Supersonic Turners Pvt. Ltd, Jaipur V. ACIT, Jaipur

ITA 276/JPR/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5566 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 08-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRITHIVI RAJ MEENA A DD
• Keywords: Capital expenditure
• Section: 40A(3); 15

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH DQY HK KJ R ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO ] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT , JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA - @ ITA N O. 276 / JP/201 4 FU/KZKJ.K O 'K Z @ ASSESSMENT YEAR : 20 1 0 - 1 1 M/S S UPERSONIC TURNERS PVT. LTD., F - 393A, ROAD NO.9 F2, VKI AREA, JAIPUR. CUKE VS. THE A. C.I.T., CIRCLE - 4 , JAIPUR . LFKK;H YS[KK LA - @THVKBZVKJ LA - @ PAN/GIR NO.: AADCS 5144 H VIHYKFKHZ@ APPELLANT IZR;F KHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI SATISH GUPTA ( C.A. ) JKTLO DH VKSJ LS @ REVENUE BY : SHRI PRITHIVI RAJ MEENA ( A DD. CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 2 1 / 0 2 /201 7 MN ?KKS 'K .KK DH RKJH [K @ DATE OF PRONOUNCEMENT : 23 / 0 2 /201 7 VKNS'K@ ORDER PE R : VIKRAM SINGH YADAV , A .M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A) DATED 2 1 .0 2 .201 4 FOR A.Y. 20 1 0 - 1 1 . THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE AS UNDER: - 1 . ON THE FACTS & CIRCUMSTANCE OF THE C ASE & IN LAW , LD. LOWER AUTHORITIES GROSSLY ERRED IN CONFIRMING THE ADDITION OF RS.25 LACS ON A/C OF DISALLOWANCE OF JOB WORK EXP. ON LUMPSUM BASIS. THE OBSERVATION OF LD. CIT(A) THAT SINCE THE DISALLOWANCE IS LESS THAN 3% OF THE TOTAL JOB WORK CHARGES PAI D THE SAME IN NOT EXORBITANT ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 2 OR DISPROPORTIONATE. LD. A.O. OR CIT(A) EVEN COULD NOT FIND A SINGLE INSTANCE OF ANY UNVOUCHED EXP., UNSIGNED VOUCHER OR VOUCHER WITHOUT DESCRIPTION. THEREFORE THE OBSERVATION OF LD. CIT(A) THAT THE DEFECT NOTICED BY A.O. WERE FOUND BY HIM ALSO IS WRONG FACT AS HE ALSO HAS NOT MENTIONED ANY SPECIFIC DEFECT. 2 ON THE FACTS & CIRCUMSTANCES OF THE CASE & IN LAW ALSO LD. LOWER AUTHORITIES GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS.5 , 11 ,060/ - ON A/C OF DISALLOWANCE OF INTERES T PAID. 2 . IN RESPECT OF GROUND NO. 1 , THE B RIEF FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE COMPANY HAS CLAIMED JOB WORK EXPENSES OF RS.8,77,81,594/ - AS PER T HE PROFIT AND LOSS ACCOUNT . THE ASSES SEE WAS SPECIFICALLY REQUESTED TO FURNISH BILLS IN RESPECT OF THESE CLAIMED EXPENSES. HOWEVER, THE BILLS SO PRODUCED WERE FOUND TO BE WITHOUT ANY DESCRIPTION OF THE WORK DONE. WHILE SOME OF THE BILLS WERE FOUND TO BE UNSIGNED, IN SOME OF THE BILLS SIGNATUR ES WERE FOUND TO BE IN THE SAME HANDWRITING. THESE DISCREPANCIES WERE ALSO POINTED OUT TO THE ASSESSEE. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THAT MAJORITY PAYMENTS WERE MADE THROUGH BANKING CHANNELS AND THE TDS WAS DULY DEDUCTED AND PAID ON ALL TH ESE PAYMENTS. THE SUBMISSION OF THE ASSESSEE WAS CONSIDERED BY AO AND IT WAS STATED BY THE AO THAT THE REPLY OF THE ASSESSEE FALLS SHORT OF JUSTIFICATION IN RESPECT OF DISCREPANCIES AS ENUMERATED IN THE BILLS ABOVE, ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 3 BECAUSE WITHOUT ANY DETAILED DESCRIPTION OF THE WORK DONE AND APPROPRIATE ENDORSEMENT, THE VERACITY OF THE EXPENSES CLAIMED UNDER JOB WORK STANDS DISPUTED, UNVERIFIED AND UNPROVED. TOTAL JOB WORK CHARGES DEBITED IN THE P/L ACCOUNT ARE RS.8,77,81,594/ - . THE AO NOTED THAT D ISALLOWANCE @ 10% OF TH ESE EXPENSES COMES OUT TO RS.87,78,159/ - AND @ 5% COMES OUT TO RS.43,89,80/ - . KEEPING IN VIEW THE REPLY OF THE ASSESSEE AND LOOKING TO ALL POSSIBILITIES INVOKED, A LUMP SUM DISALLOWANCE OF RS.25,00,000/ - WAS THEREAFTER MADE BY THE AO AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO HAS CONFIRMED THE ORDER OF THE AO BY OBSERVING IN PARA 2.3 OF HIS ORDER AS UNDER: 2.3: I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. ASSESSING OFFICER DISALLOWED RS.25 LAKHS OUT OF JOB WORK CHARGES ON ACCOUNT OF DEFECTS IN THE BILLS SUCH AS CERTAIN BILLS NOT BEARING SIGNATURE, DESCRIPTION OF FACTUAL WORK DONE NOT THERE ETC. THE DISALLOWANCE MADE BY THE A SSESSING OFFICER IS LESS THAN 3% OF THE TOTAL JOB WORK CHARGES PAID AND THEREFORE IT CAN BE SEEN THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT EXORBITANT OR DISPROPORTIONATE. DURING APPEAL PROCEEDINGS THIS ISSUE WAS AGAIN EXAMINED AND IT IS FOUND THAT APART FROM THE DEFECTS NOTICED BY THE ASSESSING OFFICER, APPELLANT MADE CASH PAYMENT ON ACCOUNT OF JOB WORK ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 4 CHARGES TO ASSOCIATED CONCERNS. PAYMENT OF JOB WORK CHARGES TO THE EXTENT OF MORE THAN RS.20 LAKHS WERE MADE BY CASH TO M/S PAWANSUT. IN THE TAX AUDIT REPORT, PAYMENT FOR JOB WORK AND OTHERS TO RELATED PARTIES WAS REPORTED TO BE MORE THAN RS.1 CRORE THEREFORE THE GENUINENESS AND BUSINESS PURPOSE OF THESE EXPENSES ARE NOT BEYOND DOUBT. CONSIDERING THE DEFECTS IN VOUCHERS AND SUBSTANTIAL CASH P AYMENT TO RELATED PARTIES, PART DISALLOWANCE OF JOB WORK CHARGES IS JUSTIFIED. SINCE ASSESSING OFFICER DISALLOWED LESS THAN 3% EXPENSE WHICH IS QUITE REASONABLE AND EVEN LESS THAN CASH PAYMENTS MADE FOR JOB WORK CHARGES, DISALLOWANCE DESERVES TO BE CONFIR MED. THE APPELLANTS ARGUMENTS THAT NO SUCH DISALLOWANCE WAS MADE IN EARLIER YEARS IS OF NO CONSEQUENCE SINCE ASSESSING OFFICER FOUND DEFECT IN THE EXPENSE CLAIMED AND THEREFORE DISALLOWANCE CAN BE MADE IN THE YEAR OF VERIFICATION. ACCORDINGLY, DISALLOWAN CE MADE BY THE ASSESSING OFFICER IS CONFIRMED . 4. THE LD. COUNSEL FOR THE ASSESSEE DRAWN OUR ATTENTION TO PARA 3.1 AT PAGE 2 OF THE ASSESSMENT ORDER WHERE THE ASSESSING OFFICER MADE THE DISALLOWANCE BY MENTIONING THE REPLY OF THE ASSESSEE HAS BEEN CAREFU LLY CONSIDERED, WHICH FALLS SHORT OF JUSTIFICATION IN RESPECT OF DISCREPANCIES AS ENUMERATED IN THE BILLS ABOVE, BECAUSE WITHOUT ANY DETAILED DESCRIPTION OF THE WORK DONE AND APPROPRIATE ENDORSEMENT, THE VERACITY OF THE EXPENSES CLAIMED UNDER JOB WORK STAN DS DISPUTED, UNVERIFIED AND UNPROVED. TOTAL JOB WORK CHARGES DEBITED IN THE P/L ACCOUNT ARE RS.8,77,81,594/ - . DISALLOWANCE @ 10% OF THESE EXPENSES ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 5 COMES OUT TO RS.87,78,159/ - AND @ 5% COMES OUT TO RS.43,89,80/ - . KEEPING IN VIEW, THE REPLY OF THE ASSESSEE A ND LOOKING TO ALL POSSIBILITIES INVOKED, A LUMP SUM DISALLOWANCE OF RS.25,00,000/ - IS MADE OUT OF THE JOB WORK EXPENSES CLAIMED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4.1 IT WAS SUBMITTED THAT FROM THE PERUSAL OF THE ABOVE P ARA OF THE AOS ORDER T HAT IT IS CLEAR THAT THE DISALLOWANCE HAS BEEN MADE ON LUMP SUM BASIS WITHOUT SPECIFYING ANY VOUCHER OR BILL WHICH IS WITHOUT ANY DESCRIPTION OF WORK DONE, WHICH IS FOUND UNSIGNED AND BILLS WHERE SIGNATURES WERE FOUND TO BE IN THE SAME HANDWRITING. NO CONS IDERATION WAS GIVEN TO THE REPLY THAT MAJORITY PAYMENTS WERE MADE THROUGH BANKING CHANNELS AND TDS HAS BEEN DEDUCTED AND PAID ON ALL ELIGIBLE PAYMENTS. 4.2 THE LD AR FURTHER REITERATED THE SUBMISSIONS MADE BEFORE THE LD CIT(A). IT WAS SUBMITTED BEFORE TH E LD CIT(A) THAT THE AO HAS DISALLO WED A SUM OF RS.25,00,000/ - ON A / C OF JOB WORK EXPENSES CLAIMED BY THE A SSESSEE. THIS DISALLOWANCE HAS BEEN MADE ON LUMP SUM BASIS WITHOUT H AVING ANY SPECIFIC ADVERSE MATERIAL. THE A SSESSEE IS A COMPANY DOING THE BUSINESS OF MANUFACTURING AND JOB WORK OF BEARING RINGS SINCE LAST SO MANY YEARS. THE A SSESSEE DO MANUFACTURING AND JOB WORK AT HIS ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 6 OWN PLANT AND ALSO GET THE JOB WORK DONE FROM OTHERS S MALL JOB WORKS. THE ASSESSEE FILED RETURN OF INCOME DECLARING AN INCOME OF RS .1,79,38,482/ - . DURING THE YEAR , THE A SSESSEE CLAIMED JOB WORK EXPENSES OF RS.8,77,81,594/ - IN THE P&L A/C. IT HAS BEEN MENTIONED BY THE AO AT PARA 3 OF PAGE 1 OF THE ASSESSMENT ORDER THAT THE ASSESSEE COMPANY WAS ASKED TO FURNISH BILLS OF JOB WORK. IT HAS ALSO BEEN ADMITTED BY THE AO THAT THE A SSESSEE PRODUCED ALL THE BILLS. AS PER THE AO , SOME OF THE BILLS WERE UNSIGNED AND IN SOME OF THE BILLS SIGNATURE WERE FOUND TO BE IN SAME HANDWRITING AND IN SOME CASES DESCRIPTION WAS NOT THERE. HOWEVER, THE AO DI D NOT MENTION ANY SUCH SPECIFIC INSTANCE IN THE ASSESSMENT ORDER. I N THIS RESPECT , WE FURTHER SUBMIT THAT THE ENTIRE EXPENDITURE WAS VOUCHED. ALMOST ALL THE PAYMENTS HAVE BEEN MADE THROUGH A /C PAYEE CHEQUE/BANKING CHANNEL. IN ALL ELIGIBLE CASES , TDS HAS BEEN DEDUCTED AND DEPOSITED ON JOB WORK PAYMENTS. TDS RETURNS HAVE ALSO BEEN FILED. THE SAME WAS ALSO VERIFIED. ALL SUCH PARTIES ARE INCOME TAX ASSESSES AND LD AO COULD HAVE MA DE ENQUIRES DIRECTLY FOR VERIFICATION OF PAYMENT/WORK, IF THERE WAS ANY DOUBT O N ACCOUNT OF ANY UNSIGNED BILL OR SAME HANDWRITING. I T IS NOT UNDERSTANDABLE THAT HOW SIGNATURES CAN BE IN DIFFERENT HANDWRITING ON THE BILLS. T HE NECESSARY DESCRIPTION WAS THERE ON THE BILL S . IF SOME OF THE BILLS WERE NOT UPTO THE MARK OF LD AO THE ENQ UIRY SHOULD HAVE BEEN ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 7 MADE FROM THE JOB WORKER BEFORE MAKING LUMP SUM DISALLOWANCE. T HE ASSESSEE IS AN OLD ASSESSEE AND IN PAST ASSESSMENTS HAVE ALSO BEEN MADE UNDER SCRUTINY. FOR EXAMPLE, ASSESSMENT OF PRECEDING YEAR I.E. A.Y. 2009 - 10 WAS ALSO MADE UNDER SCRUTINY BUT NO SUCH DISALLOWANCE WAS MADE. WE MAY SUBMIT ALL THE BILLS OF JOB WORK FOR YOUR KIND PERUSAL AND VERIFICATION IF YOUR HONOUR KINDLY PERMIT. SOME OF THE BILLS OF JOB WORK ARE HEREBY SUBMITTED FOR YOUR KIND PERUSAL AND VERIFICATION. 4.3 IT WAS FURTHER SUBMITTED THAT THE L D CIT (APPEALS) CONFIRMED THE DISALLOWANCES BY BRINGING ONE MORE ALLEGATION IN THE ORDER THAT IN SOME CASES CASH PAYMENT ON ACCOUNT OF JOB WORK CHARGES HAS ALSO BEEN MADE TO THE RELATED PARTIES. 4.4 IT WAS FURTHER SUBMITTED THA T THE EXPENSES ARE 100% VOUCHED AND NO SPECIFIC INSTANCE OF ANY UNVOUCHED EXPENSES HAS BEEN GIVEN BY LD LOWER AUTHORITIES. THAT ON ALL THE BILLS THE DESCRIPTION HAS BEEN MENTIONED IN THE BILLS IN SHORT FORM, THE LANGUAGE ADOPTED BY THE TRADE. FOR EXAMPLE F OR THE JOB WORK BORE/OD/FACE THE WORDS IN SHORTCUT BOF HAS BEEN MENTIONED. LIKEWISE , IR REPRESENTS INNER RING AND OR REPRESENTS OUTER RING. LIKEWISE DP REPRESENTS DRILLING AND PARTING. THEREFORE IT IS NOT CORRECT OBSERVATION OF LD LOWER AUTHORITIES THAT D ESCRIPTION OF WORK DONE WAS NOT MENTIONED. REGARDING ANOTHER ALLEGED ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 8 DEFECTS THAT BILLS WERE FOUND TO BE UNSIGNED AND SOME OF THE BILLS SIGNATORIES WERE FOUND IN SAME HANDWRITING ARE IRRELEVANT OBSERVATIONS BECAUSE NO SPECIFIC INSTANCE WAS GIVEN EVEN NO E NQUIRY WHATSOEVER WAS MADE FROM SUCH JOB WORKERS. THEREFORE THE DISALLOWANCE HAS BEEN MADE ON IRRELEVANT AND UNCONFIRMED FACTS. 4.5 IT WAS FURTHER SUBMITTED THAT N O SUCH ADDITION WAS MADE IN THE PAST AND THIS FACT WAS NOT CONSIDERED BY LD. CIT (APPEALS). THE OBSERVATION OF LD. CIT (APPEALS) THAT THE PAYMENTS HAVE BEEN MADE IN CASH AND TO THE RELATED PARTIES IS NOT LAWFUL BECAUSE LD. CIT (APPEALS) HIMSELF IN THE APPEAL ORDER HAS MENTIONED THAT ASSESSEE HAS DECLARED SUCH PAYMENTS TO RELATIVES IN THE TAX AUDI T REPORTS AND THERE IS NO ALLEGATION THAT PAYMENTS TO RELATIVES HAVE BEEN MADE OVER AND ABOVE THE MARKET PRICE AND THERE IS NO SUCH ALLEGATION THAT CASH PAYMENT HAVE BEEN MADE IN VIOLATION OF SECTION 40A(3) OF THE INCOME TAX ACT, 1961. THEREFORE, THE DISAL LOWANCE IS SIMPLY BASED ON ASSUMPTIONS AND PRESUMPTIONS AND NO EVIDENCE AGAINST THE ASSESSEE HAS BEEN BROUGHT ON THE RECORD, HENCE THE DISALLOWANCE IS UNLAWFUL. 4.6 IT WAS FURTHER SUBMITTED THAT THE DISALLOWANCE MADE WITH THE REMARK THAT IT IS ONLY LESS TH AN 3% OF THE EXPENSES SHOULD NOT BE ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 9 ALLOWED TO BE MADE AND THE ASSESSMENT SHOULD BE MADE ON THE BASIS OF BOOKS OF ACCOUNTS, VOUCHERS AND BILLS. 4.7 IT WAS SUBMITTED THAT THE ASS ESSEE CLAIMED DEDUCTION U/S 37(1 ) OF THE INCOME TAX ACT, 1961 AND AS PER THE PROVISION OF THE SAID SECTION , DISALLOWANCE CAN BE MADE ONLY IN THE CIRCUMSTANCES WHERE THE ALLEGED EXPENDITURE IS CAPITAL EXPENDITURE, PERSONAL EXPENSES OF THE ASSESSEE OR WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR WHICH IS UNL AWFUL. IN THIS CASE BEFORE MAKING DISALLOWANCE , NONE OF THE ABOVE DEFECT HAS BEEN BROUGHT ON THE RECORD THEREFORE THE DISALLOWANCE IS BAD IN LAW. IT IS ALSO SUBMITTED THAT THE EXPENDITURE WAS SUPPORTED BY PROPER SUPPORTING AND BILLS. THE EXPENDITURE WAS I NCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. 4.8 IT WAS SUBMITTED THAT A LL THE PAYMENTS ARE SUBJECT TO TDS AND CASH PAYMENT WAS ALSO MADE TO THE PERSON WHO IS ASSESSED TO INCOME TAX AND THE PAYMENT WAS WITHIN THE PERMISSIBLE LIMITS OF SECTION 40A(3) OF THE ACT. THE EXPENSES ARE REASONABLE AND ARE RESULTING INTO RECEIPTS BECAUSE THESE EXPENSES ARE DIRECTLY RELATED TO THE MANUFACTURING PART. THE LOWER AUTHORITIES HAVE NOT POINTED OUT ANY SPECIFIC PAYMENT WHICH IS NOT VERIFIABLE. IT IS NOT THE CA SE OF THE LD A.O. THAT EXPENSES ARE INFLATED OR FAKE. IT IS HUMBLY SUBMITTED THAT ALL THE EXPENSES ARE ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 10 VERIFIABLE AND NO DISALLOWANCE SHOULD HAVE BEEN MADE. THE RECEIPT OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS OF RS.51.20 CRORE. SOME OF TH E VOUCHERS WHICH ARE ALSO SUBMITTED BEFORE LD CIT (APPEALS) ARE PART OF PAPER BOOK FOR THE PERUSAL AND VERIFICATION OF THE H ON BLE BENCH . 5. THE LD DR IS HEARD WHO HAS RELIED UPON THE ORDER OF THE LOWER AUTHORITIES AND ALSO SUBMITTED THAT THE SAMPLE SIZE OF SAMPLE BILLS PRODUCED IS NOT COMMENSURATE WITH THE QUANTUM OF JOB WORK EXPENSES CLAIMED IN THE PROFIT/LOSS ACCOUNT. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS DISALLOWED A LUMP SUM AMOUNT OF RS.25 LACS OUT OF RS. 8,77,81,594/ - JOB WORK EXPENSES CLAIMED BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT. AS PER THE ASSESSING OFFICER, THE BILLS SUBMITTED BY THE ASSESSEE FOR VERIFICATION DONOT CONTAIN ANY DETAILED DESCRIPTION OF THE WORK AND SOME OF BILLS WERE FOUND TO BE UNSIGNED AND SOME OF THE BILLS WERE SIGNED IN THE SAME HANDWRITING. THE MATTER WAS AGAIN EXAMINED BY THE LD. CIT(A). C ONSIDERING THE DEFECTS IN VOUCHERS AND SUBSTANTIAL CASH PAYMENT OF MORE THAN RS.20 LACS PAID TO RELATED PA RTY, M/S PAWANSUT AND GIVEN THAT THE EXPENSES DISALLOWED BY THE ASSESSING OFFICER IS LESS THAN 3% OF THE ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 11 TOTAL EXPENSES CLAIMED , T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS FOUND REASONABLE AND DISALLOWANCE WAS CONFIRMED BY LD CIT(A) . THE LD. A.R. H AS SUBMITTED THAT 100% OF THE JOB WORK EXPENSES ARE VOUCHED AND NO SPECIFIC INSTANCE OF ANY UNVOUCHED EXPENSES HAS BEEN GIVEN BY THE LOWER AUTH ORITIES. ALL THE BILLS CONTAINS THE DESCRIPTION OF WORK DONE , THOUGH IN SHORT FORM, AS PER THE TRADE PRACTICE AND CUSTOM OF THE ASSESSEE TRADE. SO FAR AS THE PAYMENT IN CASH IS CONCERNED, THE SAME WAS MADE WITHIN THE PERMISSIBLE LIMITS OF SECTION 40A(3) OF THE ACT. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE MATTER AND WE ARE OF THE VIEW THAT THE ASSESSEES CONTENTI ON DESERVES TO BE ACCEPTED. FIRSTLY, THE ADDITION HAS BEEN MADE ON PURELY AN ADHOC BASIS WITHOUT HIGHLIGHTING ANY SPECIFIC INSTANCE WHERE THE PAYMENT IS NOT VERIFIABLE OR THE EXPENSES CLAIMED BY THE ASSESSEE ARE BOGUS OR HAVE NOT BEEN INCURRED FOR THE PURP OSE OF BUSINESS. FURTHER, NO SPECIFIC INSTANCE OF CASH PAYMENT HAS BEEN HIGHLIGHTED WHICH HAS VIOLATED THE PROVISIONS OF SECTION 40A(3) OF THE ACT . IN LIGHT OF ABOVE, WE HEREBY DELETE THE DISALLOWANCE OF RS.25 LACS MADE BY THE ASSESSING OFFICER. IN THE RES ULT, GROUND NO.1 OF THE ASSESSEE IS ALLOWED. 7 . IN RESPECT OF GROUND NO. 2 , THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS PAID INTEREST OF RS 17,88,712 TO M/S PODDAR CONSULTANCY ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 12 ORGANIZATION @ 16.8% . SINCE M/S PODDAR CONSULTANCY ORGANIZATION IS A SHAREHOLDER IN SUPERSONIC TURNERS (P) LTD., THE EXCESS CLAIM OF INTEREST PAID TO THIS CONCERN WAS DISALLOWED AND RESTRICTED TO 12%, BEING THE NORMAL RATE OF INTEREST AT WHICH INTEREST WAS PAID TO OTHER CONCERNS . HENCE, THE EXCESS INTEREST PAID OF RS.5,11,0 60/ - WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 6. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A), WHO HAS CONFIRMED THE ORDER OF THE AO BY OBSERVING IN PARA 3.3 OF HIS ORDER AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. ASSESSING OFFICER RESTRICTED THE INTEREST PAID TO RELATED PARTY AT THE RATE OF 12% OF THE GROUND THAT THE RATE OF INTEREST WITH BANK AND INSTITUTION IS 12%. APPELLANT SUBMITTED THAT T HE RECIPIENT HAS OFFERED THE SAME AS INCOME. HOWEVER IF EXCESS INTEREST IS PAID SUCH EXCESS IS DISALLOWABLE UNDER SECTION 40A(2)(B) IRRESPECTIVE OF DISCLOSURE OF SUCH INCOME BY THE RECIPIENT. THEREFORE APPELLANTS ARGUMENT IS NOT JUSTIFIED. WHEN APPELLANT WAS BORROWING FROM BANKS AT 12%, HOW INTEREST OF 16.8% PAID TO RELATED PARTY CAN BE REASONABLE. THE INTEREST PAYMENT IN EARLIER YEARS WILL NOT BE RELEVANT TO DECIDE THE ISSUE OF DISALLOWANCE OF INTEREST THIS YEAR. CONSIDERING ALL THESE FACTS, IT IS HELD TH AT DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER IS JUSTIFIED AND ACCORDINGLY THE SAME IF CONFIRMED. ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 13 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A.O TREATED THIS RECIPIENT AS RELATED PARTY HAVING THE BELIEF THAT THE RECIPIENT IS SHAREH OLDER OF THE COMPANY AND IT WAS MENTIONED BEFORE LD CIT(APPEALS) THAT THE RECIPIENT IS NOT THE SHAREHOLDER OF THE COMPANY. SURPRISING , LD CIT (APPEALS) DID NOT CONSIDER THIS FACTS AND EVEN DID NOT MENTION THIS FACT IN HIS ORDER UNDER THE HEAD WRITTEN SUBMI SSION OF THE ASSESSEE. 7.1 T HE ASSESSEE IN THE FINANCIAL STATEMENT HAS GIVEN ALL THE DETAILS OF RELATED PARTIES AND M/S PODDAR CONSULTANCY ORGANIZATION IS NOT THE RELATED PARTY, THEREFORE THE DISALLOWANCE HAS BEEN MADE ON WRONG FACTS. AS PER THE CLAUSE (II ) OF SECTION 40A(2)(B), FOR A COMPANY ASSESSEE , THE RELATED PARTY IS ONLY DIRECTOR OF THE COMPANY OR ANY RELATIVE OF SUCH DIRECTOR OF THE COMPANY, THEREFORE EVEN THE SECTION IS NOT APPLICABLE ON THE PAYMENTS TO SHAREHOLDERS OF A COMPANY. 7.2 THE L D CIT (AP PEALS) HELD THAT EVEN IF THE RECIPIENT HAS DECLARED THE INCOME IN HIS/HER RETURN OF INCOME , THE EXCESS AMOUNT IS DISALLOWABLE U/S 40A(2)(B) OF THE INCOME TAX ACT. IN THIS RESPECT , IT IS HUMBLY SUBMITTED THAT WHEN THE RECIPIENT HAS DECLARED THE INCOME IN TH E RETURN OF INCOME THEN THERE IS NO LOSS TO REVENUE AND THE DISALLOWANCE IS UNLAWFUL. MOREOVER IT IS ALSO SUBMITTED THE PAYMENT IS ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 14 GENUINE AND NOT EXCESSIVE BECAUSE THE FINANCE FROM BANKS AND FINANCE FROM PRIVATE PARTIES CANNOT BE ON THE SAME RATES BECAUSE THE LOAN FROM PRIVATE PARTIES IS WITHOUT SECURITY WHEREAS LOAN FROM BANK IS SECURED AND THEREFORE RATE OF INT E REST @ 16.8% TO A PRIVATE LENDER IS QUITE REASONABLE AND JUSTIFIED. WE RELY ON HONBLE ITAT AHMEDABAD IN THE CASE OF OMKARMAL GAURISHANKER V/S IT O 92 TTJ (AHD.) 223, IN THE CASE OF Y. MEHTA V/S ACIT ITA NO.869/AHD/2010 AND IN THE CASE OF ACIT V/S M/S RAJ STEEL INDUSTRIES ITA NO.2245/AHD./2010. 8. THE LD DR IS HEARD WHO HAS RELIED UPON THE ORDER OF LOWER AUTHORITIES. 9 . WE HAVE HEARD THE RIVAL CO NTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS PAID INTEREST @ 16.8% TO M/S PODDAR CONSULTANCY ORGANIZATION. THE ASSESSING OFFICER HAS RESTRICTED THE ALLOWANCE OF INTEREST @ 12% ON THE GROUND THAT FIRSTLY M/S PODDAR CONSULTANCY OR GANIZATION IS A SHAREHOLDER IN THE ASSESSEE COMPANY AND BEING A RELATED PARTY, THE PAYMENT WOULD BE SUBJECT TO SECTION 40A(2)(B) OF THE ACT AND SECONDLY, THE RATE OF INTEREST PAID TO BANKS WAS 12% AND AMOUNT OVER AND ABOVE THAT IS DISALLOWABLE UNDER SECTIO N 40A(2)(B) OF THE ACT. THE APPELLANT HAS CONTENDED THAT FIRSTLY M/S PODDAR CONSULTANCY ORGANIZATION IS NOT A SHAREHOLDER OF THE ASSESSEE ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 15 COMPANY AND SECONDLY, THE PAYMENT OF INTEREST IS QUITE REASONABLE AND GENUINE BECAUSE THE FINANCE FROM BANKS AND FINAN CE FROM PRIVATE PARTIES CANNOT BE COMPARED AS LOAN FROM PRIVATE PARTIES IS WITHOUT SECURITY WHEREAS LOAN FROM A BANK IS SECURED AND THEREFORE, THERE IS A VARIANCE IN THE RATE OFFERED BY THE PRIVATE PARTIES AND CHARGE BY THE BANKS. IN OUR VIEW, THE RATE OF INTEREST ON BORROWING NEED TO BE BENCHMARKED WITH THE THIRD PARTY TRANSACTION IN THE SIMILAR FACTS & CIRCUMSTANCES OF THE CASE. IN THE INSTANT CASE, WHAT IS BEING COMPARED IS A RATE OF INTEREST ON AN U NSECURED BORROWING VIS - - VIS A SECURED BORROWING. IN A BSENCE OF A COMPARABLE CASE BEING HIGHLIGHTED BY THE ASSESSING OFFICER, WE ARE UNABLE TO ACCEPT THE STAND OF THE REVENUE THAT THE INTEREST PAID IS ON A HIGHER SIDE. IN LIGHT OF ABOVE, THE GROUND NO.2 OF THE ASSESSEE IS ALLOWED. IN THE RESULT, APPEAL OF T HE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 /0 2 / 201 7 . SD/ - SD/ - DQY HK KJ R FOE FLAG ;KNO ( KUL BHARAT ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED: - 23 /0 2 /2017. * SANJEEV*. ITA NO. 276 /JP/201 4 M/S SUPERSONIC TURNERS V ACIT, CIRCLE 4, JAIPUR 16 VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT - M/S SUPERSONIC TURNERS, JAIPUR . 2. IZR;FKHZ@ THE RESPONDENT - THE A CIT, CIRCLE - 4 , JAIPUR . 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CI T(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 276 /JP/201 4 } . VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR