Laser Mark, Surat V. The Dy.CIT.,Circle-6, Surat

ITA 2230/AHD/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8905 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-03-2017
• Assessment Year: 2001-2002
• Appeal Filed On: 05-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Fair market value; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 271(1)(c); 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 80HHC; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI S. S. GODARA, JM & SHRI MANISH BORAD, AM. ITA NO.2230/AHD/2011 ASST. YEAR: 2001-02 M/S LASER MARK, 1 ST FLOOR, DURGA BHAVAN, KHAN SAHEB DAHELO, RUNGHNATHPURA MAIN ROAD, SURAT. VS. DCIT, CIR-6, SURAT. APPELLANT RESPONDENT PAN AAAFL 9390C APPELLANT BY SMT. URVASHI SHODHAN,AR RESPONDENT BY SHRI PRASOON KABRA, SR.DR DATE OF HEARING: 15.3.2017 DATE OF PRONOUNCEMENT: 20/03/2017 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF ASSESSEE FOR ASST. YEAR 2001-02 IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (A)-IV, SURAT, DATED 4.5.2011 VIDE APPEAL NO.CAS-IV/234/10-11 ARIS ING OUT OF ORDER U/S 143(3) R.W.S. 254 OF THE INCOME-TAX ACT, 1961 ( IN SHORT THE ACT) FRAMED BY DCIT, CIRCLE-6, SURAT, ON 29.12.2010. ASS ESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL. 1) THE ID. CIT (APPEALS) ERRED IN LAW AND ON F ACTS IN NOT FOLLOWING THE DIRECTIONS OF THE HON'BLE ITAT AS CONTAINED IN ITS APPELLATE ORDE R DATED 27-11-2009 WHEREBY THE ASSESSMENT WAS SET ASIDE. ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 2 THE ID. CIT (APPEALS) ERRED IN LAW AND ON FACTS IN PASSING THE APPELLATE ORDER IN DISREGARD OF THE CLEAR DIRECTIONS OF THE H ON'BLE ITAT AS CONTAINED IN ITS APPELLATE ORDER DATED 27-11-2009. IT IS, THEREFORE, PRAYED THAT THE IMPUGNED APPELLAT E ORDER PASSED BY THE ID. CIT (APPEALS) BE QUASHED AS INVALID AND VOID AB-INI TIO. 2) THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF CLAIM OF DI SCOUNT TO THE TUNE OF RS.13,32,885/- ON THE GROUND OF ALLEGED TRANSFER OF PROFITS TO ASSOCIATE CONCERNS. 3) IT IS, THEREFORE, PRAYED THAT THE ABOVE DISA LLOWANCE OF DISCOUNT TO THE TUNE OF RS.13,32,885/- MAY PLEASE BE DELETED AND THE RETURN ED INCOME MAY PLEASE BE ACCEPTED AS THE CORRECT TOTAL INCOME OF THE APPE LLANT. 4) THE GROUNDS OF APPEAL AS DESCRIBED ABOVE ARE IN DEPENDENT AND EACH GROUND OF APPEAL IS TAKEN UP WHICH SHALL NOT BE CON STRUED AS BEING PREJUDICIAL TO THE OTHER GROUND OR GROUNDS OF APPEA L. 5) THE APPELLANT PRAYS FOR GRANTING SUCH OTHER RELIEF AS MAY BE DEEMED JUST AND PROPER BY YOUR HONOURS CONSIDERING THE FACTUAL AND LEGAL ASPECTS OF THE CASE OF THE APPELLANT. 6) THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALT ER, MODIFY, SUBSTITUTE, DELETE, CHANGE OR VARY ALL OR ANY OF THE GROUND OR GROUNDS OF APPEAL. 2. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECO RDS ARE THAT THIS IS THE SECOND ROUND OF LITIGATION. ASSESSEE BEING A PA RTNERSHIP FIRM IS ENGAGED IN THE BUSINESS OF LASER SAWING OF DIAMONDS ON JOB-WORK BASIS. ASSESSEE FILED ITS RETURN OF INCOME FOR ASST . YEAR 2001-02 ON 12.07.2001 DECLARING TOTAL INCOME AT RS.59,97,900. IN THE FIRST ROUND, ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143( 3) OF THE ACT ON 29.10.2003 AFTER ASSESSING THE INCOME AT RS.92,5 8,720/- DISALLOWING ASSESSEES CLAIM OF DISCOUNT OF RS.32,6 0,820/- ON ACCOUNT OF ALLEGED TRANSFER OF PROFITS TO ASSOCIATE D CONCERN. AGAINST THE ORDER U/S 143(3) OF THE ACT ASSESSEE WENT IN AP PEAL BEFORE LD. COMMISSIONER OF INCOME TAX(A) AND SUCCEEDED IN FULL AS THE ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 3 IMPUGNED DISALLOWANCE WAS DELETED BY LD. COMMISSION ER OF INCOME TAX(A) WHO OBSERVED THAT LD. ASSESSING OFFICER WAS UNABLE TO PROVE THAT THERE WAS SOME UNDER HAND DEALING OR THERE WAS ANY TRANSACTION IN CASH. 3. AGGRIEVED, REVENUE WENT IN APPEAL BEFORE THE TRI BUNAL. THE TRIBUNAL VIDE ITS ORDER DATED 27.11.2009 RESTORED T HE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATIO N BY OBSERVING AS FOLLOWS :- 'WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE HAS RECEIVED JOB CHARGES OF RS..!,87,37,1S3/- OUT OF WHICH 1,67,75,425/- WAS FR OM THE SAID TWO SISTER CONCERNS AND THE BALANCE AMOUNT OF RS. 19,61,758/- WAS FROM OTHERS. WE FIND THAT BOTH THE PARTIES BEFORE US OR BEFORE THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) HAS BROUGHT NO MATERIAL TO SHOW THE R ATES AT WHICH JOB CHARGES WAS REALIZED FROM THE OTHER PARTIES AND HOW THE SAM E COMPARES WITH THE NET JOB CHARGES REALIZED FROM (HE SAID TWO SISTER CONCERNS. . IN THE INSTANT CASE, IT IS OBSERVED THAT THE GENUINENESS OF DISCOUNT ALLOWED B Y THE ASSESSEE TO THE AFORESAID TWO SISTER CONCERNS IS NOT IN DOUBT OR DE BATE. THE ONLY POINT WHICH IS TO BE EXAMINED TO ADJUDICATE THE ISSUE WAS THAT THE NE T JOB CHARGES WHICH WAS REALIZED BY THE ASSESSEE FROM THE SAID TWO SISTER C ONCERNS WERE IN ACCORDANCE WITH THE MARKET RATE PREVAILING AT THE MATERIAL TIM E OR NOT. WE FIND THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS AL SO NOT EXAMINED THE ISSUE FROM THIS POINT OF VIEW. THE LEARNED COMMISSI ONER OF INCOME-TAX (APPEALS) HAS OBSERVED THAT THE RATES AT WHICH BILL S WERE DRAWN IN THE RAISE OF SISTER CONCERNS WERE RS.100/- PER CARAT FRO THE PER IOD APRIL TO AUGUST 2000, @ RS.85/- PER CARAT DURING THE PERIOD SEPTEMBER TO DE CEMBER 2000 AND RS.65/- PER CARAT DURING THE PERIOD JANUARY 2001 TO MARCH 2 001. HOWEVER, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS NOT BROUGH T ON RECORD, WHAT WAS (HE RATE OF DISCOUNT PER CARAT WHICH WAS ALLOWED BY THE ASSESSEE LO ITS SISTER CONCERNS DURING THE AFORESAID PERIOD. IN OUR CONSID ERED OPINION, NO MEANINGFUL INTERPRETATION OF THE ABOVE RATES CAN BE DRAWN WITH OUT THE CORRESPONDING AMOUNT OF DISCOUNT ALLOWED BY THE ASSESSEE IS CONSIDERED T OGETHER. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS NOT BROUGH T ON RECORD THE TOTAL QUANTITY OF JOB WORK DONE BY THE ASSESSEE DURING TH E PERIOD UNDER CONSIDERATION AND TO CONSIDER THEREAFTER THE NET RATE PER CARAT R EALIZED BY THE ASSESSEE FROM THE SISTER CONCERNS DURING THE SAID PERIOD AND HOW THE SAME COMPARED TO THE MARKET RATE PREVAILING AT THAT PERIOD. AS OBSERVED ABOVE, THE ASSESSEE HAS RENDERED SERVICES TO OTHERS ALSO OF ABOUT RS-19,61, 758/-. THUS, THE LEARNED ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 4 ASSESSING OFFICER COULD HAVE EASILY EXAMINED THAT W HAT WAS THE RATE AT WHICH SERVICES WERE RENDERED BY THE ASSESSEE TO THE OTHER PARTIES AT THE MATERIAL TIME AND WHETHER THOSE RATES WERE MORE THAN THE NET RATE REALIZED BY THE ASSESSEE FROM THE SAID TWO SISTER CONCERNS. ON THE OTHER HAN D, THE ASSESSEE COULD HAVE ALSO PRODUCE THE BILLS OF THE OTHER PARTIES TO SHOW THAT THE NET RATES REALIZED FROM THE SAID TWO SISTER CONCERNS WERE NOT LESS THAN THE RATES FOR WHICH IT DID SIMILAR FOBS FOR OTHER PARTIES. IN THE CIRCUMSTANCES, IN OU R CONSIDERED OPINION, IT SHALL BE FAIR AND IN THE INTEREST OF THE JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF LEARNED ASSESSING OFFICER FOR ADJUDICATION AFRESH I N LIGHT OF THE DISCUSSION MADE HEREINABOVE AFTER ALLOWING PROPER OPPORTUNITY OF HE ARING TO THE ASSESSEE. ' 4. IN THE SECOND ROUND LD. ASSESSING OFFICER COMPLE TED THE ASSESSMENT U/S 143(3) R.W.S. 254 OF THE ACT DISALLO WANCE AGAINST CLAIM OF DISCOUNT AT RS.33,68,820/- WHICH WERE GIVE N TO THE ASSOCIATE/ SISTER CONCERNS OF THE ASSESSEE AGAINST THE JOB WORK CHARGES :- UPON SUCH FINDINGS, THE FOLLOWING CONCLUSIONS ARE DUE: (I) THE POST-DISCOUNT JOB-WORK RATES AS CHARGED TO RELATED PARTIES ARE LESSER THAN THE RATES CHARGED TO OUTSIDE PARTIES; (II) THE ASSESSES HAS OBTAINED MAJOR CHUNK OF BUSINESS FROM THE RELATED CONCERNS, BUT HAS ALSO UNDERTAKEN JOB- WORK ON BEHALF OF OTHER OUTSIDE, UNRELATED PARTIES; (III) NIL OR MEAGRE DISCOUNT HAS BEEN ALLOWED TO THE OUTSIDE, UNRELATED PARTIES. HOWEVER, VERY HIGH DISCOUNT @ -20% HAS BEEN AFFORDE D TO SISTER CONCERNS ON PAPER. SUCH RATE OF DISCOUNT IS VERY HIGH, EXCES SIVE AND UNREASONABLE; (IV) IN MOST OF THE CASES, THE JOB-WORK RATE CHARGE D TO SISTER CONCERNS HAVE BEEN LOWER THAN THE RATES CHARGED TO OUTSIDE PARTIE S; (V) NO STRICTLY COMPARABLE MARKET LASER-SAWING JOB- WORK RATES HAVE BEEN MADE AVAILABLE/OBTAINED. HENCE, THE SO-CALLED DISCOUNT HAS BEEN MADE OUT TO THE SISTER CONCERNS ONLY AS A MEANS TO SUPPRESS INCOME AND ON THE FACTS OF THE CASE, ALSO UPON RELYING UPON THE ORIGINAL ASSESSMENT ORDER, IT IS HELD THAT THE SO-CALLED DISCOUNT IS AN EYE- WASH AND AN AFTER-' THOUGHT. IN A MUTUALLY CONVENIE NT ARRANGEMENT BETWEEN THE ASSESSEE AND THE RELATED PARTIES, JOURNAL ENTRIES H AVE BEEN PASSED POST FACTO BY ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 5 ALLOWING DISCOUNT @ 20%, AS THE HIGHER INCOME FLOWI NG FROM HIGHER RATES IN HANDS OF THE ASSESSEE FIRM WOULD HAVE MADE THE PROF ITS FULLY CHARGEABLE TO TAX., BUT THE HIGHER PROFITS IN THE HANDS OF THE RELATED PARTY, PRINCIPALS ENJOYED 80% DEDUCTION UNDER THE THEN EXTANT SECTION 80HHC OF TH E I. T. ACT. THE FLAWED DEVICE OF DISCOUNT HAS BEEN RESORTED TO GAIN UNDUE BENEFIT IN TAXATION TO THE DETRIMENT OF REVENUE. THEREFORE, SUCH CLAIM OF DISC OUNT IS REJECTED UPON VERIFICATION AND EXAMINATION OF THE ISSUES SET ASID E BY THE HON'BLE I.T.A.T. 16. THUS, FROM THE ABOVE DISCUSSION, IT IS EVIDENT THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS INCOME BY DEBITING UNREASONABLE AND NON- ALLOWABLE DISCOUNT. HENCE, THE ENSUING INCOME HAS B EEN CONCEALED AND UNDER- REPORTED BY THIS FURNISHING OF INACCURATE PARTICULA RS REGARDING THE SO-CALLED DISCOUNT. THEREFORE, SATISFIED ON ACCOUNT OF THESE REASONS AS ABOVE, PENALTY PROCEEDINGS U/S. 271(1)(C) IS BEING INITIATED FOR F URNISHING OF INACCURATE PARTICULARS LEADING TO CONCEALMENT OF INCOME. DISALLOWANCE ON ACCOUNT OF REJECTION OF DISCOUNT CL AIM: ? 32.60,820/-. 5. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CO MMISSIONER OF INCOME TAX(A) AND PARTLY SUCCEEDED AS IMPUGNED DIS ALLOWANCE WAS RESTRICTED TO RS.13,32,885/- BY ELABORATELY DISCUSS ING THE FACTS IN THE LIGHT OF DIRECTIONS GIVEN BY THE TRIBUNAL BY OBSERV ING AS FOLLOWS :- 7. I HAVE GONE THROUGH THE FACTS OF THE CASE AND TH E ORDER OF THE HON'BLE ITAT, ITS OBSERVATIONS AND DIRECTIONS. IT IS SEEN FROM THE RE ASSESSMENT ORDER THAT THE A.O. WHILE OBSERVING THAT RATES CHARGED TO SISTER .CONCERNS WA S LOWER THAN THE RATES CHARGED TO OUTSIDE PARTIES AND HENCE CONCLUDING THAT PROFITS HAD BEEN TRANSFERRED TO SISTER CONCERNS HAS RELIED ON COMPARISON OF AVERAGE RATES FOR THE YEAR (REF. - PARA - PAGE -) AND ALSO ON SELECTIVE BILLS RAISED BY THE APPELLANT (REF. - PARA - PAGE -). WHI LE CHALLENGING THE FINDINGS OF THE A.O., THE APPELLANT HAS, IN HIS SUBMISSIONS BEFORE ME, CLAIME D THAT COMPARISON OF AVERAGE RATES FOR THE YEAR IS NOT PROPER. TO SHOW THAT THE RATES CHARGED WERE HIGHER IN THE CASE OF THE ASSOCIATE CONCERNS, THE APPELLANT MADE REFERENCES TO CERTAIN BILLS RAISED ON OUTSIDE PARTIES. IT IS SEEN THAT THE APPELLANT HAS ALSO RELIED ONLY ON SELECTIV E BILLS WHICH ARE IN HIS FAVOUR. THE APPELLANT ALSO RELIED ON THE CERTIFICATE ISSUED BY M/S. JINAL & CO. FOR LASER SAWING OF DIAMONDS WHICH GIVES THE RATE AT RS.20/- PER CARAT. SINCE THE VARIATION BETWEEN THE RATES CHARGED BY M/S. JINAL & CO. AND THE APPELLANT IS VE RY LARGE, IT IS TO BE ASSUMED THAT SERVICES RENDERED BY THE TWO PARTIES ARE NOT COMPARABLE. ON GOING THROUGH THE ORDER OF THE HON'BLE TRIBUNAL, IT IS SEEN THAT THEY HAVE IDENTIFIED THRE E DISTINCT PERIODS OVER THE YEAR - APRIL TO AUGUST, 2000, SEPTEMBER TO DECEMBER, 2000 AND JANUA RY TO MARCH, 2001. THE RATES HAVE TO BE COMPARED 'AT THE MATERIAL TIME' AND THEREFORE AV ERAGING OF RATES IS NOT CORRECT. NEITHER THE APPELLANT NOR THE A.O. HAS TRIED TO COMPARE THE RAT ES OVER DIFFERENT PERIODS OF TIME. FURTHER, IN THEIR COMPARISON OF RATES, BOTH HAVE BEEN SELECT IVE. SELECTIVE COMPARISONS GIVE EQUALLY ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 6 DISTORTED PICTURE AS COMPARISON OF AVERAGE RATES. H ENCE, TO ARRIVE AT A COMPREHENSIVE PICTURE, BILLS REFERRED TO BY THE A.O. AND BY THE A PPELLANT HAVE BEEN ARRANGED ACCORDING TO THE THREE DISTINCT PERIODS IDENTIFIED BY THE TRIBUN AL IN ONE TABULAR FORM (ANNEXURE-1). THIS GIVES THE FOLLOWING RESULTS - A) DURING THE PERIOD SEPTEMBER TO DECEMBER, 2000, THE APPELLANT HAS DEFINITELY CHARGED THE ASSOCIATE CONCERNS AT RATES BELOW THE RATES CHA RGED TO OUTSIDERS. B) DURING THE PERIOD APRIL TO AUGUST, 2000, AND JA NUARY TO MARCH, 2001 BILLS RAISED TO OUTSIDERS IS BOTH MORE AND LESS THAN THE ASSOCIATES . 7.2. THESE FINDINGS HAVE TO BE VIEWED IN THE CONTEX T THAT THE APPELLANT INITIALLY RAISED THE BILLS AT RS.100/- PER CARAT FOR PERIOD APRIL TO AUGUST AN D RS.85/- FOR SEPTEMBER TO DECEMBER, 2000 AND THEN ALLOWED DISCOUNT AT 20% RESULTING IN NET RATE OF RS.80/- AND RS.68/- BEING CHARGED TO THE ASSOCIATE CONCERNS. FOR THE PERIOD J ANUARY TO MARCH, 2001 BILLS WERE RAISED @ RS.65/- ONLY. NO REASON FOR SUCH DOWNWARD REVISIO N IN RATES FOR THE PERIOD SEPTEMBER AND DECEMBER AND JANUARY TO MARCH HAVE BEEN PROVIDED ES PECIALLY WHEN HIS DISPUTE WITH ASSOCIATE CONCERNS, AS CLAIMED BY THE APPELLANT HIM SELF, WAS ULTIMATELY SETTLED FOR RS.80/- PER CARAT IN DECEMBER, 2000. THEREFORE, FURTHER REDUCTI ON IN PRICES WAS NOT JUSTIFIED, ESPECIALLY WHEN RATES CHARGED TO THE OUTSIDERS WAS DEFINITELY HIGHER FOR THE PERIOD SEPTEMBER TO DECEMBER AND VARIED DURING JANUARY TO MARCH. ALL TH E POINTS RAISED BY THE APPELLANT THAT QUANTUM PROCESSED WAS LARGER FOR ASSOCIATES, THERE WAS FIXED CONTINUOUS SUPPLY, ETC. GET ADDRESSED, IF THE REASONABLE RATES FOR ASSOCIATES I S CONSIDERED AT THE FIXED RATE OF RS.80/- FOR THE FULL YEAR CONSIDERING THAT THIS WAS THE RATE AG REED TO BETWEEN THE APPELLANT AND ASSOCIATE CONCERNS. THE TOTAL DIAMONDS PROCESSED FOR THE ASSO CIATES IS 217024 CARATS AND THE REALIZATION AT RS.80/- SHOULD HAVE BEEN RS.1,73,61, 920/- AS AGAINST RS. 1,60,29,035/- SHOWN BY THE APPELLANT. THE ADDITION IS THEREFORE RETAINE D TO THE EXTENT OF RS.13,32,885/-. THE APPELLANT GET RELIEF OF RS. 19,27,935/-. THE APPEAL IS PARTLY ALLOWED. 6. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 6.1 ASSESSEE HAS RAISED VARIOUS GROUNDS OF APPEAL B UT THE SOLE GRIEVANCE IS AGAINST LD. COMMISSIONER OF INCOME TAX (A)S ORDER SUSTAINING DISALLOWANCE OF DISCOUNT CHARGED AT RS.1 3,32,885/- ON THE GROUND OF ALLEGED TRANSFER OF PROFITS TO ASSOCIATE CONCERNS. 7. LD. AUTHORISED REPRESENTATIVE REITERATED THE SUB MISSIONS MADE BEFORE LD. COMMISSIONER OF INCOME TAX(A) AND FURTHE R ADDED THAT ASSESSEE WAS CONSISTENTLY RAISING BILLS OF JOB CHAR GES TO ITS TWO SISTER CONCERNS, BUT THE RATES WERE LITTLE LOW IN COMPARIS ON TO THE PREVAILING ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 7 MARKET RATES AND EVEN AFTER REGULAR PERSUASION SIST ER CONCERNS WERE NOT AGREEING TO PAY HIGHER RATE OF JOB CHARGES. AS A RESULT OF WHICH DURING APRIL TO AUGUST,2000 ASSESSEE SURGED THE JOB CHARGES RATES FROM RS.60 TO 100 AND THEREAFTER REDUCED TO RS.85 PER CARAT FROM SEPTEMBER TO DECEMBER AND EVEN FURTHER REDUCED TO R S.65 FROM JANUARY, 2001 TO MARCH, 2001. SUBSEQUENTLY AT THE T IME OF SETTLEMENT OF ACCOUNTS DISCOUNT WAS PROVIDED @ 20% ON THE RAT ES CHARGED AT RS.100 AND RS.85 PER CARAT. IT WAS FURTHER SUBMITTE D THAT JOB WORK CHARGED TO SISTER CONCERNS WERE MATCHING THE PREVAI LING MARKET RATES AND THERE WAS NO UNDUE BENEFITS PASSED OVER TO THE SISTER CONCERN BY CHARGING OF LESS AMOUNT OF JOB WORK CHARGES AND, TH EREFORE, LD. COMMISSIONER OF INCOME TAX(A) ERRED IN SUSTAINING A DDITION OF RS.13,32,885/-. LD. AUTHORISED REPRESENTATIVE ALSO REFERRED TO THE ORDER OF LD. COMMISSIONER OF INCOME TAX(A) PASSED D URING THE FIRST ROUND OF LITIGATION DELETING THE TOTAL ADDITION OF RS.32,60,820/- BY OBSERVING THAT LD. ASSESSING OFFICER HAS BEEN UNABL E TO PROVE THAT SOME UNDERHAND DEALING OR TRANSACTION IN CASH HAPPE NED AND THE ALLEGATIONS MADE WERE TOTALLY BASELESS. 8. ON OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE S UBMITTED THAT LD. COMMISSIONER OF INCOME TAX(A) HAS STRICTLY ADHE RED TO THE DIRECTIONS GIVEN IN THE TRIBUNALS ORDER DATED 27.1 1.2009 AND HAS RIGHTLY CALCULATED THE RATE OF RS.80 PER CARAT BEIN G A REASONABLE RATE OF JOB CHARGES CHARGED TO ASSOCIATE CONCERNS. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE ARE NOW IN THE SECOND ROUND OF LITIGATION. PURSU ANT TO THE ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 8 DIRECTIONS OF THE TRIBUNALS ORDER DATED 27.11.2009 DIRECTING THE ASSESSING OFFICER FOR FRESH ADJUDICATION WITH REGAR D TO THE REASONABLENESS OF RATES OF JOB CHARGES OF LASER SAW ING OF DIAMOND PIECES. LD. ASSESSING OFFICER WHILE FRAMING ASSESSM ENT U/S 143(3) R.W.S. 254 OF THE ACT AGAIN CONFIRMED THE SIMILAR D ISALLOWANCE OF UNREASONABLE FLAWED DISCOUNT AT RS.32,60,820/- DONE DURING THE FIRST ROUND OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE A CT. THEREAFTER WHEN THE ASSESSEE CAME IN APPEAL BEFORE LD. COMMISS IONER OF INCOME TAX(A) GIVING RISE TO PART SUCCESS TO ASSESS EE AS LD. COMMISSIONER OF INCOME TAX(A) SUSTAINED THE ADDITIO N OF RS.13,32,885/- BY HOLDING THE RATE OF JOB CHARGES A T RS.80/- TO BE A REASONABLE RATE TO BE CHARGED TO ASSOCIATE/SISTER C ONCERNS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX(A) ADOPTED THE RATE OF RS.80/- PER CARAT BY TAKING A VIEW THAT ASSESSEE IN THE FIR ST THREE MONTHS RAISED BILLS AT RS.100/- AND RS.85/- PER CARAT AND THEREAFTER GAVE A DISCOUNT OF 20% RESULTING IN THE NET RATE OF RS.80/ - AND RS.68/-. LD. COMMISSIONER OF INCOME TAX(A) WAS NOT CONVINCED WIT H THE RATE OF RS.65/- CHARGED BY THE ASSESSEE IN THE LAST THREE M ONTHS OF THE FINANCIAL YEAR EVEN WHEN THE SISTER CONCERNS HAVE A LREADY AGREED FOR THE NET RATE OF RS.80/- AND THEREFORE, LD. COMM ISSIONER OF INCOME TAX(A) APPLIED THE RATE OF RS.80 PER CARAT AND SUST AINED THE ADDITION OF RS.13,32,885/-. 10. WE OBSERVE THAT THE IMPUGNED DISALLOWANCE MADE BY LD. ASSESSING OFFICER WAS BASED ON HIS OBSERVATION THAT THE DISCOUNT GIVEN TO SISTER CONCERNS WAS UNREASONABLE AFTER APP LYING THE PROVISIONS OF SEC.40A(2)(A) OF THE ACT ON DISCOUNT. LD. COMMISSIONER ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 9 OF INCOME TAX(A) IN HIS APPELLATE ORDER HAS TRIED T O REACH TO THE REASONABLENESS OF THE JOB WORK CHARGES. WE FIND IT PERTINENT TO GO THROUGH THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT WHICH READS AS FOLLOWS :- SECTION 40A(2) IN THE INCOME- TAX ACT, 1995 (2) (A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE I N RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THIS SUB- SECTION, AND THE 3 ASSESSING] OFFICER IS OF OPINION THAT SUCH EXPENDI TURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEG ITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED B Y OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION: 11. THE PROVISIONS OF SECTION 40A(2)(A) CONTEMPLATE S THAT DISALLOWANCE IN THIS SECTION CAN BE MADE ONLY IF IN THE OPINION OF ASSESSING OFFICER PAYMENT MADE TO PERSONS SPECIFIED IN SECTION 40A(2)(B) OF THE ACT TOWARDS EXPENDITURE, IS EXCESS IVE OR UNREASONABLE, WITH REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES. IN ORDER TO EXAMINE THE FAC TS IN THE LIGHT OF ABOVE PROVISIONS WE FIND THAT ASSESSEE DURING THE COURSE OF HEARING BEFORE LD. COMMISSIONER OF INCOME TAX(A) HAS PROVIDED TWO SCHEDULES OF WHICH ONE RELATES TO THE RATES CHARGED TO SISTER CO NCERNS ALONG WITH DISCOUNT GIVEN FOR THREE PERIODS AND THE OTHER REL ATES TO RATE OF JOB CHARGES CHARGED TO PARTIES OTHER THAN SISTER CONCER NS. CHART SHOWING THE NET RATE CHARGED FOR THREE DIFFERENT PERIODS T O SISTER/ASSOCIATE CONCERNS IS REPRODUCED BELOW :- ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 10 PERIOD GROSS DISCOUNT NET RATE RATE (RS.) (RS.) (RS.) APRIL TO AUGUST 2000 100 20 80 SEPTEMBER TO DECEMBER 2000 85 17 68 JANUARY TO MARCH 2001 65 NIL 65 THE ABOVE CHART WHICH DEPICTS THE NET RATE CHARGED TO THE SISTER CONCERNS AFTER PROVIDING DISCOUNT AND IF WE TAKE OU T AN AVERAGE OF THE THREE NET RATES I.E. 213/3 RESULTING FIGURE IS RS.7 1 PER CARAT. NOW WE COME TOWARDS THE SECOND CHART WHICH DEPICTS VARIOUS BILLS RAISED TO OUTSIDE PARTIES AND THESE BILLS ARE COVERING ALL TH E THREE PERIODS AND THE SAME IS REPRODUCED BELOW :- SR. NO. PERIOD DATE OF THE BILL NAME OF THE OUTSIDE PARTY COPY OF THE RELEVANT BILL ENCLOSED AT PAGE NO. JOB WORK RATE CHARGED PER CARAT JOB WORK RATE CHARGED TO SISTER CONCERNS 1 APRIL TO AUGUST 01-05-2000 M/S. PRECISE 24 75.74 80 2000 GEMS 2 APRIL TO AUGUST 01-06-2000 M/S. BABUTAL 25 67.74 80 2000 CHUNILAL SHAH 3 APRIL TO AUGUST 01-06-2000 M/S. PRECISE 26 77.92 80 ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 11 2000 GEMS 4 APRIL TO AUGUST 01-07-2000 M/S. EVEREST 27 71.36 . '80 2000 GEMS PVT. LTD. 5 APRIL TO AUGUST 01-07-2000 M/S. PRECISE 28 79.51 80 2000 GEMS 6 SEPTEMBER TO 01-09-2000 M/S. AASHAY 29 78.18 68 DECEMBER 2000 MANUFACTURING CO. 7 JANUARY TO 31-03-2001 M/S. SHASHVAT 30 54.65 65 MARCH 2001 EXPORTS .-* 8 JANUARY TO 31-03-2001 BABULAL CHUNILAL 31 64.37 65 MARCH 2001 SHAH IN THE ABOVE CHART SHOWING 8 INSTANCES OF BILLS RAI SED TO OUTSIDE PARTIES AND IF WE TAKE OUT THE AVERAGE OF THE TOTA L JOB WORK CHARGES TO THE 8 PARTIES IT COMES TO RS.71.18 PER CARAT AND ( 569.54/8). 12. FROM THE PERUSAL OF THE AVERAGE RATES CALCULATE D FROM THE ABOVE TWO CHARTS WHEREIN ONE RELATES TO JOB RATE WO RK CHARGED TO SISTER CONCERNS AND THE OTHER TO THE OUTSIDE PARTIE S WE OBSERVE THAT THE AVERAGE RATES IN BOTH THE CASES IS RS.71 PER CA RAT. IN ORDER TO EXAMINE THE REASONABLENESS OF THE RATE OF JOB WORK CHARGES CHARGED TO THE SISTER CONCERNS THE SAME CAN BE COMPARED WIT H THE OTHER COMPARABLES IN THE FORM OF JOB WORK RATE CHARGED TO OUTSIDE PARTIES AND WE FIND THAT THE AVERAGE RATES CHARGED TO THE S ISTER CONCERN ARE ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 12 AT PAR WITH THE AVERAGE RATE CHARGED TO OUTSIDE PAR TIES. WE ALSO FIND THAT WITH THE TOTAL DIAMOND PROCESSED FOR THE ASSOC IATED CONCERN IS 217024 CARATS FOR WHICH THE ASSESSEE HAS REALIZED R S.16029035/- AND IF WE CALCULATE THE AVERAGE RATE PER CARAT CHAR GED TO ASSOCIATE CONCERNS IT COMES OUT TO RS.73.86 PER CARAT WHICH I S HIGHER THAN THE AVERAGE RATE OF RS.71 CALCULATED ABOVE. 13. WE ARE, THEREFORE, OF THE VIEW THAT IN THE GIVE N FACTS AND CIRCUMSTANCES OF THE DISCUSSION MADE ABOVE, NET JOB WORK RATES (AFTER PROVIDING DISCOUNT) CHARGED BY THE ASSESSEE TO ITS ASSOCIATE/SISTER CONCERNS ARE REASONABLE WITH REGAR D TO THE FAIR MARKET VALUE OF THE SERVICES. WE, THEREFORE, DELETE THE IMPUGNED DISALLOWANCE OF RS.13,32,885/- SUSTAINED BY LD. COM MISSIONER OF INCOME TAX(A). 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MARCH, 2017 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 20/03/2017 MAHATA/- ITA NO. 2230/AHD/2011 ASST. YEAR 2001-02 13 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 16/03/2017 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 16/03/2017 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 20/3/2017 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: