The ITO, Ward-2(1)(1), Baroda V. Market Creators Ltd., Vadodara

ITA 41/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2891 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 05-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: URVASHI SODHAN ADVOAT E
• Assessee Lawyers: LALIT P JAIN
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Question of law; Fair market value; TDS; Rule 8D; Set aside
• Section: 14A; 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 41/AHD/2017 & C.O. NO. 29/AHD/2017 (ASSESSMENT YEAR: 2012-13 ) INCOME TAX OFFICER, WARD- 2 (1)(1), BARODA MARKET CREATORS LTD. CREATIVE CASTLE, 70 SAMPATRAO COLONY, PRODUCTIVITY ROAD, VADODARA V/S V/S MARKET CREATORS LTD. CREATIVE CASTLE, 70 SAMPATRAO COLONY, PRODUCTIVITY ROAD, VADODARA INCOME TAX OFFICER, WARD- 2 (1)(1), BARODA (APPELLANT) (RESPONDENT) ITA. NO: 3545/AHD/2016 (ASSESSMENT YEAR: 2012-13 ) MARKET CREATORS LTD. CREATIVE CASTLE, 70 SAMPATRAO COLONY, PRODUCTIVITY ROAD, VADODARA V/S INCOME TAX OFFICER, WARD- 2 (1)(1), BARODA (APPELLANT) (RESPONDENT) PAN: AABCM 3439R APPELLANT BY : MS. URVASHI SODHAN, ADVOAT E RESPONDENT BY : SHRI LALIT P. JAIN, SR. D.R. ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 2 ( )/ ORDER DATE OF HEARING : 09 -01-201 9 DATE OF PRONOUNCEMENT : 08-04-2019 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. ITA NO. 41/AHD/2017 & C.O. NO. 29/AHD/2017 ARE APPE AL BY THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE PREFERRED AGAIN ST THE ORDER OF THE LD. CIT(A)-2, VADODARA DATED 10.10.2016 PERTAINING TO A .Y. 2012-13. THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELET ING THE DISALLOWANCE OF RS. 1,74,41,824/- MADE BY THE AO BY INVOKING PROVIS IONS OF SECTION 40(A)(IA) OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS PAYING BROKERAGE PAYMENT TO SUB-BROKERS WITHIN THE MEANING OF SECTION 194H, THEREBY ATTRACTING THE MANDATORY PROVISIONS O F SECTION 40(A)(IA) OF THE ACT'. 2. 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS BY PARTL Y ALLOWING THE APPEAL OF THE ASSESSEE ON THE ISSUE OF DISALLOWANCE OF RS. 21,53,344/- U/S 14A OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE INTE NTION OF LEGISLATURE IS TO DISALLOW ALL EXPENSES INCURRED TO EARN EXEMPT IN COME AND FOR THIS PURPOSE A SCIENTIFIC RULE IN THE FORM OF RULE 8D HA S BEEN INCORPORATED IN IT RULES, 1962' 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN COMPANY IS BROKING BUSINESS IN CAPITAL MARKET AND FUTURE AND OPTION MA RKET. THE COMPANY IS A MEMBER OF NATIONAL STOCK EXCHANGE OF INDIA LTD (NSE ) IN A CAPITAL MARKET ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 3 SEGMENT, BOMBAY STOCK EXCHANGE LTD (BSE) AND NSE F& O SEGMENT. IT IS ALSO DEPOSITORY WITH CENTRAL DEPOSITORY SERVICES (I NDIA) LIMITED. 3. THE COMPANY IS A BROKER DEALING IN TRANSACTIONS (BU Y OR SELL) OF SECURITIES ON BEHALF OF CLIENTS OF THE COMPANY AND /OR SUB BROKER OF THE COMPANY. 4. SO FAR GROUND RELATING TO DELETING DISALLOWANCE OF RS. 1,74,41,824/- MADE BY INVOKING SECTION 40(A)(IA) OF THE ACT ON BROKERAGE PAYMENT TO SUB-BROKERS 5. LD. A.O. HAS DISCUSSED THE ISSUE AT PAGE NO. 2 TO 6 IN PARA NO. 4 AND LD. CIT(A) HAS DISCUSSED THE ISSUE AT PAGE NO. 2 TO 27 IN PARA 2 TO 4. THE ASSESSEE COMPANY IS ENGAGED IN THE BROKING BUSINESS IN CAPITAL MARKE T AND FUTURE AND OPTION MARKET ALSO. IT IS A MEMBER OF NSE AND BSE. THE ASS ESSEE COMPANY HAS PAID COMMISSION TO SUB-BROKERS AMOUNTING TO RS. 1,74,41, 824/-. A SURVEY ACTION FOR TDS VERIFICATION WAS CARRIED OUT IN THE CASE OF ASSESSEE COMPANY ON 13.01.2015 AND ACCORDINGLY, AN ORDER U/S. 201(1)/20 1(1A) PASSED ON 09.03.2015 BY THE ITO(TDS)-2, VADODARA. IT CONTENDE D THAT IN THE CASE OF CASE OF ITO VS MITTAL INVESTMENT & CO. [2013] 33 TAXMANN .COM 52 (DELHI - TRIB.), HELD THAT SUB-BROKERAGE PAID BY AN AGENT TO SUB-AGE NTS FOR SERVICES RENDERED IN CONNECTION WITH SECURITIES/MUTUAL FUNDS, IS OUTSIDE PURVIEW OF SECTION 194H. HON'BLE ITAT HAS HELD AS UNDER : '15. A BARE PERUSAL OF THE SHOVE EXPLANATION CLEARLY SHOWS THAT IF THE COMMISSION OR BROKERAGE HAS BEEN PAID BY A PERSON ACTING ON BE HALF OF ANOTHER PERSON FOR SERVICES RENDERED IN CONNECTION WITH SECURITIES THE N THE SAID COMMISSION OR BROKERAGE IS OUTSIDE THE PURVIEW OF SECTION 194/7. CLAUSE (H) OF SUB-SECTION (2) OF THE SECURITIES CONTRACT ACT READS AS UNDER: - 'CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) DEFINES SECURITIES AS UNDER: (H) 'SECURITIES' INCLUDE - ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 4 (I) SHARES, SCRIPTS, STOCKS, BONDS, DEBENTURES, DEB ENTURE STOCK OR OTHER MARKETABLE SECURITIES OF A LIKE NATURE IN OR OF ANY INCORPORATED COMPANY OR OTHER BODY CORPORATE; (IA) DERIVATIVE; (IB) UNITS OR ANY OTHER INSTRUMENT ISSUED BY ANY CO LLECTIVE INVESTMENT SCHEME TO THE INVESTORS IN SUCH SCHEMES; (IC) SECURITY RECEIPT AS DEFINED IN CLAUSE (ZG) OF SECTION 2 OF THE SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002; (ID) UNITS OR ANY OTHER SUCH INSTRUMENT ISSUED TO T HE INVESTORS UNDER ANY MUTUAL FUND SCHEME; (IE) ANY CERTIFICATE OR INSTRUMENT (BY WHATEVER NAM E CALLED), ISSUED TO AN INVESTOR BY ANY ISSUER BEING A SPECIAL PURPOSE DISTINCT ENTI TY WHICH POSSESSES ANY DEBT OR RECEIVABLE, INCLUDING MORTGAGE DEBT, ASSIGNED TO SU CH ENTITY, AND ACKNOWLEDGING BENEFICIAL INTEREST OF SUCH INVESTOR IN SUCH DEBT O R RECEIVABLE, INCLUDING MORTGAGE DEBT, AS THE CASE MAY BE; (II) GOVERNMENT SECURITIES; (IIA) SUCH OTHER INSTRUMENTS AS MAY BE DECLARED BY THE CENTRAL GOVERNMENT TO BE SECURITIES; AND (IIA) RIGHTS OR INTEREST IN SECURITIES;' 16. THUS, IT IS EVIDENT THAT MUTUAL FUNDS ARE OUTSI DE THE AMBIT OF THE TERM 'SECURITIES'. IN THE PRESENT CASE, ADMITTEDLY THE A SSESSES WAS AGENT OF POST OFFICE SCHEMES, PPF, RBI BONDS, LIC, MUTUAL FUNDS ETC. AND , THEREFORE, THE COMMISSION PAID BY IT TO OTHER PERSONS WHOSE SERVICES WERE TAK EN FOR EARNING COMMISSION WAS ALSO OUTSIDE THE PURVIEW OF PROVISIONS OF SECTI ON 194H. THE DEFINITION USES THE TERM 'IN RELATION TO' WHICH CLEARLY IMPLIES THAT WHENEVER ANY COMMISSION OR BROKERAGE IS PAID IN RELATION TO SECURITIES THEN IT WOULD BE OUTSIDE THE AMBIT OF SECTION 194H. ADMITTEDLY, THE ASSESSEE HAD PAID SUB -BROKERAGE IN RELATION TO SECURITIES (MUTUAL FUND) AND, THEREFORE, IT WAS OUT SIDE THE AMBIT OF SECTION 194H...' . 6. IN VIEW OF THE ABOVE DISCUSSION AND SPECIFICALLY IN VIEW OF EXPLANATION TO SECTION 194H, ANY PAYMENT IN RELATION TO TRANSACTIO N RELATING TO SECURITIES DID NOT ATTRACT THE PROVISIONS OF SECTION 194H OF THE A CT. IN VIEW OF THE DECISION OF HON'BLE MUMBAI ITAT IN SCHIL SERVICES LTD. (SUPRA), THE PROVISIONS OF SECT/ON 194H ARE NOT APPLICABLE TO THE TRANSACTIONS RELATING TO PAYMENT OF SUB ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 5 BROKERAGE IN RELATION TO SALE AND PURCHASE OF SHARE S AND SECURITIES. THE A.O. HAS FAILED TO EXPLAIN AS TO HOW THE SAID TRANSACTIO NS FALL WITHIN THE PURVIEW OF TDS PROVISIONS. 7. IN PARITY WITH VIEW TAKEN IN CO-ORDINATE BENCH, WE HOLD THAT ASSESSEE COMPANY WAS NOT LIABLE FOR DEDUCTION OF TAX U/S. 194H OR 19 4J ON PAYMENT OF BROKERAGE TO THE SUB-BROKERS AND ACCORDINGLY WE HOLD THAT NO DISALLOWANCE U/S. 40(A)(IA) WAS CALLED FOR. THUS, THIS GROUND OF REVENUE IS DIS MISSED. 8. NOW WE COME TO NEXT GROUND RELATING TO PART RELIEF FOR ADDITION MADE U/S. 14A OF THE ACT. 9. LD. A.O. HAS DISCUSSED THE ISSUE AT PAGE NO. 11 TO 14 IN PARA NO. 9 AND LD. CIT(A) HAS DISCUSSED THE ISSUE AT PAGE NO. 29 TO 30 IN PARA 4.4. THE ASSESSEE COMPANY HAS UTILIZED BORROWED FUNDS FOR PURCHASE OF SHARES AND SECURITIES AND PAID INTEREST OF RS.70,95,271/-. ACCORDINGLY, THE A O INVOKED PROVISIONS OF SECTION 14A R.W.RULE 8D AND DISALLOWED A SUM OF RS. 19,38,286/- OUT OF INTEREST AND RS. 2,15,058/- ON ACCOUNT OF ADMINISTRATIVE EXP ENSES BEING 0,5% OF THE AVERAGE VALUE OF INVESTMENT. THE AVERAGE VALUE OF I NVESTMENT IN THE SHARES AND SECURITIES WAS CONSIDERED BY THE AO AT RS.4,30,11,5 61/-. 10. IN APPEAL, LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 11. LD. A.R. CONTENTION IS THAT THERE IS NO EXEMPT INCO ME. HOWEVER, THE ALTERNATIVE ARGUMENT OF THE ASSESSEE THAT THE DISALLOWANCE U/S. 14A CANNOT EXCEED THE EXEMPT INCOME, APPEARS TO BE ACCEPTABLE. IN THIS RE GARD, BESIDE HIS SUBMISSION, LD. A.R. ALSO CITED AN ORDER OF JIVRAJ TEA LTD. VS. DCIT IN ITA NO. 866/AHD/2012 WHEREIN IT IS HELD THAT DISALLOWANCE U /S. 14A CANNOT BE MORE ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 6 THAN THE AMOUNT EXEMPTED INCOME. SINCE THE EXEMPTED INCOME WAS RS. 6,20,115/- ONLY, THE ASSESSING OFFICE WAS DIRECTED TO RESTRICT THE DISALLOWANCE TO THAT EXTENT ONLY. 12. IN THE CASE, DISALLOWANCE OF RS. 37,31,391/- U/S. 1 4A WHICH INCLUDED DISALLOWANCE OUT OF INTEREST AT RS. 35,20,675/- AND DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES BEING 0.5% OF THE AVERAGE V ALUE OF INVESTMENT RESULTING INTO DISALLOWANCE OF RS. 2,10,716/- . SO IN OUR CONSIDERED OPINION, LD. CIT(A) WAS JUSTIFIED BY DIRECTING THE A.O. TO RESTR ICT DISALLOWANCE NOT MORE THAN EXEMPTED INCOME. THEREFORE, IN OUR CONSIDERED OPINION, LD. CIT(A) HAS PASSED REASONED AND DETAILED ORDER AND SAME DOES NO T REQUIRE ANY KIND OF INTERFERENCE AT OUR END. 13. IN THE RESULT, THIS GROUND OF APPEAL IS DISMISSED. 14. C.O. NO. 29/AHD/2017 FOR A.Y. 2012-13 . THE ASSESSEE HAS TAKEN GROUND THAT LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF FINANCIAL CHARGES PAID OF RS. 3,15,000/- INVOKING SECTION 40A(2)(B) OF THE ACT. 15. LD. A.O. HAS DISCUSSED THE ISSUE AT PAGE NO. 7 TO 1 0 IN PARA NO. 7 AND LD. CIT(A) HAS DISCUSSED THE ISSUE AT PAGE NO. 27 TO 29 IN PARA 4.2. THIS GROUND PERTAINS TO DISALLOWANCE OF RS.3,15,000/- BEING THE FINANCIAL CHARGES PAID TO THE RELATED PARTY U/S 40A(2)(B). IT HAS BEEN CLAIMED TH AT THE APPELLANT COMPANY HAS BORROWED FUNDS AGAINST THE SECURITIES PROVIDED BY T HE VARIOUS RELATED PERSONS AND ACCORDINGLY, FINANCIAL CHARGES OF RS. 13,65,000 WERE PAID. A SUM OF RS. 6,30,000/- WAS PAID TO SHRI H.D.SHAH (HUF), IN WHIC H DIRECTOR OF APPELLANT COMPANY HAD INTERESTS. TO THIS PARTY, FINANCIAL CHA RGES HAVE BEEN PAID AT FIXED ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 7 RATE OF RS.52,500/-PER MONTH. SINCE THERE WAS NO JU STIFICATION FOR PAYMENT OF FIXED FINANCIAL CHARGES TO SHRI H.D. SHAH (HUF), TH E A.O. DISALLOWED 50% THEREOF RESULTING INTO A DISALLOWANCE OF RS. 3,15,0 00/-. 16. SIMILAR DISALLOWANCE WAS ALSO MADE FOR ASSESSMENT Y EAR 2008-09 AND THE THEN LD. CIT(A) CONFIRMED THE ADDITION ON THIS COUNT. TH EREFORE, IN PARITY WITH THE SAID ORDER, LD. CIT(A) ALSO CONFIRMED THE ACTION OF A.O. AND CONFIRMED ADDITION OF RS. 3,15,000/-. ON THE OTHER HAND, LD. A.R. CITED AN ORDER OF ITAT AHMEDABAD IN ASSESSEES OWN CASE FOR ASSESSMENT YEA R 2008-09 WHEREIN RELIEF WAS GRANTED BY THE ITAT IN ITA NO. 1023/AHD/2016 WI TH FOLLOWING OBSERVATION: 4. WHEN THIS APPEAL WAS TAKEN UP FOR HEARING, IT WA S NOTICED THAT THE ASSESSING OFFICER HAD DISALLOWED 50% OF FINANCIAL CHARGES PAI D TO THE SPECIFIED PERSONS, BUT THERE WAS NO CATEGORICAL FINDING AS TO WHAT IS THE FAIR MARKET VALUE OF THE SERVICES PROVIDED BY THESE SPECIFIED PERSONS. SUCH AN ADHOC DISALLOWANCE UNDER SECTION 40A(2)(B), IN OUR CONSIDERED VIEW, IS NOT P ERMISSIBLE UNDER THE SCHEME OF THE ACT. WE, THEREFORE, ASKED THE PARTIES TO ADDRES S US ON THIS FUNDAMENTAL AND BROAD LEGAL PROPOSITION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 6. WE FIND THAT A CO-ORDINATE BENCH OF THIS TRIBUNA L AND SPEAKING THROUGH ONE OF US (I.E. THE ACCOUNTANT MEMBER), IN THE CASE OF ACI T VS. ASHOK J. [PATEL [(2013) 59 SOT 53 (AHD)] HAD OBSERVED AS FOLLOWS :- '7. IT IS PLAIN ON PRINCIPLE THAT, SO FAR AS DISALLO WANCE UNDER SECTION 40A(2) FOR PAYMENT BEING EXCESSIVE OR UNREASONABLE CAN ONL Y BE MADE WHEN THE PAYMENT IS MADE TO THE 'SPECIFIED PERSONS' UNDER CLAU SE 40A(2)(B) AND 'THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH E XPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET PR ICE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MAD E'. THE OPINION OF THE ASSESSING OFFICER FOR THE EXPENDITURE BEING EXCESSI VE OR UNREASONABLE IS ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 8 TO BE FORMED VIS-A-VIS FAIR MARKET PRICE OF SUCH GO ODS SERVICES OR FACILITIES. IT IS THUS SINE QUA NON FOR MAKING A DISALLOWANCE U NDER SECTION 40(A)(2) THAT THE ASSESSING OFFICER HAS TO ASCERTAIN THE FAI R MARKET PRICE OF SUCH GOODS, SERVICES OR FACILITIES, AND THEN MAKE A 'DIS ALLOWANCE FOR THE AMOUNT WHICH IS IN EXCESS OF FAIR MARKET VALUE OF S UCH GOODS, SERVICES OR FACILITIES. UNLESS THERE IS A CATEGORICAL FINDING A BOUT THE 'FAIR MARKET VALUE' AND THE ASSESSEE HAS AN OPPORTUNITY TO BE HEARD ON ASSESSING OFFICER'S FINDINGS ABOUT SUCH 'FAIR MARKET VALUE', THERE CANN OT BE AN OCCASION TO MAKE A DISALLOWANCE UNDER SECTION 40A(2). THE VERY SCHEME OF SECTION 40A(2) DOES NOT ENVISAGE AN ADHOC DISALLOWANCE AS H AS BEEN MADE IN THE PRESENT CASE. FOR THIS SHORT REASON ALONE, THE IMPU GNED DELETION OF DISALLOWANCE MUST STAND CONFIRMED. THERE IS, HOWEVE R, ONE MORE REASON FOR DOING SO. AS EVIDENT FROM A PLAIN READING OF TH E ASSESSMENT ORDER, THE ASSESSING OFFICER HAD CALLED UPON THE ASSESSEE TO D EMONSTRATE THAT THE PAYMENT MADE BY THE ASSESSEE TO THE SPECIFIED PERSO NS IS NOT UNREASONABLE OR EXCESSIVE, AND IT IS THUS FAILURE O F THE ASSESSEE WHICH HAS RESULTED IN DISALLOWANCE UNDER SECTION 40A(2). HOWE VER, PROVING A NEGATIVE, AS THE ASSESSEE HAS BEEN CALLED UPON TO D O IN THIS CASE, IS AN IMPOSSIBLE ONUS TO PERFORM. IN ANY EVENT, THIS ONUS 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 ASSE SSEE, NEITHER SUCH A SITUATION CAN BE A REASON ENOUGH TO MAKE A DISALLOW ANCE UNDER SECTION 40A(2) NOR THE ONUS OF EXPLAINING SUCH A VARIATION IS ON THE ASSESSEE. A TAX AUDITOR IS AN INDEPENDENT PROFESSIONAL AND ANY ERRORS IN HIS REPORT CANNOT BE PUT TO ASSESSEE'S DISADVANTAGE. IN VIEW O F THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPR OVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE I N THE MATTER.' 7. THE VIEWS SO EXPRESSED BY THE CO-ORDINATE BENCH WERE DULY APPROVED BY HON'BLE JURISDICTIONAL HIGH COURT, IN THE JUDGEMENT REPORTED AS CIT VS. ASHOK J PATEL [(2014) 43 TAXMANN.COM 227 (GUJ.)]. WHILE SO APPROVING THE VIEWS OF THE CO-ORDINATE BENCH, THEIR LORDSHIPS HAVE INTER ALIA OBSERVED AS FOLLOWS : '8. THAT THE ASSESSEE WHO IS IN THE BUSINESS OF TRAN SPORTATION CLAIMED DISALLOWANCE WITH RESPECT TO MOTOR BUS RENT PAID TO VARIOUS PERSONS FOR TRANSPORTATION CONTRACTS. THE AO WAS OF THE VIEW TH AT THE ASSESSEE HAS FAILED TO PRODUCE ANY COMPARATIVE MARKET PRICE AND THAT THE NATURE OF WORK CARRIED OUT BY THE AFORESAID PERSONS IS GENERA L IN NATURE. THE AO ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 9 DISALLOWED RS.15,49,163/- FOR AY 2005-06 AND RS.14, 97,668/- FOR AY 2006- 07 OUT OF THE TOTAL PAYMENT OF BUS RENT UNDER SECTI ON 40A(2)(B). WITH RESPECT TO AY 2006-07 AO ALSO MADE DISALLOWANCE OF RS.93,25,426 MADE UNDER SECTION 40(A)(IA) OF THE ACT BY HOLDING THAT THE AMENDMENT CARRIED OUT BY FINANCE ACT, 2010 CAN BE HELD TO BE RETROSPE CTIVE FROM AY 2005-06. NOW, SO FAR AS THE DISALLOWANCE MADE UNDER SECTION 40A(2)(B) OF THE ACT ON THE GROUND OF MOTOR BUS RENT IS CONCERNED, IT AP PEARS THAT THE AO DISALLOWED 5% OF THE TOTAL PAYMENTS TOWARDS MOTOR B US RENT BY OBSERVING THAT THE ASSESSEE HAS FAILED TO RECONCILE THE DIFFE RENCE IN PAYMENTS AS PER TAX AUDIT REPORT AND AS SUBMITTED DURING THE ASSESS MENT PROCEEDINGS AND HAD ALSO NOT PRODUCED ANY COMPARATIVE PRICES. THE L EARNED CIT(A) DELETED THE SAID DISALLOWANCES BY OBSERVING THAT THE AO HAS NOT MADE OUT ANY CASE FOR EXCESSIVE OR UNREASONABLE PAYMENTS TO THE RELATED PURPOSE TOWARDS THE MOTOR BUS RENT. THE LEARNED CIT(A) ALSO OBSERVED THAT NO COMPARATIVE PRICES FOR SIMILAR TRANSPORT SERVICES W AS CITED BY THE AO AND THEREFORE, WAS NOT JUSTIFIED IN MAKING AD-HOC DISAL LOWANCE OF 5% UNDER SECTION 40A(2)(B) OF THE ACT AND THEREFORE, THE CIT (A) AS SUCH RIGHTLY DELETED THE DISALLOWANCES MADE UNDER SECTION 40A(2) (B) OF THE ACT. CONSIDERING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT AND THE EVIDENCE ACT, IF THE AO WAS OF THE OPINION THAT THE PAYMENT FOR WHICH DISALLOWANCE IS CLAIMED, IS EXCESSIVE OR UNREASONAB LE. IN THAT CASE, IT WAS FOR THE AO TO ASSESS FAIR MARKET PRICE AND GIVE COM PARATIVE INSTANCES FOR PAYMENT FOR SIMILAR TRANSPORT SERVICE. IN ABSENCE O F SUCH COMPARATIVE CASES BROUGHT ON RECORD, AS RIGHTLY OBSERVED BY THE ITAT IT WAS NOT OPEN FOR THE AO TO MAKE DISALLOWANCE UNDER SECTION 40A(2 )(B) OF THE ACT. WHILE DELETING DISALLOWANCE MADE BY THE AO UNDER SECTION 40A(2)(B) OF THE ACT, THE LEARNED ITAT HAS OBSERVED AND HELD IN PARA 7 AS UNDER :-- '7. IT IS PLAIN ON PRINCIPLE THAT, SO FAR AS DISALLO WANCE UNDER SECTION 40A(2) FOR PAYMENT BEING EXCESSIVE OR UNREASONABLE CAN ONL Y BE MADE WHEN THE PAYMENT IS MADE TO THE 'SPECIFIED PERSONS' UNDER CLAU SE 40A(2)(B) AND 'THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH E XPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET PR ICE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MAD E'. THE OPINION OF THE ASSESSING OFFICER FOR THE EXPENDITURE BEING EXCESSI VE OR UNREASONABLE IS TO BE FORMED VIS-A-VIS FAIR MARKET PRICE OF SUCH GO ODS SERVICES OR FACILITIES. IT IS THUS SINE QUA NON FOR MAKING A DISALLOWANCE U NDER SECTION 40(A)(2) THAT THE ASSESSING OFFICER HAS TO ASCERTAIN THE FAI R MARKET PRICE OF SUCH GOODS, SERVICES OR FACILITIES, AND THEN MAKE A 'DIS ALLOWANCE FOR THE ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 10 AMOUNT WHICH IS IN EXCESS OF FAIR MARKET VALUE OF S UCH GOODS, SERVICES OR FACILITIES. UNLESS THERE IS A CATEGORICAL FINDING A BOUT THE 'FAIR MARKET VALUE' AND THE ASSESSEE HAS AN OPPORTUNITY TO BE HEARD ON ASSESSING OFFICER'S FINDING ABOUT SUCH 'FAIR MARKET VALUE', THERE CANNO T BE AN OCCASION TO MAKE A DISALLOWANCE UNDER SECTION 40A(2). THE VERY SCHEME OF SECTION 40A(2) DOES NOT ENVISAGE AN ADHOC DISALLOWANCE AS H AS BEEN MADE IN THE PRESENT CASE. FOR THIS SHORT REASON ALONE, THE IMPU GNED DELETION OF DISALLOWANCE MUST STAND CONFIRMED. THERE IS, HOWEVE R, ONE MORE REASON FOR DOING SO. AS EVIDENT FROM A PLAIN READING OF TH E ASSESSMENT ORDER, THE ASSESSING OFFICER, HAD CALLED UPON THE ASSESSEE TO DEMONSTRATE THAT THE PAYMENT MADE BY THE ASSESSEE TO THE SPECIFIED PERSO NS IS NOT UNREASONABLE OR EXCESSIVE, AND IT IS THUS FAILURE O F THE ASSESSEE WHICH HAS RESULTED IN DISALLOWANCE UNDER SECTION 40A(2). HOWE VER, PROVING A NEGATIVE, AS THE ASSESSEE HAS BEEN CALLED UPON TO D O IN THIS CASE, IS AN IMPOSSIBLE ONUS TO PERFORM. IN ANY EVENT, THIS ONUS 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 ASSE SSEE, NEITHER SUCH A SITUATION CAN BE A REASON ENOUGH TO MAKE A DISALLOW ANCE UNDER SECTION 40A(2) NOR THE ONUS OF EXPLAINING SUCH A VARIATION IS ON THE ASSESSEE. A TAX AUDITOR IS AN INDEPENDENT PROFESSIONAL AND ANY ERRORS IN HIS REPORT CANNOT BE PUT TO ASSESSEE'S DISADVANTAGE. IN VIEW O F THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPRO VE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE I N THE MATTER.' WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKEN BY THE ITAT AND THE OBSERVATIONS MADE BY THE LEARNED ITAT WHILE DELETIN G DISALLOWANCES MADE BY THE AO UNDER SECTION 40A(2)(B) OF THE ACT O N MOTOR BUS RENT. NO ERROR HAS BEEN COMMITTED BY THE LEARNED ITAT WHICH CALLS FOR INTERFERENCE OF THIS COURT. NO QUESTION OF LAW MUCH LESS ANY SUB STANTIAL QUESTION OF LAW ARISES.' 8. QUITE CLEARLY, THEREFORE, THE PRESENT LEGAL POSI TION IS THAT AN ADHOC DISALLOWANCE UNDER SECTION 40A(2)(B) IS INHERENTLY UNSUSTAINABLE IN LAW. FOR THIS SHORT REASON ALONE, WE DELETE THE IMPUGNED DISALLOW ANCE OF RS.10,35,000/- UNDER SECTION 40A(2)(B). THE ASSESSEE GETS THE RELI EF ACCORDINGLY. 9. WE MAY ALSO ADD THAT EVEN THOUGH IT IS SECOND RO UND OF PROCEEDING BEFORE THE TRIBUNAL, AND THIS ASPECT OF THE MATTER WAS NOT EXA MINED IN THE FIRST ROUND OF ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 11 PROCEEDING, IN OUR CONSIDERED VIEW, THIS ASPECT CAN BE TAKEN UP FOR CONSIDERATION EVEN AT THIS STAGE. WHETHER AN ADHOC DISALLOWANCE U NDER SECTION 40A(2)(B) CAN BE MADE AT ALL OR NOT IS SOMETHING WHICH GOES TO TH E ROOT OF THE MATTER, AND IN THE LIGHT OF LAW LAID DOWN BY HON'BLE BOMBAY HIGH C OURT IN THE CASE OF INVENTORS INDUSTRIAL CORPORATION LIMITED VS. CIT [(1992) 194 ITR 548 (BOM)] SUCH ISSUES CAN BE RAISED AT ANY POINT OF TIME. 10. AS THE GRIEVANCE OF THE ASSESSEE IS UPHELD FOR THE ABOVE SHORT REASON, WE SEE NO NEED TO ADDRESS OURSELVES TO OTHER ASPECTS OF TH E MATTER. 17. IN PARITY WITH THE VIEW TAKEN IN ABOVE SAID ITAT OR DER, WE ALLOW GROUND OF THE ASSESSEE. 18. IN THE RESULT, WE DIRECT THE A.O. TO DELETE THE ADD ITION OF RS. 3,15,000/-. 19. NOW WE COME TO NEXT GROUND PERTAINING TO CONFIRMING OF DISALLOWANCE OF RS. 83,492/- BEING DEPRECIATION CLAIMED @ 15% ON ELECTR ICAL FITTING BEING PART OF P&M. 20. AT THE OUTSET, LD. A.R. IS FAIR TO CONCEDE THAT THI S GROUND IS AGAINST THE ASSESSEE IN VIEW OF THE ORDER PASSED IN THE CASE OF ASSESSEE FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 1747/AHD/2013 PAGE NO. 10 TO 11 IN PARA 9. AFTER CONSIDERING THE FAIR SUBMISSION MADE BY THE LD. A.R., WE DISMISS TH IS GROUND OF APPEAL. ITA NO. 3545/AHD/2016 FOR A.Y. 2012-13 ASSESSEES A PPEAL. 21. FIRST GROUND IS RELATING TO CONFIRMING ADHOC DISALL OWANCE @ 50% OF FINANCIAL CHARGES PAID INVOKING SECTION 40A(2)(B) OF THE ACT. ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 12 22. LD. A.O. HAS DISCUSSED THE ISSUE AT PAGE NO. 7 TO 1 0 IN PARA NO. 7 AND LD. CIT(A) HAS DISCUSSED THE ISSUE AT PAGE NO. 27 TO 29 IN PARA 4.2. SINCE ALREADY WE HAVE ALLOWED THE CLAIM OF THE ASSESSEE IN C.O. N O. 29/AHD/2017, THEREFORE, HAVING PARITY WITH THE SAID ORDER, WE AL LOW THIS GROUND OF APPEAL OF THE ASSESSEE. 23. NOW WE COME TO GROUND RELATING TO CONFIRMING DISALL OWANCE OF RS. 83,492/- DEPRECIATION CLAIMED @ 15% ON ELECTRICAL FITTING BE ING PART OF P&M. 24. WE HAVE DECIDED THIS ISSUE AGAINST THE ASSESSEE IN VIEW OF THE FAIR ADMISSION BY THE LD. A.R. AND SIMILAR GROUND WE HAVE DECIDED AGA INST THE ASSESSEE IN CONNECTED C.O. NO. 29/AHD/2017. THEREFORE, THIS GRO UND OF APPEAL IS DISMISSED. 25. NOW WE COME TO GROUND NO. 3 & 4 RELATING TO RESTRIC TING THE DISALLOWANCE MADE U/S. 14A TO THE EXTENT OF EXEMPT INCOME INSTEA D TO NO DISALLOWANCE BEEN CALLED FOR IN ABSENCE OF EXEMPT INCOME. 26. LD. A.O. HAS DISCUSSED THE ISSUE AT PAGE NO.11 TO 1 4 IN PARA NO. 9 AND LD. CIT(A) HAS DISCUSSED THE ISSUE AT PAGE NO. 29 TO 30 IN PARA 4.4. IN THIS CASE, A DISALLOWANCE OF RS.21,53,344/-MADE U/S 14A R.W. RUL E 8D. UNDISPUTEDLY, THE APPELLANT COMPANY HAS UTILIZED BORROWED FUNDS FOR P URCHASE OF SHARES AND SECURITIES AND PAID INTEREST OF RS.70,95,271/-. ACC ORDINGLY, THE AO INVOKED PROVISIONS OF SECTION 14A R.W.RULE 8D AND DISALLOWE D A SUM OF RS.19,38,286/- OUT OF INTEREST AND RS. 2,15,058/- ON ACCOUNT OF AD MINISTRATIVE EXPENSES BEING 0.5% OF THE AVERAGE VALUE OF INVESTMENT. THE AVERAG E VALUE OF INVESTMENT IN THE SHARES AND SECURITIES WAS CONSIDERED BY THE AO AT RS.4,30,11,561/-. ITA NOS. 41/A HD/17 & C.O. 29/AHD/1 7& OTHERS . A.Y. 2012-1 3 13 27. ON THE OTHER HAND, LD. A.R. CONTENTION IS THAT THER E IS NO EXEMPT INCOME AND IN VIEW OF CORRTECH ENERGY PVT. LTD. CASE, PLEA OF THE ASSESSEE SHOULD BE ACCEPTED BUT WE WOULD LIKE TO ACCEPT ALTERNATIVE PL EA OF THE LD. A.R. AND THIS ISSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFF ICER TO SEE THE QUANTUM OF EXEMPT INCOME AND THEREAFTER DECIDED THE ISSUE OF D ISALLOWANCE BUT IN ANY CASE DISALLOWANCE NOT TO BE MADE MORE THAN THE EXEMPTED INCOME. THEREFORE, WE SET ASIDE THIS ISSUE TO THE FILE OF A.O. TO SEE WHE THER ANY EXEMPT INCOME IS THERE OR NOT, THEREAFTER WILL DECIDE ISSUE AS PER P ROVISION OF LAW. 28. IN THE RESULT, THIS APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 08- 04- 2019 SD/- SD/- (PRADIP KUMAR KEDIA) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 08/04/2019 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD