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

ITA 58/AHD/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8132 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 06-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH, AHMADABAD BEFORE: SHRI RAJPAL YADAV, JUDICIAL MEMBER SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 58/AHD/2017 ASSESSMENT YEAR : 2012-13 M/S. PARIKH CHANDULAL GOKALDAS & BROS. STATION ROAD, GODHRA V S . INCOME TAX OFFICER, WARD-1, GODHRA PAN NO. AADFP0943J (APPELLANT) .. (RESPONDENT) /BY ASSESSEE SHRI SULABH PADSHAH, A.R. /BY REVENUE SHRI V. K. SINGH, SR. D.R. /DATE OF HEARING 25.05.2018 /DATE OF PRONOUNCEMENT 04.06.2018 O R D E R PER : RAJPAL YADAV, JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL AGAINST T HE ORDER OF LEARNED CIT(A)-4, VADODARA, DATED 23.09.2016 PASSED FOR A.Y . 2012-13. 2. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT L EARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.5,14,000/- WHI CH WAS ADDED BY THE ASSESSING OFFICER WITH THE HELP OF SECTION 40A(2)(B ) OF THE INCOME TAX ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FI RM AT THE RELEVANT TIME WAS DOING WHOLESALE BUSINESS OF JAGGERY. IT HAS FI LED ITS RETURN OF INCOME ON ITA NO. 58/AHD/17 A.Y.2012-13 (M/S. PARIKH CHANDULAL GOKALDAS & BROS. VS. ITO) PAGE 2 17.09.2012 DECLARING TAXABLE INCOME OF RS.89,620/-. THE ASSESSEE HAS PAID SALARY TO FIVE PERSONS WHO FALLS WITHIN THE AMBIT O F SUB CLAUSE (B) OF SECTION 40A(2) OF THE INCOME TAX ACT. THE LEARNED ASSESSIN G OFFICER PARTLY DISALLOWED SUCH SALARY ON THE GROUND THAT SUCH SERV ICES COULD BE AVAILED BY THE ASSESSEE IN THE OPEN MARKET AT A LESSER RATE. LEARNED FIRST APPELLATE AUTHORITY HAS TAKEN NOTE OF THE SALARY PAID BY THE ASSESSEE AND DISALLOWED BY THE ASSESSING OFFICER, SUCH DETAILS READ AS UNDER: NAME OF THE EMPLOYEE AMOUNT OF SALARY PAID DISALLOWED BY A.O JAGDISHKUMAR H PARIKH 2,70,000 1,50,000 MAYURKUMAR H. PARIKH 2,70,000 1,50,000 CHETANKUMAR H. PARIKH 2,70,000 1,50,000 NIRAVKUMAR J. PARIKH 1,50,000 60,000 HITENDRAKUMAR J PARIKH 1,50,000 60,000 TOTAL 11,10,000 5,14,000 4. LEARNED ASSESSING OFFICER MADE AN ADDITION OF RS .5,14,000/-. 5. THE APPEAL TO THE CIT(A) DID NOT BRING ANY RELIE F TO THE ASSESSEE. 6. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT ISSUE IN DISPUTE IS FAIRLY COVERED BY THE ORDER OF THE ITAT PASSED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12. HE SUBMITTED THA T IDENTICAL SALARY WAS PAID OUT OF WHICH RS.5,70,000/- WAS DISALLOWED. TH E TRIBUNAL DELETED THE DISALLOWANCE. ON THE OTHER HAND, LEARNED DEPARTMEN TAL REPRESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. WE FIND SIMILAR SALARY WAS PAID TO SIMILAR PERSONS IN ASSESSMENT YEAR 2011-12. A LITTLE VARIATION IS THE RE WITH RESPECT TO N. J. ITA NO. 58/AHD/17 A.Y.2012-13 (M/S. PARIKH CHANDULAL GOKALDAS & BROS. VS. ITO) PAGE 3 PARIKH AND H. J. PARIKH. THE TRIBUNAL HAS CONSIDER ED ALL THESE ASPECTS AND THEREAFTER DELETED THE DISALLOWANCE. THE DISCUSSION MADE BY THE TRIBUNAL READ AS UNDER: 2. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERI AL FACTS NEED TO BE TAKEN NOTE OF. DURING THE COURSE OF SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS PAID SALARIES, AGGREGATING TO RS.11,10,000/-, TO THE PERSONS SPECIFIED UNDER SECTION 40A(2)(B) OF TH E ACT. HE CALLED FOR THE DETAILS OF THESE SALARIES, AND DISALLOWED RS.1,50,000/- EAC H, SO FAR AS SALARIES OF RS.2,70,000/- P.A. PAID TO J.H. PARIKH, M.H. PARIKH AND C.H. PARIKH WAS CONCERNED, AND RS.60,000/- EACH, SO FAR AS SALARIES OF RS.90,0007- P.A. PAID TO N.J. PARIKH AND H.J. PARIKH, WAS CONCERNED. AGGRIEVED, A SSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) BUT WITHOUT ANY SU CCESS. 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 DISALLO WANCE. HE CONFIRMED THE DISALLOWANCE NEVERTHELESS, AGGRIEVED BY WHICH ASSES SEE IS IN APPEAL BEFORE 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 AP PLICABLE LEGAL POSITION. 4. IN OUR CONSIDERED VIEW, FOR INVOCATION OF DISALL OWANCE UNDER SECTION 40A(2)(B) IN THE PRESENT CASE, ONE OF THE CONDITIONS PRECEDEN T IS UNREASONABLENESS OF THE AMOUNT PAID. SECTION 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 EXCESSIVE OR UNREASONABLE HAV ING REGARD TO THE MARKET VALUE OF GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYM ENT IS MADE, OR THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE OR THE BENEFI T DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS CONSIDE RED 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 SECTION 40A(2) BEING SATISFIED. UN LESS THERE IS A CLEAR FINDING THAT THE MARKET VALUE OF THE SERVICES TAKEN FROM THE SIS TER-CONCERN IS LESS THAN THE PRICE AT WHICH THE SERVICES ARE OBTAINED, THERE CANNOT BE AN OCCASION TO APPLY THE DISABLING PROVISIONS OF SECTION 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 WHATSOE VER 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 SECTION 40A(2) IS INHERENTLY UNS USTAINABLE 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 SECTION 40A(2) ON THE FA CTS OF THE CASE. THE CIT(A) SHOULD HAVE DELETED THE ENTIRE DISALLOWANCE. WE, TH EREFORE, ALLOW THIS APPEAL AND DELETE THE DISALLOWANCE. ITA NO. 58/AHD/17 A.Y.2012-13 (M/S. PARIKH CHANDULAL GOKALDAS & BROS. VS. ITO) PAGE 4 8. THERE IS NO DISPARITY ON FACTS IN THIS ASSESSMEN T YEAR. THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL, WE ALLOW THE A PPEAL OF ASSESSEE AND DELETE THE DISALLOWANCE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON 04/06/ 2018 SD/- SD/- ( WASEEM AHMED) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 04/06/2018 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. ! '# $ / CONCERNED CIT 4. $ - / CIT (A) 5. %&' (('# , '# , ! / DR, ITAT, AHMEDABAD 6. '+, / GUARD FILE. BY ORDER/ , / '# , !