INCOME TAX OFFICER WARD 23(2)(1), MUMBAI V. SHRI. ASHWIN V. NAGARIA, MUMBAI

ITA 6268/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0907 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-01-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 23-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARI GOVIND
• Assessee Lawyers: J V CHHABRIA
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI. P.M. JAGTAP (A.M.) AND SHRI. R.S. PADV EKAR (J.M.) ITA NO.6268/MUM/2008 ASSESSMENT YEAR : 2005-2006 INCOME TAX OFFICER 23(2)(1), ROOM NO.C-10, 2ND FLR., PRATYAKSHA KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. VS. ASHWIN V. NAGARIA 9/A, 104, NEELAM NAGAR, PHASE PRATAPRAO GUJAR MARG, MULUND (E), MUMBAI 400 081. PAN : ADBPN8460F (APPLICANT) (RESPONDENT) APPLICANT BY : MR. HARI GOVIND RESPONDENT BY : MR. J.V. CHHABRIA O R D E R PER R.S. PADVEKAR, J.M. THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER OF TH E LEARNED CIT(A)- XXIII, MUMBAI FOR THE ASSESSMENT YEAR 2005-06 DATED 05.08.2008 BY RAISING THE FOLLOWING EFFECTIVE GROUND: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION OF R S.29,04,094/- PAID TO MR. MANISH V. SHAH, PROPRIETOR OF M/S. A-ON E WEAVING WORK, PERSON SPECIFIED U/S.40A(2)(B) OF THE I.T. AC T, 1961, AS THE ASSESSEE HAS FAILED TO PROVE THAT THE AMOUNT PA ID AS WEAVING CHARGES WAS GENUINENESS AND REASONABLE. 2. THE FACTUAL MATRIX WHICH REVEALS FROM THE RECORD IS AS UNDER. THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF GREY CL OTHS AND CARRYING ON THE BUSINESS IN THE NAME OF JINY TEXTILE. THE ASSESSEE FILED ITS RETURN OF INCOME WHICH WAS SELECTED FOR SCRUTINY AND ASSESSMENT OF T HE ASSESSEE WAS COMPLETED U/S.143(3) OF THE ACT. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED RS.69,24,224/- TOWARDS WEA VING CHARGES APART FROM YARN JOB CHARGES PAID OF RS.22,71,137/-. THE ASSESSEE HAS EXPLAINED ITA NO.6268/MUM/2008 A.Y. : 2005-2006 2 TO THE A.O.THAT THE SAID WEAVING CHARGES WERE PAID TO M/S. A-ONE WEAVING WORKS WHICH WAS PROPRIETARY CONCERN OF HIS BROTHER NAMELY SHRI MANISH V. NAGARIYA. THE ASSESSING OFFICER WAS TO THE OPINIO N THAT AS SHRI MANISH V. NAGARIYA WAS HIS RELATIVE HENCE THE PROVISIONS OF S ECTION 40A(2)(B) ARE APPLICABLE AND HE ASKED THE ASSESSEE TO PROVE THE R EASONABLENESS OF THE WEAVING CHARGES PAID TO HIS BROTHER. THE ASSESSIN G OFFICER HAS ALSO NOTED THAT M/S. A-ONE WEAVING WORKS HAS PAID RS.40,20,132 /- BY WAY OF WEAVING CHARGES TO OTHER FAMILY MEMBERS WHO WERE RELATED TO THE ASSESSEE INCLUDING THE ASSESSEES HUF WHERE HE IS A KARTA. 2.1 THE ASSESSEE HAS FILED HIS EXPLANATION WHICH IS REPRODUCED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ON PAGE N O. 2 & 3. THE ASSESSEE STATED THAT HE IS MANUFACTURING TEXTILE CLOTH, THRO UGH WEAVERS AND DYERS. HE ONLY PURCHASES THE YARN AND GIVES THE SAME FOR J OB WORK OF WEAVING WHICH IS DONE ON POWER LOOMS. THE ENTIRE WEAVING JOB WORK IS GIVEN TO OUTSIDERS AS HE HAS NO MACHINERY OR KNOWLEDGE OF WE AVING. HE FURTHER STATED THAT HIS BROTHER IS EXPERT IN SAID FIELD FOR LAST 15 YEARS, AND HENCE THE JOB OF WEAVING WAS GIVEN TO HIS BROTHER PERHAPS AS HE WAS ENABLE TO DO ENTIRE JOB ON HIS OWN POWER LOOMS AND HENCE HE HAS ALSO GIVEN SOME JOB WORK FOR WEAVING TO THEIR OTHER FAMILY MEMBERS WHO ALSO OWN POWER LOOMS. THE ASSESSEE ALSO TRIED TO JUSTIFY THE PROFIT MARGI N EVEN AFTER THE PAYMENT OF WEAVING CHARGES MADE TO HIS FAMILY MEMBERS. THE A SSESSEE ALSO STATED THAT EVEN IF THE ASSESSEE WOULD HAVE DONE THE SAID WORK THEY COULD NOT HAVE BEEN ANY MORE PROFIT. THE A.O. ALSO EXAMINED THE RETURN FILED BY HIS BROTHER SHRI MANISH NAGARIA AND IT WAS NOTICED BY H IM THAT OUT OF THE TOTAL WEAVING CHARGES PAID BY THE ASSESSEE RS.69,22,224/- , SHRI MANISH NAGARIYA HAS DEBITED RS.60,25,248/- TOWARDS WEAVING CHARGES. IT WAS FURTHER NOTICED BY THE ASSESSING OFFICER THAT SHRI MANISH N AGARIYA HAS PAID RS.40,20,132/- TOWARDS WEAVING CHARGES TO ASSESSEE S RELATIVE AND HUF. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS.2 9,02,094/- OUT OF RS.69,22,224/- TREATING THE SAME AS EXCESSIVE PAYME NT, THERE IS NO FURTHER DISCUSSION IN THE ASSESSMENT ORDER REGARDING THE CO MPARABLE MARKET RATES. THE ADDITION MADE BY THE A.O. OF RS.29,02,094/- WAS THE DIFFERENCE BETWEEN ITA NO.6268/MUM/2008 A.Y. : 2005-2006 3 THE AMOUNT PAID BY THE ASSESSEE TO M/S. A-ONE WEAVI NG WORKS PROPRIETOR MR. MANISH NAGARIYA, ASSESSEES BROTHER AND RS.40,2 0,132/- THAT WAS THE PAYMENT MADE BY M/S. A-ONE WEAVING WORKS TO OTHER F AMILY CONCERNS OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ADDITIO N BEFORE THE LEARNED CIT(A) AND THE LEARNED CIT(A) DELETED THE ADDITION. THE LEARNED CIT(A) HAS OBSERVED THAT THERE IS NO CASE FOR MAKING DISALLOWA NCE U/S.40A(2)(B) AS WEAVING CHARGES PAID TO THE RELATED CONCERN ARE COM PARABLE TO THAT PERIOD TO OUTSIDERS. 3. NOW THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSION OF THE PARTIE S AND ALSO PERUSED THE RECORD. THE ONLY FACT WHICH TEMPED ASSESSING OFFICER TO MAKE THE DISALLOWANCE THAT THE ASSESSEE MADE PAYMENT OF THE WEAVING CHARGES TO HIS BROTHER HAVING THE PROPRIETARY CONCERN M/S. A-ONE W EAVING WORKS AND SAID M/S. A-ONE WEAVING WORKS GAVE THE JOB WORK ON SUB-C ONTRACT BASIS TO OTHER CONCERNS WHICH ARE THE CONCERNS OF THE FAMIL Y MEMBERS OF THE ASSESSEE. WE FIND THERE IS NO MATERIAL ON RECORD TO SUPPORT THE VIEW TAKEN BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HA S NOTED THAT THE ASSESSEE DID NOT FILE THE DETAILS, IN FACT THE ASSESSING OFF ICER SHOULD HAVE BROUGHT ON RECORD AT LEAST SOME COMPARABLE RATES FROM THE MARK ET TO MAKE OUT THE CASE THAT PAYMENTS MADE BY THE ASSESSEE TO HIS RELATED C ONCERNS WERE NOT REASONABLE HAVING REGARD TO THE FAIR MARKET VALUE O F THE JOB WORK DONE BY M/S. A-ONE WEAVING WORKS. THOUGH DISCRETION IS GI VEN TO THE ASSESSING OFFICER BY VIRTUE OF SECTION 40(A)(2)(B) OF THE ACT TO DETERMINE THE REASONABLENESS OF THE EXPENDITURE IN RESPECT OF WH ICH THE PAYMENT IS MADE TO ANY RELATIVE OF THE ASSESSEE BUT AT THE SAME TIM E ASSESSING OFFICER HAS TO BRING ON RECORD SOME COMPARABLE INSTANCES TO MAKE O UT THE CASE THAT THE PAYMENTS WHICH ARE MADE TO SAID CONCERNS ARE NOT RE ASONABLE. IN OUR OPINION, THE LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION AND ACCORDINGLY WE UPHOLD THE ORDER OF THE LEARNED CIT(A). 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ITA NO.6268/MUM/2008 A.Y. : 2005-2006 4 ORDER PRONOUNCED ON THIS DAY OF 30 TH JULY, 2010. SD/ (P.M. JAGTAP) (ACCOUNTANT MEMBER) SD/- (R.S. PADVEKAR) (JUDICIAL MEMBER) MUMBAI, DATED 30 TH JULY, 2010. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-XIII, MUMB AI 4. COMMISSIONER OF INCOME TAX, CITY-XIII, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH B, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI