAJED. ( )/ ORDER DATE OF HEARING : 20-11 -2012 DATE OF PRONOUNCEMENT : 28 -12-2012 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF LD CIT (A), VALSAD DATED 27-2-2010 FOR THE ASSESSMENT YEAR 2006 -07. 2. FACTS CULLED OUT FROM THE ORDERS ARE AS UNDER. ITA NO 1815 /AHD/2010 A.YR.. 2006 -07. 2 3. ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF MA NUFACTURING OF EXERCISE BOOKS/NOTE BOOKS, WRITING PADS ETC. IT FIL ED ITS RETURN OF INCOME DECLARING TOTAL LOSS OF RS.4,74,440/-.THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S. 143(3) VI DE ORDER DATED 23-12- 2008 AND THE INCOME WAS ASSESSED AT RS.9,05,677/- A FTER MAKING VARIOUS ADDITIONS. ASSESSEE BEING AGGRIEVED BY THE ORDER O F ASSESSING OFFICER CARRIED THE MATTER BEFORE CIT (A). CIT (A) VIDE OR DER DATED 27-2-2010 ALLOWED THE APPEAL OF THE ASSESSEE. AGAINST THE AF ORESAID ORDER OF CIT (A) THE REVENUE IS NOW IN APPEAL BEFORE US. THE ONLY EF FECTIVE GROUND OF APPEAL RAISED BY THE REVENUE READ AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.13 ,75,120/- AS THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS TO PROVE THE REASONABLENESS OF PAYMENT MADE U/S. 40A (2)(B) OF T HE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSING THE TAX AUDIT REPORT A.O. OBSERVED THAT ASSESSEE HAD MADE A GGREGATE PAYMENTS OF RS.2,75,02,397/- TO THE PARTIES LISTED AT PAGE 2,3 OF THE ORDER. THE PAYMENTS WERE TOWARDS LEASE RENT, PURCHASE OF GOODS AND FOR LABOUR CHARGES. A.O. ASKED THE ASSESSEE TO FURNISH THE REA SONABLENESS OF PAYMENTS TO THE SISTER CONCERNS. A.O. WAS OF THE V IEW THAT SINCE THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS TO PROVE THE REASONABLENESS OF PAYMENT, IT WOULD BE REASONABLE TO DISALLOW 5% OF T HE PAYMENTS. HE ACCORDINGLY DISALLOWED RS.13,75,120/- (5% OF RS.2,7 5,02,397) AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ASSESSEE CARR IED THE MATTER BEFORE CIT (A). BEFORE CIT (A), ASSESSEE INTERALIA SUBMITT ED THE COMPARATIVE DATA WITH RESPECT TO RENT OF PROPERTIES IN THE AREA AND SAMPLE INVOICES OF BILLS OF ITA NO 1815 /AHD/2010 A.YR.. 2006 -07. 3 THIRD PARTIES. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) DELETED THE ADDITION BY HOLDING AS UNDER:- 4. CONCLUSION: I HAVE CAREFULLY CONSIDERED THE SUB MISSION MADE BY THE A.R. OF THE APPELLANT AS WELL AS THE FINDING OF THE A.O. IN THE ASSESSMENT ORDER. I FOUND A.O. IS NOT JUSTIFIED IN MAKING A LUMPSUM ADDITION OF RS.13,75,120/- U/S. 40A (2)(B) OF THE A CT. HE WOULD HAVE ATTEMPTED TO PERUSE THE ISSUE FURNISHING HIMSELF TH E COMPARATIVE RATES/DATE FOR THE ITEMS UNDER REFERENCE. I FOUND T HE A.R. OF THE APPELLANT JUSTIFIED IN EXPLAINING THE ISSUE BY FURN ISHING VARIOUS EVIDENCES AND DATA. THUS, THE A.O. IS NOT JUSTIFIE D IN MAKING ADDITION. THEREFORE, THE ADDITION IS DELETED. 5. AGGRIEVED BY THE ORDER OF CIT (A), THE REVENUE I S NOW IN APPEAL BEFORE US. BEFORE US, THE LD. D.R. SUBMITTED THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED THAT THERE WERE NO EXPENSES WHICH WERE COVERED BY THE PROVISIONS OF SE C. 40A(2)(B). HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT FURNISH ED THE REASONABLENESS OF PAYMENTS MADE TO THE PARTIES COVERED U/S.40A(2)( B) AND THUS THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS TO PROVE THE REASONABLENESS OF PAYMENTS. HE THEREFORE URGED THAT IN VIEW OF THE AF ORESAID FACTS THE OF A.O. BE UPHELD. 6. ON THE OTHER HAD THE LD. A.R. SUBMITTED THAT PRO VISIONS OF SEC. 40A(2)(B) ARE NOT APPLICABLE TO THE PAYMENT MADE TO CELLO PAPER PRODUCTS FOR THE REASON THAT THE NONE OF THE PARTNER IN THE ASSESSEE FIRM HAVE SUBSTANTIAL INTEREST IN CELLO PAPER PRODUCTS TO WHO M THE ASSESSEE HAS MADE THE PAYMENT. HE ALSO PLACED ON RECORD THE COPY OF PART B OF FORM NO.3 CD FOR A.Y. 2006-07 TO DEMONSTRATE THE PROFIT SHARING RATIO OF PARTNERS ITA NO 1815 /AHD/2010 A.YR.. 2006 -07. 4 IN CELLO PAPER PRODUCTS AND CELLO PAPER & STATIONER Y. HE FURTHER SUBMITTED THAT A.O. HAS NOT POINTED OUT AS TO HOW THE PAYMENT S MADE BY THE A.O. TO ITS SISTER CONCERNS WERE EXCESSIVE AS COMPARED TO T HE MARKET RATES. HE FURTHER SUBMITTED THAT THE A.O. HAS MADE AN ADHOC D ISALLOWANCE. HE FURTHER RELIED ON THE DECISIONS IN THE CASE OF DCIT VS. ALIDHARA TEXPRO ENGINEERS (P) LTD. (2011) 43 SOT 1 (AHD) AND MAHAVI R DYEING & PRINT MILLS PVT. LTD. VS. ITO (ITA NO.1261/AHD/2007). HE ALSO P LACED ON RECORD THE COPIES OF THE AFORESAID DECISIONS. HE THUS SUPPORTE D THE ORDER OF CIT (A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT APPEAL THE ASSESSEE HAD MADE PAYMENTS TO SISTER CONCERNS WHICH ACCORDING TO THE A.O. WERE COVERED B Y THE PROVISIONS OF SEC. 40A(2)(B) AND HE MADE AN ADHOC DISALLOWANCE OF 5% OF PAYMENTS. 8. PERUSAL OF PROVISIONS OF SEC. 40A(2)(B) OF THE A CT SHOWS THAT WHERE AN ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WH ICH PAYMENT IS REQUIRED TO BE MADE OR HAS BEEN MADE TO ANY PERSON REFERRED TO IN CL. (B) OF SEC.40A(2) AND THE A.O. IS OF THE OPINION THAT S UCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO (A) FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE; OR (B) THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE; O R (C) THE BENEFITS DERIVED BY OR ACCRUING TO THE ASSESSEE ON RECEIPT O F SUCH GOODS, SERVICES OR FACILITIES, THEN THE A.O. SHALL NOT ALLOW AS A D EDUCTION SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY THE A.O. TO BE E XCESSIVE OR UNREASONABLE. ITA NO 1815 /AHD/2010 A.YR.. 2006 -07. 5 9. THUS IT BECOMES APPARENT THAT THE A.O. IS REQUIR ED TO FORM AN OPINION HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVI CE RENDERED. THE A.O. HAS TO RECORD A FINDING AS TO WHETHER THE EXPENDITU RE IS EXCESSIVE OR UNREASONABLE IN RELATION TO THE REQUIREMENTS PRESCR IBED. 9. IN THE PRESENT CASE, IT IS SEEN THAT A.O. HAS NO T DONE ANY EXERCISE TO DETERMINE AS TO WHETHER THE AMOUNT PAID BY THE ASSE SSEE TO ITS SISTER CONCERN WERE EXCESSIVE OR UNREASONABLE BY COMPARING THE PREVALENT MARKET RATES. HE HAS NOT ARRIVED AT AN EXACT FIGURE OF EXCESSIVE PAYMENT BY COMPARING THE AMOUNT PAID BY THE ASSESSEE WITH T HE MARKET RATES FOR SIMILAR GOODS AND SERVICES BUT HE HAS RATHER CONSID ERED THE DISALLOWANCE OF 5% TO BE REASONABLE AND ACCORDINGLY DISALLOWED 5 % OF THE PAYMENTS. 10. IN THE CASE OF MAHAVIR DYEING (SUPRA), THE HON BLE CO-ORDINATE BENCH HAS HELD AS UNDER:- 4. WE HAVE HEARD BOTH THE SIDES AND ALSO CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS FAR AS APPLICABI LITY OF PROVISION OF SECTION 40A(2)(B) IS CONCERNED, THE ACT PRESCRIBED THAT WHERE AN ASSESSEE INCUR ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE TO ANY OF A PERSON REFERRED THEREIN THEN IN THE OPINION OF THE ASSESSING OFFICER SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE, HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS OR SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE, THEN SO M UCH OF THE EXPENDITURE AS IS SO CONSIDERED BY THE ASSESSING OF FICER TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS D EDUCTION. ON CAREFUL READINGS OF THIS SECTION 40, IT IS WORTH TO MENTION THAT BEFORE APPLYING THE PROVISION IT IS REQUIRED THAT THE ASSE SSING OFFICER SHOULD FORM AN OPINION HAVING REGARD TO FAIR MARKET VALUE OF THE SERVICE RENDERED. IN THE PRESENT CASE THIS EXERCISE IS LACK ING AND THE A.O. NEED NOT MAKE ANY ATTEMPT TO FIND OUT THE PREVAILIN G MARKET RATE. MEANING THEREBY THE ASSESSING OFFICER HAS NOT COLLE CTED ANY ITA NO 1815 /AHD/2010 A.YR.. 2006 -07. 6 INFORMATION, AS IS APPARENT FROM THE ASSESSMENT ORD ER ON THE BASIS OF WHICH IT COULD BE SAID THAT THE ASSESSING OFFICER H AS FORMED AN OPINION AFTER COLLECTING NECESSARY INFORMATION FROM THE MARKET TO COMPARE THE PREVALENT MARKET RATE OF THE JOB WORK D ONE BY THE SAID SISTER CONCERN. RATHER, THE ASSESSING OFFICER WAS N OT SURE ABOUT HIS ACTION THEREFORE HE HAS USED THE TERMINOLOGY, APPE ARED TO BE EXCESSIVE. HE HAD ALSO NOT ARRIVED AT A EXACT FIGU RE OF DISALLOWANCE RATHER MADE THE DISALLOWANCE MERELY ON AN ESTIMATE BASIS. EVEN WHEN THE ISSUE WAS CARRIED BEFORE THE FIRST APPELLA TE AUTHORITY THE SAME APPROACH WAS ADOPTED I.E. THE ESTIMATION OF TH E DISALLOWANCE. THEREFORE, LD. CIT (A) HAS REDUCED THE DISALLOWANCE FROM 10% TO 5% MERELY ON AN ADHOC BASIS. IN ORDER TO CONSIDER THE OPINION, SUCH ESTIMATION FOR THIS TYPE OF DISALLOWANCE IS NOT DES CRIBED UNDER THE STATUTE. BEFORE US LD. AUTHORIZED REPRESENTATIVE H AS CITED A DECISION OF BANGALORE TRIBUNAL IN THE CASE OF S.K. ENGINEERING VS. JCIT (2006) 286 ITR (AT) 210 (BANGALORE); IN THE CA SE OF MARGHABHAI KISHABHAI PATEL & CO. VS. CIT (1997) 108 ITR 54 (GU J.) AND CIT VS. JAIN CABLES (P) LTD. (2001) 252 ITR 785 (RAJ.) FOR THE PROPOSITION THAT FOR THE PURPOSE OF DISALLOWANCE U/S. 40A(2)(B) THE ASSESSING OFFICER IS EXPECTED TO COMPARE THE LIKE NATURE OF EXPENDITU RE AND IF FOUND EXCESSIVE THEN ONLY ENTITLED TO INVOKE THE PROVISIO N OF THE SAID SECTION. SINCE NO COMPARABLE INSTANCE WAS CITED FRO M THE SIDE OF THE REVENUE AND THIS PRIMARY ONUS WAS NOT DISCHARGED, T HEREFORE TOTALITY OF THE CIRCUMSTANCES THUS WARRANTS TO REVERSE SUCH AN APPROACH OF THE REVENUE DEPARTMENT. WE HEREBY ACCEPT THE CONTEN TIONS OF THE APPELLANT AND BY RELYING UPON THE AFORESAID DECISIO N, THIS GROUND OF THE ASSESSEE IS ALLOWED. 11. CONSIDERING THE TOTALITY OF FACTS, AND AFTER CO NSIDERING AND RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF CO-ORDINATE BEN CH, WE ARE OF THE VIEW THAT IN THE PRESENT CASE, NO CASE HAS BEEN MADE OUT FOR DISALLOWANCE U/S. 40 A(2)(B) AND THEREFORE NO DISALLOWANCE CAN BE MAD E. WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT (A). THUS THIS GROUND OF THE REVENUE IS DISMISSED. ITA NO 1815 /AHD/2010 A.YR.. 2006 -07. 7 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 28 - 12 - 2012 . SD/- SD/- (MUKUL KUMAR SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) VALSAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 21 - 12 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 26 / 1 2 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S - -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT - -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S - -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK - -2012. 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..