INDUSTRIAL HEAT TREATERS, MUMBAI V. CIT(A) XXII, MUMBAI

ITA 5300/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7658 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 29-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Keywords: Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE APPELLATE APPELLATE APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIALMEMBER I.T.A.NO.5300/MUM/2009 A.Y 2005-06 M/S INDUSTRIAL HEAT TREATERS, FLAT NO.5, 2 ND FLOOR, PLOT NO. 230 JYOSTNA CO-OP. HSG. SOCIETY, NEAR FULLERTON INDIA CREDIT, R.B.MEHTA RD. GHATOKPAR (E), MUMBAI 400 077. PAN: AAAFI 0060 N VS. COMMISSIONER OF I.T. (APPEALS) XXII, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL SATHE. RESPONDENT BY : SHRI C.G.K.NAIR. DATE OF HEARING: 29-12-2011. DATE OF PRONOUNCEMENT: 06-01-2012. O R D E R PER T.R.SOOD, AM: ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE A DHOC DISALLOWANCE U/S 40A(2)(B) OF RS. 5,31,965/- @ 25% OF THE TOTAL PAYMENTS MADE TO THE SISTER CONCERNS M/S INDUCTION HARDENING COMPANY & M/S INDUCTION TREATMENT 2. THE LEARNED CIT(A) IS WRONG IN RETAINING THE ADH OC DISALLOWANCE OUT OF GENUINE BUSINESS EXPENDITURE @1 0% AMOUNTING TO RS. 1,57,0 17 FROM MOTOR CAR EXPENSES, TELEPHONE, DEPRECIATION ON CAR, LOADING, UNLOADING, OCTROI & FREIGHT EXPENSES ASSUMING THE INVOLVEMENT OF PERSON AL USE WITHOUT FINDING SPECIFIC DEFECTS BY THE A.O. 2. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSES SEE DID NOT PRESS GROUND NO.2, THEREFORE, SAME IS DISMISSED AS NOT PR ESSED. ITA NO.5300 OF 2009 2 3. GROUND NO.1: AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS PAID A SUM OF RS.8,42,715/- TO INDUCTION HARDENING CO. AND RS. 12,85,147/- TO INDUCTION TREATMENT. IT WAS FURTHER NOTICED THAT TH ESE PAYMENTS WERE MADE TO SISTER CONCERN FOR THE LABOUR CHARGES AND J OB WORK. THE ASSESSEE WAS ASKED TO JUSTIFY THE PAYMENT AND IN RE SPONSE ASSESSEE FILED COPIES OF BILLS AND OTHER SUBMISSIONS. HOWEVE R, AO DISALLOWED 25% OF THE ABOVE PAYMENTS U/S.40A[2][B] FOR THE FOL LOWING REASONS MENTIONED IN PARA 6.3: (I) INDUCTION TREATMENT WHICH HAS SHOWN GROSS RECEI PTS OF RS,67,60,489/- AS RECEIPT FROM JOB WORK DURING THE F.Y.2004-05 HAS FILED A NIL RETURN. THEREFORE, IT IS CLEAR THAT THE CONCERN HAS NOT PAID ANY TAXES. (II) INDUCTION TREATMENT HAS HAD ITS FACTORY AT N-1 8, MIDC, NASHIK WHICH HAS BEEN TAKEN OVER BY THE ASSESSEE CONCERN A ND ON THAT PREMISES, A FACTORY SHED HAS BEEN CONSTRUCTED. MORE OVER, ERECTION OF A FURNACE IS BEING CARRIED OUT AT N-18, MIDC, AMBBAD, NASHIK. THE PROPER JOURNAL ENTRIES HAS ACCORDINGLY BEEN MADE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS WELL AS IN THE BOOKS OF INDUCTION TREATMENT. IT IS IMPORTANT TO NOTE THAT INDUCTION T REATMENTS ACCOUNT WAS CREDITED BY RS.3,29,726/- TOWARDS MIDC SHED, NA SHIK AND RS.4,94,983/- TOWARDS ELECTRICITY DEPOSIT. (III) SIMILARLY, TRANSACTIONS ARE ENTERED INTO WITH INDUCTION HARDENING CO. WHICH HAS FILED RETURN OF INCOME FOR THE A.Y.20 05-06 REFLECTING INCOME OF RS.40,930/- AND HAS CLAIMED REFUND OF RS. 1,61,715/-. PERUSAL OF THE LEDGER EXTRACT REVEALS THAT PAYMENTS & RECEIPTS HAVE BEEN MADE IN CASH ON SOME OCCASIONS. NO DETAIL AS R EGARDS TO WHY CASH HAS BEEN RECEIVED. (IV) THE ASSESSEE HAS NOT MADE ANY SUBMISSION AS RE GARDS TO IN ABSENCE OF FACTORY PREMISES WHERE THE JOB WORK WAS DONE BY THE SISTER CONCERN. (V) THE ONUS WAS ON THE ASSESSEE TO PROVE THAT PRIC ES PAID TOWARDS THE LABOUR CHARGES ARE NOT EXCESSIVE. MERE FILING OF 2- 3 BILLS DOES NOT SUBSTANTIATE THAT PRICES PAID ARE REASONABLE. ASSES SEE WAS BOUND TO EXPLAIN WHERE THE JOB WORK ACTIVITY WAS CARRIED OUT BY THE SISTER CONCERN. (VI) THE ASSESSEE HAS NOT PROVED THAT IT WAS THE LE GITIMATE NEEDS OF THE BUSINESS AND THE BENEFITS DERIVED BY SUCH EXPENDITU RE. ITA NO.5300 OF 2009 3 (VII) THE INTENTION OF THE LEGISLATURE BY INCORPORA TING THE PROVISIONS OF SECTION 40A(2)(B) OF THE I.T.ACT, 1961 WAS TO ENCOU NTER EVASION OF TAX THROUGH EXCESSIVE AND UNREASONABLE PAYMENTS TO ASSO CIATE CONCERNS. (VIII) IN LIGHT OF THE FACT THAT BOTH THESE SISTER CONCERNS HAVE SHOWN THEIR TAXABLE INCOME AT NIL AND AT THE SAME THE ASS ESSEE HAS CLAIMED EXPENSES AND ACCORDINGLY EVADED THE PAYMENT OF TAX ON RS. 21,27,862/-. (IX) PERUSAL OF THE LEDGER EXTRACT FILED BY THE ASS ESSEE REVEALS THAT IN ADDITION TO PAYMENT TOWARDS JOB WORK, TRANSFER OF F UNDS HAVE ALSO BEEN MADE. (X) THERE ARE PAYMENTS MADE AND RECEIVED IN CASH. N O SUBMISSION HAS BEEN MADE BY THE ASSESSEE AS REGARDS TO THE ABOVE. (XI) IN ADDITION TO THE LABOUR CHARGES PAID TO THE ABOVE MENTIONED SISTER CONCERNS, THE ASSESSEE HAS SHOWN PAYMENT IN CASH AS WELL AS THROUGH CHEQUES TO DIFFERENT PARTIES. (XII) THERE IS NO DETAIL AS REGARD TO FAIR MARKET V ALUE OF THE SERVICES RENDERED BY THESE SISTER CONCERNS. THE ONUS WAS ON THE ASSESSEE TO BRING ALL THE MATERIAL FACTS SO AS TO SUBSTANTIATE THE PRICES PAID ARE NOT EXCESSIVE, WHICH HAS NOT BEEN DISCHARGED. 4. ON APPEAL, LD. CIT(A) CONFIRMED THE ACTION OF TH E AO. 5. BEFORE US, LD. COUNSEL OF THE ASSESSEE MAINLY SU BMITTED THAT BURDEN WAS ON THE AO TO PROVE U/S.40A[2][B] THAT PA YMENT WAS MADE WAS EXCESSIVE. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT IT WAS A CASE OF EXCESS PAYMENT. THOUGH HE HAS GIVEN VARIOUS REASONS WHICH HE READ OUT FROM PAGE 4 OF THE ASSESS MENT ORDER AND POINTED OUT THAT NONE OF THE REASONS GIVEN SHOW THA T THE PAYMENT WAS EXCESSIVE. 6. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT AO HAS ULTIMATELY MADE AN ADHOC ADDITION OF 25%. NO MATERI AL HAS BEEN BROUGHT ON RECORD TO SHOW THAT PAYMENT WAS EXCESSIV E. THERE IS NO FINDING THAT HOW MUCH PAYMENT WAS JUSTIFIABLE OR RE ASONABLE. ONLY ITA NO.5300 OF 2009 4 GENERAL OBSERVATIONS AS EXTRACTED ABOVE BY US HAVE BEEN MADE BY THE AO WHICH CANNOT CONSTITUTE A BASIS FOR MAKING DISAL LOWANCE U/S.40A[2][B]. ACCORDINGLY, WE DELETE THIS ADDITION . 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 6/1/2012. SD/- SD/- (VIJAY PAL RAO) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 6/1/2012. P/-*