IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.6085/MUM/2010 ASSESSMENT YEAR 2006-07 THE INCOME TAX OFFICER, CIRCLE 4(2)(4), R.NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. M/S. MUTHA FOUNDERS PVT. LTD., 121, VITHALWADI, 1 ST FLOOR, KALBADEVI ROAD, MUMBAI-400 002. PAN: AAACM 3091 N (APPELLANT ) (RESPONDEN T) REVENUE BY : SHRI P.C. MAURYA ASSESSEE BY : SHRI G.P. MEHTA DATE OF HEARING : 26-06-2012 DATE OF PRONOUNCEMENT : 11-07-2012 ORDER PER RAJENDRA, A.M. FOLLOWING GROUNDS OF APPEAL WERE FILED BY THE APPELLANT AGAINST THE ORDER DATED 05-05-2010 OF THE CIT(A)-8, MUMBAI: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS . 21,95,085/- MADE U/S. 40A(2)(B) OF THE I. T. ACT BY ASSESSING O FFICER. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE IMPUGNED ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. THE ASSESSEE CRAVES LEAVE TO AMEND OR ALTER ANY G ROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA NO.6085/MUM/2010 M/S. MUTHA FOUNDERS PVT. LTD., 2 2. ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF ORIGINAL EQUIPMENTS FOR AUTOMOBILE MANUFACTURERS. A UTO PARTS MANUFACTURED BY THE ASSESSEE WERE PRODUCT SPECIFIC FOR EACH BUYER VIZ., CYLINDER BLOCKS FOR KINETIC LUNA, HERO HONDA BIKES, BAJAJ AUTO RICKSHAWS, GREAVES COTTON ENGINES AND ALLIED PRODUC TS. ASSESSEE USED TO PURCHASE RAW MATERIALS I.E. CASTINGS REQUI RED FOR THESE PRODUCTS FROM SISTER /ASSOCIATE CONCERNS. ASSESSEE HAD PURCHASED THE CASTINGS AMOUNTING TO RS. 4,13,54,579/-FROM ITS RELATED CONCERNS DURING THE YEAR UNDER CONSIDERATION. 2.1. SOLITARY EFFECTIVE GROUND IN THE CASE UNDER CONSIDE RATION IS REGARDING ADDITION OF RS. 21,95,0851/- MADE BY THE AO U/S 40A(2)(A) OF THE INCOME-TAX ACT,1961(ACT).AO HAS DISCUSSED IS SUE FROM PARA 4.1 TO PARA 4.4 OF THE ASSESSMENT ORDER. WHILE PASS ING THE ASSESSMENT ORDER AO PREPARED A TABLE OF COMPARABLE RATES FOR SIMILAR DATES AND SIMILAR PRODUCTS REGARDING THE PURCHASE O F PIG IRON, MS SCRAP ETC. HE HELD THAT THE ASSESSEE HAD PURCHASED PRODUCTS AT AN INFLATED FIGURE FROM THE RELATED PARTIES, THAT DIFF ERENCE IN PERCENTAGE WAS FROM 4% TO 26%, THAT MUTHA SPHEROCAST, A RELATE D PARTY HAD INCURRED HUGE LOSSES AND WAS BEFORE THE BIFR. HE FU RTHER HELD THAT IT WAS FOR THE ASSESSEE TO ESTABLISH THAT THE PAYMENT WAS NOT EXCESSIVE. FINALLY, IT WAS HELD THAT ASSESSEE HAD NOT MADE SUC H EFFORTS.AO DISALLOWED 5% OF TOTAL PURCHASES AND SERVICES RECE IVED. ASSESSEE PREFERRED AN APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY (FAA). AFTER HEARING THE ASSESSEE AND PE RUSING THE ASSESSMENT ORDER HE HELD THAT OUT OF THE THREE SIST ER CONCERNS TWO HAD SHOWN PROFITS OF RS.93.27 AND RS. 78.33 LAKHS, THAT THE ASSESSEES CONTENTION THAT THERE WAS NO ATTEMPT TO REDUCE TAX LIABILITY, AT LEAST, WITH RESPECT TO THESE TWO PARTIES. WITH REFERENCE TO PURCHASES MADE FROM OF M/S MUTHA SPHEROCAST PVT. LTD. HE HELD THAT THE CASTINGS PURCHASES WERE OF DIFFERENT SIZES AND DIFFERENT RAT ES, THAT AVERAGING OF THE PURCHASES COST DEPICTED THE INCORRECT POSITION. FROM THE DETAILS AVAILABLE ON RECORD HE FOUND THAT EIGHT TYPES OF CA STINGS BLOCKS, SHAFTS AND STEEL SHOTS HAD BEEN PURCHASED AND THEIR RATES RANGED FROM RS.16.20 PER PIECE TO RS.149.91 PER PIECE. IN THIS BACKGROUND HE HELD THAT CASTINGS WERE OF MANY VARIETY AND MAKING COMP ARISON WITH RESPECT TO PRICE WAS NOT PROPER, AS SIZE AND VARIET Y OF CASTINGS DIFFERED. HE DELETED THE DISALLOWANCE MADE BY THE AO. 3. BEFORE US THE DR SUBMITTED THAT AO HAD NOT FURNISHE D REQUIRED DETAILS ABOUT PURCHASES MADE, THAT COMPARABLE CHART PREPARED BY THE AO PROVED THAT THERE WAS HUGE VARIATION IN PRICES, THAT RELIEF GRANTED BY THE FAA WAS NOT AS PER THE PROVISIONS OF LAW.AR SUBMITTED THAT AO HAD MADE THE ADDITIONS WITHOUT ANY BASIS-HE DID NOT BRING ANY EVIDENCE ON FILE TO PROVE THAT PAYMENT MADE BY THE ASEESSEE WAS EXCESSIVE. AFTER HEARING THE RIVAL SUBMISSIONS AND GOI NG THROUGH THE ITA NO.6085/MUM/2010 M/S. MUTHA FOUNDERS PVT. LTD., 3 MATERIAL WE ARE OF THE OPINION THAT ADDITION MADE B Y THE AO U/S.40A(2)OF THE ACT CANNOT BE SUSTAINED. ORDER OF THE AO IS SILENT AS WHETHER THE DISALLOWANCE WAS FOR GOODS PURCHASED OR SERVICES RECEIVED. COMPARABLE CHART PREPARED BY THE AO TALKS ABOUT PURCHASE PRICE OF CI SCRAP, GRAPHITE POWDER, FERRO SILICON, FERRO SILICON MANGANESE, PIG IRON, MS SCRAP. FROM THE SAID CHART IT IS FOUND THAT HE HAS NOT TAKEN INTO CONSIDERATION PURCHASE PRICE OF CASTINGS, WHEREAS DISALLOWANCE IS IN RESPECT OF CASTINGS ONLY . AS THE AO HAS MADE THE DISALLOWANCE WITHOUT BRINGING ANYTHING ON RECORD ABOUT CASTING PURCHASE, SO HIS ORDER IS FUNDAMENTALLY WRO NG. FOR INVOKING PROVISIONS OF SEC.40A(2) OF THE ACT HE HAS TO PROVE THAT GOODS PURCHASED OR SERVICES RECEIVED FROM THE RELATED PER SONS WERE UNREASONABLE AND EXCESSIVE. SAID PREPOSITION HAS TO ESTABLISHED BY HIM, AS A FACT, BY LEADING SOME POSITIVE EVIDENCES. IN THE CASE UNDER CONSIDERATION AO HAS NOT CARRIED OUT ANY EXERCISE W ITH REGARD TO PURCHASE OF CASTINGS. IN THESE CIRCUMSTANCES WE AR E OF THE OPINION THAT ORDER OF THE FAA DOES NOT SUFFER FROM ANY INFI RMITY. UPHOLDING HIS ORDER, WE DECIDE THE GROUNDS OF APPEAL 1-3 AGAI NST THE REVENUE. APPEAL FILED BY THE AO STANDS REJECTED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JULY, 2012. SD/- SD/- (B.R. MITTAL) (RAJENDRA) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATE : 11 TH JULY, 2012 TNMM ITA NO.6085/MUM/2010 M/S. MUTHA FOUNDERS PVT. LTD., 4 COPY TO: 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI