The ACIT, Circle-3, Baroda V. M/s. Metro Engineers, Baroda

ITA 3/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63097 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 24-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 02-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K SINGH
• Assessee Lawyers: M J SHAH
• Keywords: Fair market value; Onus to prove
• Section: 44AD; 143(3); 131; 28

Judgement Text

, , , , C, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH BEFORE S/SHRI D.K. TYAGI, JUDICIAL MEMBER AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.1849/AHD/2011 [ASSTT.YEAR : 2006-2007] ACIT, CIR.3 BARODA. /VS. M/S.METRO ENGINEERS F/15, RAVI COMPLEX GIDC, VALIA ROAD, ANKLESHWAR. PAN : AADFM 9661 N ITA NO.3/AHD/2012 [ASSTT.YEAR : 2007-2008] ACIT, CIR.3 BARODA. /VS. M/S.METRO ENGINEERS 201, NIHARIKA APARTMENTS SUBHANPURA, BARODA. ( (( ( / APPELLANT) ( (( ( / RESPONDENT) !'/ REVENUE BY : SHRI D.K. SINGH $%& !'/ ASSESSEE BY : SHRI M.J. SHAH !'( &)*/ DATE OF HEARING : 24 TH SEPTEMBER, 2012 +,- &)*/ DATE OF PRONOUNCEMENT : 30-11-2012 '. / O R D E R PER ANIL CHATURVEDI, ACCOUNTANT MEMBER: THESE ARE TWO REVENUES APPEALS DIRECTED AGAINST TH E ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, BARODA FO R THE ITA NO.1849/AHD/2011 3/AHD/2012 -2- ASSESSMENT YEARS 2006-2007 AND 2007-2008. FOR THE SAKE OF CONVENIENCE, WE DISPOSE OF BOTH THE APPEALS OF REVE NUE BY THIS CONSOLIDATED ORDER. ITA NO.1849/AHD/2011 ASSTT.YEAR 2006-2007 2. ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BU SINESS OF ERECTION, FABRICATION AND ENGINEERING JOB WORKS MAI NLY RELATED TO PLANTS IN PHARMACEUTICALS/CHEMICAL INDUSTRIES. IT F ILED ITS RETURN OF INCOME ON 18.10.2006 FOR AY 2006-07 DECLARING TOTAL INCOME OF RS.25,41,620/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 2 9.12.2008 AND THE INCOME WAS DETERMINED AT RS.47,30,920 AFTER MAK ING VARIOUS ADDITIONS. AGGRIEVED BY THE ORDER OF AO, ASSESSEE C ARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 28.12.2010 G RANTED PARTIAL RELIEF TO ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A ), REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US THE ONLY GROUND IS W ITH REFERENCE TO THE ADDITION MADE U/S 40A(2)(B) AND THE GROUND READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING ADDITION OF RS .16,00,000/- MADE U/S.40A(2)(B) OF THE ACT ON ACCOUNT OF DISALLO WANCE OF LABOUR CHARGES TO ITS SISTER CONCERN ON THE GROUND THAT IT WOULD ENHANCE GROSS PROFIT TO 12.51% IGNORING THE FACT TH AT IN EARLIER YEARS HONBLE ITAT HAD UPHELD SUCH DISALLOWANCE TO THE EXTENT OF 15% OF GROSS PROFIT. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO O BSERVED THAT ASSESSEE HAD DEBITED TO ITS PROFIT & LOSS A/C RS.16 ,00,000 BEING THE AMOUNT PAID TO M/S JET ENGINEERS, ITS SISTER CONCER N TOWARDS LABOUR CHARGES. ACCORDING TO THE AO THE AMOUNT PAID TO JET ENGINEER WAS COVERED U/S 40A(2)(B) AS IT HAD ONLY CARRIED OUT TH E WORK FOR THE ITA NO.1849/AHD/2011 3/AHD/2012 -3- ASSESSEE AND FOR NO OTHER PARTY. AO VIDE LETTER DAT ED 24.11.2008 DIRECTED THE ASSESSEE INTERALIA TO FURNISH THE COPY OF AGREEMENT ENTERED BETWEEN ASSESSEE AND JET ENGINEERS, PROVE T HE CAPACITY OF JET ENGINEERS TO RENDER SERVICES BY PRODUCING DETAILS O F ITS EMPLOYEES, PURCHASES ETC, QUANTUM OF WORK CARRIED OUT BY JET E NGINEERS, BREAKUP OF EXPENSES INCURRED BY JET ENGINEERS ON ACCOUNT OF MATERIAL COST AND SERVICES AND SUBSTANTIATE THE PAYMENT. ASSESSEE SUB MITTED THE COPY OF AGREEMENT AND COPIES OF BILLS ISSUED BY JET ENGG. A LONGWITH BANK STATEMENT OF ASSESSEE AND JET ENGG. AO HAS STATED THAT ASSESSEE DID NOT FURNISH DETAILS OF JET ENGINEERS REGARDING THE NUMBER OF WORKERS EMPLOYED, THEIR SALARIES AND WAGES AND OTHER RELATE D EXPENSES LIKE MATERIAL PURCHASES ETC. THE AO WAS THUS OF THE VIE W THAT THE PAYMENTS WERE MADE TO SISTER CONCERN ONLY WITH AN I NTENTION TO REDUCE THE PROFITS. AO WAS OF THE VIEW THAT AS JET ENGINEE RS HAS WORKED ONLY FOR THE ASSESSEE IT WAS PROVED THAT SERVICES RENDER ED BY IT TO ASSESSEE WERE NOT AT FAIR MARKET VALUE AS IT DID NOT HAVE AN Y EMPLOYEE /LABOURER TO CARRY OUT THE WORK. HE ALSO OBSERVED T HAT IN EARLIER YEAR ALSO THE ASSESSEE COULD NOT PROVE THE GENUINENESS O F THE TRANSACTIONS AND SERVICES RENDERED BY JET ENGINEERS AND ADDITION WERE MADE BY OBSERVING THAT ASSESSEE HAD FAILED TO DISCHARGE ITS ONUS TO PROVE THAT EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR T HE PURPOSE OF BUSINESS AND THE ADDITION WERE CONFIRMED BY CIT(A). FURTHER, HONBLE ITAT HAD ESTIMATED THE NET PROFIT AT 15% KE EPING IN VIEW THE NATURE OF BUSINESS. THE AO THUS CONCLUDED THAT THE ASSESSEE HAD FAILED TO ESTABLISH THE MARKET VALUE OF SERVICES RE NDERED BY THE JET ENGINEERS AND ACCORDINGLY HE DISALLOWED THE PAYMENT OF RS.16,00,000 MADE BY ASSESSEE TO JET ENGINEERS AND ADDED IT TO THE TOTAL INCOME. AGGRIEVED BY THE ORDER OF AO ASSESSEE CARRIED THE M ATTER BEFORE ITA NO.1849/AHD/2011 3/AHD/2012 -4- CIT(A). AFTER CONSIDERING THE SUBMISSIONS MADE BEFO RE HIM, CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER: 4.2 I HAVE GONE THROUGH THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND CONSIDERED THE SUBMISSION AND ARGUMENTS O F THE LD. AR. IN SHORT WHILE DISALLOWING RS.16,00,000/-, THE AO HAS MAINLY CONSIDERED THAT IN PAST SUCH TRANSACTIONS WE RE NOT CONSIDERED ABOVE BOARD. THE MATTER IN FACT WENT TO ITAT WHEREIN FINALLY ON THE FACTS AND IN THE CIRCUMSTANC ES FOR THE ASSESSMENT YEAR CONCERNED I.E. A.Y. 2000-01, 2001-0 2, 2002-03 & 2003-04, THE HON'BLE ITAT CHOSE TO RESTRICT THE E STIMATION OF PROFIT AT 15% KEEPING IN VIEW THE OBSERVATION SO MA DE BY HON'BLE ITAT THAT ASSESSEE'S LINE OF TECHNICAL FABR ICATION WAS HIGHLY COMPETITIVE AS ALSO OBSERVED THAT THE ASSESS EE HAD COMPLEX NATURE OF BUSINESS WHICH AFFECTS THE DEGREE OF EVIDENCES. THE ANOTHER RELEVANT ISSUE BEFORE DWELLI NG UPON THE DISALLOWANCE OF RS.16,00,000/- UNDER SECTION 40A(2) (B) OF THE I.T.ACT,1961 IS THAT THE PROVISIONS OF SEC. 40A(2)( A) IS WITH REFERENCE TO THE FAIR MARKET VALUE OF SERVICES REND ERED BY THE RELATIVE PARTY. IN THE ABSENCE OF ENQUIRY BY THE AO TO ASCERTAIN THE FAIR MARKET VALUE OF THE SERVICE, NO DISALLOWAN CE CAN BE MADE OR SUSTAINED ON THE GROUND THAT THE PAYMENT IS EXCESSIVE OR UNREASONABLE. THUS INGREDIENT ARE THAT THE ASSESSEE MUST INCUR EX PENDITURE IN RESPECT OF WHICH PAYMENTS HAS BEEN MADE OR IS TO BE MADE TO ANY PERSON SO RELATED AS REFERRED TO IN CLAUSE (B) AND THE AO COMES TO THE OPINION THAT SUCH EXPENDITURE IS EXCES SIVE OR UNREASONABLE HAVING REGARD TO THE MARKET VALUE OF G OODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MAD E OR THE LEGITIMATE NEED OF THE BUSINESS OF THE ASSESSEE OR BENEFITS DERIVED BY OR ACCRUING THERE-FROM SO MUCH EXPENDITU RE AS CONSIDERED EXCESSIVE OR UNREASONABLE SHALL NOT BE A LLOWED AS DEDUCTION. IT MAY BE OBSERVED THAT THE PROVISIONS ARE NON OBST ANTE PROVISIONS AND THEREFORE HAVE AN OVER RIDDING EFFEC T OVER THE OTHER PROVISIONS ALLOWING THE DEDUCTION. THIS PROVI SION PRESUPPOSES ALLOWABILITY OF EXPENDITURE OTHERWISE. IF THE EXPENDITURE IS NOT ALLOWABLE UNDER SEC. 28 TO 39 OF THE I.T. ACT,1961, THEN QUESTION OF MAKING DISALLOWANCE U/S 40A WOULD I ITA NO.1849/AHD/2011 3/AHD/2012 -5- NOT ARISE. HENCE, IT IS ONLY IN THE CASES WHERE THE DEDUCTION IS ALLOWABLE U/S 28 TO 39 BUT THE EXPENDITURE IS FOUND TO BE EXCESSIVE OR UNREASONABLE, THE DISALLOWANCE U/S 40A CAN BE MADE IF THE PAYMENTS SO MADE ON ACCOUNT OF EXPENDIT URE IS TO THE SPECIFIED PERSONS OF SEC.40A(2)(B) OF THE ACT. WHAT THIS FOLLOWS IS THAT ONLY A PART OF THE EXPEND ITURE CAN BE DISALLOWED IF THE PAYMENT WAS MADE TO THE PERSON SP ECIFIED UNDER SEC. 40A(2)(B) OF THE I.T.ACT,1961 AND SUCH P AYMENT WAS EXCESSIVE HAVING REGARD TO MARKET VALUE OF GOODS , SERVICES OR FACILITIES. HOWEVER, IF NO ENQUIRIES ARE MADE BY THE AO TO ASCE RTAIN WHETHER THE PAYMENT WAS EXCESSIVE OR UNREASONABLE H AVING REGARD TO THE FAIR MARKET VALUE VIZ-A-VIZ THE ACTUA L PAYMENT SO MADE AND IN THE ABSENCE OF ENQUIRY AS CONTEMPLATED BY THE PROVISIONS OF SEC.40A(2)(A), NO DISALLOWANCE COULD HAVE BEEN MADE OR SUSTAINED. THE ONUS IS ON THE AO TO BRING THE MATERIAL ON RECO RD TO PROVE THAT THE PAYMENT MADE BY THE ASSESSEE WAS EXCESSIVE OR UNREASONABLE HAVING REGARD TO FAIR MARKET VALUE OF SERVICES RENDERED. FROM THE PERUSAL OF THE ASSESSMENT ORDER ON PAGE 4, THERE IS NO SHRED OF EVIDENCE THAT THE AO HAD, IN F ACT, MADE ANY SUCH ENQUIRIES AS TO FAIR MARKET VALUE OF THE SERVI CES AND THEREFORE CONFIRMING ANY ADDITION UNDER THE SAID SE CTION WOULD BE AGAINST THE PROVISIONS OF LAW. THERE IS A FINE LINE OF ALLOWANCE AND DISALLOWANCE WITH REFERENCE TO SEC. 28 TO 39 AND 40A(2)(B). WHAT THE PRECEDING SECTIONS ALLOWS ARE RESTRICTED ON THE GROUND OF FAI R MARKET VALUE THEREOF UNDER SECTION 40A(2)(B). THEREFORE, A PPARENTLY IT FOLLOWS THEREFROM THAT THERE CAN NOT BE 100% DISALL OWANCE U/S 40A(2)(B) OF THE LT.ACT,1961 AS THAT WILL BE COVERE D BY SEC.37 OF THE ACT OR TO SAY THE PROVISIONS OF SEC.28 TO 39 ON THE GROUND OF HAVING NOT BEEN ....... EXCLUSIVELY FOR THE BUSI NESS PURPOSE. COMING BACK TO THE DECISION OF HON'BLE ITAT FOR THE AFORESAID THREE ASSESSMENT YEARS WHICH HAVE BEEN REFERRED TO BY THE AO, IT HAS TO BE STRESSED THAT THERE IS NO FINDING IN T HAT ORDER OF HON'BLE ITAT AS TO APPLY THE SAID DECISION IN ANY A ND WHATSOEVER MANNER IN THE SUBSEQUENT YEARS FOR THE S IMPLE ITA NO.1849/AHD/2011 3/AHD/2012 -6- REASON THAT IN I.T. ACT, EACH YEAR IS AN INDEPENDEN T ASSESSMENT YEAR AND IS TO BE DECIDED ON ITS OWN FACTS AND CIRC UMSTANCES AND THE LAW APPLICABLE TO THAT ASSESSMENT YEAR. I ALSO FIND THAT THE COPY OF AGREEMENT SO DEMANDED HAS BEEN DULY PRODUCED BY THE APPELLANT ALONG-WITH OTHER REL EVANT DOCUMENTS INCLUDING THE BANK DOCUMENT. THERE IS NOT HING FROM THE ASSESSMENT BY WHICH IT COULD BE INFERRED THAT T HE AO HAD COMMENCED ANY ENQUIRY AFTER HAVING HAD THOSE DOCUME NTS AND COME TO THE CONCLUSION THAT THE PRICE PAID TO M/S J ET ENGINEERS IS MORE THAN THE FAIR MARKET VALUE WHICH HE HAS ARR IVED AT AFTER THE SAID ENQUIRY. COMING TO NON TECHNICAL PART AND THE FACTS OF THE C ASE, IT IS INTERESTING TO OBSERVE THAT THE GROSS PROFIT FOR TH E YEAR IS 69.37% AS AGAINST 66.13% IN THE IMMEDIATE PRECEDING YEAR. THE ALLEGED PAYMENT OF RS.16,00,000/- ON ACCOUNT OF LABOUR CHARGES TO M/S JET ENGINEERS IS A PART OF THE TRADI NG ACCOUNT. THE GROSS PROFIT IS THUS MUCH BETTER AS COMPARED TO LAST YEAR AFTER TAKING INTO ACCOUNT THE ALLEGED DISPUTED PAYM ENT BY THE AO AND THEREFORE, NO INTERFERENCE COULD BE MADE TO THE TRADING RESULT WHEN THE GROSS PROFIT IS SHOWN TO BE HIGHER THAN THE LAST YEAR. FURTHER IT HAS TO BE MENTIONED THAT IN THE IM MEDIATE PRECEDING YEAR I.E. A.Y.2005-06, NO SUCH DISALLOWAN CE SIR ACCOUNT OF PAYMENT TO M/S JET ENGINEERS HAS BEEN DO NE AND IN VIEW THEREOF THERE IS HARDLY ANY CASE TO CONSIDER A NY DISALLOWANCE ON ACCOUNT OF PAYMENT TO M/S JET ENGIN EERS. IT IS AN UNDISPUTED FACT THAT M/S JET ENGINEERS HAD ENTERED INTO AN AGREEMENT TO CARRY OUT CERTAIN WORK. IT IS ALSO A FACT WHICH HAS BEEN CERTIFIED IN THE EARLIER YEAR BY THE HON'B LE ITAT THAT THE NATURE OF ASSESSEE'S BUSINESS IS COMPLEX AS WEL L AS THE TECHNICAL FABRICATION IS HIGHLY COMPETITIVE. OR ANA LYSIS OF TRADING ACCOUNT, IT IS EVIDENT THAT IF THE PAYMENT TO M/S JET ENGINEERS IS NOT MADE NO SERVICES COULD HAVE BEEN R ENDERED AND THERE COULD NOT HAVE BEEN ANY SALES SO DISCLOSE D OF RS.3.82 CRORES. IT IS EVIDENT FROM THE TRADING ACCOUNT FOR THE YEAR UNDER REFERENCE THAT TO ACHIEVE THE SALE OF RS.3.82 CRORE S DURING THE YEAR, THE APPELLANT HAS INCURRED ONLY EXPENDITURE O N PURCHASES OF MATERIAL AND LABOUR CHARGES. THE LABOUR CHARGES INCURRED ARE PAID/ PAYABLE TO M/S.JET ENGINEERS. THUS IT IS VERY CLEAR FROM THE PERUSAL OF THE TRADING ACCOUNT THAT IF NO SERVICES IN THE ITA NO.1849/AHD/2011 3/AHD/2012 -7- FORM OF LABOUR CHARGES BY M/S LET ENGINEERS ARE PRO VIDED THEN THERE COULD RIOT HAVE BEEN ANY WORKS AND CONSEQUENT LY NO SALES. THEREFORE TO QUESTION THE PAYMENT WITHOUT THERE BEI NG ANY BASIS THEREOF AND MERELY MAKING REFERENCE TO ASSESS MENT YEAR 2000-01, 2001-02 AND 2002-03 WOULD AMOUNT TO UNSETT LING OF THE WHOLE OF THE TRADING RESULTS AND THAT TOO WITHO UT ANY BASIS OR EVIDENCE. THE APPELLANT HAS ALSO PRODUCED THE BANK ACCOUNT WH ERE THE TRANSACTIONS HAS TAKEN PLACE THROUGH THE BANKING CH ANNEL AS ALSO THE FILING OF RETURNS OF INCOME OF M/S JET ENG INEERS WHEREIN HE HAS OBSERVED THAT SINCE THE SAID AMOUNT OF RS.16,00,000/- HAS ALREADY BEEN TAXED IN THE CASE O F M/S JET ENGINEERS AND DISALLOWING THE SAME IN THE CASE OF T HE APPELLANT WOULD AMOUNT TO DOUBLE TAXATION. TDS CERTIFICATE DATED 11.05.2006 ISSUED BY M/S METR O ENGINEERS .OWING M/S JET ENGINEERS FOR HAVING MADE THE TDS AND PAYMENT THEREOF IS ALSO PRODUCED. THE VARIATION IN THE PROFIT WAS BROUGHT TO THE NOTI CE OF THE AO AS IS RECORDED PAGE 2 OF ASSESSMENT ORDER WHEREIN T HE AO HAS OBSERVED THAT THERE IS A SLIGHT FALL IN THE NET PRO FIT AS COMPARED TO THE PRECEDING YEAR. IT IS 10.66 0% THE CURRENT Y EAR WHEREAS IN THE PRECEDING YEAR IT WAS 11.85%. THE AO FURTHER RECORDED THE REASONS THEREFORE THAT SUCH FALL IS DUE TO RISE IN THE CONTRACT EXPENSES AND INCREASE IN PRICE OF RAW MATERIAL AND THE EXPLANATION OF THE ASSESSEE IS FOUND ACCEPTABLE. HAVING ACCEPTED THE SMALL VARIATION IN THE NET PROF IT WHICH IS APPROXIMATELY 1.19%, IT IS, INAPPROPRIATE FOR THE A O TO QUESTION ITS OWN FINDING IN THE SAME ASSESSMENT ORD ER AND TAKE DIVERGENT VIEW ON THE SAME SET OF FACTS THAT WE WIT HOUT ANY BASIS OR EVIDENCE. IN FACT, IF THE DISALLOWANCES ARE TAKEN INTO ACCOUN T FOR THE YEAR, THE NET PROFIT RATE WILL JUMP TO 12.51% WHICH WOULD BE HIGHER BY 1.49% AS COMPARED TO LAST YEAR. THUS, ON ANY GIV EN CRUNCH WHETHER GROSS PROFIT OR NET PROFIT OR ON THE BASIS OF EVIDENCE OR ANY OTHER MATERIAL WHICH AVAILABLE ON RECORD, IT CA N NOT BE SAID ITA NO.1849/AHD/2011 3/AHD/2012 -8- THAT THERE IS A CASE FOR ANY DISALLOWANCE U/S.40A(2 )(B) OF 16,00,000/- AND THE SAME IS THEREFORE DIRECTED TO B E DELETED. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. 5. BEFORE US, THE LD.D.R. SUBMITTED THAT JET ENGINE ERS IS THE SISTER CONCERN OF THE ASSESSEE RUN BY TWO PARTNERS WHO ARE ACTIVELY ENGAGED IN THE BUSINESS OF THE ASSESSEE FIRM. JET ENGG. HAS NOT CARRIED OUT ANY WORK FOR ANY OTHER PARTY EXCEPT THE ASSESSEE . THE LD.D.R. SUBMITTED THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY EVIDENC E IN SUPPORT OF ITS CONTENTION THAT JET ENGINEERS HAS DONE SUB CONTRACT WORK FOR THE ASSESSEE. THE LD.D.R. FURTHER SUBMITTED THAT THE JE T ENGG. HAS NOT PAID ANY TAX. THE LD.D.R. FURTHER SUBMITTED THAT HO NBLE ITAT WHILE DECIDING THE MATTER FOR AY 2000-01 TO 2003-04, REST RICTED THE ADDITION TO 15% AS AGAINST 20% MADE BY CIT(A). HE THUS URGED THAT SIMILAR DIRECTION MAY BE GIVEN IN THE PRESENT APPEAL. 6. ON THE OTHER HAND THE LD.A.R. SUBMITTED THAT ALT HOUGH JET ENGINEERS IS A SISTER CONCERN, IT IS IN THE BUSINES S SINCE LAST 10 YEARS, IT REGULARLY FILES ITS RETURN OF INCOME AND HAS OFFERE D TO TAX THE RECEIPTS FROM THE ASSESSEE . HE PLACED ON RECORD AT PAGE 1 O F THE PAPER BOOK THE COPY OF LEDGER ACCOUNT OF JET ENGG. COPY OF ITS BANK STATEMENT, COPIES OF PASS BOOK OF JET ENGINEERS, COPY OF IT RE TURN OF JET ENGINEERS. HE ALSO PLACED ON RECORD THE COPY OF AGR EEMENT ENTERED BETWEEN THE ASSESSEE AND JET ENGINEERS AT PAGE 12 OF THE PB. HE ALSO FURNISHED THE COPY OF THE STATEMENT RECORDED U/S 13 1 OF SHRI SHASHIDHARAN NAIR, ITS PARTNER. HE POINTED OUT TO T HE FACT THAT LD.CIT(A) DELETED THE ADDITION BY HOLDING THAT DISA LLOWANCE U/S 40A(2)(B) CAN BE MADE IF THE PAYMENT IS EXCESSIVE H AVING REGARD TO ITA NO.1849/AHD/2011 3/AHD/2012 -9- THE MARKET VALUE OF GOODS. HOWEVER IF NO INQUIRIES IS MADE BY THE AO TO ASCERTAIN AS TO WHETHER THE PAYMENT WAS EXCESSIV E OR UNREASONABLE, NO DISALLOWANCE CAN BE MADE. CIT(A) HAD ALSO OBSERV ED THAT THE GP OF THE ASSESSEE WAS COMPARABLE WITH THAT OF EARLIE R YEARS EVEN AFTER INCLUDING THE ALLEGED DISPUTED PAYMENT. HE THUS URG ED THAT CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE AO. HE THUS SUPPORTED THE ORDER OF CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE FACTUAL MATRIX OF THE CASE IS ASSESS EE IS ENGAGED IN THE BUSINESS OF ERECTION, FABRICATION AND ENGINEERING J OB WORKS MAINLY RELATED TO PLANTS IN PHARMACEUTICALS/CHEMICAL INDUS TRIES. ASSESSEE HAD DEBITED TO ITS PROFIT & LOSS A/C. RS.16,00,000 BEIN G THE AMOUNT PAID TO M/S JET ENGINEERS, ITS SISTER CONCERN TOWARDS LA BOUR CHARGES. AO ASKED THE ASSESSEE TO SUBSTANTIATE AND JUSTIFY THE PAYMENT MADE TO SISTER CONCERN AS ACCORDING TO HIM THE AMOUNT PAID TO JET ENGINEER WAS COVERED U/S 40A(2)(B). FROM THE COPY OF THE DEE D OF AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND JET ENGINEERS PLACED ON RECORD IT IS SEEN THAT THE AGREEMENT WAS ENTERED INTO ON 1 5.5.2005 AND THE AGREEMENT INTERALIA REVEALS A) THAT IT WAS ENTERED INTO FOR A PERIOD OF ONE YEA R I.E. FROM 1.4.2005 TO 31.3.2006, B) THE ASSESSEE WILL INSPECT THE WORK THROUGH THIRD PARTY INSPECTION. ITA NO.1849/AHD/2011 3/AHD/2012 -10- C) THE AGREEMENT ALSO STATES THAT JET ENGINEERS WIL L BE BOUND TO ASSESSEE TO CARRY OUT LABOUR WORK AS AND W HEN AND WHEREVER IT IS NECESSARY FOR A PERIOD OF 1 YEAR. D) THE AGREEMENT ALSO STIPULATES THAT THE ASSESSEE WILL SUPPLY NECESSARY MATERIAL REQUIRED FOR THE PROJECT. HOWEVER, MR. SASHIDHARAN NAYAR IN HIS STATEMENT REC ORDED U/S 131 HAS STATED THAT THE SUB-CONTRACTS ARE GIVEN ALONGWI TH MATERIAL AND LABOUR. HE HAS FURTHER STATED THAT JET ENGINEERS HA S DONE THE SUB- CONTRACT WORK ONLY FOR ASSESSEE AND HAS NOT DONE AN Y WORK FOR ANY OTHER PARTY. FROM THE COPY OF THE COMPUTATION OF INCOME OF JET ENGINEERS PLACED AT PAGE 6 OF THE PAPER BOOK IT IS SEEN THAT ITS ONLY INCOME IS FROM ASSESSEE AND HAS COMPUTED INCOME U/S 44AD (I.E . PROFITS HAVE BEEN CONSIDERED AT 8% OF RECEIPTS). AFTER THE PAYME NT OF INTEREST AND REMUNERATION TO PARTNERS THE TOTAL INCOME DECLARED IS OF RS.10,760/- AND THE TAX PAYABLE IS OF RS.3,628/-. IT HAS CLAIME D CREDIT OF TDS DEDUCTED BY THE ASSESSEE AND HAS FINALLY CLAIMED RE FUND OF TAX OF RS.14,292/-. ASSESSEE HAS NOT GIVEN THE DETAILS OF THE PROJECT FOR WHICH THE SUB CONTRACT WAS EXECUTED BY JET ENGINEERS. AO IN T HE ASSESSMENT ORDER HAS STATED THAT THE ASSESSEE HAD NOT GIVEN TO HIM DETAILS WITH RESPECT TO THE NUMBER OF WORKERS EMPLOYED BY JET EN GINEERS AND DETAILS WITH RESPECT TO THE PURCHASES AND EMPLOYEE RELATED EXPENSES. IN THE EARLIER YEARS (AY 2000-01 TO 2003-04) THE AS SESSEE HAD MADE ALSO MADE PAYMENTS TO JET ENGINEERS. THE COORD INATE BENCH OF ITA NO.1849/AHD/2011 3/AHD/2012 -11- TRIBUNAL WHILE DECIDING THE APPEAL FOR AY 2000-01 T O 2003-04 RESTRICTED THE ESTIMATION OF PROFIT AT 15% KEEPING IN VIEW THE OBSERVATION THAT THE ASSESSEES LINE OF TECHNICAL F ABRICATION WAS HIGHLY COMPETITIVE AND THE ASSESSEE HAD COMPLEX NATURE OF BUSINESS. IN VIEW OF THE TOTALITY OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT IN THE PRESENT CASE FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE INTEREST OF JUSTICE ADDITION BE RESTRI CTED TO 15% OF THE AMOUNT PAID TO JET ENGINEERS. THUS THE APPEAL OF TH E REVENUE IS PARTLY ALLOWED. ITA NO.3/AHD/2012 FOR A.Y.2007-2008 9. THE ONLY GROUND IN THIS APPEAL OF THE REVENUE IS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING ADDITION OF RS .12,20,000/- MADE U/S.40A(2)(B) OF THE ACT ON ACCOUNT OF DISALLO WANCE OF LABOUR CHARGES TO ITS SISTER CONCERN ON THE GROUND THAT IT WOULD ENHANCE GROSS PROFIT TO 12.51% IGNORING THE FACT TH AT IN EARLIER YEARS HONBLE ITAT HAD UPHELD SUCH DISALLOWANCE TO THE EXTENT OF 15% OF GROSS PROFIT. 10. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ONLY GROUND RAISED IN THIS APPEAL IS SIMIL AR TO THE GROUND RAISED IN ITA NO.1849/AHD/2011 FOR A.Y.2006-2007. THEREFORE, SINCE THE FACTS AND CIRCUMSTANCES BEING SIMILAR IN BOTH T HE YEARS, THE ISSUE IN THIS APPEAL MAY BE DECIDED IN LINE WITH THE DECI SION TAKEN IN ITA NO.1849/AHD/2011 FOR A.Y.2006-2007. THE LEARNED DR HAS NO OBJECTION TO THIS SUBMISSION OF THE LEARNED AR. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT THE FACTS AND CIRC UMSTANCES IN BOTH ITA NO.1849/AHD/2011 3/AHD/2012 -12- THE ASSESSMENT YEARS UNDER APPEAL BEFORE US ARE SIM ILAR AND THE GROUNDS RAISED IN BOTH THE APPEALS ARE ALSO ON SIMI LAR LINE. THEREFORE, FOR THE REASONS DISCUSSED IN ITA NO.1849/AHD/2011 F OR A.Y.2006- 2007 IN THE FOREGOING PARAGRAPHS, OUR DECISION HOLD GOOD FOR A.Y.2007-2008 ALSO, AND ACCORDINGLY, WE PARTLY ALLO W THE APPEAL OF THE REVENUE IN THIS YEAR ALSO. 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- (D.K. TYAGI) JUDICIAL MEMBER (ANIL CHATURVEDI) ACCOUNTANT MEMBER