The ACIT, Circle-5, Baroda V. Shri Ashok J.Patel, Baroda

ITA 335/AHD/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2054 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-05-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 03-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MEHUL K PATEL
• Keywords: Opportunity of being heard; Fair market value

Judgement Text

CO NOS.94 AND 95/AHD/2010 AND ITA NO. 334 AND 335/AHD/2010 ASSESSMENT YEAR:2005-06 AND 2006-07 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM : SHRI PRAMOD KUMAR A.M. AND SHRI KUL BHARAT J.M.] ITA NO. 334 AND 335/AHD / 2010 ASSESSMENT YEAR: 2005-07 AND 2006-07 ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 5, AHMEDABAD ..APPELLANT VS. ASHOK J PATEL ..RESPONDENT PROP: ASHOKA TRAVELS JUBELIEE, BARODA [PAN : AEMPP9161P] CO NOS.94 AND 95/AHD/2010 ARISING OUT OF ITA NO. 334 AND 325/AHD/2010 ASSESSMENT YEAR: 2005-06 AND 06-07 ASHOK J PATEL ..CROSS OBJECTOR PROP: ASHOKA TRAVELS JUBELIEE, BARODA [PAN : AEMPP9161P] VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 5, AHMADABAD RESPONDENT APPEARANCES: T SANKAR, FOR THE APPELLANT MEHUL K PATEL, FOR THE RESPONDENT DATE OF HEARING : MAY 10, 2013 DATE OF PRONOUNCEMENT : MAY 10, 2013 O R D E R PER PRAMOD KUMAR : 1. THESE TWO SETS OF APPEALS AND CROSS OBJECTIONS P ERTAIN TO THE SAME ASSESSEE, WERE HEARD TOGETHER AND INVOLVE COMMON IS SUES. AS A MATTER OF CO NOS.94 AND 95/AHD/2010 AND ITA NO. 334 AND 335/AHD/2010 ASSESSMENT YEAR:2005-06 AND 2006-07 PAGE 2 OF 8 CONVENIENCE, THEREFORE, BOTH THE APPEALS AND BOTH THE CROSS OBJECTIONS ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2. WE WILL FIRST TAKE UP THE ASSESSMENT YE AR 2005-06. 3. IN THE APPEAL FILED BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2005-06, FOLLOWING GRIEVANCES ARE RAISED: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT[A) ERRED IN DELETING THE DISALLOWANCE OF RS 15,49 ,163 UNDER SECTION 40(A)(2) OF THE ACT, OUT OF THE PAYMENT OF THE BUS RENT. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT TH E ASSESSEE HAS FAILED TO RECONCILE THE DIFFERENCE IN PAYMENTS AS P ER TAX AUDIT REPORT AND AS SUBMITTED DURING THE ASSESSMENT PROCE EDINGS AND HAD ALSO NOT PRODUCED ANY COMPARATIVE PRICES TO JUS TIFY PAYMENTS MADE TO THE RELATED CONCERNS. 4. BRIEFLY STATED, THE RELEVANT FACTS ARE LIKE THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUS HIRE. DURING THE COURSE OF THE SC RUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE PAYMENTS TO SOME OF THE SPECIFIED PERSONS UNDER SEC TION 40A(2)(B) OF THE ACT, AND THIS FACT IS CORROBORATED BY THE TAX AUDIT REPORT AS WELL. ON THESE FACTS SIMPLICTOR THE ASSESSING OFFICER REQUIRED THE ASSESSING OFFICE R TO SHOW CAUSE AS TO WHY THESE PAYMENTS NOT BE TREATED AS EXCESSIVE . WHILE THE ASSESSING OFFICER DID TAKE NOTE OF ASSESSSEE'S SUBMISSION TO T HE EFFECT THAT DISALLOWANCE IS NOT APPLICABLE AS THE PAYMENTS ARE NEITHER EXCES SIVE NOR UNREASONABLE, THE ASSESSING OFFICER REJECTED THIS CONTENTION ON THE G ROUND THAT THAT 'IT IS CLEAR THAT NO PROPER EXPLANATION IS FORWARDED NOR ANY CHA RT FOR RATE COMPARISON IS GIVEN'. IT WAS IN THIS BACKDROP THAT THE ASSESSING O FFICER PROCEEDED TO MAKE A DISALLOWANCE UNDER SECTION 40A(2J BY OBSERVING THAT 'THE ASSESSEE HAS FAILED TO PROVE THE REASONABLENESS OF PAYMENTS MADE TO THE ABOVE PARTIES, AND, CO NOS.94 AND 95/AHD/2010 AND ITA NO. 334 AND 335/AHD/2010 ASSESSMENT YEAR:2005-06 AND 2006-07 PAGE 3 OF 8 THEREFORE, 1 DISALLOW 5% OF TOTAL PAYMENT MADE WHIC H WORKS OUT TO RS 15,49,163'. AGGRIEVED, ASSESSSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A). LEARNED CIT(A), WHILE DELETING THE DISALLOWANCE, OBSERVED AS FOLLOWS: I HAVE CAREFULLY CONSIDERED FACTS OF THE CASE, SUBMI SSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER. THOUGH THERE APP EARS TO BE A DISCREPANCY IN THE AMOUNTS SHOWN IN THE AMOUNTS SHO WN AS PAID TO RELATED PARTIES UNDER SECTION 40(A)(2)(B) IN THE TAX AUDIT REPORT AND THE DETAILS SUBMITTED DURING THE ASSESSM ENT PROCEEDINGS, THAT ALONE CANNOT BE THE BASIS FOR DISA LLOWANCE. THE AO HAS NOT MADE OUT ANY CASE FOR EXCESSIVE OR UNREA SONABLE PAYMENTS TO THE RELATED PARTIES. NO COMPARATIVE CASE FOR PAYMENT FOR SIMILAR TRANSPORT SERVICES WAS CITED BY THE AO. IT IS ALSO SEEN THAT IN THE PAST ALSO, SUCH DIRE CHARGES HAD RANGED FROM 46-57% OF THE TOTAL EXPENSES WHICH COMPARE FAVOURABLY WITH 48 .66% CHARGES PAID THIS YEAR. THE ADDITION OF RS 15,49,163 I S, ACCORDINGLY, DIRECTED TO BE DELETED. 5. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIE F SO GRANTED BY THE C1T(A) AND IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 7. IT IS PLAIN ON PRINCIPLE THAT, SO FAR AS DISALL OWANCE UNDER SECTION 40A[2) FOR PAYMENT BEING EXCESSIVE OR UNREASONABLE CAN ONLY BE MADE WHEN THE PAYMENT IS MADE TO THE 'SPECIFIED PERSONS' UNDER CL AUSE 40A(2)(B) AND ' THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPEN DITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET PRICE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE '. THE OPI NION OF THE ASSESSING OFFICER FOR THE EXPENDITURE BEING EXCESSIVE OR UNREA SONABLE IS TO BE FORMED CO NOS.94 AND 95/AHD/2010 AND ITA NO. 334 AND 335/AHD/2010 ASSESSMENT YEAR:2005-06 AND 2006-07 PAGE 4 OF 8 VIS-A-VIS FAIR MARKET PRICE OF SUCH GOODS SERVICES OR FACILITIES. IT IS THUS SINE QUA NON FOR MAKING A DISALLOWANCE UNDER SECTION 40(A)(2) TH AT THE ASSESSING OFFICER HAS TO ASCERTAIN THE FAIR MARKET PRICE OF S UCH GOODS, SERVICES OR FACILITIES, AND THEN MAKE A ' DISALLOWANCE FOR THE AMOUNT WHICH IS IN EXCESS OF FAIR MARKET VALUE OF SUCH GOODS, SERVICES OR FACILI TIES. UNLESS THERE IS A CATEGORICAL FINDING ABOUT THE 'FAIR MARKET VALUE' AN D THE ASSESSEE HAS AN OPPORTUNITY TO BE HEARD ON ASSESSING OFFICER'S FINDI NGS ABOUT SUCH 'FAIR MARKET VALUE', THERE CANNOT BE AN OCCASION TO MAKE A DISALLOWANCE UNDER SECTION 40A(2). THE VERY SCHEME OF SECTION 40A(2) D OES NOT ENVISAGE AN ADHOC DISALLOWANCE AS HAS BEEN MADE IN THE PRESENT CASE. F OR THIS SHORT REASON ALONE, THE IMPUGNED DELETION OF DISALLOWANCE MUST STAND CONFIRMED. THERE IS, HOWEVER, ONE MORE REASON FOR DOING SO. AS EVIDENT FROM A PLAIN READING OF THE ASSESSMENT ORDER, THE ASSESSING OFFI CER HAD CALLED UPON THE ASSESSEE TO DEMONSTRATE THAT THE PAYMENT MADE BY THE ASSESSEE TO THE SPECIFIED PERSONS IS NOT UNREASONABLE OR EXCESSIVE, AND IT IS THUS FAILURE OF THE ASSESSEE WHICH HAS RESULTED IN DISALLOWANCE UNDER S ECTION 40A(2J. HOWEVER, PROVING A NEGATIVE, AS THE ASSESSEE HAS BEEN CALLED UPON TO DO IN THIS CASE, IS AN IMPOSSIBLE ONUS TO PERFORM. IN ANY EVENT, THIS O NUS IS ON THE ASSESSING OFFICER AND THE AO HAS FAILED TO DISCHARGE THE SAID ONUS. FOR THIS REASON ALSO, THE DISALLOWANCE IS UNSUSTAINABLE IN LAW. AS REGARDS THE DISCREPANCY IN THE FIGURES OF THE TAX AUDIT REPORT AND THE ASSESSEE, N EITHER SUCH A SITUATION CAN BE A REASON ENOUGH TO MAKE A DISALLOWANCE UNDER SECT ION 40A(2) NOR THE ONUS OF EXPLAINING SUCH A VARIATION IS ON THE ASSES SEE. A TAX AUDITOR IS AN INDEPENDENT PROFESSIONAL AND ANY ERRORS IN HIS REPO RT CANNOT BE PUT TO ASSESSEE'S DISADVANTAGE. IN VIEW OF THESE DISCUSSIO NS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE CONCLUSIONS AR RIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. CO NOS.94 AND 95/AHD/2010 AND ITA NO. 334 AND 335/AHD/2010 ASSESSMENT YEAR:2005-06 AND 2006-07 PAGE 5 OF 8 8. IN THE RESULT, THE APPEAL OF THE ASSESSIN G OFFICER FOR THE ASSESSMENT YEAR 2005-06 IS DISMISSED. 9. IN THE APPEAL FILED BY THE ASSESSING OFFIC ER FOR THE ASSESSMENT YEAR 2006-07, FOLLOWING GRIEVANCES ARE RAISED: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS 14,97 ,668 UNDER SECTION 40(A) (2) OF THE ACT, OUT OF THE PAYMENT OF THE BUS RENT. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT TH E ASSESSEE HAS FAILED TO RECONCILE THE DIFFERENCE IN PAYMENTS AS P ER TAX AUDIT REPORT AND AS SUBMITTED DURING THE ASSESSMENT PROCE EDINGS AND HAD ALSO NOT PRODUCED ANY COMPARATIVE PRICES TO JUS TIFY PAYMENTS MADE TO THE RELATED CONCERNS. 10. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ISSUES RAISED ABOVE ARE THE SAME AS IN THE ASSESSMENT YEAR 2005-06, AND WHA TEVER IS DECIDED IN THE SAID YEAR WILL FOLLOW MUTATIS MUTANDIS FOR THIS YEAR AS WELL. FOLLOWING THE VIEW THAT WE HAVE TAKEN EARLIER IN THIS ORDER, FOR THE ASSESSMENT YEAR 2005- 06, WE UPHOLD THE ORDER OF THE CIT(AJ FOR THIS YEAR AS WELL AND DECLINE TO INTERFERE IN THE MATTER. 11. IN THE RESULT, THE APPEAL FOR THE ASSESSME NT YEAR 2006-07 IS ALSO DISMISSED. 12. WE NOW TAKE UP THE CROSS OBJECTIONS FILED B Y THE ASSESSEE FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07. CO NOS.94 AND 95/AHD/2010 AND ITA NO. 334 AND 335/AHD/2010 ASSESSMENT YEAR:2005-06 AND 2006-07 PAGE 6 OF 8 13. AS FOR THE CROSS OBJECTION FOR THE ASSESSMENT Y EAR 2005-06, LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS THE SAME. TH IS CO IS, ACCORDINGLY, DISMISSED AS NOT PRESSED. 14. AS FOR THE CROSS OBJECTION FOR THE ASSESSMENT YE AR 2006-07, LEARNED COUNSEL ONLY PRESSED THE FOLLOWING GROUND OF APPEAL : THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT PROVISI ONS OF SECTION 40(A)(IA) APPLY TO THE FACTS OF THIS CASE AND THAT THE AO HAS RIGHTLY DISALLOWED RS 93,25,426 HOLDING THAT IDS WAS NOT DEDU CTED BEFORE THE DUE DATE. IT IS SUBMITTED THAT SECTION 40(A)(IA) D OES NOT APPLY AND THE DISALLOWANCE OF RS 93,25,426 IS DELETED. 15. THE SHORT ISSUE THAT WE NEED TO ADJUDICATE ON THIS ISSUE IS WHETHER OR NOT LEARNED CIT(A) WAS JUSTIFIED IN HOLDING THAT, E XCEPT FOR PAYMENTS MADE DURING THE LAST MONTH, EVEN IF THE ASSESSEE HAS DEP OSITED THE TAXES BEFORE FILING OF THE INCOME TAX RETURN BUT BEYOND THE DUE DA TE, THE SAME WILL BE HIT BY THE PROVISIONS OF SECTION 40(A)(IA). 16. THIS ISSUE IS NOW SETTLED, IN PRINCIPLE, BY HO N'BLE GUJARAT HIGH COURT'S JUDGMENT IN THE CASE OF C1T VS ROYAL BUILDERS (TAX APPEAL NO. 520 OF 2012; JUDGMENT DATED 11 TH FEBRUARY 2013) WHEREIN THEIR LORDSHIPS HAVE HELD TH AT AMENDMENT CARRIED OUT BY FINANCE ACT 2010 CAN BE HELD TO BE RETROSPECTIVE FROM ASSESSMENT YEAR 2005-06. THE VIEW OF THE LEARN ED CIT(A) IS THUS CLEARLY UNSUSTAINABLE IN LAW. 17. WE HAVE ALSO NOTED THAT THERE IS NO DISPUTE ABO UT THE FACT, AS EVIDENT FROM THE CHART OF PAYMENTS SET OUT IN THE ORDER OF THE ASSESSING OFFICER AS ALSO IN ORDER OF THE CIT(A), THAT TDS FROM THE PAYMENTS DISALLOWED WERE MADE CO NOS.94 AND 95/AHD/2010 AND ITA NO. 334 AND 335/AHD/2010 ASSESSMENT YEAR:2005-06 AND 2006-07 PAGE 7 OF 8 WELL BEFORE THE DATE OF FILING OF THE INCOME TAX RET URN. THE DISALLOWANCE MUST, THEREFORE, DELETED. WE DIRECT SO. 18. LEARNED DR HAS RAISED AN APPREHENSION THAT SIN CE THE CIT(A) HAS ALREADY THE AMOUNTS SO DISALLOWED BE ALLOWED AS A DE DUCTION IN THE YEAR IN WHICH TDS HAS BEEN PAID, IT MAY RESULT IN DOUBLE BENE FIT TO THE ASSESSEE. HOWEVER, LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITT ED AN UNDERTAKING TO THE EFFECT THAT HE WILL MAKE SURE THAT, WHILE GIVIN G EFFECT TO THE DIRECTIONS OF THIS TRIBUNAL, THIS ASPECT IS DULY BROUGHT TO THE NOT ICE OF THE ASSESSING OFFICER. IN THIS VIEW OF THE MATTER, AND SUBJECT TO THIS RIDE R, THE GRIEVANCE OF THE ASSESSEE IS UPHELD. THE ASSESSING OFFICER IS DIRECT ED TO GIVE RELIEF ACCORDINGLY. 19. OTHER GRIEVANCES RAISED IN THE CROSS OBJECTIONS ARE DISMISSED AS NOT PRESSED. 20. IN THE RESULT, CROSS OBJECTION FOR THE ASSESSME NT YEAR 2006-07 IS ALLOWED IN THE TERMS INDICATED ABOVE. 21. TO SUM UP, THE APPEALS FILED BY THE ASSESSING O FFICER, AS ALSO CROSS OBJECTION FILED BY THE ASSESSEE FOR THE ASSESSMENT Y EAR 2005-06, ARE DISMISSED, AND THE CROSS OBJECTION FILED BY THE ASSE SSEE FOR THE ASSESSMENT YEAR 2006-07 IS PARTLY ALLOWED. IT WAS SO PRONOUNCE D IN THE OPEN COURT IMMEDIATELY UPON CONCLUSION OF HEARING. SD/- SD/- (KUL BHARAT ) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOU NTANT MEMBER AHMEDABAD: 10 TH DAY OF MAY 2013. CO NOS.94 AND 95/AHD/2010 AND ITA NO. 334 AND 335/AHD/2010 ASSESSMENT YEAR:2005-06 AND 2006-07 PAGE 8 OF 8 TRUE COPY COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER , AHMEDABAD 4. DEPARTMENTAL REPRESENTATIVE, BENCH, AHMEDABA D 5. GUARD FILE BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD