M/s. Parikh Chandulal Gokaldas & Bros., Godhra V. The Income Tax Officer, Ward-1, Godhra

ITA 52/AHD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8544 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 06-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DEEP SHAH
• Keywords: Fair market value
• Section: 143(3)

Judgement Text

ITA NO. 52 /AHD/ 201 5 ASSESSMENT YEAR : 20 11 - 12 PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR , AM AND MAHAVIR PRASAD , JM] ITA NO. 52 / AHD / 2 0 1 5 ASSESSMENT YEAR: 20 11 - 12 PARIKH CHANDULAL GOKALD A S & BROS. ....... ...........APPELLANT STATION ROAD, GODHR A 389 001 . [PAN : A A DFP 094 3 J ] VS. INCOME TAX OFFICER , WARD - 1, GODHRA. ............................RESPONDENT APPEARANCES BY: DEEP SHAH FOR THE APPELLANT PRASOON KABRA FOR THE RESPONDENT D ATE OF CONCLUDING THE HEARING : 24 .0 7. 2017 DATE OF PRONOUNCING THE ORDER : 21 .09 .2017 O R D E R PER PRAMOD KUMAR, AM: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 05.11.2014, PASSED BY THE L EARNED CIT(A) - V, BARODA, IN T HE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER ), FOR THE ASSESSMENT YEAR 2011 - 12. 2. GRIEVANCES RAISED BY THE APPELLANT ARE AS FOLLOWS : - 1. THE ORDER PASSED BY THE HON BLE CIT(A) IS BAD IN LAW, CONTRARY T O LEGAL PRONOUNCEMENTS AND SAME BE QUASHED. THE DISALLOWANCES/ADDITIONS ARE UNWARRANTED AND SAME BE DELETED NOW. 2. THE HON BLE CIT(A) - V, BARODA HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.5,70,000/ - OUT OF SALARY PAID TO PERSONS COVERED UNDER SECTIO N 40A(2)(B) OF THE ACT WITHOUT ANY BASE FOR ESTIMATION OF SALARY ITA NO. 52 /AHD/ 201 5 ASSESSMENT YEAR : 20 11 - 12 PAGE 2 OF 3 PAYABLE TO THE EMPLOYEES. IT IS SUBMITTED THAT THE DISALLOWANCE MADE IS UNJUST AND UNCALLED FOR SINCE THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT ARE NOT APPLICABLE IN THIS CASE. IT BE H ELD SO NOW AND ADDITION MADE BY THE AO BE DELETED. WITHOUT PREJUDICE TO THE ABOVE IT IS SUBMITTED THAT THERE IS NO PROVISION IN THE INCOME TAX ACT TO DISALLOW SUCH EXPENSES WITHOUT ANY COGENT REASON ASSIGNED THEREO F AND WITHOUT ANY BASE FOR SUCH DISALLOWA NCE. IT BE HELD SO NOW AND THE AO BE DIRECTED TO DELETE THE ADDITION. 2. TO ADJUDICATE ON TH IS APPEAL, ONLY A FEW MATERIAL FACTS NEED T O BE T A KEN NOTE OF. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER NOT ED THAT THE ASSES SEE H A S PAID SALARIES, AGGREGATING TO RS.11,10,000/ - , TO THE PERSON S SPECIFIED UNDER SECTION 40A(2) (B) OF THE ACT. HE CALLED FOR THE DETAILS OF THESE SALARIES, AND DISALLOWED RS.1,50,000/ - EACH, SO FAR AS SALARIES OF RS.2,70,000/ - P.A. PAID TO J.H. PARIKH , M.H. PARIK H AND C.H. PARIKH WAS CONCERN E D, AND RS.60,000/ - EACH, SO FAR AS SALARIES OF RS.90,000/ - P.A. PAID TO N.J. PARIKH AND H.J. PARIKH, WAS CONCERNED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) BUT WITHOUT ANY SUCCES S. LEARNED CIT(A) ALSO OBSERVED THAT GENUINENESS OF THE EXPENSES ITSELF IS IN DOUBT, THOUGH HE DID NOT EVEN REALLY DEAL WITH QUANTIFICATION PART OF THE DISALLOWANCE. HE CONFIRMED THE DISALLOWANCE NEVERTHELESS, AGGRIEVED BY WHICH ASSESSEE IS IN APPEAL BEF ORE US. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 4. IN OUR CONSIDERED VIEW , FOR INVOCATION OF DISALLOWANCE UNDER SECTION 40A(2)(B) IN THE PRE SENT CASE, ONE OF THE CONDITIONS PRECEDENT IS UN REASONABLENESS OF THE AMOUNT PAID. SE CTION 40A(2) PROVIDES THAT WHERE THE A . O . IS OF THE VIEW THAT EXPENDITURE INCURRED BY THE ASSESSEE, IN RESPECT OF WHICH PAYMENT IS MADE TO THE SPECIFIED PERSONS, IS EXCES SIVE OR UNREASONABLE HAVING REGARD TO THE MARKET VALUE OF GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE, OR THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITUR E AS IS CONSIDERED TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS DEDUCTION. THE EMPHASIS IS ON THE MARKET VALUE OF THE GOODS OR SERVICES. THE CIT(A) HAS ALSO DEALT WITH THE MATTER AT A SUPERFICIAL LEVEL WITHOUT GIVING ANY COGENT FINDING ABOUT THE CONDITIONS OF APPLICABILITY OF S ECTION 40A(2) BEING SATISFIED. UNLESS THERE IS A ITA NO. 52 /AHD/ 201 5 ASSESSMENT YEAR : 20 11 - 12 PAGE 3 OF 3 CLEAR FINDING THAT THE MARKET VALUE OF THE SERVICES TAKEN FROM THE SISTER - CONCERN IS LESS THAN THE PRICE AT WHICH THE SERVICES ARE OBTAINED, THERE CANNOT BE AN OCCASION TO AP PLY THE DISABLING PROVISIONS OF S ECTION 40A(2), FOR PARTIAL DISALLOWANCE OF THE EXPENSES INCURRED. THIS EXERCISE, THEREFORE, NECESSITATES A FINDING ABOUT THE FAIR MARKET VALUE OF SUCH SERVICES. THERE IS NO FINDING WHATSOEVER AS TO WHAT WERE THE NATURE OF SERVICES RENDERED AND AS TO WHAT , ON SOME COGENT BASIS, WILL BE FAIR CONSIDERATION FOR THE SAME. MERELY QUESTIONING THE NEED OF THIS EXPENDITURE CANNOT JUSTIFY A PARTIAL DISALLOWANCE OF THE EXPENSES. FOR THIS REASON ALONE, THE DISALLOWANCE UNDER S ECTION 4 0A(2) IS INHERENTLY UNSUSTAINABLE IN LAW ON THE FACTS OF THIS CASE. WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT IT WAS NOT A FIT CASE FOR INVOKING THE PROVISIONS OF S ECTION 40A(2) ON THE FACTS OF THE CASE. THE CIT(A) SHOULD HAVE DELETED THE ENTIRE DISA LLOWANCE. WE, THEREFORE, ALLOW THIS APPEAL AND DELETE THE DISALLOWANCE. 5 . IN THE RESULT, THE APPEAL IS ALLOWED . PRONOUNCED IN THE OPEN COURT TODAY ON THE 21 ST DAY OF SEPTEMBER , 2017. SD/ - SD/ - MAHAVIR PRASAD PRAMOD KUMA R (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 21 ST DAY OF SEPTEMBER , 2017 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD