The ACIT,Mehsana Circle, Mehsana V. Bhavani Ceramics Pvt.Ltd., Mehsana

ITA 563/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0901 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 04-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RUPESH R SHAH
• Keywords: Unexplained cash credit; Earning of tax free income; Fair market value
• Section: 43B; 143(3); 133(6); 37(1); 194C; 68; 37; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV, JM, & SHRI MANISH BORA D, AM. ITA NO.563/AHD/2013 ASST. YEAR: 2009-10 ACIT, MEHSANA CIRCLE, MEHSANA. VS. BHAVANI CERAMICS (P) LTD., B-1, K.B. COMPLEX, DAIRY ROAD, MEHSANA. APPELLANT RESPONDENT PAN AABCB 2030R AND ITA NO.814/AHD/2013 ASST. YEAR: 2009-10 BHAVANI CERAMICS (P) LTD., B- 1, K.B. COMPLEX, DAIRY ROAD, MEHSANA. VS. ACIT, MEHSANA CIRCLE, MEHSANA. APPELLANT RESPONDENT REVENUE BY SHRI SANJAY KUMAR, SR. DR RESPONDENT BY SHRI RUPESH R. SHAH, AR DATE OF HEARING: 8/8/2016 DATE OF PRONOUNCEMENT: 22/8/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THESE CROSS APPEAL BY REVENUE AND ASSESSEE FOR ASS T. YEAR 2009-10 ARE DIRECTED AGAINST THE ORDER OF CIT(A), G ANDHINAGAR, AHMEDABAD, DATED 20/12/2012 IN APPEAL NO.CIT(A)/GNR /325/2011- ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 2 12. ASSESSMENT U/S 143(3) OF THE IT ACT, 1961 (IN S HORT THE ACT) WAS FRAMED ON 29.12.2011 BY JCIT, MEHSANA RANGE, MEHSAN A. 2. BRIEFLY STATED FACTS AS CULLED OUT FROM RECORDS PLACED BEFORE US ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY ENGA GED IN THE BUSINESS OF MANUFACTURING SODIUM SILICATE. RETURN O F INCOME WAS E- FILED DECLARING TOTAL INCOME OF RS.99,55,087/-. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT. NOTICE U/S 143(2) OF THE A CT WAS ISSUED ON 24.8.2010 AND SERVED UPON THE ASSESSEE ON 27.9.2010 . DETAILED QUESTIONNAIRE CALLING VARIOUS DETAILS AND INFORMATI ON WAS SERVED AND DULY REPLIED BY THE ASSESSEE. FINANCIAL STATEMENTS INCLUDING AUDIT REPORT U/S 44AB OF THE ACT WERE PERUSED BY ASSESSIN G OFFICER. AFTER MAKING ADDITION OF RS.96,50,228/- ON ACCOUNT OF DIS ALLOWANCE ON SALES COMMISSION AT RS.31,41,162/-, DISALLOWANCE OF EXCISE PENALTY AT RS.10 LACS, DISALLOWANCE OF INTEREST OF RS.35,97 0/-, DISALLOWANCE OF PROCESSING CHARGES PAID TO SISTER CONCERN AT RS.15, 74,496/-, DISALLOWANCE U/S 40(A)(IA) OF THE ACT AT RS.1,93,60 0/- AND ADDITION U/S 68 OF THE ACT AT RS.37,05,000/- THE INCOME WAS ASSE SSED AT RS.196,05,315/-. IN APPEAL BEFORE LD. CIT(A), ASSES SEE GOT PART RELIEF AND NOW BOTH THE ASSESSEE AND THE REVENUE ARE IN AP PEAL BEFORE THE TRIBUNAL. 3. FIRST WE TAKE UP ASSESSEES APPEAL IN ITA NO.814 /AHD/2013 WHEREIN VARIOUS GROUNDS HAVE BEEN RAISED WHICH ARE DESCRIPTIVE AND ARGUMENTATIVE NATURE AND ARE NOT IN CONSONANCE WITH RULE-8 OF THE ITAT RULES, 1963. HOWEVER, SOLITARY GRIEVANCE IN TH E APPEAL OF ASSESSEE IS AGAINST THE ORDER OF LD. CIT(A) CONFIRM ING THE DISALLOWANCE OF COMMISSION EXPENDITURE AT RS.31,41, 162/-. ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 3 4. LD. AR SUBMITTED THAT IN RESPECT OF CLAIM OF COM MISSION OF RS.31,41,162/- RELEVANT EVIDENCES WERE FILED WHICH INCLUDED CONFIRMATIONS FROM THE RECIPIENTS OF COMMISSION, PR OOF OF ACTUAL PAYMENT OF COMMISSION AND NOT MERE CREDIT IN THE AC COUNTS, EVIDENCE SHOWING THAT COMMISSION INCOME HAS BEEN SH OWN IN THE RESPECTIVE INCOME-TAX RETURN OF THE RECIPIENTS AS W ELL AS DETAILED ROLE PLAYED BY EACH PERSON. LD. AR FURTHER SUBMITTED THA T THERE WAS A DIRECT IMPACT ON TURNOVER DUE TO AVAILABILITY OF SE RVICES OF THE SAID RECIPIENTS OF COMMISSION WHICH HELPED TO GROW THE T URNOVER OF THE ASSESSEE FROM RS.18.71 CRORES IN F.Y.2007-08 TO RS. 25.10 CRORES IN THE PREVIOUS YEAR I.E. F.Y.2008-09. FURTHER LD. AR SUBMITTED THAT AN OPPORTUNITY OUGHT TO HAVE BEEN GIVEN TO THE ASSESSE E AT CIT(A)S STAGE IN THE INTEREST OF JUSTICE AND FAIRNESS BY RE FERRING THE MATTER TO THE ASSESSING OFFICER OR CALLING FOR A REMAND REPOR T OR TO UNEARTH THE TRUTH. 5. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS O F LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US. SOLITARY GRIEVANCE OF THE ASSESSE E IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF COMMISSION EXPENDIT URE OF RS.31,41,162/-. WE OBSERVE THAT DURING THE COURSE O F ASSESSMENT PROCEEDINGS DETAILED LIST ENUMERATING 5 PERSONS WAS PLACED BEFORE THE ASSESSING AUTHORITY FOR TOTAL COMMISSION EXPEND ITURE OF RS.31,41,162/-. ON EXAMINING THIS LIST, LD. ASSESSI NG OFFICER OBSERVED ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 4 THAT COMMISSION EXPENDITURE HAVE DRASTICALLY INCREA SED SO MUCH SO THAT IN THE IMMEDIATELY PRECEDING F.Y. COMMISSION E XPENDITURE OF RS.41,464/- WAS INCURRED WHICH ARE ABNORMALLY INCRE ASED TO RS.31.41.162/- IN THE YEAR UNDER APPEAL. WE FURTHER OBSERVE THAT LD. ASSESSING OFFICER HAS ENQUIRED THE VERACITY OF THE CLAIM OF THE ASSESSEE CONDUCTING ENQUIRIES U/S 133(6) OF THE ACT TO 5 CUSTOMERS OF THE ASSESSEE BASED AT JODHPUR. THROUGH THIS ENQU IRY IT WAS REVEALED THAT CLAIM OF ASSESSEE TOWARDS COMMISSION EXPENSES ON SALES WAS NOT CORRECT AS THESE CUSTOMERS WERE NOT N EW AND DENIED PRESENCE OF MIDDLE MAN OR INTERMEDIARY IN RESPECT O F THEIR BUSINESS TRANSACTIONS WITH THE ASSESSEE. FURTHER ONE OF THE RECIPIENTS OF COMMISSION MR. MEHUL B. PATEL WHO IS ALLEGED TO HAV E RECEIVED RS.15,15,240/- AS COMMISSION ON SALES WAS AN EMPLOY EE OF THE ASSESSEE COMPANY. ON ENQUIRY MR. MEHUL B. PATEL STA TED ON OATH THAT HE IS UNABLE TO GIVE ANY DETAIL AS WELL AS EVI DENCE REGARDING SERVICE ACTUALLY RENDERED IN RESPECT OF ALLEGED COM MISSION PAYMENT RECEIVED FROM THE COMPANY. WE FURTHER OBSERVE THAT WHEN THE ASSESSEE WAS CONFRONTED WITH THE OUTCOME OF THESE E NQUIRIES CONDUCTED ON THE CUSTOMERS OF THE ASSESSEE AND THE EMPLOYEE, ASSESSEE SUBMITTED A LETTER DATED 16.12.2011 STATIN G THAT IN ORDER TO BUY PEACE AND AVOID ANY LITIGATION, WE HEREBY OFFER THE SAID EXPENDITURE OF COMMISSION FOR TAXATION. WE FURTHER REQUEST YOUR GOODSELF NOT TO INITIATE ANY ACTION FOR PENALTY PRO CEEDINGS FOR THE SAME. FURTHER AUTHORIZED REPRESENTATIVE OF THE COM PANY REITERATED THE ABOVE OFFER VIDE ORDER SHEET DATED 16.12.2011 A T PAGE 4 OF THE ASSESSMENT ORDER WHICH READS AS BELOW- ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 5 'SHRI HEMAL DESAI, C.A, A.R ATTENDED FILED LETTER D ATED 16.12.2011 ALONG WITH ITS ENCLOSURES. MATTER DISCUSSED ACCORDINGLY. IN RESPEC T OF COMMISSION PAYMENT OF RS. 31,41,162/- F HE SUBMITTED THAT AS MENTIONED IN THE LETTER FILED TODAY THE ASSESSEE FIRM IS OFFERING IT FOR ADDITION IN ITS INCOME FOR THE A SSESSMENT YEAR 2009-10 IN ORDER TO PURCHASE PEACE OF MIND AND TO AVOID FURTHER LITIGA TION ON THIS ISSUE. HOWEVER, HE REQUESTED, THAT PENALTY PROCEEDINGS MAY NOT BE I NITIATED IN RESPECT OF THE ADDITIONAL INCOME OF KS. 31,41,16S/- (THIRTY ONE LA C FORTY ONE THOUSAND ONE HUNDRED AND SIXTY TWO ONLY). THE ISSUE WAS DISCUSSED ACCORD INGLY,' 7. WE ARE OF THE VIEW THAT IN THE GIVEN FACTS AND C IRCUMSTANCES OF THE CASE AND THE ACCEPTANCE OF ASSESSEE AND ITS AUT HORIZED REPRESENTATIVE TO HAVE OFFERED THE EXPENDITURE OF C OMMISSION FOR TAXATION AT THE ASSESSMENT STAGE PROVES BEYOND DOUB T THAT THE ALLEGED EXPENDITURE OF RS.31,41,162/- WAS BOGUS AN D NON-GENUINE IN NATURE AND HAVE BEEN SHOWN TO EVADE TAX. WE, THEREF ORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AN D CONFIRM THE DISALLOWANCE OF COMMISSION. WE UPHOLD THE ORDER OF LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, THE APPEAL OF ASSESSEE IS DISMISSED. 8. NOW WE TAKE UP REVENUES APPEAL IN ITA NO.563/AH D/2013 WHEREIN FOLLOWING SIX GROUNDS HAVE BEEN RAISED :- 1. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE MADE BY THE AO U/S 37(1) OF THE ACT AM OUNTING TO RS. 10,00,000/- ON ACCOUNT OF 'DISALLOWANCE OF EXCISE P ENALTY'. 2. THE ID. CIT(APPEALS) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE DISALLOWANCE MADE BY THE AO AMOUNTING TO RS.15,74,4 96/- BEING PROCESSING CHARGE PAID TO SISTER CONCERN. 3. THE ID. CIT(APPEALS) HAS ERRED IN LAW A ND ON FACTS IN DELETING THE DISALLOWANCE MADE BY THE AO U/S 40(A) (IA) OF T HE ACT AMOUNTING TO RS. 1,93,600/- BEING LABOUR EXPENSE. 4. THE ID. CIT(APPEALS) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION OF RS.37,05,000/- U/S 68 OF THE ACT BEING UNEXPLAIN ED CASH CREDIT. ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 6 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE I D. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 6. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LEA RNED CIT(APPEALS) MAY BE SET ASIDE AND THAT OF THE A.O. BE RESTORED TO THE A BOVE EXTENT. 9. REGARDING GROUND NO.1 DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, ASSESSING OFFICER MADE DISALLOWANCE UN DER THE EXPLANATION TO SECTION 37(1) OF THE ACT AT RS.10 LA CS ON ACCOUNT OF EXCISE PENALTY. LD. CIT(A) DELETED THE SAID DISALLO WANCE BY OBSERVING AS UNDER :- 5.4. I CALLED FOR THE RECORDS OF THE AO AND FOUND THAT THE ABOVE LETTERS WERE ON RECORD. IN THESE CIRCUMSTANCES, I CALLED FO R THE REPORT OF THE AO GIVING HIM ANY OTHER OPPORTUNITY TO EXAMINE THE EVI DENCES FILED BEFORE ME IN THIS REGARD. THE REPORT HAS BEEN RECEIVED AND COMMENTS ON THE IS SUE ARE AS FOLLOWS: '4. IN THIS CONNECTION, THE REPORT IS AS UNDE R: IN THIS REGARD; IT IS TO SUBMIT THAT ON VERIFICATIO N OF RECORDS, IT IS ASCERTAINABLE THAT THE EXCISE PENALTY PAID AND THE EXPENSE CLAIME D AND DEBITED TO THE BOOKS OF ACCOUNT WAS PERTAINING TO CHARGE OF EXCISE PENALTY, WHICH IS NOT AN ALLOWABLE EXPENSE IN VIEW OF EXPLANATION SECTION 37 (1) OF THE ACT. THE ASSESSEE VIDE LETTER DATED 14.12.2012 ONLY STATED T HAT THE EXCISE DEPARTMENT HAD ALLOWED THE APPEAL IN FAVOUR OF THE COMPANY BUT DID NOT ENCLOSE ANY DECISION IN THIS REGARD AT THE TIME OF ASSESSMENT P ROCEEDINGS. SINCE, THE EXCISE PENALTY IS AN OFFENCE WHICH IS PROHIBITED BY LAW AND SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS O R PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE. THEREFORE, TH E AO HAD RIGHTLY DISALLOWED THE EXCISE PENALTY OF RS.10,00,000/-. . 5.6 HAVING GONE THROUGH THE FACTS OF THE CASE, I FIND THAT INSTEAD OF COMMENTING ON THE UNAMBIGUOUS FACTS OF THE CASE, TH E REMAND REPORT AS REPRODUCED IN PARA. 5.5 ABOVE, JUST AVOIDS COMMENTI NG ON THE MERITS OF THE ISSUE. COMING TO THE FACTS OF THE CASE, IT IS CLEAR FROM T HE ORDER OF THE DY. CIT,CENTRAL EXCISE (AUDIT), AHMEDABAD-III THAT PAYM ENT WAS INDEED PERTAINING TO CHARGE OF EXCISE DUTY, INTEREST AND C ESS THEREON TOTALING ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 7 RS.44,37,110/- WHICH WAS ORDERED TO BE PAID BY THE OFFICIAL, PART OF WHICH WAS DEBITED TO PLI ENTRY AND RG 23A ON!8/9/2008 AND REMAINING AMOUNT OF RS.23,37,110/- WAS PAID VIDE POST-DATED CHEQUES. BESIDES, THE APPELLANT HAS SUBMITTED COPY OF ORDER PASSED BY DY. COMMISSIONER CENTRAL EXCISE, MEHSANA DIVISION DATED 26/7/2011 VI DE NO.DIG NO.64/REF:CEN EX/DC/11-12 FOR ISSUANCE OF REFUND OF RS.44,37,110/-, AS AN EVIDENCE THAT EVEN THIS AMOUNT CHARGED WAS HELD ERRONEOUS AND THE ENTIRE REFUND WAS GRANTED. EVIDENCE HAS ALSO BEEN S UBMITTED SHOWING THAT THE REFUND AMOUNT RECEIVED HAS BEEN DECLARED IN THE RETURN FOR AY 2012- 13. IN THESE CIRCUMSTANCES, IT IS CLEAR THAT THE AM OUNT DEBITED TO THE BOOKS DOES NOT INVOLVE PAYMENT OF PENALTY. FURTHER, EVEN THE AMOUNTS WERE ORDERED TO BE REFUNDED IN FUTURE AND HAD BEEN DECLA RED AS INCOME. NO ADDITION IS CALLED FOR UNDER EXPLANATION TO SEC.37( 1) OF THE IT ACT. THE DISALLOWANCE IS, THEREFORE, DIRECTED TO BE DELETED. 10. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER . 11. LD. AR SUBMITTED THAT THE IMPUGNED AMOUNT OF RS .10 LACS WAS PART OF THE DEMAND DETERMINED BY EXCISE AUDIT TEAM VIDE ITS AUDIT REPORT 78 FOR ASST. YEAR 2008-09 DATED 11 & 18/09/2 008 AND THERE WAS NO IOTA OF PENALTY IN THIS DEMAND, BUT IT ONLY CONSISTED OF EXCISE DUTY, CESS AND INTEREST. LD. AR FURTHER SUBMITTED T HAT THE SAID AMOUNT OF RS.14,37,110/- HAS BEEN REFUNDED BACK TO THE ASS ESSEE VIDE DIO NO.64/REF.CEN.EX/DC/11-12 DATED 26.7.2011 ISSUED BY DY. COMMISSIONER, CENTRAL EXCISE, MEHSANA. THEREFORE, L D. CIT(A) HAS RIGHTLY DELETED THE SAID DISALLOWANCE. 12. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US. REVENUE IS AGGRIEVED WITH THE DEL ETION OF DISALLOWANCE OF EXCISE PENALTY OF RS.10 LACS. WE OB SERVE THAT DISALLOWANCE OF RS.10 LACS IN VIEW OF EXPLANATION T O SECTION 37(1) WAS MADE BY ASSESSING OFFICER WHILE OBSERVING THAT PAYMENT OF ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 8 RS.45,19,119/- U/S 43B OF THE ACT INCLUDED THIS IMP UGNED AMOUNT. WE FURTHER OBSERVE THAT LD. CIT(A) HAS TAKEN NOTE O F THE FACT THAT AN AMOUNT OF RS.44,37,110/- WHICH WAS DETERMINED BY EX CISE AUDIT TEAM VIDE AUDIT REPORT DATED 11 & 18/9/2008 AND PAID BY ASSESSEE INCLUDED CENTRAL EXCISE, EDUCATION CESS AND INTERES T. FURTHER THIS AMOUNT OF RS.44,37,110/- WAS REFUNDED BACK TO ASSES SEE BY DY. COMMISSIONER, CENTRAL EXCISE, MEHSANA VIDE ORDER DA TED 26.7.2011 EVIDENCING THAT THESE AMOUNTS WERE CHARGED ERRONEOU SLY. WE ARE, THEREFORE, OF THE VIEW THAT IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND THE DETAILED OBSERVATIONS MADE BY LD. CIT( A), INTER ALIA TAKING THE REPORT OF THE ASSESSING OFFICER FOR EXAM INING THE EVIDENCE FILED BEFORE LD. CIT(A), WE ARE OF THE VIEW THAT TH ERE WAS NO BASIS FOR DISALLOWANCE OF RS.10 LACS BY LD. ASSESSING OFFICER AS PER EXPLANATION TO SECTION 37(1) OF THE ACT. WE, THEREF ORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AS THE AM OUNT DEBITED TO THE BOOKS PAID TO CENTRAL EXCISE DEPARTMENT DOES NOT IN VOLVE ANY PAYMENT OF PENALTY. WE UPHOLD THE ORDER OF LD. CIT( A) ON THIS ISSUE. THIS GROUND OF REVENUE IS DISMISSED. 13. AS REGARDS GROUND NO.2 DURING THE COURSE OF A SSESSMENT PROCEEDINGS WHILE EXAMINING THE PROCESSING CHARGES PAID TO SISTER CONCERN TOWARDS PROCESSING OF SODIUM SILICATE, LD. ASSESSING OFFICER OBSERVED THAT IN THE CASE OF SISTER CONCERN M/S SAH AJANAND INDUSTRIES PROCESSING CHARGES FOR PROCESSING 178920 0 KGS. OF SODIUM SILICATE @ RS.2.80 PER KG. WAS GIVEN, WHEREA S ASSESSEES OWN AVERAGE COST FOR PROCESSING OF SODIUM SILICATE WAS MERELY RS.1.92 PER KG. APPLYING HE RATE OF RS.1.92 PER KG. LD. ASSESSING ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 9 OFFICER CALCULATED EXCESS COST OF PROCESSING CHARGE S PAID TO M/S SAHAJANAND INDUSTRIES AT RS.15,74,496/- AND DISALLO WED THE SAME. 14. IN APPEAL LD. CIT(A) DELETED THE SAID DISALLOWA NCE BY OBSERVING AS BELOW :- 7.3 I HAVE CAREFULLY GONE THROUGH THE FACTS OF THE CASE. THE AO HAS ACCEPTED THAT THE CONCERN TO WHICH THE PAYMENT HAS BEEN MADE IS NOT COVERED UNDER DEFINITION OF PERSON UNDER SECTION 40 A(2)(B). EVEN OTHERWISE, THE APPELLANT HAS DEMONSTRATED THAT MAHA VIR SILICATE, MEHSANA ALSO CHARGED HIGHER PROCESSING RATE OF SODIUM SILIC ATE FROM ITS CLIENT. THE APPELLANT ITSELF HAD BEEN ABLE TO CHARGE MUCH HIGHE R RATES FROM ITS CUSTOMERS. ALL THIS INDICATES THE MARKET RATE PREVA LENT. FURTHER, EVEN IN THE CASE OF SISTER CONCERN, THE TAXATION RATES IN THE C ASE OF THE PAYER AND PAYEE BEING SAME, HAS BEEN TAKEN AS PROOF OF REASON ABLENESS OF RATE PAID. IN THIS CASE, WHERE THE SUPPORT OF THIS SECTI ON IS EVEN NOT AVAILABLE; THE AO CANNOT GO INTO THE PRUDENCE OF THE RATES PAI D MERELY BASED ON CONJECTURES, ONCE THE SERVICES ARE PROVED RENDERED. COMPARISON OF THE APPELLANT'S OWN PRODUCTION RATES CANNOT BE TAKEN AS A BASIS BECAUSE ANY OTHER BUSINESSMAN WOULD ADD .THE COST OF CAPITAL, O VERHEADS (WHICH THE AO HAS ILLOGICALLY REDUCED WHILE WORKING THE COST) AND PROFITS WHICH CAN BE LARGER IN CASE OF DIFFERENCE OF MATERIAL AND URGENC Y OF WORK. THE AO HAS GIVEN NO INDEPENDENT INSTANCE OF THE MARKET RATE OF JOB WORK BEING LOWER. THE FACTORS GIVEN BY THE APPELLANT LIKE THE HIGHER RATE BEING RECEIVED BY IT, THE INSTANCES OF HIGHER RATE BEING CHARGES BY OTHER CONCERN, THE COST OF PRODUCTION OF THE CONCERN TO WHICH THE PAYMENT HAS BEEN MADE ETC., ARE ALSO MATERIAL FACTORS. IN THE TOTALITY OF FACTS AND CIRCUMSTANCES, THE DISALLOWANCE MADE BY THE AO IS HELD NOT JUSTIFIABLE AND IS DIRECTED TO BE DELETED. 15. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER . 16. LD. AR SUBMITTED THAT SUFFICIENT DETAILS WERE F ILED BEFORE BOTH THE LOWER AUTHORITIES WHICH COULD DEMONSTRATE THAT THE PROCESSING RATES OF SODIUM SILICATE VARY FROM CASE TO CASE AS PER PREVALENT MARKET RATE. LD. AR FURTHER SUBMITTED THAT THE SIST ER CONCERN M/S ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 10 SAHAJANAND INDUSTRIES TO WHOM ALLEGED EXCESS PAYMEN T HAS BEEN SHOWN WILL NOT HAVE IMPACT TO REVENUE AS BOTH ASSES SEE AND SAHAJANAND INDUSTRIES ARE SUBJECTED TO SIMILAR TAX RATE. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THROUGH THIS GROUND REVENUE HAS ASSAILED THE ORDER OF LD. CIT(A) DELETING THE DISALLOWANCE OF PROCESSING CHAR GES AT RS.15,74,496/-. FIRSTLY WE OBSERVE THAT ASSESSEE HA S SUBMITTED THAT M/S SAHAJANAND INDUSTRIES IS NOT A PERSON COVERED U NDER SECTION 40A(B) OF THE ACT AND AS IT IS A HUF AND ITS MEMBER S ARE NOT HAVING SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY. THIS FACT HAS NOT BEEN OBJECTED BY THE REVENUE. FURTHER WE ALSO OBSERVE TH AT TAX RATE APPLICABLE TO ASSESSEE AND M/S SAHAJANAND INDUSTRIE S ARE IDENTICAL AND THERE IS NO POTENTIAL LOSS TO THE REVENUE OR AT TEMPTED TAX EVASION. WE FURTHER OBSERVE THAT PROVISIONS OF SECT ION 40A(2)(B) CONTEMPLATES THAT AN EXPENDITURE IS EXCESSIVE OR UN REASONABLE WHICH COULD BE DUG OUT BY ASSESSING OFFICER WITH REGARD T O THE FAIR MARKET VALUE OR SERVICES BUT THIS ASPECT IS NOT TAKEN BY R EVENUE. WE FURTHER OBSERVE THAT SPECIFIC DETAILS WERE ALSO PLACED RELA TING TO SAHAJANAND INDUSTRIES BEFORE THE LOWER AUTHORITIES WHEREIN IT HAS BEEN SHOWN THAT COST OF PRODUCTION FOR SAHAJANAND INDUSTRIES DURING THE F.Y.2008-09 WAS RS.2.5 PER KG. AND THE SAME RATE HAS BEEN CHARG ED TO THE ASSESSEE COMPANY ALSO. THERE IS NO DISPUTE TO THIS FACT ON THE PART OF REVENUE. FURTHER WE FIND THAT THERE IS SUBSTANCE IN THE SUBMISSION OF ASSESSEE AT ASSESSMENT STAGE AS PER WHICH INFERIOR QUALITY OF RAW MATERIAL WAS PROVIDED TO M/S SAHAJANAND INDUSTRIES TO ISOLATE THE SAME FROM NORMAL MATERIALS. OBVIOUSLY, THE ASSESSEE DID NOT WANT TO ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 11 PROCESS THEM ITSELF, SO THAT THE ROUTINE FUNCTIONIN G OF FACTORY DOES NOT SUFFER AND ALSO URGENCY IN RESPECT OF INVOLVEMENT O F RESPECTIVE ORDERS, LEADS HIGHER PAYMENT OF PROCESSING CHARGES AS AGAINST NORMAL COURSE. IN VIEW OF THE ABOVE FACTS AND CIRCU MSTANCES, WE ARE OF THE VIEW THAT M/S SAHAJANAND INDUSTRIES TO WHOM EXCESSIVE PROCESSING CHARGES OF RS.15,74,496/- HAS BEEN SHOWN IS NOT COVERED UNDER THE PROVISIONS OF SECTION 40A(2)(B) OF THE AC T. IT IS ALSO SUBJECTED TO SAME TAX RATE AS THE ASSESSEE IS. NO S PECIFIC COMPARABLE IS PLACED BEFORE US AS WELL AS LOWER AUT HORITIES TO FIND THE REASONABLE FAIR MARKET VALUE OF PROCESSING CHARGES AND LOOKING TO THE OVERALL FLOW OF BUSINESS ACTIVITIES WE FIND NO REAS ON TO INTERFERE WITH THE ORDER OF LD. CIT(A). WE UPHOLD THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND OF REVENUE IS DISMISSED. 18. AS REGARDS GROUND NO.3 DURING THE COURSE OF A SSESSMENT PROCEEDINGS IT WAS OBSERVED THAT RS.1,60,000/- AND RS.33,600/- GIVEN TO SHRI RAMKARAN SINGH AND SHRI THAKOR RESPEC TIVELY WHICH AS PER LD. ASSESSING OFFICER WAS ADDITIONAL PAYMENT WH EREAS AS PER ASSESSEE IT WAS IN THE NATURE OF SALARY AND WAGES. LD. ASSESSING OFFICER ACCORDINGLY DISALLOWED THIS EXPENDITURE AT RS.1,93,600/- U/S 40(A)(IA) OF THE ACT AS NO TAX WAS DEDUCTED U/S 194 C OF THE ACT. LD. CIT(A) DELETED THE SAID DISALLOWANCE BY OBSERVING A S UNDER :- 8.1 I HAVE GONE THROUGH THE FACTS OF THE CASE. THE LABOUR CHARGES HAVE BEEN PAID TO SINGLE PERSONS AS PER THE BOOKS AND SU PPORTING VOUCHERS ITSELF. ONCE, THE APPELLANT ALSO CONTENDS SO , IN M Y OPINION, HE HAS DISCHARGED ITS ONUS. THE AO HAS GOT NOTHING TO DISP ROVE THE ASSERTION OF THE APPELLANT, IN THESE CIRCUMSTANCES, THE PAYMENT BECOMES IN THE NATURE OF WAGES I.E. FOR EMPLOYER EMPLOYEE RELATIONSHIP AN D TAXABLE UNDER THE ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 12 HEAD 'SALARY'. NEITHER IT HAS BEEN PROVED THAT TDS ON THE AMOUNTS WERE DEDUCTIBLE UNDER SECTION 192 NOR THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE IN THE CASE OF SALARY PAYMENTS. THEREFOR E, THE DISALLOWANCE IS NOT JUSTIFIED AND IS DIRECTED TO BE DELETED. ALTHOU GH IT HAS BECOME ACADEMIC, IT IS NOTED THAT THE DECISION OF HON'BLE VISAKHAPATANAM ITAT (SPECIAL BENCH) WHEREIN IN ITA NO.477/VIZ/2008 IN T HE CASE OF M/S. MERILYN SHIPPING & TRANSPORT VS. ACIT, RANGE 1 VISAKHA PATT ANAM HAS BEEN SINCE STAYED BY HON'BLE HYDERABAD HIGH COURT-AND WO ULD NOT HAVE HELPED THE APPELLANT'S CLAIM. . . . 19. NOW REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 20. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER . 21. LD. AR RELIED ON THE ORDER OF LD. CIT(A). 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE OBSERVE THAT RIGHT FROM THE ASSESSMEN T STAGE ASSESSEE HAS SUBMITTED THAT THE IMPUGNED AMOUNT OF RS.1,93,600/- PAID TO SHRI RAMKARAN SINGH AND SHRI THAKOR IS NOT ON CONTRACTUAL PAYMENT BUT ON NORMAL PAYMENT OF SALARY AND WAGES W HICH IS COVERED U/S 92 OF THE ACT AND NOT U/S 194C OF THE A CT. WE FURTHER OBSERVE THAT ASSESSEE HAS DISCHARGED ITS ONUS BY GI VING DETAILS OF PAYMENT MADE TO BOTH THE PARTIES AND ASSESSING OFFI CER HAS NOT TRIED TO PLACE ANY SPECIFIC FINDING TO DISPROVE THE CLAIM OF ASSESSEE. NO FURTHER EFFORT WAS MADE ON THE PART OF ASSESSING OF FICER TO CALL BOTH THE PARTIES FOR SEEKING THE NATURE OF PAYMENT MADE TO THEM. FURTHER LOOKING TO THE FACT THAT BOOKS OF ACCOUNTS ARE AUDI TED, NO SPECIFIC OBSERVATION HAS BEEN MADE BY THE AUDITOR IN THIS RE GARD, BOOK RESULT OF THE COMPANY HAS BEEN ACCEPTED, NO SPECIFIC DEFEC T WITH REGARD TO ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 13 OTHER PROCESSING CHARGES IN VIEW OF SECTION 40(A)(I A) OF THE ACT HAS BEEN MADE AND SALARY AND WAGES EXPENDITURE OF THE C OMPANY HAVE BEEN ACCEPTED, WE ARE OF THE VIEW THAT THIS IMPUGNE D AMOUNT OF RS.1,93,600/- IS IN THE NATURE OF SALARY AND WAGES AND NOT CONTRACTUAL PAYMENT AND, THEREFORE, NO DISALLOWANCE IS CALLED U /S 40(A)(IA) OF THE ACT. ORDER OF LD. CIT(A) ON THIS ISSUE IS UPHELD. T HIS GROUND OF REVENUE IS DISMISSED. 23. AS REGARDS GROUND NO.4 DURING THE COURSE OF A SSESSMENT PROCEEDINGS LD. ASSESSING OFFICER OBSERVED THAT CAS H SUM TOTALING TO RS.37,05,000/- ON VARIOUS DATES BETWEEN 12.5.2008 T O 23.1.2009 WAS RECEIVED FROM MR. RAMBHAI ISHWARBHAI PATEL AND AT T HE CLOSE OF THE YEAR THE SAID SUM OF RS.37,05,000/- WAS REPAID IN T WO INSTALMENTS BY WAY OF PAYING CASH AT RS.22,30,000/- ON 24.3.2009 A ND RS.14,25,000/- ON 31.3.2009. AS THE ASSESSEE COULD NOT SATISFY THE REASONS OF IMPUGNED CASH CREDIT OF RS.37,05,000/- I N THE NAME OF SHR RAMBHAI ISHWARBHAI PATEL ADDITION U/S 68 WAS MADE F OR UNEXPLAINED CASH CREDIT. WHEN THE MATTER CAME UP BEFORE LD. CIT (A) THE IMPUGNED ADDITION OF RS.37,05,000/- MADE U/S 68 OF THE ACT, WAS DELETED. 24. NOW THE REVENUE IS IN APPEAL BEFORE US. 25. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER WHEREAS LD. AR SUPPORTED THE ORDER OF LD. CIT(A). ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 14 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THROUGH THIS GROUND REVENUE IS AGGRIEVED WITH THE ORDER OF LD. CIT(A) IN DELETING THE ADDITION OF RS.37,05, 000/- U/S 68 OF THE ACT FOR UNEXPLAINED CASH CREDIT. WE OBSERVE THAT TH IS IMPUGNED AMOUNT OF RS.37,05,000/- WAS SAID TO HAVE BEEN RECE IVED FROM ONE OF THE DIRECTORS OF ASSESSEE COMPANY MR. RAMBHAI IS HWARBHAI PATEL DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF. FURTHER DETAILS OF IMPUGNED CREDITOR I.E. FULL ADDRESS, PAN, COPY OF I NCOME-TAX RETURN, CONFIRMATION OF ACCOUNT AND PLACING ALSO THE FACT T HAT IMPUGNED CREDITOR MR. RAMBHAI ISHWARBHAI PATEL WAS A REGULAR TAX PAYER SINCE LAST 15 YEARS AND FOR ASST. YEAR 2009-10 HAS SHOWN GROSS INCOME OF RS.17 LACS WHICH IS INCLUSIVE OF EXEMPT INCOME. ALL THE IMPUGNED TRANSACTION OF CASH RECEIVED AT RS.37,05,000/- HAS BEEN ACCEPTED BY THE DIRECTOR OF THE COMPANY SHRI RAMBHAI ISHWARBHAI PATEL. WE FURTHER OBSERVE THAT NO EFFORT WAS MADE ON THE PART OF ASSESSING OFFICER TO EITHER CALL FOR BOOKS OF ACCOUNT AND OTH ER DETAILS FROM MR. RAMBHAI ISHWARBHAI PATEL OR TO INVOKE PROVISIONS OF SEC.269SS & SEC.269T OF THE ACT. WE FURTHER OBSERVE THAT LD. CI T(A) HAS DELETED THE IMPUGNED ADDITION U/S 68 BY OBSERVING AS BELOW :- 9.3 I HAVE GONE THROUGH THE FACTS OF THE CASE. THE IDENTITY OF THE CLAIMED CREDITOR IS PROVED ABSOLUTELY, HE BEING A DIRECTOR OF THE COMPANY AND THIS FACT IS NOT EVEN DISPUTED BY THE AO. FURTHER, THE C REDITOR IS A VERY OLD REGULAR ASSESSEE WHO HAS FILED A RETURN SHOWING GRO SS TOTAL INCOME OF OVER RS.9.7 LAC FOR THE ASSESSMENT YEAR UNDER QUESTION. IF THE NON-TAXABLE INCOME DECLARED ARE TAKEN INTO CONSIDERATION, THE I NCOME OF THE CREDITOR IS MUCH HIGHER. HOW, THE PAYING CAPACITY AND CREDITWOR THINESS CAN BE ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 15 DOUBTED IN SUCH CIRCUMSTANCES IS BEYOND MY COMPREHE NSION. THE CREDITOR HAS DULY CONFIRMED THE TRANSACTIONS. THE DECISIONS CITED BY THE AO ARE NOT AT ALL APPLICABLE TO THE FACTS OF THE CASE. IT IS N OT A CASE OF MERE FILING OF CONFIRMATION. THE PAYING CAPACITY HAS BEEN PROVED B Y THE HIGH INCOME SHOWN BY THE CREDITOR WHO IS PAYING SUBSTANTIAL TAX ES. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ROHINI BUI LDERS (SUPRA) HAS HELD THAT 'THE ASSESSEE WAS NOT EXPECTED TO PROVE GENUIN ENESS OF CASH DEPOSITED IN BANK ACCOUNTS OF CREDITORS, BECAUSE UN DER LAW, ASSESSEE CAN BE ASKED TO PROVE SOURCE OF CREDITS IN ITS BOOKS OF ACCOUNT BUT NOT SOURCE OF SOURCE'. THE HON'BLE GAUHATI HIGH COURT IN THE C ASE OF NEMI CHAND KOTHARI (SUPRA) HAS HELD THAT' AN ASSESSEE WAS NOT EXPECTED TO PROVE GENUINENESS OF CASH DEPOSITED IN BANK ACCOUNTS OF C REDITORS, BECAUSE UNDER LAW, ASSESSEE CAN BE ASKED TO PROVE SOURCE OF CREDITS IN ITS BOOKS OF ACCOUNT BUT NOT SOURCE OF SOURCE.' IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS \HELD THAT THE DISPUTED CREDITS HAVE BEEN EXPLAINED SATISF ACTORILY ON ALL COUNTS OF IDENTITY OF THE CREDITOR, GENUINENESS AND CREDITWOR THINESS AND THEREFORE THE ADDITION MADE UNDER SECTION 68 OF THE ACT BY THE AO IS DIRECTED TO BE DELETED. 27. WE ARE, THEREFORE, OF THE VIEW THAT IN THE GIVE N FACTS AND CIRCUMSTANCES OF THE CASE WHERE THE ASSESSEE HAS PR OVED THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE P ERSON FROM WHOM IMPUGNED AMOUNT OF CASH WAS RECEIVED ON VARIOUS DAT ES AND NO FACT DISPROVING THE EVIDENCE OF ASSESSEE HAS BEEN BROUGH T BEFORE US BY THE REVENUE. SECTION 68 OF THE ACT DEALS WITH UNEXP LAINED CASH CREDIT FOUND CREDITED IN THE BOOKS OF ASSESSEE FOR WHICH NO ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 16 EXPLANATION IS OFFERED BY THE ASSESSEE. HOWEVER, IN THE GIVEN CASE ASSESSEE HAS OFFERED COMPLETE EXPLANATION PROVING T HE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE CASH CREDIT OR. THEREFORE, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. C IT(A) ON THIS ISSUE. WE UPHOLD THE SAME. THIS GROUND OF REVENUE IS DISMI SSED. 28. GROUND NOS. 5 & 6 ARE OF GENERAL NATURE, WHICH NEED NO ADJUDICATION. 29. IN THE RESULT, THE APPEAL OF ASSESSEE AND THAT OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND AUGUST, 2016 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 22/8/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 563 & 814/AHD/2013 ASST. YEAR 2009-10 17 1. DATE OF DICTATION:16/08/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 18/08/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 22/8/2016 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: