Smt. Shilpaben K.Patel, Surat V. The Income tax Officer,Ward-3(1), Surat

ITA 2444/AHD/2009

• Counselvise Citation: 244420514 RSA 2009
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 18-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Maximum Marginal Rate; Fair market value

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , . .!'#$, % & BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ./ I.T.A. NO.2444/AHD/2009 ( ( ) ( ) ( ) ( ) / / / / ASSESSMENT YEAR : 2006-07) SMT.SHILPABEN K.PATEL PROP.OF EAGLE SYNTHETICS 36/4, SUMAN DESAI NI.WADI KHATODRA, SURAT ( ( ( ( / VS. THE INCOME TAX OFFICER WARD-3(1) SURAT * % ./+, ./ PAN/GIR NO. : AGOPP 1093 Q ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY : SHRI SAPNESH SHETH ./*- 1 0 / RESPONDENT BY : SHRI SAMIR TEKRIWAL, SR.D.R. (2 1 3% / / / / DATE OF HEARING : 03/05/2012 4') 1 3% / DATE OF PRONOUNCEMENT : 11/5/2012 5 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-II, SURAT DATED 18/05/2009 AND THE SOLITARY SUBSTANTIAL GROUND READ S AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS LAW ON THE SUBJECT, THE LEARNED CIT(APPEALS) HAS ERRED IN CONF IRMING THE ACTION OF ASSESSING OFFICER IN DISALLOWING THE SUM OF RS.14,19,674/- ON ACCOUNT OF ALLEGED EXCESSIVE PAYM ENT MADE TO SISTER CONCERNS U/S.40A(2)(B) OF THE I.T. ACT. ITA NO.2444/AHD /2009 SMT. SHILPABEN K.PATEL VS. ITO ASST.YEAR 2006-07 - 2 - 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 20/0 3/2008 WERE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF WEAVING AND GREY CLOTH IN THE NAME AND STYLE OF HER PROPRIETARY-CONCERN I.E. EAGL E SYNTHETICS. IN THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN TUR NOVER OF RS.239.40 LAKHS FROM SUCH WORK AND THE GP THEREON IS SHOWN AT RS.11.47 LACS AT THE RATIO OF 4.79% AS AGAINST THE GP RATIO OF 4.56 % SHOWN DURING THE PRECEDING YEAR ON A TURNOVER OF RS.242 LAKHS. THE ASSESSEE IS PURCHASING YARN AND THEREAFTER THE WEAVING OF GREY CLOTH IS DO NE ON JOB WORK BASIS FROM OUTSIDE PARTIES AND THE GREY CLOTH SO MANUFACT URED IS SOLD BY THE ASSESSEE. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN PRODUCTION OF GREY CLOTH AT 9,37,173.25 MTS. THE A SSESSEE HAS CLAIMED EXPENDITURE OF RS.42,31,195/- UNDER THE HEAD TWISTI NG AND WEAVING EXPENSES BEING THE EXPENSES CLAIMED TO BE INCURRED FOR MANUFACTURE OF GREY CLOTH. DETAILS WERE CALLED FOR IN THIS REGARD AND THE ASSESSEE FURNISHED THE REQUIRED DETAILS ALONG WITH THE COPI ES OF THE BILLS OF THE LABOUR CHARGES PAID OF RS.42,31,195/-. IT IS SEEN THAT THE LABOUR CHARGES FOR MANUFACTURING OF CLOTH HAVE BEEN PAID TO THE FO LLOWING PARTIES:- SR.NO. NAME OF THE PARTY WEAVING DONE (MTS.) RATE PER MTR(RS.) AMOUNT PAID (RS.) WHETHER SISTER CONCERN/ASSO CIATE CONCERN 1 EAGLE INTERNATIONAL 235250.00 4.75 1117438 YES 2. EAGLE TEX 555782.00 4.75 2639965 YES 3. EAGLE SILK MILLS 20210.50 4.75 96000 YES 4. UMIYA TEXTILES 125930.75 3.00 377792 NO TOTAL 937173.25 4231195 ITA NO.2444/AHD /2009 SMT. SHILPABEN K.PATEL VS. ITO ASST.YEAR 2006-07 - 3 - AS CAN BE SEEN FROM THE ABOVE CHART, OUT OF THE TO TAL PRODUCTION OF 9,37,173.25 MTS. THE ASSESSEE HAS GOT THE JOB WORK DONE IN RESPECT OF 8,11,242.50 MTS. FROM ITS SISTER CONCERNS COVERED U /S.40(A)(2B) VIZ. M/S.EAGLE INTERNATIONAL, M/S.EAGLE TEX AND M/S.EAGL E SILK MILLS. THE BALANCE OF GREY CLOTH OF 1,25,930.75 MTS. HAS BEEN MANUFACTURED THROUGH OUTSIDE PARTY VIZ. M/S.UMIYA TEXTILES. THE LABOUR CHARGES TO M/S.UMIYA TEXTILES HAVE BEEN PAID @ RS.3/- PER METER WHEREAS TO THE THREE SISTER CONCERNS THE ASSESSEE HAS PAID LABOUR CHARGES @ RS. 4.75 PAISA PER METER. THUS, THE LABOUR CHARGES PAYMENT TO THE SISTER CONC ERN ALLEGED TO BE EXCESSIVE AND UNREASONABLE AS COMPARED TO THE RATE AT WHICH JOB CHARGES ARE PAID TO THE OUTSIDE PARTY VIZ. M/S.UMIYA TEXTIL E. AN OPPORTUNITY WAS THEREFORE PROVIDED TO THE ASSESSEE AND THE ASSESSE E WAS ASKED TO EXPLAIN THE REASON FOR THE HIGHER RATE OF RS.4.75 PAID TO I TS SISTER CONCERNS. FINALLY, THE EXCESS PAYMENT MADE TO SISTER CONCERNS FOR RS.8,11,242.50 MTS. @ RS.1.75 PER METER WHICH WORKED OUT TO RS.14, 19,674/- IS DISALLOWED BY TREATING IT AS EXCESSIVE AND UNREASON ABLE AND THE SAME IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEV ED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFO RE THE FIRST APPELLATE AUTHORITY. THE CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. 3. FROM THE SIDE OF THE ASSESSEE, LD.AR MR.SAPNESH SHETH APPEARED AND PLACED RELIANCE ON A DECISION OF THE ITAT BENCH C AHMEDABAD PRONOUNCED IN THE CASE OF MAHAVIR DYEING & PRINT MI LLS PVT.LTD. VS. ITO IN ITA NO.1261/AHD/2007 FOR A.Y. 2004-05, DATED 30/ 04/2010. HE HAS VEHEMENTLY CONTESTED THAT IN RESPECT OF EAGLE INTER NATIONAL, A SISTER- CONCERN, THE WEAVING AND WRAPPING PERCENTAGE HAS GO NE DOWN TO 4.98%, ITA NO.2444/AHD /2009 SMT. SHILPABEN K.PATEL VS. ITO ASST.YEAR 2006-07 - 4 - AS AGAINST THE PERCENTAGE IN 2005-06 AT 5.30%. LIK EWISE, IN THE CASE OF EAGLE TEX ONLY WEAVING WORK WAS ASSIGNED AND TWISTI NG CHARGES WERE INCLUDED IN THE WEAVING CHARGES BUT THE PERCENTAGE HAS GONE DOWN FOR THE YEAR UNDER CONSIDERATION FROM 5.05% TO 4.75%. HIS BASIC CONTENTION WAS THAT THE ASSESSING OFFICER HAS WRONGLY COMPARED THE PAYMENTS MADE TO THE SISTER-CONCERN WITH THE PAYMENTS MADE TO M/S .UMIYA TEXTILES. ACCORDING TO LD.AR, THE SAID COMPARISON WAS WRONG B ECAUSE THE SAID PARTY WAS GIVEN THE JOB OF WEAVING, ETC. BUT NO TW ISTING WORK WAS CARRIED OUT BY THE SAID PARTY. HE HAS DRAWN OUR A TTENTION ON AN AFFIDAVIT OF THE PROPRIETOR OF M/S.UMIYA TEXTILES WHO HAS STA TED THAT WEAVING OF GREY CLOTH ON JOB-WORK BASIS WAS DONE BUT NOT THE P ROCESSING OF TWISTING. THE LD. AR OF THE ASSESSEE HAS ALSO STATED THAT THE PAYMENTS MADE TO EAGLE TEX, A SISTER-CONCERN WAS VERY HIGH IN COMPAR ISON TO THE PAYMENTS IN THE PAST. THIS YEAR, THE ASSESSEE HAD MADE PAYM ENT TO EAGLE TEX OF RS.26,39,665/-, WHEREAS FOR A.Y. 2005-06 THE AMOUNT WAS ONLY RS.9,57,057/-. LIKEWISE, PAYMENT TO EAGLE INTERNAT IONAL HAD ALSO GONE UP FROM RS.11 LACS TO RS.13,04,024/-. THE RESULTS WERE BETTER AND PAYMENTS ARE FULLY VERIFIABLE, HENCE NO ACTION SHOU LD HAVE BEEN TAKEN BY THE ASSESSING OFFICER. 4. FROM THE SIDE OF THE REVENUE, LD.SR.DR MR.SAMIR TEKRIWAL HAS INFORMED THAT THE INVOICES WERE DOUBTFUL BECAUSE TH E PAYMENT BY THE ASSESSEE WAS TOWARDS LABOUR, OR WRAPPING OF LABOUR. THE INVOICES ARE ALMOST SAME DATED I.E. 31/03/2006. THERE WAS NO RE CORD AVAILABLE WITH THE ASSESSEE ABOUT THE QUALITY OF THE WORK DONE BY THE JOB-WORKERS. FOR OTHER YEARS, SEPARATE BILLS HAVE BEEN MADE FOR LABO UR AND WEAVING ITA NO.2444/AHD /2009 SMT. SHILPABEN K.PATEL VS. ITO ASST.YEAR 2006-07 - 5 - RESPECTIVELY, BUT FOR THE YEAR UNDER CONSIDERATION A SINGLE BILL WAS RAISED. HE HAS ALSO SAID THAT THE SIGNATURES ON THE INVOICE S WERE ALSO MADE BY ONE PERSON AS THE SIGNATURES ARE IDENTICAL. 5. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, IT IS WORTH TO MENTION AT THE OUTSET THAT ON THE ISSUE OF JOB CHAR GES PAID TO SISTER- CONCERN AS WELL AS THE APPLICABILITY OF THE PROVISI ONS OF SECTION 40A(2)(B) OF IT ACT, IN THE CASE OF MAHAVIR DYEING & PRINTING MILLS ITAT C BENCH AHMEDABAD IN ITA NO.1261/AHD/2007 FOR A.Y. 20 04-05 VIDE PARA-4 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 PRESCRIB ED THAT WHERE AN ASSESSEE INCUR ANY EXPENDITURE IN RESPECT OF WHI CH PAYMENT HAS BEEN MADE TO ANY OF A PERSON REFERRED THEREIN THEN IN THE OPINION OF THE ASSESSING OFFICER SUCH EXPENDITURE IS EXCESS IVE OR UNREASONABLE, HAVING REGARD TO THE FAIR MARKET VALU E OF THE GOODS OR SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE, THEN SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY THE ASSESSING OFFICER TO BE EXCESSIVE OR UNREASONABLE SHALL NOT B E ALLOWED AS A DEDUCTION. ON CAREFUL READINGS OF THIS SECTION 4, IT IS WORTH TO MENTION THAT BEFORE APPLYING THE PROVISION IT IS RE QUIRED THAT THE ASSESSING OFFICER SHOULD FORM AN OPINION HAVING REG ARD TO FAIR MARKET VALUE OF THE SERVICE RENDERED. IN THE PRESE NT CASE THIS EXERCISE IS LACKING AND THE AO NEED NOT MAKE ANY A TTEMPT TO FIND OUT THE PREVAILING MARKET RATE. MEANING THEREBY TH E ASSESSING OFFICER HAS NOT COLLECTED ANY INFORMATION, AS IS AP PARENT FROM THE ASSESSMENT ORDER ON THE BASIS OF WHICH IT COULD BE SAID THAT THE ASSESSING OFFICER HAS FORMED AN OPINION AFTER COLLE CTING NECESSARY INFORMATION FROM THE MARKET TO COMPARE THE PREVALEN T MARKET RATE OF THE JOB WORK DONE BY THE SAID SISTER CONCERN. R ATHER, THE ASSESSING OFFICER WAS NOT SURE ABOUT HIS ACTION THE REFORE HE HAS ITA NO.2444/AHD /2009 SMT. SHILPABEN K.PATEL VS. ITO ASST.YEAR 2006-07 - 6 - USED THE TERMEOLOGY, APPEARED TO BE EXCESSIVE. H E HAD ALSO NOT ARRIVED AT AN EXACT FIGURE OF DISALLOWANCE RATHER M ADE THE DISALLOWANCE MERELY ON AN ESTIMATE BASIS. EVEN W HEN THE ISSUE WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY TH E SAME APPROACH WAS ADOPTED I.E. THE ESTIMATION OF THE 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 DESCRIBED UNDE R THE STATUTE. BEFORE US LD. AUTHORIZED REPRESENTATIVE HAS CITED A DECISION OF BANGALORE TRIBUNAL IN THE CASE OF S.K. ENGINEERING VS. JCIT (2006) 286 ITR (AT) 210 (BANGALORE); IN THE CASE 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) F OR THE PROPOSITION THAT FOR THE PURPOSE OF DISALLOWANCE U/ S.40A(2)(B) THE ASSESSING OFFICER IS EXPECTED TO COMPARE THE LIKE N ATURE OF EXPENDITURE AND IF FOUND EXCESSIVE THEN ONLY ENTITL ED TO INVOKE THE PROVISION OF THE SAID SECTION. SINCE NO COMPARABLE INSTANCE WAS CITED FROM THE SIDE OF REVENUE AND THIS PRIMARY ONU S WAS NOT DISCHARGED, THEREFORE TOTALITY OF THE CIRCUMSTANCES THUS WARRANTS TO REVERSE SUCH AN APPROACH OF THE REVENUE DEPARTME NT. WE HEREBY ACCEPT THE CONTENTIONS OF THE APPELLATE AND BY RELYING UPON THE AFORESAID DECISION, THIS GROUND OF THE ASSESSEE IS ALLOWED. 4. IN THE LIGHT OF THE ABOVE ORDER, WE ARE OF THE V IEW THAT APPARENTLY THERE WAS NO REASON FOR INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF IT ACT. THE ASSESSEE HAD SHOWN TURNOVER OF RS.239. 40 LACS AND GP AT RS.11.47 LACS, THEREUPON GP RATIO WAS @ 4.79%. AS AGAINST THAT, IN THE PRECEDING YEAR ON THE TURNOVER OF RS.242 LACS THE G P PERCENTAGE WAS AT 4.56%. HENCE, THE GP SHOWN WAS BETTER THAN THE PAS T. THE GP RATIO DECLARED FOR THE YEAR UNDER CONSIDERATION WAS THERE FORE BETTER, HENCE ONE OF THE SAID REASONS GIVEN BY THE AO DO NOT SURVIVE . THE NEXT PLANK OF THE ARGUMENT BEFORE US IS THAT THERE WAS NO LOSS TO THE REVENUE BECAUSE THE SISTER CONCERNS ARE ALSO SUBJECT TO TAX AT THE MAXIMUM MARGINAL RATE. ITA NO.2444/AHD /2009 SMT. SHILPABEN K.PATEL VS. ITO ASST.YEAR 2006-07 - 7 - THE BASIC REASON FOR THE DIFFERENCE IN THE RATE IS DUE TO THE FACT THAT THE JOB WORK CHARGES PAID TO THE SISTER CONCERNS WAS IN RESPECT OF TWISTING CHARGES PLUS WRAPPING CHARGES. WHEREAS IN THE CASE OF THE SAID COMPARABLE CASE OF M/S. UMIYA TEXTILES, THE PAYMENT OF JOB CHARGES WAS ONLY IN RESPECT OF WRAPPING CHARGES. IT MEANS T HAT THE SAID PARTY WAS ASSIGNED NOT FOR THE TWISTING WORK BUT ONLY FOR THE WRAPPING WORK AND FOR THAT THE CHARGES WERE PAID. IN SHORT, IT WAS WRONG ON THE PART OF THE AO TO COMPARE THE UNCOMPARABLES. TOTALITY OF THE CIRC UMSTANCES THUS LEADS TO A CONCLUSION THAT THERE WAS NO PROPER REASON FOR THE INVOCATION OF THE PROVISIONS OF SECTION 40A(2)(B), HENCE WE HEREBY DI RECT TO DELETE THE ADDITION. 5. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOW ED. SD/- SD/- ( . .!'#$ ) ( ) % ( A.K. GARODIA ) ( M UKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 11 / 05 /2012 63..(, .(../ T.C. NAIR, SR. PS 5 1 .7 8 7) 5 1 .7 8 7) 5 1 .7 8 7) 5 1 .7 8 7)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 9 / CONCERNED CIT 4. 9() / THE CIT(A)-II, SURAT 5. 7 >> >/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD