M/s Market Creators Ltd., Baroda V. The Income tax Officer, Ward-4(1), Baroda

ITA 2590/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72809 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 02-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 09-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Keywords: Opportunity of being heard

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BENCH, AHMEDABAD , !' # $% $% $% $% &, # BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER %./ I.T.A. NO.2590/AHD/2012 ( ) *) ) *) ) *) ) *) / / / / ASSESSMENT YEAR : 2008-09) MARKET CREATORS LIMITED CREATIVE CASTLE 70, SAMPATRAO COLONY PRODUCTIVITY ROAD BARODA-7 / VS. THE ITO WARD-4(1) BARODA #+ !' %./,- %./ PAN/GIR NO. :AABCM 3439 R ( +. / // / APPELLANT ) .. ( /0+. / RESPONDENT ) +. 1 ! / APPELLANT BY : MS.URVASHI SODHAN, AR /0+. 2 1 ! / RESPONDENT BY : SHRI K.C.MATHEWS, SR.DR 3 2 ' / / / / DATE OF HEARING : 02/01/2014 45* 2 ' / DATE OF PRONOUNCEMENT : 09/01/2014 !6 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-III, BARODA (CIT(A) FOR SHORT) DATED 17/09/2012 PERTAINING TO ASSESSMENT Y EAR (AY) 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL:- 1. LD.CIT(A) ERRED IN LAW AND ON THE FACTS IN CON FIRMING ACTION OF AO IN ADHOC DISALLOWANCE @ 50% OF THE FINANCIAL CHARGE S OF RS.10,35,000/- INVOKING PROVISIONS OF SECTION 40A(2 )(B) OF THE ACT. LD.CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT D UE TO VOLATILITY OF THE STOCK MARKET APPELLANT PAID THE FINANCIAL CHARGES A GAINST SERVICES ITA NO.2590/AHD /2012 MARKET CREATORS LTD. VS. ITO ASST.YEAR 2008-09 - 2 - AVAILED TO FULFILL OBLIGATIONS FOR CONTRACTS UNDERT AKEN. LD.CIT(A) OUGHT TO HAVE DELETED SUCH ADHOC DISALLOWANCE WHEN FINANC IAL EXIGENCY OF THE BUSINESS WARRANTED GUARANTEE OF THESE PARTIES ROUND THE YEAR. 2. LD.CIT(A) FURTHER ERRED NOT TO APPRECIATE DOC UMENTARY EVIDENCE, EXPLANATION AND SUBMISSION OF THE APPELLANT THAT FI XED MONTHLY CHARGES GUARANTEED THE AVAILABILITY OF ASSETS AS AND WHEN T HE NEED AROSE. BOTH THE LOWER AUTHORITIES ERRED IN LAW AND ON FACTS IN APPLYING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT WITHOUT PLACING ANY CO GENT EVIDENCE ON RECORD OF EXCESSIVE PAYMENT TO RELATED PARTIES. 3. LEVY OF INTEREST U/S.234B OF THE ACT IS NOT JUS TIFIED. 4. INITIATION OF PENALTY U/S.271(1)(C) OF THE ACT IS NOT JUSTIFIED. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, ED IT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE T IME OF OR BEFORE THE HEARING OF THE APPEAL. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 20/12/2010, THEREBY THE ASSESSING OFFICER(AO) MADE ADDITION OF RS.10,35,000/- BY INVOKING THE PROVISIONS OF SECTIO N 40A(2)(B) OF THE ACT AND MADE DISALLOWANCE OF INTEREST AMOUNTING TO RS.1,18,772/-. HENCE, THE AO COMPUTED THE INCOME AT RS.60,97,982/- AGAINST THE DECLARED INCOME OF RS.49,44,210/-. THE ASSESSEE F EELING AGGRIEVED BY THIS ORDER, FILED AN APPEAL BEFORE THE LD.CIT(A), W HO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DISMISSED THE APPEAL. 3. NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US . THE ONLY EFFECTIVE GROUND IS AGAINST THE DISALLOWANCE OF RS. 10,35,000/- BEING ADHOC DISALLOWANCE OF 50% OF THE FINANCIAL CHARGES. ITA NO.2590/AHD /2012 MARKET CREATORS LTD. VS. ITO ASST.YEAR 2008-09 - 3 - 3.1. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE ORDERS OF THE AUTHORITIES BELOW ARE NOT JUSTIFIED. SHE SUBMITTED THAT THE ADDITION IS MADE IN RESPECT OF THE RELATED PARTIES. THE LD.CIT (A) HAS NOT CONSIDERED THE FACTS OF THE CASE IN RIGHT PERSPECTIVE. SHE SU BMITTED THAT THE CONFIRMATION LETTERS FROM THE CONCERNED PARTIES WER E DULY SUBMITTED BEFORE THE AUTHORITIES BELOW. SHE DREW OUR ATTENTI ON TOWARDS PAGE NO.12 OF THE PAPER-BOOK REGARDING THE LETTER OF THE BANK ADDRESSED TO SHRI YATISH H. SHAH. SHE SUBMITTED THAT THE AUTHORITIES BELOW HAVE NOT TAKEN THE ASSETS PLACED BY RELATED PARTIES TO THE BANKER. SHE PLACED RELIANCE ON THE DECISION OF HONBLE ITAT C BENCH AHMEDABAD RE NDERED IN THE CASE OF DY.CIT VS. RAVI CERAMICS IN ITA NO.2959/AHD /2009 FOR AY 2006-07, DATED 11/05/2012. SHE ALSO PLACED RELIANC E ON THE DECISION OF THE HONBLE ITAT L BENCH MUMBAI RENDERED IN THE CASE OF KPMG INDIA PRIVATE LIMITED VS. DCIT AND OTHERS IN ITA NO .8824/MUM/2004 FOR AY 2001-02, DATED 08/06/2012. IN SUPPORT OF THE CONTENTION THAT THE AO OUGHT TO HAVE DEMONSTRATED THE EXCESSIVENESS AND UNREASONABLENESS OF THE FINANCIAL CHARGES PAID TO THE RELATED CONCER N, SHE SUBMITTED THAT THERE IS NO COMPARATIVE FIGURE BEFORE THE AO. TH E AO HAS MERELY MADE ADHOC DISALLOWANCES. 3.2. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THERE IS NO ILLEGALITY IN THE ORDER PASSED BY THE AUTHORITIES BELOW. HE POINTED OUT THAT THE ASSESSE E IN ITS PAPER-BOOK HAS RELIED ON PAGE NO.4 WHICH IS A SUMMARY OF COMPUTATI ON WHICH WAS NOT AVAILABLE BEFORE THE AUTHORITIES BELOW. HE FURTHER SUBMITTED THAT IN THE ITA NO.2590/AHD /2012 MARKET CREATORS LTD. VS. ITO ASST.YEAR 2008-09 - 4 - PAPER-BOOK AT PAGE NOS.13 TO 20 WERE SUBMITTED BEFO RE THE AO BUT NOT BEFORE THE LD.CIT(A). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT REMAINS THAT THE PAYMENTS HAVE BEEN MADE TO THE RELATED PARTIES. IT IS ALSO SETTLED POSITION OF LA W THAT FOR INVOKING THE PROVISIONS OF SECTION 40A(2), THE AO SHOULD FORM AN OPINION THAT THE CHARGES WHICH HAVE BEEN PAID TO THE RELATED PARTIES ARE UNREASONABLE AND EXCESSIVE. IN THE PRESENT CASE, THE AO HAD DISALLO WED THE CLAIM ON THE BASIS THAT PAYMENTS OF FINANCIAL CHARGES AGGREGATIN G TO RS.20,70,000/- TO THE PERSONS SPECIFIED UNDER SECTION 40A(2)(B) OF TH E ACT IS SOMEWHAT UNREASONABLE HAVING REGARD TO THE LEGITIMATE NEEDS OF THE ASSESSEE- COMPANYS BUSINESS VIS--VIS THE BENEFITS DERIVED B Y OR ACCRUING TO THE ASSESSEE-COMPANY AS A RESULT OF SUCH PAYMENTS OF FI NANCIAL CHARGES BECAUSE THE BASIS OF QUANTIFICATION OF SUCH PAYMENT S ARE NOT CLEAR AND INSTANCES OF UTILIZATION OF SUCH SERVICES DO NOT FU LLY JUSTIFY THE PAYMENT. THIS FINDING OF THE AO WAS CONFIRMED BY THE LD.CIT( A) ON THE BASIS THAT THE TOTAL BANK GUARANTEE FOR THE PERIOD 1.4.2007 TO 31.3.2008 WAS RS.56,500,000/- 1% OF SUCH AMOUNT COMES TO RS.5,65, 000/-. THUS, THIS A REASONABLE AMOUNT TO BE PAID AS GUARANTEE COMMISSIO N TO THE RELATED PARTIES, ON THE BASIS OF SUCH PAYMENTS MADE BY THE APPELLANT ITSELF IN THE EARLIER YEAR. BALANCE AMOUNT ALLOWED BY THE A.O. A MOUNTING TO RS.4,70,000/- CAN BE ATTRIBUTED TO THE AMOUNT PAID BY THE APPELLANT ON ACCOUNT OF INTEREST FREE FUND PROVIDED BY THE RELAT ED PARTIES FROM TIME TO TIME. IN PAGE-4 OF THE PAPER-BOOK NO.2, THE ASSESS EE HAS GIVEN THE ITA NO.2590/AHD /2012 MARKET CREATORS LTD. VS. ITO ASST.YEAR 2008-09 - 5 - UTILIZATION OF SOURCES UNDER LLMS GUARANTEED BY THE PARTIES TO WHOM THE FINANCIAL CHARGES PAID. SINCE THIS INFORMATION WAS NOT BEFORE THE AUTHORITIES BELOW, WE ARE OF THE CONSIDERED VIEW TH AT THIS ISSUE IS TO BE RESTORED TO THE FILE OF THE AO TO DECIDE THE SAME A FRESH IN THE LIGHT OF THE INFORMATION FURNISHED AT PAGE NO.4 OF THE PAPER-BOO K NO.2. THE AO IS DIRECTED TO DECIDE THIS ISSUE AFRESH, AFTER PROVIDI NG REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND VERI FYING THE DETAILS SUBMITTED BY THE ASSESSEE. THUS, THIS GROUND OF AS SESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES ONLY. 5. GROUND NO.3 IS AGAINST LEVY OF INTEREST U/S.234B OF THE ACT AND IT IS HELD TO BE CONSEQUENTIAL. 6. GROUND NO.4 IS AGAINST INITIATION OF PENALTY U/S .271(1)(C) OF THE ACT WHICH IS PRE-MATURE AND, HENCE, REJECTED. 7. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED BUT FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( ) ( &) !' # # ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 09/ 01 /2014 9.., .../ T.C. NAIR, SR. PS ITA NO.2590/AHD /2012 MARKET CREATORS LTD. VS. ITO ASST.YEAR 2008-09 - 6 - !6 2 /: ;!:* !6 2 /: ;!:* !6 2 /: ;!:* !6 2 /: ;!:*/ COPY OF THE ORDER FORWARDED TO : 1. +. / THE APPELLANT 2. /0+. / THE RESPONDENT. 3. %% < / CONCERNED CIT 4. <() / THE CIT(A)-III, BARODA 5. :&= / , , / DR, ITAT, AHMEDABAD 6. =) >3 / GUARD FILE. !6 !6 !6 !6 / BY ORDER, 0: / //TRUE COPY// ? ?? ?/ // / %, %, %, %, ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 3.1.14 (DICTATION-PAD 9 PAG ES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 7.1.14 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.09.01.14 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 09.01.14 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER