M/S. HYM BROTHERS ANALYTICAL SOLUTIONS PVT. LTD., MUMBAI V. ASST.C.I.T. CIRCLE 6(3), MUMBAI

ITA 2175/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7366 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 10-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 08-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VI KRAM GUAR
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI A.L. GEHL OT ,(AM) ITA NO.2175/MUM/2009 ASSESSMENT YEAR : 2005-06 M/S. HYM BROTHERS ANALYTICAL SOLUTIONS PVT. LTD. 89/4, SHIVAM BUILDING SION CIRCLE, SION(E) MUMBAI-400 022. ..( APPELLANT ) P.A. NO. (AABCH 3971 M) VS. ASTT. COMMISSIONER OF INCOME TAX CIRCLE: 6(3) PRATYAKSHAKAR BHAVAN ROOM NO.576, AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. ..( RESPONDENT ) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI VI KRAM GUAR O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 3.2.2009 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN THE BUSINESS AS A DEALER/SUPPLIER OF LABORATO RY INSTRUMENTS. THE RETURN WAS FILED DECLARING TOTAL INCOM E AT ITA NO.2175/M/09 A.Y:05-06 2 RS.43,17,838/-. HOWEVER, THE ASSESSMENT WAS COMPLETED AT A N INCOME OF RS.50,50,300/- INCLUDING THE DISALLOWANCE U/S.4 0A(2)(B) RS.6,71,875/- AND TRAVELLING EXPENSES RS.60,582/-, VIDE ORDER DATED 24.12.2007 PASSED U/S.143(3) OF THE I.T. ACT, 1961(TH E ACT). ON APPEAL THE LD. CIT(A) WHILE AGREEING WITH THE VIEW TAKEN BY THE AO, CONFIRMED THE DISALLOWANCE MADE BY THE AO AND DISMISSED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO.1 READS AS UNDER : THE LD. CIT(A) ERRED IN DISMISSING THE APPEAL WHICH WAS FOR DISALLOWANCE MADE U/S.40A(2)(B) AMOU NT OF RS.6,71,875/- IGNORING ALL FACTS AND EXPLANATION S SUBMITTED AT THE TIME OF HEARING. 5. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DURING T HE COURSE OF ASSESSMENT PROCEEDING THE AO OBSERVED THAT THE ASSESSEE COMPA NY HAS MADE SUBSTANTIAL PURCHASES WITH THE CONCERNS COVERED U/S.40A(2)(B). ACCORDING TO HIM THE TOTAL PURCHASES WER E RS.2,83,78,651/-. HE FURTHER OBSERVED THAT THE ASSESSEE I N ITS REPLY HAS SUBMITTED THE LEDGER COPY OF PURCHASES FROM HYM BROS. SH OWING THAT THE TOTAL PURCHASES FROM HYM BROS. WAS RS.27,87,451/- AND IN TAX AUDIT REPORT IT HAS WRONGLY MENTIONED AT RS.2,78,77, 451/- BECAUSE OF TYPING MISTAKE. THE ASSESSEE WAS ASKED WITH SUPPORTING EV IDENCE FOR ITA NO.2175/M/09 A.Y:05-06 3 SAMPLE PURCHASES FROM THE SISTER CONCERNS AND RESPECTIVE PURCHA SE BILLS OF THE SAME IN THE BOOKS OF PARTIES FROM WHOM THA T PURCHASE WERE MADE. IN REPLY THE ASSESSEE SUBMITTED THE LEDGER ACCOUNT OF RELATED PARTIES AND SAMPLE PURCHASE BILLS AS REQUIRED. ON EXAMINATION OF THE SAME THE AO NOTICED THAT THE ASSESSEE HAS MADE PUR CHASES AT THE HIGHER AMOUNT THAN THE PURCHASES MADE BY THE SAID C ONCERNS. THE AO AFTER CONSIDERING THE ASSESSEES REPLY WAS OF THE VIEW T HAT THE ASSESSEE HAS SHOWN TOTAL PURCHASES OF RS.32,88,651/- FROM HI S SISTER CONCERNS COVERED U/S.40A(2)(B) WHICH IN TURN HAD PURCHASED THE SAME GOODS FOR RS.26,16,766/- AND THUS EARNED A PROFIT OF R S.6,71,875/- AND ACCORDINGLY HE ADDED THE SAME TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) WHILE AGREEING WITH THE VIEW OF THE ASSESSING OFFICER, CONFIRMED THE DISALLOWANCE MADE BY THE AO. 6. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSE SSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE LD. CIT(A) FURTHER SUBMITS THAT THIS IS THE FIRST YEAR OF THE ASSESSEE COMPANY AND, HENCE, THE ARRANGEMENT WAS MADE TO PURCHASE THE GOODS FR OM SISTER CONCERNS ON CREDIT BASIS AND NO INTEREST HAS BEEN CHARGED BY THEM FOR DELAYED PAYMENT ON OUTSTANDING AMOUNT. AT THIS STAGE T HE LD. COUNSEL FOR THE ASSESSEE HAS REFERRED THE PAPER BOOK FILED BY TH E ASSESSEE CONTAINING CHART OF DETAILS OF PURCHASES MADE BY ASSESSEE FR OM SISTER CONCERNS, GROSS PROFIT EARNED ETC. AND DETAILS OF SALES MA DE BY SISTER ITA NO.2175/M/09 A.Y:05-06 4 CONCERNS APPEARING AT PAGE 1-9 OF ASSESSEES PAPER BOOK. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE CHART AND DETA ILS OF SALES MADE BY HYM BROS. TO THE ASSESSEE SUBMITS THAT THE PURCHASES OF RS.27,87,451/- WERE MADE BY THE ASSESSEE FROM HIS SISTER CONCERN IN RESPECT OF WATERS (IMPORTED) BY THE SISTER CONCERN AS PER I MPORT BILL WHICH IN TURN WAS SOLD TO THE ASSESSEE RESULTING IN A GROSS PROFIT OF RS.6,24,154/- BEING 22.39% AT THE HANDS OF THE SISTER CONCERN I.E. M/S. HYM BROS. WITH REGARD TO THE OTHER PURCHASES OF RS.4, 09,555/- FROM DESAI & SONS AND RS.91,645/- FROM ARVINDKUMAR & C O. SHOWING GROSS PROFIT OF RS.34,836/- (8.51%) AND RS.12,885/- (1 4.06%) RESPECTIVELY HE SUBMITS THAT THE GOODS WERE PURCHASED BY THE ASSESSEE ON CREDIT BASIS AND NO INTEREST WAS CHARGED BY THE RESPECTIVE SISTER CONCERNS. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE CBDT CIRCULAR NO.1083(EXCERPTS FROM DEPARTMENT CIRCULAR NO.6-P, DATED 6 TH JULY, 1968) APPEARING AT PAGE NO.1089 OF DIRECT TAX ES CIRCULAR SUBMITS THAT IT HAS BEEN INTERALIA STATED IN THE SAID CIRCULAR THAT THE PROVISION IS MEANT TO CHECK EVASION OF TAX THRO UGH EXCESSIVE OR UNREASONABLE PAYMENTS TO RELATIVES AND ASSOCIATE CONCERN S AND SHOULD NOT BE APPLIED IN A MANNER WHICH WILL CAUSE HARD SHIP IN BONAFIDE CASES. IN THE LIGHT OF THE SAID CIRCULAR HE SUBMITS THAT THERE IS NO EVASION OF TAX BY THE SISTER CONCERNS WHICH IS ALSO EV IDENT FROM THE FOLLOWING CHART: ITA NO.2175/M/09 A.Y:05-06 5 DETAILS OF PROFIT / TAX PAID BY SISTER CONCERNS NAME OF SISTER CONCERN BOOK PROFIT (BEFORE INTEREST AND SALARY) INTEREST TO/BY PARTNERS SALARY TO PARTNERS TAXABLE PROFIT TAX PAID BY FIRMS HYM BROTHERS 12,30,465 (3,83,240) (3,91,390) 4,55,835 1,66,829 DESAI & SONS 2,28,291 1,20,161 (1,91,881) 1,56,571 57,293 ARVINDKUMAR & CO. (3,972) 49,332 (50,000) (4,640) 0 TOTAL 14,54,784 (2,13,747) (6,33,271) 6,07,766 2,24,122 HE THEREFORE SUBMITS THAT THE DISALLOWANCE MADE BY THE A O AND CONFIRMED BY THE LD. CIT(A) BE DELETED. 7. ON THE OTHER HAND THE LD. DR WHILE RELYING ON TH E ORDER OF THE AO AND LD. CIT(A) SUBMITS THAT CERTAINLY THERE IS AN EV ASION OF TAX WHICH IS EVIDENT FROM THE CHART FILED BY THE ASSESSEE SHOWI NG THAT THE NET TAXABLE PROFIT OF HYM BROTHERS IS RS.4,55,835/- WHI CH INCLUDES THE PROFIT ON THE TRANSACTION MADE WITH THE ASSESSEE RS.6,24 ,154/- AND AFTER EXCLUDING THE SAME THERE IS NO PROFIT TO HYM BROT HERS, THEREFORE, THE AO HAS RIGHTLY MADE THE ADDITION U/S.40A(2)(B) OF THE ACT WHICH SHOULD BE UPHELD. 8. IN THE REJOINDER, THE LD. COUNSEL FOR THE ASSESSEE SUB MITS THAT THE PROFIT BEFORE INTEREST AND SALARY IN THE CASE OF HY M BROTHERS IS RS.12,30,465/- INCLUDING THE PROFIT OF RS.6,24,154/- E ARNED ON THE TRANSACTION WITH THE ASSESSEE AND THE SAID CONCERN HAS PAID T AX ITA NO.2175/M/09 A.Y:05-06 6 RS.1,66,829/-, THEREFORE, THERE IS NO EVASION OF TAX A ND THE PLEA TAKEN BY THE LD. DR IS WITHOUT ANY MERIT AND LIABLE TO BE REJECTED. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. SECTION 40A(2)(A) READS AS UNDER :- WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESP ECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERS ON REFERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH EXPENDITU RE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES F OR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEF IT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESS IVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. AS PER LEARNED AUTHOR SAMPATH IYENGARS LAW OF INCOME TAX 10 TH EDITION THE RELEVANT ANALYSIS OF THIS SECTION DISCLOSES IN BRIEF THAT (I) THE ASSESSEE MAY BE AN INDIVIDUAL, FIRM, COMPANY, ASSOCIATI ON OF PERSONS OR HUF, (II) THE EXPENDITURE IN QUESTION IS ONE WHICH INVOLVES A PAYMENT TO CLOSE RELATIVES ETC. OF THE ASSESSEE AS PROVIDE D U/S.40A(2)(B) , (III) THE EXPENDITURE INCURRED IS CONSI DERED BY THE AO TO BE EXCESSIVE OR UNREASONABLE, HAVING REGARD TO (A) T HE FAIR MARKET VALUE OF THE GOODS, SERVICES, OR FACILITIES FOR WHICH THE PAYMENT IS MADE; OR (B) THE LEGITIMATE BUSINESS NEEDS OF THE ASSESSEE' S BUSINESS OR PROFESSION; OR (C) THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE FROM THE PAYMENT. IF THE ABOVE CONDITIONS ARE FULFIL LED THE AO CAN ITA NO.2175/M/09 A.Y:05-06 7 DISALLOW THE EXPENDITURE TO THE EXTENT HE CONSIDERS IT EXCESSIVE OR UNREASONABLE BY THE ABOVE OBJECTIVE STANDARDS OR OTHER WISE. 10. APPLYING THE ABOVE ELEMENTS OF THE PROVISION OF L AW TO THE ASSESSEES CASE WE FIND THAT THERE IS NO DISPUTE THAT THE ASSE SSEE HAS MADE PURCHASES FROM THE PERSONS REFERRED IN CLAUSE (B) OF SEC.40A(2) OF THE ACT. HOWEVER, WE FIND THAT IN THE CASE OF PURCHA SES MADE FROM HYM BROTHERS RS.27,87,451/- EARNING GROSS PROFIT BY HY M BROTHERS OF RS.6,24,154/- THE PURCHASES ARE OF WATERS (IMPORTED). M /S. HYM BROTHERS AFTER ACCOUNTING ITS PURCHASES AS PER IMPORT BILL S HAS SOLD THE GOODS TO THE ASSESSEE ON A PROFIT OF RS.6,24,154/- GIVIN G GROSS PROFIT RATE AT 22.39%. SINCE THE PURCHASES ARE IN RESPECT OF TH E IMPORTED GOODS I.E. WATERS AND IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE SAID IMPORTED MATERIAL WAS AVAILABLE IN THE MARKET B ELOW THE PURCHASE PRICE AS SHOWN BY THE ASSESSEE WE ARE OF THE VIEW THAT T HE AO WAS NOT JUSTIFIED IN DISALLOWING RS.624,154/- U/S.40A(2)(A ) IN RESPECT OF THE PURCHASES MADE FROM M/S.HYM BROTHERS. WITH REGARD TO THE PURCHASES MADE FROM DESAI & SONS RS.4,09,555/- AND ARVIND KUMAR & CO. RS.91,645/- WE FIND THAT THE ASSESSEE CONSISTENTLY STAT ED THAT THE GOODS WERE PURCHASED ON CREDIT BASIS WITHOUT PAYMENT OF ANY INTEREST ON DELAYED PAYMENTS OR OUTSTANDING AMOUNT WAS NOT CON TROVERTED BY THE REVENUE EVEN AT THIS STAGE. IN THIS VIEW OF THE M ATTER, IN THE ABSENCE OF ANY FAIR MARKET VALUE OF THE GOODS PURCHASED BY THE ITA NO.2175/M/09 A.Y:05-06 8 ASSESSEE ON THE PARTICULAR DATE AND ANY OTHER MATERIAL T O SHOW THAT THERE WAS AN EVASION OF TAX IN THIS REGARD BY THE ASSE SSEE ALSO KEEPING IN VIEW THE OBSERVATION OF THE HONBLE SUPREM E COURT IN SA BUILDERS LTD. VS. CIT(A)(2007) 288 ITR 1 (PAGE-9 PLACI TUM-35)THAT . THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRE CTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE CO MPELLED TO MAXIMIZE HIS PROFIT. THE INCOME-TAX AUTHORITIES MUST PUT THE MSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOUL D ACT., WE ARE OF THE VIEW THAT THE ADDITION OF RS.34,836/- AND RS.12,8 85/- IN RESPECT OF PURCHASES MADE FROM DESAI & SONS AND FROM ARVINDKUMAR & CO. RESPECTIVELY IS ALSO UNCALLED FOR. ACCORDINGLY THE TOTA L ADDITION OF RS.6,71,875/- IN THIS REGARD IS DELETED. THE GROUND TA KEN BY THE ASSESSEE IS, THEREFORE, ALLOWED. 11. GROUND NO.2 READS AS UNDER : THE LD. CIT(A) ERRED IN DISMISSING THE APPEAL WHICH WAS FOR ADDITIONS OF RS.60,582/- MADE ON ACCO UNT OF TRAVELING EXPENSES. 12. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS SUBMITT ED DETAILS OF TRAVELLING EXPENSES IN WHICH IT IS SEEN THAT THE ASSESSEE HAS SHOWN RS.60,582/- AS CASH IN HAND, THEREFORE, THE ASSESSEE WAS ASKED TO GIVE CLARIFICATION REGARDING THE SAME AND AS TO WHY THE ITA NO.2175/M/09 A.Y:05-06 9 ADDITION SHOULD NOT BE MADE IN RESPECT OF THE SAME. I N THE ABSENCE OF ANY SUBMISSION THE AO ADDED RS.60,582/- TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CT(A) IN THE ABSENCE OF ANY CLARIFICATION CONFIRMED THE ADDITION MADE BY THE AO. 13. AFTER HEARING THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD AND IN THE ABSENCE OF ANY CONTRARY MATERIAL OR EXPLANATION AGAINST THE FINDING OF THE REVENUE AUTHO RITIES EVEN AT THIS STAGE, THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) IS UPHELD. THE GROUND TAKEN BY THE ASSESSEE IS T HEREFORE, REJECTED. 14. IN THE RESULT, THE ASSESSEES APPEAL STANDS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.3.2010. SD/- SD/- (A.L. GEHLOT) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 18.3.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. ITA NO.2175/M/09 A.Y:05-06 10 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 10.3.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 11.3.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 18.3.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 18.3.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER