The DCIT, Circle-1, JUNAGADH V. M/s. Mahasagar Travels Ltd., JUNAGADH

ITA 384/RJT/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9519 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: SHRISAMIR JANI
• Keywords: Fair market value

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBULAL , RAJKOT BENCH: RAJKOT . . , , BEFORE SHRI N.S.SAINI , A CCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER . / ITA . NO . 385 /RJT/201 1 ( / ASS TT YEAR : 2007 - 2008 ) THE DCIT, CIR.1 JUNAGADH. / VS. M/S.MAHASAGAR TRAVELS LTD. KALWA CHOWK, JUNGHADH. . / ITA.NO.384/RJT/2011 ( / ASSTT YEAR : 2008 - 2009) THE DCIT, CIR.1 JUNAGADH. / VS. M/S.MAHASAGAR TRAVELS LTD. KALWA CHOWK, JUNGHADH. / APPELLANT BY : SHRI AVINASH KUMAR, DR / RESPONDENT BY : SHRISAMIR, JANI, ADVOCATE / DATE OF HEARING 16 - 2 - 2015 / DATE OF PRONOUNCEMENT 18 - 2 - 2015 / O R D E R PER BENCH THESE APPEAL S BY THE REVENUE ARE AGAINST ORDER OF THE CIT(A) - IV, RAJKOT BOTH DATED 27.7.201 PASSED IN THE ASSTT.YEARS 200 7 - 0 8 AND 200 8 - 0 9. 2. COMMON GROUND NO.1 AND 2 IN BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.1,13,06,459/ - MADE IN A.Y.2007 - 08 AND RS.62,05,522/ - MADE IN THE ASSTT.YEAR 2007 - 08 BY ESTIMATING THE GP AT THE RA T E OF 14%. 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RUNNING PASSENGER TRAVEL BUSES UNDER THE PERMIT FOR CONTRACT CARRIAGE. THE ASSESSEE DISCLOSED GROSS RECEIPT OF RS. 20.99 CRORES AS AGAINST THE CORRESPONDING RECEIPTS FOR THE ASSTT.YEAR 2006 - 07 AT RS.17.06 CRORES. THE AO OBSERVED THAT THERE WAS A STEEP FALL IN GP OF 2.42% IN THE ASSESSMENT YEAR 2007 - 08 AS COMPARED TO THE GP SHOWN AT 13.38% IN THE ASSTT.YEAR 2006 - 07. T HE ASSESSEE EXPLAINED BEFORE THE AO THAT THE ASSESSE E HAS STARTED NEW PETROLEUM DIVISION IN WHICH THERE WAS A SUBSTANTIAL TURNOVER, AND WAS GETTING FIXED COMMISSION FROM THE OIL COMPANIES. IF THE TURNOVER OF PETROLEUM DIVISION OF RS.4.75 CRORES IS EXCLUDE D THEN THE GP WILL WORK OUT AT 7.75%, AND ACCORDINGLY, THERE WAS DECREASE OF ONLY 5.63% IN THE GP, AS COMPARED TO THE GP OF ASSTT.YEAR 2006 - 07. SUCH FALL WAS ON ACCOUNT OF INCREASE IN FUEL PRICE, T O LL TAX AS ALSO THE COMPETITION IN BUSINESS. THE AO WANTE D TO VERIFY THE EXPLANATION BY VERIFYING THE BUS - WISE TRADING RECEIPTS SHOWN BY THE ASSESSEE, AND ALSO THE NUMBER OF TRIPS SHOWN TO HAVE BEEN UNDERTAKEN BY EACH BUS. THE A SSES S EE VIDE LETTER DATED 11.9.2009 SUBMITTED THAT THEY WERE UNABLE TO P R ODUCE THE SPECIFIC REGISTER SUCH AS LONG BOOK REGISTER, MOVEMENT REGISTER ETC. THE ASSESSEE DURING THE COURSE OF PERSONAL HEARING HAS PRODUCED PASSENGER MEMOS, PARCEL RECEIPTS ETC. FOR VERIFICATION. IT WAS SUBMITT E D THAT THE ASSESSEE WAS LISTED COMPANY A ND SUBJECTED TO VARIOUS CHECKS BY VARIOUS STATUTORY AUTHORITIES LIKE COMPANY LAW AUTHORITIES, SEBI, REGIONAL TRANSPORT AUTHORITIES ETC., AND THEREFORE, IT WAS IMPOSSIBLE FOR THE ASSESSEE TO MANIPULATE THE BOOK RESULTS, AND REQUESTED THE AO TO ACCEPT THE B OOK RESULTS OF THE ASSESSEE. HOWEVER, THE AO WAS NOT SATISFIED WITH THESE EXPLANATION S OF THE ASSESSEE, AND OBSERVED THAT IT WAS CLEAR THAT THERE WAS NO VERIFIABLE DATA WITH REGARD TO MOVEMENT OF EACH VEHICLE ON DAY - TO - DAY BA S IS DURING THE YEAR. HE ALSO OBSERVED THAT THOUGH ALL BOOKING AGENTS ISSUE PASSENGER TICKETS, CONTAINING PRINTED SERIAL NUMBER, COUNTERFOIL OF SUCH TICKETS RETAINED BY THE ASSESSEE WERE NOT MAINTAINED AND BUS MEMO REPORT WAS THE O N LY BASIS OF C REDIT ING THE TRAVEL L ING INCOME ETC. NO REGISTER WAS MAINTAINED REGARDING CONSUMPTION OF DIESEL AND MILEAGE OF EACH BUS OPERATED DURING THE YEAR. HE OBSERVED THAT THE FACT THAT THE R ECEIPTS VIS - - VIS DIESEL CONSUMPTION HAS DRASTICALLY FALLEN OVER THE YEARS, COULD BE SEEN FROM THE FOLL O WING FIGU RES: A.Y. DIESEL EXPENSES RECEIPTS REMARK 2005 - 06 61905183 139954470 2.24 TIMES 2006 - 07 83837747 170593798 2.09 TIMES 2007 - 08 85831235 162416949 1.89 TIMES THE AO OBSERVED THAT INQUIRIES MADE WITH THE GUJARAT STATE ROAD TRANSPORT CORPORATION REVEALED THAT THE JUNAGADH DIVISION OF THE SAID CORPORATION, WHICH WAS PROVIDING SERVICES ON NON - PRIME ROUTES AND SMALL VILLAGES, WAS SHOWING THE RECEIPTS VIS - - VIS FUEL CONSUMPTION AS PER THE INFORMATION PROVIDED BY THE DIVISIONAL CONTROLLER, GSRTC, JUNAGADH, IS AS UNDER: SR.NO. PARTICULARS 2006 - 07 2007 - 08 1. DIESEL QT.(LITERS) 13338173 13639990 2. DIESEL COST (RS.IN LACS) 4278.13 4617.40 3. KMSD. RUN (EFF. KMS) 699.84 726.02 4. EARNING (IN LACS) INCL. FREIGHT) 7788.79 8960.15 THE AO OBSERVED THAT IT WAS PERTINENT TO NOTE THAT THE ASSESSEE WAS OPERATING ITS FLEET OF BUSES ON ALL PRIME - ROUTES SUCH AS, AHMEDABAD, SURAT, MUMBAI AND SHRI NATHDAWARA, WHERE THERE WAS HUGE TRAFFIC ALMOST ROUND THE YEAR, AS COMPARED TO GSRTC WHICH PROVI DE BUS SERVICES TO EVERY SMALL VILLAGE OF DISTRICT WITHOUT ANY QUESTION OF PROFITABILITY. STILL THE RECEIPTS VIS - - VIS THE DIESEL CONSUMPTION SHOWN BY THE GSRTC WAS MUCH BETTER. THE AO OBSERVED THAT THE CONTENTION OF THE ASSESSEE THAT THE FUEL PRICE HAD SUBSTANTIALLY INCREASED, AND THERE WAS NO CORRESPONDING INCREASE IN THE BUS FARE WAS ALSO NOT FOUND FACTUALLY CORRECT. HE OBSERVED THAT THE PRICE OF DIESEL WAS RS.35.08 PER LITER AND THE SAME WAS NORMALLY INCREASED TO RS.35.63 PER LITER AS COULD BE SEEN F ROM THE LAST PURCHASE ENTRY IN DIESEL EXPENSES FOR THE PERIOD FROM 16.3.2007 TO 31.3.2007. ACCORDINGLY, THE INCREASE IN DIESEL WAS 1.56% , AS AGAINST THE SAME, THE DIFFERENCE BETWEEN THE PASSENGER FARE IN MARCH, 2006 AND MARCH, 2007 WAS AS UNDER: SR.NO. F ROM TO MARCH - 2006 MARCH - 2007 1. JUNAGADH AHMEDABAD 160 200 (A) 2. JUNAGADH JAMNAGAR 70 75 (B) 3. JUNAGADH BHAVNAGAR 120 130 (C) 4. JUNAGADH BARODA 250 275 (D) 5. JUNAGADH SURAT 2 00 275 (E) 6. JUNAGADH MUMBAI 500 500 THUS, THE AO CONCLUDED THAT INCREASE IN PASSENGER FARE WAS MUCH MORE, AS COMPARED TO INCREASE IN DIESEL PRICE. HE OBSERVED THAT IN THE BOOK RESULT, THE ASSESSEE WAS CREDITING THE TRAVEL L ING INCOME ACCOUNT WITH REFERENCE TO BUS MEMOS RECEIVED FROM THE COM MISSION AGENTS. ON VERIFICATION, IT APPEARED THAT ALL BUS MEMOS , HAVING PRINTED SERIAL NUMBER, WERE NOT APPEARING IN THE TRAVELLING INCOME ACCOUNT. THE ASSESSEE WAS REQUIRED TO FURNISH COMPLETE DETAILS OF ENTIRE TRAVELLING INCOME RECEIPTS WITH BUS MEMOS FOR THE PERIOD FROM 28.3.2007 TO 31.3.2007. AFTER VERIFYING THE DETAILS, THE AO CONCLUDED THAT SEVERAL BUS MEMOS ARE NOT APPEARING IN THE TRAVE L LING INCOME ACCOUNT FOR THE ABOVE PERIOD. SINCE THE BASIC RECORDS IN THE FORM OF TRIP REGISTER/MOVEMENT REGISTER WAS NOT MAINTAINED , AND THE COUNTER FOIL OF RECEIPTS GIVEN TO PASSENGERS WAS ALSO NOT MAINTAINED, THE TRADING RESULTS CANNOT BE ACCEPTED. HE OBSERVED THAT THE COMMISSION AGENT HAS TO ISSUE TICKETS TO EACH PASSENGER WHICH BEARS PRINTED SERIAL NUMBER, AND THEREFORE, IT WAS NECESSARY TO PRODUCE THE COUNTER FOIL SO THAT IT CAN BE ASCERTAINED WHETHER ALL ISSUED TICKETS HAVE BEEN SHOWN IN THE TRAVELLIN G INCOME OR NOT. HE OBSERVED THAT TH E ASSESSEE HAD MERELY STATED THAT THE BOOKS OF ACCOUNTS HAVE BEEN AUDITED BY THE TAX AUDITORS, AND THEREFORE, THE RECEIPTS CANNOT BE DOUBTED. THE AO OBSERVED THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE BOOKS OF ACCOUNT. IN VIEW OF THESE, HE RE JECTED BOOKS OF ACCOUNTS, AND ESTIMATED THE GP AT 14% ON RECEIPTS FROM TRAVEL DIVISION WHICH WAS ESTIMATED AT RS.17,50,00,000/ - , AND DETERMINED THE GP AT RS.2,45,00,000/ - AS AGAINST THE GP SHOWN BY THE ASSESSEE FROM TRAVEL DIVISION AT RS.1,31,93,541/ - , AND THEREBY MADE ADDITION FOR DIFFERENTIAL AMOUNT OF RS.1,13,06,459/ - TO THE INCOME OF THE ASSESSEE. 4 . SIMILARLY, IN ASSTT.YEAR 2008 - 09 ALSO, WHEN THE ASSESSEE HAS SHOWN GP AT 10.30% THE AO ESTIMATED GP AT THE RATE OF 14% ON THE DISCLOSED TRAVELLING RECEIPT OF RS.16,64,04,854/ - AT RS.2,32,82,692/ - AND MADE ADDITION FOR THE DIFFERENT IAL AMOUNT OF RS.62,05,522/ - TO THE INCOME OF THE ASSESSEE. 5 . ON APPEAL, THE CIT(A) DELETED THE ADDITION MADE BY THE AO OBSERVING AS UNDER: 4.1 I HAVE GONE THROUGH THE ASSESSMEN T ORDER AND SUBMISSIONS OF APPELLANT. APPELLANT SUBMITTED THAT IN SPITE OF PRODUCING DETAILS OF EXPENDITURE INCURRED TRIP WISE AND FILLING ENTIRE SET OF DETAILS FOR ONE SUCH RANDOM TRIP ASSESSING OFFICER HAS INCORRECTLY STATED THAT NO VERIFIABLE DATA WAS M ADE AVAILABLE. ASSESSING OFFICER HAS RELIED ON THE DECISION IN CASE OF SOHANLAL G SANGHI VS CIT 114 ITR 272 (MP) AND STATED THAT UNLESS COUNTERFOILS OF TICKETS ARE PRODUCED THE RECEIPTS CANNOT BE FULLY VERIFIED AND BOOKS OF ACCOUNT ARE LIABLE FOR REJECTION . IN CASE OF SOHANLAL G. SANGHI VS CIT, 114 I T R 272 (MP), THE BOOKS OF ACCOUNTS WERE HELD TO BE CORRECTLY REJECTED BY ITO BECAUSE SOME TICKETS HE DISCOVERED WERE NOT ACCOUNTED F OR . IN ORDER TO VERIFY THAT SITUATION THE ONLY MATERIAL, WHICH COULD HAVE BEEN PRODUCED, WERE THE COUNTERFOILS, AND THEY WERE NOT PRODUCED BEFORE THE INCOME - TAX OFFICER. THEREFORE, THE COUNTERFOIL OF TICKETS WERE THE DEFENSE OF THE ASSESSEE IN THE CASE BEFOR E H'BLE HIGH COURT RATHER THAN A REQUIREMENT FOR BOOKS OF ACCOUNT TO BE CALLED CORRECT AND COMPLETE. THE BOOKS WERE HELD TO BE ERRONEOUS NOT BECAUSE COUNTERFOIL OF TICKETS WERE NOT KEPT BUT BECAUSE SOME TICKETS WERE NOT ACCOUNTED FOR IN THE BOOKS. THE REJE CTION OF BOOKS DEPENDS ON IDENTIFICATION OF SPECIFIC ERROR SUCH AS NON - ACCOUNTING OF CERTAIN TICKETS IN COLLECTION SHEET, IDENTIFICATION OF BOGUS VOUCHERS OF DIESEL EXPENDITURE ETC. A GENERAL OBSERVATION THAT COUNTERFOILS OF TICKETS ARE NOT KEPT OR FOR THA T MATTER TRIP WISE COST ACCOUNTING IS NOT DONE, DIESEL EXPENDITURE APPEARS TO BE MORE; CAN AT BEST BE THE REASONS TO INVESTIGATE BUT ARE NOT SPECIFIC ERRORS IN THE BOOKS, WHICH MAY LEAD TO REJECTION OF BOOKS OF ACCOUNT. I THEREFORE FIND THAT THE REASON OF NON - MAINTENANCE OF TRIP / MOVEMENT REGISTER FOR REJECTION OF BOOKS CANNOT BE ACCEPTED WHEN ASSESSING OFFICER DID NOT FIND ANY DEFECT IN DETAILS SUBMITTED BY APPELLANT RELATING TO NON ACCOUNTING OF TICKETS ETC. ASSESSING OFFICER HAS INCORRECTLY CONSIDERED TH E PRICE OF DIESEL IN MARCH 2006 AND MARCH 2007 TO CALCULATE THE RISE IN PRICE OF DIESEL BY ONLY 1.56%. THE PRICE OF DIESEL HAD GONE UP BY ABOUT 8% IN JUNE 2006 AND WAS REDUCED IN STEPS IN DECEMBER 2006 AND MARCH 2007. THE AVERAGE INCREASE IN PRICE OF DIESE L WAS ABOUT 5.55% AND NOT 1.56% AS CONSIDERED BY THE ASSESSING OFFICER. THE REASON OF HIGHER DIESEL CONSUMPTION BY APPELLANT WHEN COMPARED TO GSRTC IS ALSO BASED ON INSIGNIFICANT DIFFERENT BECAUSE TURNOVER TO CONSUMPTION RATIO OF DIESEL IN CASE OF GSRTC IS 1. 94 TIME WHEREAS THE SAME IS 1.89 TIME IN CASE OF APPELLANT. IN FACT, THE CONSUMPTION OF DIESEL OF APPELLANT IS ONLY 2 - 3% HIGHER THAN GSRTC, WHICH HAS BEEN CONSIDERED AS BENCHMARK BY ASSESSING OFFICER, AND SUCH MARGINAL DIFFERENCE IS QUITE POSSIBLE CON SIDERING THE NATURE OF ACTIVITY, LIFE OF VEHICLES, STYLE OF DRIVING ETC. THE REJECTION OF BOOKS OF ACCOUNT ON SUCH MARGINAL DIFFERENCE BY THE ASSESSING OFFICER CANNOT BE ACCEPTED. AS FAR AS MISSING MEMOS OUT OF THE MEMOS ISSUED BY M / S MAHASHAKTI TOURS & TR AVE L PVT LTD ARE CONCERNED THESE MEMOS ARE THOSE MEMOS WHICH THIS THE AGENT OF APPELLANT HAS ISSUED TO PARTIES OTHER THAN APPELLANT. APPELLANT SUBMITTED THE DETAILS SHOWING CONTINUOUS MEMO AFTER OBTAINING SUCH MEMOS OF AGENT WHERE APPELLANT'S NAME WAS APPE ARING AT DIFFERENT SERIAL NUMBERS ALONG WITH OTHER CLIENTS OF AGENT AND SUCH NUMBERS FOR APPELLANT ALONE COULD NOT BE CONTINUOUS. THEREFORE, I FIND THAT ALL THE REASONS OF ASSESSING OFFICER FOR REJECTING THE BOOKS OF ACCOUNT ARE EITHER GENERAL IN NATURE OR INCORRECT REASONS. ASSESSING OFFICER HAS NOT GIVEN ANY SPECIFIC FINDINGS SUCH AS BOGUS DIESEL PURCHASE FROM ANY SPECIFIC PARTY OR VOUCHER; NO SPECIFIC FINDING THAT ANY RECEIPT OF TICKET WAS NOT INCORPORATED IN THE BOOKS ETC. I THEREFORE HOLD THAT APPELLAN T WHICH IS A PUBLIC LIMITED COMPANY, WHOSE ACCOUNTS ARE SUBJECTED TO AUDIT UNDER COMPANIES LAW AS WELL AS INCOME TAX ACT, WHOSE ACCOUNTS HAVE NOT BEEN OBJECTED TO BY THE AUDITORS CANNOT BE REJECTED ON GENERAL AND INCORRECT OBSERVATIONS MADE BY THE ASSESSIN G OFFICER. 4.2 I HAVE ALREADY HELD THAT THE BOOKS OF ACCOUNT OF APPELLANT ARE NOT DEFECTIVE AND ARE NOT LIABLE FOR REJECTION. THEREFORE, THE QUESTION OF ANY ESTIMATION OF INCOME DOES NOT ARISE. ASSESSING OFFICER IS DIRECTED TO DELETE THE ESTIMATED ADD ITION OF RS.1,13,06,459/ - AND REDUCE THE TOTAL INCOME OF APPELLANT ACCORDINGLY. 5. GROUND NO.1&2 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. 6. DR SUPPORTED THE ORDER OF THE AO, WHEREAS THE AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 7. WE F IND THAT IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE COULD NOT PRODUCE COUNTER - FOIL S OF THE TICKETS ISSUED BEFORE THE AO FOR HIS VERIFICATION. IN THE ABSENCE OF SUCH COUNTER - FOIL S , THE AO WAS NOT SATISFIED WITH THE CORRECTNESS AND COMPLETE NESS OF THE BOOK RESULTS, WHEN GP DECLARED IN THE YEARS UNDER CONSIDERATION WERE LESS THAN THE GP DISCLOSED BY THE ASSESSEE IN THE EARLIER YEARS. IN VIEW OF THE ABOVE, IN OUR CONSIDERED VIEW, THE CIT(A) WAS NOT JUSTIFIED IN CONCLUDING THAT THE REJECTION O F BOOKS OF ACCOUNTS IN THE INSTANT CASE WAS IMPROPER. 8. FURTHER, WE OBSERVE THAT AFTER REJECTING THE BOOK RESULTS, THE AO ESTIMATED TURNOVER OF THE ASSESSEE IN THE ASSTT.YEAR 2007 - 08 AT RS.17.50 CRORES IN PLACE OF RS.12.31 CRORES DISCLOSED BY THE ASSESSE E, AND ON THE SIMILAR FACTS AND CIRCUMSTANCES IN ASSTT.YEAR 2008 - 09, THE AO ACCEPTED THE TURNOVER OF THE ASSESSEE AT RS.16.64 CRORES, WHICH WAS DISCLOSED BY THE ASSESSEE. WE FIND THAT NO BASIS OR MATERIAL COULD BE BROUGHT ON RECORD BY THE AO FOR ESTIMATIN G THE TURNOVER OF THE ASSTT.YEAR 2007 - 08 AT A HIGHER AMOUNT. WE, THEREFORE, DIRECT THE AO TO ACCEPT THE TURNOVER OF THE ASSTT.YEAR 2007 - 08 ALSO AT THE AMOUNT DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME. 9. FURTH E R, WE FIND THAT IN THIS LINE OF BUSINESS, THE GP RATE CANNOT REMAIN CONSTANT, AND IT VARIES DUE TO NUMEROUS FACTORS, LIKE PRICE OF FUEL, NUMBER OF BREAK - DOWN ETC. KEEPING IN VIEW THE ENTIRE FACTS, IN OUR CONSIDERED VIEW, IT SHALL BE IN THE INTEREST OF JUS TICE TO INCREASE THE TOTAL INCOME OF THE ASSESSEE FOR BOTH THE YEARS BY 1.50% OF THE TURNOVER D I S C LOSED BY IT , TO TAKE CARE OF PROBABLE OMISSION BECAUSE OF DEFECTS IN THE BOOK KEEPING. THUS, THIS GROUND OF THE REVENUE IS PARTLY ALLOWED FOR BOTH THE YEARS. 10 . THE COMMON GROUND NO.2 OF THE APPEAL IN BOTH THE YEARS UNDER CONSIDERATION ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) DELETING THE ADDITION OF RS.36,37,996/ - FOR ASSTT.YEAR 2007 - 08 AND RS.53,71,417/ - FOR ASSTT.YEAR 2008 - 09 ON AC C OUN T OF DISALLOWAN CE OF COMMISSION PAYMENT AS PER THE PROVISION S OF SECTION 40A(2)(B) OF THE ACT. 11 . BRIEF FACTS OF THE CASE ARE THAT THE AO FOUND THAT IN THE P&L ACCOUNT, THE ASSESSEE HAS CLAIMED COMMISSION ON TRAVEL INCOME AT RS.2,07,94,513/ - IN ASSTT.YEAR 2007 - 08 AND RS.2,02,60,331/ - IN THE ASSTT.YEAR 2008 - 09. HE OBSERVED THAT THIS INCLUDES THE COMMISSION PAID TO M/S.MAHASHAKTI TOURS & TRAVELS P. LTD. AT RS.72,75,992/ - FOR A.Y.2007 - 08. ACCORDING TO THE AO , PAYMENT MADE TO M/S.MAHASHAKTI TOURS & TRAVELS P . LTD. WAS EXCESSIVE AS ALL BASIC INFRASTRUCTURE WAS PROVIDED BY THE ASSESSEE COMPANY ITSELF AT NEGLIGIBLE RATE TO THE SAID MAHASHAKTI TOURS & TRAVELS P. LTD. FROM THE COMMISSION RECEIVED BY MAHASHAKTI TOURS & TRAVELS P. LTD. A MAJOR CHUNK WAS AGAIN GO ING TO THE DIRECTORS IN THE GUISE OF HUGE REMUNERATION PAID TO THEM INCLUDING LADY MEMB E RS OF THE FAMILY WHO WERE NOT APPARENTLY PROVIDING ANY SERVICE. HE OBSERVED THAT, ON ONE HAND, THE ASSESSEE, WHICH IS A PUBLIC LIMITED COMPANY, WAS SHOWING HUGE LOSS A ND NOT PAYING ANY DIVIDEND TO SHAREHOLDERS, AND AT THE SAME TIME, THE COMMISSION AGENT, WHICH IS A FAMILY CONCERN OF THE DIRECTORS , WERE HUGELY BENEFITED JUST FOR TICKET BOOKING WORK IN THE ASSESSEE S PREMISES ITSELF. HE CONCLUDED THAT THIS WAS AN ARRAN GEMENT UNDER WHICH PROFIT OF THE PUBLIC LIMITED COMPANY WAS FINDING ITS WAY INTO THE FAMILY OF THE DIRECTORS AND FOR THIS REASON, HUGE LOSS WAS CLAIMED. HE, THEREFORE, DISALLOWED 50% OF SUCH COMMISSION PAID BY THE ASSESSEE, AS UNREASONABLE AND EXCESSIVE, BY INVOKING THE PROVISION OF SECTION 40A(2)(B) OF THE ACT, AND MADE DISALLOW A NCE OF RS.36,37,996/ - TO THE INCOME OF THE ASSESSEE. 12 . IN THE ASSTT.YEAR 200 8 - 09, FOR THE SIMILAR REASON, THE AO MADE DISALLOWANCE OF COMMISSION PAYMENT EXCEEDING 10% , MADE TO THE FOLLOWING PARTIES: SR. NO. PARTY NAME RATE OF COMMISSION COMMISSION PAID/CREDITED AT GIVEN RATE RS. COMMISSION @ 10% (RS.) COMMISSION IN EXCESS TO 10% (DIFFERENCE) RS. 1. AKASH TRAVELS 12 639071 532559 106512 2. ANI TRAVELS 15 306541 204361 102180 3. MST&T. PVT. LTD. 15 7512177 5008118 2504059 4. NEWSHAKTI TRAVELS 15 6021608 4014405 2007203 5. PRESIDENT TRAVELS 15 38123 25415 12708 6. RAJESHREE TRAVELS 15 702192 468128 234064 7. RK TRAVELS1 15 448162 298775 149387 8. SHAKTI TRAVELS(NEW) 12 113349 94458 18892 9. SHRTEENATH TRAVELS 12 283428 236190 47238 10. SHRTEENATH TRAVELS 15 402976 268651 134325 11. SHREENATH TRAVELS 12 27196 22663 4533 12. SHREE RAM TRAVELS 12 1290 1075 215 13 SHRINATH TRAVELLERS 12 239016 199180 39836 14 VALLABHA TRAVELS 12 56596 47163 9433 15 VIJAY TRAVELS 12 5000 4167 833 COMMISSION IN EXCESS TO 10% I.E. DISALLOWABLE IS RS.: 5371417 THE AO, THUS , MADE DISALLOWANCE OF RS.53,71,417/ - AND ADDED T O THE INCOME OF THE ASSESSEE. 13 . ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCE MADE IN ASSTT.YEAR 2008 - 09 BY OBSERVING THAT THE AO HAD CALLED FOR THE MEMOS OF MAHASHAKTI TOURS AND TRAVELS P. LTD. FROM THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS, FROM WHERE, THE RATE OF COMMISSION PAID TO MAHASHAKTI TOURS AND TRAVELS P. LTD. HE OBSERVED THAT THE ASSESSEE WAS PAYING COMMISSION OF 12% TO 15% TO VARIOUS BOOKING AGENTS. HE ALSO OBSERVED THAT THE ASSESSEE WAS PAYING HIGHER COMMISSION TO THOSE AGENTS, WHO CARRIED OUT SUBSTANTIAL BOOKING OF T ICKETS FOR ASSESSEE. THE ASSESSEE PAID 15% COMMISSION TO NEWSHAKTI TRAVELS, WHOSE CONTRIBUTION TO ASSESSEE S BUSINESS MAY BE COMPARED WITH M/S.MAHASHAKTI TOURS & TRAVELS P. LTD., AND THEREFORE, THE AO HELD THE MARKET RATE OF COMMISSION FOR BOOKING TICKETS TO BE CONSIDERED AT 15% WHERE THE BOOKING AGENT HAD CARRIED OUT SUBSTANTIAL BOOKING. THE ASSESSEE PAID BOOKING COMMISSION OF RS.2,07,94,513/ - INCLUDING COMMISSION PAYMENT OF RS.72.75 LAKHS TO MAHASHAKTI TOU R S & TRAVELS P. LTD. FOR BOOKING AMOUNT OF RS.16 .24 CRORES FOR THE ASSESSMENT YEAR UNDER APPEAL. THE AVERAGE RATE OF COMMISSION PA ID BY THE ASSESSEE, WHICH INCLUDES SUBSTANTIAL AMOUNT OF COMMISSION PAID TO MAHASHAKTI TOURS & TRAVELS P. LTD., WAS ABOUT 12% TO 13%, AND WITHIN THE MARKET RATE OF 15%. HEN CE, HE DELE TED THE ADDITION MADE BY THE AO. 1 4 . FOR THE ASSTT.YEAR 2008 - 09, THE CIT(A) OBSERVED THAT THE ASSESSEE HAD PAID 15% COMMISSION TO NEWSHAKTI TRAVELS, WHOSE CONTRIBUTION TO ASSESSEE S BUSINESS MAY BE COMPARED WITH THE CONTRIBUTION OF MAHASHAKTI TOURS & TRAVELS PVT. LTD. HE OBSERVED THAT MAHASHAKTI TOURS & TRAVELS PVT. LTD. WAS CHARGING THE SAME COMMISSION OF 15% FROM UNRELATED PARTIES LIKE R.K. TRAVELS AND SRINATH TRAVELS, THEREFORE, THE MARKET RATE OF COMMISSION FOR BOOKING TICKETS CAN BE CO NSIDERED AT 15%, WHERE THE BOOKING AGENT HAS CARRIED OUT SUBSTANTIAL BOOKING. THE ASSESSEE PAID COMMISSION OF RS.75,12,177/ - TO MAHASHAKTI TOURS & TRAVELS PVT. LTD. AT THE RATE OF 15% IN THE ASSESSMENT YEAR UNDER APPEAL, WHICH WAS AS PER THE MARKET RATE . THEREFORE, HE DELETED THE DISALLOWANCE OF RS.53,71,417/ - MADE BY THE AO. 1 5 . THE DR RELIED ON THE ORDER OF THE AO. 1 6 . THE AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 1 7 . WE FIND THAT AS PER THE PROVISION OF SECTION 40A(2)(B) OF THE ACT, THE AO HAS BEEN EMPOWERED TO DISALLOW TH O SE PAYMENTS MADE TO RELATIVES, WHICH ARE FOUND TO BE IN EXCESS OF FAIR MARKET VALUE OF SERVICES, FOR WHICH, THE PAYMENTS WERE MADE. WE FIND THAT THE CIT(A) HAS CORRECTLY APPLIED THE LAW AND GAVE A CATEGORICAL FINDI NG THAT THE RATE AT WHICH THE COMMISSION WAS PAID BY THE ASSESSEE TO M/S.MAHASHAKTI TOURS & TRAVELS P. LTD. WAS WITHIN THE PREVAILING MARKET RATE. NO DEFECT IN THE FINDING OF THE CIT(A) COULD BE POINTED OUT BY THE DR. THEREFORE, WE DO NOT FIND ANY GOOD R EASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS IS S UE, WHICH IS CONFIRMED AND THE GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. 1 8 . IN THE RESULT, APPEAL S OF THE REVENUE ARE PARTLY ALLOWED FOR BOTH THE YEARS. ORDER PRONOUNCED IN THE COURT ON WEDNESDAY THE 18 TH DAY OF FEBRUARY, 2015 AT RAJKOT. SD/ - SD/ - ( ) / ( KUL BHARAT ) / JUDICIAL MEMBER ( . . ) ( N.S. SAINI ) / ACCOUNTANT MEMBER RAJKOT; DATED 18 / 0 2 /20 1 5 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - 5. , , /DR,ITAT, RAJKOT 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, RAJKOT