M/s. Shri Bharat Cement Pipe Co., V. Deputy Commissioner of Income-tax,

ITA 644/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1914 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 03-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KIRAN P UNAVEKAR
• Keywords: Depreciation; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , AM . / ITA NO. 644 /PN/201 4 / ASSESSMENT YEAR : 20 0 8 - 0 9 M/S. SHRI BHARAT CEMENT PIPE COMPANY, D - 2, MIDC, SHIROLI, KOLHAPUR . / APPELLANT PAN: AAKFS4390K VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE - 2, KOLHAPUR . / RESPONDENT / APPELLANT BY : SHRI NIKHIL PATHAK / RESPONDENT BY : SHRI KIRAN P. UNAVEKAR / DATE OF HEARING : 29 . 0 3 .201 6 / DATE OF PRONOUNCEMENT: 29 . 0 4 . 201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) , KOLHAPUR , DATED 1 3 . 0 1 .20 1 4 RELATING TO ASSESSMENT YEAR 20 0 8 - 0 9 AGAINST ORDER PASSED UNDER SECTION 1 4 3(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.67,66,710 / - U / S 40A(2)(A) IN RESPECT OF THE SUB CONTRACT PAYMENTS MADE TO SHRI BHARAT CEMCO PVT. LTD. ITA NO. 644 /PN/20 1 4 M/S. SHRI BHARAT CEMENT PIPE CO . 2 2] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APPELLANT COMPANY WAS NOT ABLE TO SUBSTANTIATE THE SUB CONTRACT PAYMENTS MADE TO SHRI BHARAT CEMCO PVT. LTD. WERE REASONABLE AND HENCE, THE A.O. WAS JUSTIFIED IN DISALLOWING 8% OF THE TOTAL SUB CONTRACT AMOUNTS PAI D TO THEM. 3] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE PAYMENTS MADE BY THE APPELLANT COMPANY TO SHRI BHARAT CEMCO PVT. LTD. WERE REASONABLE AND NOT EXCESSIVE AND HENCE, NO DISALLOWANCE U / S 40A(2)(A) WAS WARRANTED. 4] THE LEARNED CIT(A) OU GHT TO HAVE APPRECIATED THAT THE APPELLANT COMPANY HAD GIVEN VARIOUS REASONS FOR DECREASE IN NET PROFIT RATIO IN THE CURRENT YEAR AND IN THE ABSENCE OF ANY EVIDENCE THAT THE PAYMENTS MADE TO SHRI BHARAT CEMCO PVT. LTD. WERE EXCESSIVE, THE DISALLOWANCE MADE WAS NOT JUSTIFIED AT ALL. 5] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE APPELLANT COMPANY SUBMITS THAT THE DISALLOWANCE' MADE IS VERY EXCESSIVE AND THE SAME MAY KINDLY BE REDUCED SUBSTANTIALLY. 6] THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND O R DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST APPLICATION OF PROVISIONS OF SECTION 40A(2)(A) OF THE ACT IN RESPECT OF SUB - CONTRACT PAYMENTS MADE BY THE ASSESSEE RESULTING IN DISALLOWANCE OF RS.67,66,710 / - . 4. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF HIRING OF EARTHMOVING / MINING MACHINERY, BESIDES CARRYING ON THE BUSINESS OF CONTRACTOR AND MANUFACTURE AND SALE OF CEMENT, CONCRETE PIPES AND TRADING IN CEMENT . THE ASSESSEE FIRM FOR THE YEAR UNDER CONSIDERATION HAD DECLARED TURNOVER OF RS. 11,06,56,994 / - AS AGAINST TURNOVER OF RS. 12.17 CRORES DECLARED DURING THE PRECEDING YEAR. THE NET PROFIT PERCENTAGE DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS 8% AS AGAINST 12.89% DECLARED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR. THE ASSESSEE WAS ASKED TO EXPLAIN REASONS FOR DECREASE IN NET PROFIT MARGINS AS COMPARED TO THE PRECEDING YEAR. THE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER C ONSIDERATION, THE ASSESSEE HAD DERIVED INCOME FROM TWO DIVISIONS I.E. KOLHAPUR DIVISION, WHERE IT WAS MAINLY ENGAGED IN THE PRODUCTION AND SALE OF ITA NO. 644 /PN/20 1 4 M/S. SHRI BHARAT CEMENT PIPE CO . 3 CEMENT PIPES AND HOSPET DIVISION, WHEREIN IT WAS ENGAGED IN CONTRACT WORK OF DRILLING, CRUSHING, SCREENING AN D TRANSPORTATION OF ROM AT KUMARSWANI IRON ORE MINE AT HOSPET. THE ASSESSEE HAD TAKEN A CONTRACT FOR THIS PURPOSE FROM NATIONAL MINERALS DEVELOPMENT CORPORATION (NMDC) . THE ASSESSING OFFICER ON PERUSAL OF TERMS AND CONDITIONS OF THE CONTRACT OF THE ASSES SEE WITH NMDC NOTED THAT THE CONTRACT WAS BASICALLY A WORK ORDER FOR HIRING OF PLANT & MACHINERY OWNED BY THE ASSESSEE FOR WORKING IN KIOM SITE AT 1 AT POST OFFICE AT DONIMALAI TOWNSHIP, DIST - BELLARI, KARNATAKA. AS PER THE TERMS OF CONTRACT, THE ASSESSEE WAS TO PROVIDE ITS PLANT & MACHINERY ON HIRE BASIS TO NMDC AND WAS REQUIRED TO PRODUCE THE ORE AS PER SPECIFICATIONS OF NMDC AS PER THE TERMS OF CONTRACT. FOR THE WORK DONE, THE COMPENSATION WAS FIXED BY NMDC FOR HIRING OF EQUIPMENT ON HOURLY RATE BASIS A ND ALSO THE RATE WAS FIXED FOR WORK ORDER IN PER THOUSAND TONS. THE DETAILS OF HIRING CHARGES TO BE RECEIVED BY THE ASSESSEE ARE TABULATED UNDER PARA 6 AT PAGES 3 AND 4 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD EXECUTED T OTAL WORK OF RS. 10.80 CRORES AND THE BILLS TO THAT EXTENT HAD BEEN RAISED ON NMDC. AS AGAINST THESE RECEIPTS, THE ASSESSEE HAD DEBITED EXPENDITURE AS COST OF GOODS SOLD FOR SERVICES PROVIDED TO THE TUNE OF RS.8.46 CRORES. APART FROM THIS, THERE WERE SEVE RAL EXPENSES I.E. PAYMENT TO EMPLOYEES, ADMINISTRATIVE EXPENSES, SELLING AND DISTRIBUTION EXPENSES, FINANCIAL CHARGES AND DEPRECIATION TOTALING RS.99,52,248/ - . I N THE COST OF GOODS SOLD , THE ASSESSEE HAD DEBITED DEVELOPMENT EXPENSES AMOUNTING TO RS.5.44 C RORES . THE EXPLANATION OF THE ASSESSEE WITH REGARD TO THE SAID EXPENSES WAS THAT THE SAME WERE PAID ON ACCOUNT OF SUB - CONTRACTING OF KIOM WORK TO ONE OF ITS PARTNERS M/S. SHRI BHARAT CEMCO PVT. LTD. , A COMPANY WHICH WAS HAVING 50% SHARE IN THE ASSESSEE FI RM. SINCE THE PAYMENT WAS MADE TO ONE OF PARTNERS OF THE ASSESSEE FIRM , THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF THESE DEVELOPMENT EXPENSES AND ITA NO. 644 /PN/20 1 4 M/S. SHRI BHARAT CEMENT PIPE CO . 4 ALSO TO JUSTIFY THE PAYMENT MADE TO THE PARTNER HAVING REGARD TO THE MARKET VALUE OF SERVICES, WHICH WE RE RECEIVED BY THE ASSESSEE ON ACCOUNT OF OUTSOURCING OF WORK. THE ASSESSEE IN REPLY, SUBMITTED THE COPIES OF TERMS OF SUB - CONTRACT DATED 10.01.2007 AGREED UPON BETWEEN THE ASSESSEE AND ITS PARTNER, WHICH ARE REPRODUCED AT PAGES 5 AND 6 OF THE ASSESSMENT ORDER. THE EXPLANATION OF ASSESSEE IN THIS REGARD WAS THAT AS PER THE TERMS OF CONTRACT, THE ASSESSEE HAD HANDED OVER ALL ITS PLANT & MACHINERY TO THE PARTNER FOR ITS OPERATION AT KIOM SITE AT HOSPET. SINCE THE ENTIRE WORK OF HOSPET SITE WAS HANDED OVER TO ONE OF THE PARTNER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE SHOULD NOT HAVE SPENT ANY AMOUNT OF EXPENDITURE ON THE HOSPET SITE IN ADDITION TO THE DEVELOPMENT EXPENSES PAID TO THE PARTNER. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE D IRECT EXPENSES DEBITED UNDER SEVERAL HEADS, EXPENDITURE SHOULD NOT HAVE BEEN DEBITED OVER AND ABOVE THE SUB - CONTRACTING CHARGES. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY OTHER EXPENSES SHOULD BE ALLOWED IN ITS HANDS. IN THE ABSENCE OF ANY REPLY GIVEN BY THE ASSESSEE AND SINCE THE ASSESSEE HAD PAID EXPENSES TOTALING ABOUT RS. 99,52,248/ - , THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAME SHOULD NOT HAVE BEEN INCURRED BY THE ASSESSEE AT HOSPET SITE. THE ASSESSEE EXPLAINED THAT THE EXPENSES DEBITED BY I T COULD NOT BE RECOVERED FROM THE SUB - CONTRACTOR BECAUSE OF TERMS OF CONTRACT, WHICH WAS REJECTED BY THE ASSESSING OFFICER SINCE THE SUB - CONTRACT AGREEMENT WAS BETWEEN THE ASSESSEE AND ITS PARTNER ONLY. FURTHER, THE ASSESSEE WAS ASKED TO FILE JUSTIFICATIO N FOR THE RATES AT WHICH PAYMENTS WERE MADE TO THE PARTNER HAVING REGARD TO THE FAIR MARKET VALUE OF SERVICES RENDERED BY THE PARTNER AND IN VIEW OF SECTION 40A(2)(A) OF THE ACT . THE ASSESSING OFFICER NOTES THAT DESPITE SEVERAL REQUESTS, THE BASIS OF FIXI NG OF RATE S TO BE PAID TO THE PARTNER WERE NOT FILED BY THE ASSESSEE. HE ALSO OBSERVED THAT THERE W ERE NO COMPARATIVE QUOTATIONS FOR JUSTIFICATION OF RATES. ITA NO. 644 /PN/20 1 4 M/S. SHRI BHARAT CEMENT PIPE CO . 5 THE ASSESSING OFFICER WAS OF THE VIEW THAT WHERE THE ENTIRE MACHINERY, MANPOWER , OFFICE SETUP, SI TE SUPERVISION SETUP, ETC. BELONGED TO THE ASSESSEE , THERE WAS APPARENT REASON FOR HANDING OVER THE ENTIRE SETUP TO THE PARTNER FOR OPERATION, PARTICULARLY WHEN HE DID NOT HAVE INFRASTRUCTURE AND AS PER THE ASSESSING OFFICER, SUB - CONTRACTING WAS NOTHING BU T A COLOURABLE DEVICE TO REDUCE THE PROFITS OF ASSESSEE. SINCE THERE WAS DRASTIC FALL IN NET PROFIT DURING THE YEAR AS COMPARED TO THE NET PROFIT MARGIN DECLARED IN THE EARLIER YEARS, THE ASSESSING OFFICER WAS OF THE VIEW THAT EXCESSIVE PAYMENT HAD BEEN M ADE BY THE ASSESSEE ON ACCOUNT OF SUB - CONTRACT. THE ASSESSING OFFICER HELD THAT THE PAYMENTS MADE BY THE ASSESSEE WERE IN VIOLATION OF PROVISIONS OF SECTION 40A(2)(A) OF THE ACT AND WERE TO BE DISALLOWED. HOWEVER, THE ASSESSING OFFICER THEREAFTER, WORKED OUT THE CORRECT PROFIT EARNED BY THE ASSESSEE DURING THE YEAR BY NOTING THAT THERE WAS SHORTFALL OF MORE THAN RS.54.1 LAKHS ON ACCOUNT OF FALL IN NET PROFIT MARGIN FROM 12.89% TO 8% IN THE CURRENT YEAR ON A TURNOVER OF RS.11.06 CRORES ACHIEVED BY THE ASSE SSEE. THE ASSESSING OFFICER WAS THUS, OF THE VIEW THAT 8% OF PAYMENT MADE TO THE SUB - CONTRACTOR WAS EXCESSIVE PAYMENT IN CONTRAVENTION WITH THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT AND HENCE, THE DISALLOWANCE WAS WORKED OUT AT RS. 67,55,710/ - I.E. 8% OF RS.8.44 CRORES. THE ASSESSING OFFICER HELD THAT THE SAID EXCESS PAYMENT WAS TO B E DISALLOWED IN THE HANDS OF ASSESSEE AND HENCE, ADDITION OF RS. 67,55,710/ - WAS MADE. 5. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER HOLDING THAT THE ASSESSEE HAD FA ILED TO SUBSTANTIATE ITS CLAIM OF HAVING MADE PAYMENT TO THE SAID LOWEST BIDDER OF ADVERTISEMENT IN THE LOCAL NEWSPAPERS. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). ITA NO. 644 /PN/20 1 4 M/S. SHRI BHARAT CEMENT PIPE CO . 6 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ENTIRE WORK WAS SUB - CONTRACTED BY THE ASSESSEE TO THE CONCERN M/S. BHARAT CEMCO PVT. LTD. THE ENTIRE MACHINERY OWNED BY THE ASSESSEE WAS ALSO GIVEN TO THE SAID CONCERN. HOWEVER, THE FINANCIAL CHARGES TO BE PAID ON LOAN TAKEN FOR PURCHASE OF SAID MAC HINERY ALONG WITH DEPRECIATION W ERE CLAIMED AS EXPENDITURE OVER AND ABOVE THE SUB - CONTRACT PAYMENTS MADE BY THE ASSESSEE. OUR ATTENTION WAS DRAWN TO THE PROFIT AND LOSS ACCOUNT PLACED AT PAGE 57 OF THE PAPER BOOK , UNDER WHICH THE TOTAL CONTRACT WAS FOR RS . 10.65 CRORES AND THE SUB - CONTRACT PAYMENTS WERE TO THE EXTENT OF RS.8.46 CRORES AND AFTER CLAIMING THE OTHER EXPENSES, PROFIT OF RS.1.35 CRORES HAD BEEN DECLARED BY THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT ON ACCOUNT OF TWO DIVISION I.E. KOLHAPUR AND HOSPET, THE TOTAL PROFIT OF RS.1.48 CRORES WAS DECLARED BY THE ASSESSEE AFTER CLAIMING DEDUCTION ON ACCOUNT OF PARTNERS SALARY OF ABOUT RS.1 CRORE. OUR ATTENTION FURTHER WAS ON ACCOUNT OF PARTNERS SALARY OF ABOUT RS.1 CRORE. OUR ATTENTION FURTHER WAS DRAWN TO THE WORK ORDER RECEIV ED BY THE ASSESSEE, UNDER WHICH SOME AMOUNT RETAINED BY THE ASSESSEE AND BALANCE AMOUNT WAS PAID TO THE SUB - CONTRACTOR, WHO IN TURN, HAD PAID ITS TAXES AND IT WAS CLAIMED THAT THERE WAS NO LOSS TO THE REVENUE , WHERE THE SAID COMPANY HAD DECLARED INCOME OF RS.1.75 CRORES. HE FURTHER STRESSED THAT AS AGAINST CONTRACT VALUE TO BE RECEIVED ON ACCOUNT OF WORK ORDER, THE FAIR MARKET VALUE WAS TO BE SEEN FROM THAT ANGLE AND SAME WAS HIGHER AND THE AMOUNT PAID TO SUB - CONTRACTOR WAS LESSER. HE PLACED RELIANCE ON T HE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. INDO SAUDI SERVICES (TRAVEL) PVT. LTD. (2009) 310 ITR 306 (BOM) FOR THE PROPOSITION THAT NO DISALLOWANCE UNDER SECTION 40A(2)(A) OF THE ACT COULD BE MADE WHEN THERE WAS NO LOSS TO THE REVENUE. ITA NO. 644 /PN/20 1 4 M/S. SHRI BHARAT CEMENT PIPE CO . 7 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACING RELIANCE ON THE ORDERS OF AUTHORITIES BELOW POINTED OUT THAT THE SAID SUB - CONTRACTOR HAD NO EXPERTISE AND EVEN WAS IN POSSESSION OF PLANT & MACHINERY OF ASSESSEE AND CONSEQUENTLY, THERE WA S NO MERIT IN THE STAND TAKEN BY THE ASSESSEE AND PAYING THE SAID AMOUNT OF SUB - CONTRACT. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE FIRM IS MAINLY DOING BUSINESS AS CONTRACTOR AND ONE OF THE PARTNER S IN THE ASSESSEE FI RM WAS M/S. SHRI BHARAT CEMCO PVT. LTD. ANOTHER CONCERN I.E. NATIONAL MINERAL DEVELOPMENT CORPORATION (NMDC) HAD BEEN AWARDED WORK CONTRACT FOR EXTRACTION OF IRON ORE FROM HOSPET. AS PER THE CONTRACT, 20% HAD TO BE PAID FOR EXTRACTION AND 15% FOR SHIFTIN G. THE SAID CONTRACT WAS AWARDED TO NMDC IN ASSESSMENT YEAR 2007 - 08, AGAINST WHICH THE ASSESSEE PURCHASED MACHINERY. HOWEVER, IN THE CURRENT YEAR I.E. ASSESSMENT YEAR 2008 - 09, THE ENTIRE WORK WAS SUB - CONTRACTED BY THE ASSESSEE TO M/S.SHRI BHARAT CEMCO PV T. LTD. EVEN THE MACHINES WHICH WERE PURCHASED BY THE ASSESSEE WERE HANDED OVER TO THE SAID CONCERN AND SUB - CONTRACT CHARGES TO THE EXTENT OF RS.8.44 CRORES WAS PAID TO THE SAID CONCERN. ADMITTEDLY, THE SUB - CONTRACTOR IS RELATED PARTY AS DEFINED UNDER SEC TION 40A(2)( B ) OF THE ACT . THE ISSUE ARISING BEFORE US IS WHETHER THE PAYMENTS MADE TO THE SAID RELATED PARTY IS EXCESSIVE KEEPING IN MIND THE MARKET RATE OF SERVICES TO BE PROVIDED BY THE CONTRACTEE. 10. UNDER THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT , IT IS PROVIDED THAT WHERE EXCESSIVE PAYMENTS ARE MADE TO RELATED PARTY WITH REGARD TO FAIR MARKET VALUE OF SERVICES RENDERED BY THE SAID RELATED PARTY, THEN THE EXCESSIVE PAYMENT IS TO BE DISALLOWED IN THE HANDS OF PAYER. THE TERMS OF CONTRACT BETWEE N THE ASSESSEE AND NMDC WHICH WAS AWARDED THE CONTRACT ARE ITA NO. 644 /PN/20 1 4 M/S. SHRI BHARAT CEMENT PIPE CO . 8 AVAILABLE ON RECORD AND ARE NOT DISPUTED. FURTHER, THERE IS AN AGREEMENT TO SUB - CONTRACT THE WORK BY THE ASSESSEE TO M/S. SHRI BHARAT CEMCO PVT. LTD., UNDER WHICH ADMITTEDLY, THE CHARGES PAID WERE LESSER THAN THE AMOUNT AWARDED TO THE ASSESSEE, AS PER THE WORK CONTRACT ISSUED IN FAVOUR OF NMDC. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD PREPARED SEPARATE FINANCIAL STATEMENTS FOR THE TWO DIVISIONS, UNDER WHICH IT WAS CARRYING ON ITS WORK I.E . KOLHAPUR AND HOSPET DIVISIONS. THE ISSUE ARISING BEFORE US IS RELATABLE TO THE HOSPET DIVISION. FIRST OF ALL, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IN THE HOSPET DIVISION HAD DECLARED A TURNOVER OF RS.11.06 CRORES, AGAINST WHICH THE TOTAL PAYME NTS ON ACCOUNT OF SUB - CONTRACT WAS RS.8.44 CRORES. THE FIRST OBJECTION RAISED BY THE ASSESSING OFFICER WAS THAT IN ADDITION T O THE SAID SUB - CONTRACT PAYMENTS, THE ASSESSEE HAD ALSO DEBITED CERTAIN OTHER EXPENSES TOTALING RS.99,52,248/ - . THE ASSESSING OFF ICER WAS OF THE VIEW THAT WHERE THE ENTIRE CONTRACT HAD BEEN SUB - CONTRACTED TO ONE OF THE PARTNERS, WHERE WAS THE NECESSITY TO INCUR THE SAID EXPENSES. THE DETAILS OF EXPENDITURE ARE PROVIDED AT PAGE 4 OF THE ASSESSMENT ORDER UNDER WHICH, THERE ARE DIRECT EXPEN SES OF RS. 5,28,477/ - , THERE ARE PAYMENTS TO EMPLOYEES OF RS.6,77,054/ - AND ADMINISTRATIVE EXPENSES OF RS.11,36,206/ - . FURTHER, THE ASSESSEE HAD DEBITED FINANCIAL CHARGES OF RS. 23,94,937/ - AND DEPRECIATION OF RS. 51,97,918/ - . THE EXPLANATION OF THE A SSESSEE IN THIS REGARD WAS THAT THE PLANT AND MACHINERY WHICH WAS OWNED BY THE ASSESSEE, WHICH IN TURN, WAS HANDED OVER TO THE SUB - CONTRACTOR TO USE THE SAME AT THE HOSPET SITE WAS BOUGHT BY RAISING LOAN AND FINANCIAL CHARGES RELATED TO THE SAID MACHINERY. FURTHER, DEPRECIATION WAS CLAIMED BY THE ASSESSEE ON THE AFORESAID PLANT AND MACHINERY BEING OWNER OF SAID PLANT AND MACHINERY. WE FIND THAT MAJORITY OF EXPENSES CONSIDERED BY THE ASSESSING OFFICER RELATED TO FINANCIAL CHARGES AND DEPRECIATION CHARGES. ANOTHER EXPENDITURE WHICH HAS BEEN CLAIMED BY THE ASSESSEE IS ADMINISTRATIVE ITA NO. 644 /PN/20 1 4 M/S. SHRI BHARAT CEMENT PIPE CO . 9 EXPENSES OF RS. 11,36,206/ - AND THOUGH THE BREAKUP OF SAID EXPENSES IS NOT AVAILABLE BEFORE US, WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN THIS REGARD IN HOLDING THAT S INCE ALL THESE EXPENSES HAVE BEEN INCURRED IN ADDITION TO THE SUB - CONTRACT CHARGES, THE SUB - CONTRACT CHARGES PAID BY THE ASSESSEE ARE ON A HIGHER SIDE BEING PAYMENT TO A RELATED PARTY. UNDER THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT , WHAT IS TO BE CO NSIDERED IS THE MARKET VALUE OF SERVICES RENDERED BY RELATED PARTY VIS - - VIS THE PRICE PAID BY THE ASSESSEE. THE MARKET VALUE OF SERVICES RENDERED BY M/S. SHRI BHARAT CEMCO PVT. LTD. IS TO BE SEEN FROM THE ANGLE OF CONTRACT RECEIVED BY THE ASSESSEE. THE TOTAL WORK CONTRACT HAS BEEN SUB - CONTRACTED AND EVEN IF WE CONSIDER THE DIRECT EXPENSES WHICH HAVE BEEN DEBITED BY THE ASSESSEE AS PART OF COST OF CONTRACT, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS DECLARED PROFIT OF RS.1.34 CRORES IN THE HOSPET D IVISION. THE PERUSAL OF ASSESSMENT ORDER ITSELF REFLECTS THAT THE ASSESSEE TO HAVE DECLARED INCOME AT RS. 80,47,920/ - I.E. AFTER CLAIMING DEDUCTION ON ACCOUNT OF SALARY PAYABLE TO PARTNERS. FURTHER, THE CONCERN M/S. SHRI BHARAT CEMCO PVT. LTD., IN TURN, H AD FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1.75 CRORES. IN CASE, THE PROFITS DECLARED BY THE ASSESSEE AND M/S. SHRI BHARAT CEMCO PVT. LTD., ARE CON SIDERED , FIRST OF ALL, THERE IS NO LOSS OF REVENUE. EVEN OTHERWISE, WE HOLD THAT WHERE THE MARKET VALUE OF SERVICES PROVIDED BY THE ASSESSEE IS AVAILABLE ON RECORD I.E. THE RECEIPTS RECEIVED BY THE ASSESSEE AGAINST THE CONTRACT BETWEEN THE ASSESSEE AND NMDC, WHICH IN TURN, IS SUB - CONTRACTED TO M/S. BHARAT CEMCO PVT. LTD., WE FIND NO MERIT IN THE ORDER OF AUTHORITIES BELOW IN HOLDING THAT THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT ARE ATTRACTED IN THE CASE. IN THE ABSENCE OF ANY FINDING BY THE ASSESSING OFFICER THAT THE PAYMENTS MADE TO M/S. BHARAT CEMCO PVT. LTD., WERE UNREASONABLE AND EXCES SIVE, WE FIND NO MERIT IN THE DISALLOWANCE OF ANY PART OF SUB - CONTRACT CHARGES PAID BY THE ASSESSEE TO THE ITA NO. 644 /PN/20 1 4 M/S. SHRI BHARAT CEMENT PIPE CO . 10 SAID CONCERN. REVERSING THE ORDER OF CIT(A), WE HOLD THAT NO ADDITION IS WARRANTED IN THE HANDS OF ASSESSEE ON ACCOUNT OF DISALLOWANCE OF ANY PART O F SUB - CONTRACT CHARGES PAID BY THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 67, 55,710/ - . THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 11 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 29 TH DAY OF APRIL , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 29 TH APRIL , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPE LLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A), KOLHAPUR ; 4. / THE CIT - I /II, KOLHAPUR / CIT(CENTRAL), P UNE ; 5. , , / DR B , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE