ACIT, Chandigarh V. M/s Himalayan Frozen Foods Ltd., Chandigarh

ITA 683/CHANDI/2010

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2571 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 24-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: ATUL GANDHI
• Keywords: Fair market value; Commercial expediency
• Section: 40A(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.683/CHD/2010 (ASSESSMENT YEAR : 2006-07) THE A.C.I.T., VS. M/S HIMALAYAN FROZEN FOODS LTD., CIRCLE1(1), 754, 1 ST FLOOR, SECTOR 8-B, CHANDIGARH. CHANDIGARH. PAN: AAACH8087R AND ITA NO.692/CHD/2010 (ASSESSMENT YEAR : 2006-07) M/S HIMALAYAN FROZEN FOODS LTD., VS. THE ADDL.CIT, CHANDIGARH. RANGE 1, CHANDIGARH. PAN: AAACH8087R AND (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ATUL GANDHI DEPARTMENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 17.11.2016 DATE OF PRONOUNCEMENT : 19.01.2016 O R D E R PER RANO JAIN, A.M . : BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEAL S), CHANDIGARH DATED 12.3.2010 FOR ASSESSMENT YEAR 2006 -07. 2 ITA NO.683/CHD/2010 : (REVENUES APPEAL) 2. THE ONLY ISSUE RAISED IN THE DEPARTMENTAL APPEA L IS AGAINST THE ACTION OF THE LEARNED CIT (APPEALS) IN DELETING THE DISALLOWANCE OF RS.9,77,079/- MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE IN COME TAX ACT, 1961 (IN SHORT THE ACT). 3. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT CERTAIN PAYMENTS WERE MADE BY THE ASSESSEE ON ACCOUNT OF FREIGHT CHARGES. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.9,77,0 79/- OF THESE EXPENSES AS THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THESE PAYMENTS. 4. THE ASSESSEE WENT IN APPEAL BEFORE THE LEARNED CIT (APPEALS) AND SUBMITTED THAT THERE IS NO AGREEM ENT WHETHER ORAL OR WRITTEN WITH THE TRANSPORTER AND TRANSPORTER IS APPROACHED AS AND WHEN A REQUIREMENT FOR TRANSPORTATION ARISES. FURTHER RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. UNITED RICE LAND LTD. (2008) 217 C TR 332 (P&H). RELYING ON THE JUDGMENT OF THE HON'BLE PUN JAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. BHAGWATI STEELS, I.T. APPEAL NO.693 OF 2009, DATED 21.1.2010 , THE LEARNED CIT (APPEALS) HELD THAT THE DISALLOWANCE OF EXPENDITURE UNDER SECTION 40(A)(IA) OF THE ACT FOR VIOLATION OF SECTION 194C OF THE ACT IS NOT JUSTIFIED. 3 5. AGGRIEVED BY THIS, THE DEPARTMENT HAS COME UP IN APPEAL BEFORE US. 6. THE LEARNED D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER AND FURTHER TRIED TO DISTINGUISH THE CASE OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF UNITED RICE LAND LTD. (SUPRA). AS PER THE LEARNED D.R., THE RATIO OF THIS JUDGMENT IS NOT APPLICABLE TO THE PRESENT CASE BECAUSE IN THAT CASE THE PAYMENTS WERE MADE TO VARIOUS TRUCK OWNERS, WHEREAS IN THE PRESENT CASE THE PAYMENTS HAVE BEEN MADE TO INDIVIDUALS/TRANSPORTER FIRMS WHICH ARE INDEPENDENT ASSESSES. IN THIS WAY, IT WAS PRAYED THAT THE ORDER OF THE LEARNED ASSESSING OFFICER BE UPHELD. 7. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. THE RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASES OF UNITED RICE LAND LTD. (SUPRA), CIT VS. BHAGWATI STEELS (2010) 326 ITR 108 (P&H), CIT VS. M/S GREWAL BROTHERS (2011) 240 CTR 325 AND CIT VS. TRUCK OPERATORS UNION, ITA NO.865 OF 2010 DATED 23.3.2011. SPECIFIC RELIANCE WAS PLACED ON THE CASES UNITED RICE LAND LTD. (SUPRA) AND BHAGWATI STEELS (SUPRA) 4 FOR THE PROPOSITION THAT THERE BEING NO CONTRACT E ITHER ORAL OR WRITTEN WITH THE TRANSPORTER, SUCH EXPENDIT URE CANNOT BE DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSES SEE HAS NOT DEDUCTED ANY TDS ON THE FREIGHT PAYMENT MADE TO VARIOUS TRANSPORTERS TO BRING THE MATERIAL TO THE A SSESSEE FROM THE SUPPLIER. RELIANCE PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF UNITED RICE LAND LTD. (SUPRA) IS NOT OUT OF CONTEXT IN THE SENSE THAT IN THAT CASE, IT HAS BEEN HELD THAT IF THERE IS NO CONTRACT BETWE EN THE PAYER AND PAYEE, THE TDS IS NOT CHARGEABLE UNDER SE CTION 194C OF THE ACT. IN THE PRESENT CASE ALSO, THE ASS ESSEE HAS ALL ALONG BEEN PLEADING THAT THERE IS NO CONTRACT NEITHER WRITTEN NOR ORAL BETWEEN THE ASSESSEE AND T HE TRANSPORTER/TRUCK OWNERS AND BEFORE US ALSO IT HAS NOT BEEN DEMONSTRATED THAT THERE IS ANY CONTRACT BETWEE N THE ASSESSEE AND THE TRANSPORTERS. IN THE ABSENCE OF A NY SUCH CONTRACT, THE PROVISIONS OF SECTION 194C ARE N OT APPLICABLE TO THE FACTS OF THE ASSESSEE AND NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT CAN BE MADE. THE GROUND OF APPEAL RAISED BY THE REVENUE I S DISMISSED. 5 ITA NO.692/CHD/2010 : (ASSESSEES APPEAL) 9. THE GROUND NO.1 RAISED BY THE ASSESSEE IS GENERAL IN NATURE. 10. THE GROUND NO.2 RAISED BY THE ASSESSEE IS AGAINST THE ACTION OF THE LEARNED CIT (APPEALS) IN CONFIRMING THE DISALLOWANCE OF RS.16,45,900/- ON AC COUNT OF FREIGHT PAYMENT FOR NON DEDUCTION OF TAX AT SOUR CE. 11. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS FAI LED TO DEDUCT THE TAX AT SOURCE ON ACCOUNT OF EXPENDITURE OF FREIGHT MADE TO A TO Z LOGISTIC, ANKUR ROAD LINES A ND KRISHAN COAL COMPANY AMOUNTING TO RS.24,95,873/-. 12. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE SUBMITTED A COPY OF CERTIFICATE UNDER SECTION 197 O F THE ACT AND SUBMITTED THAT THE TAX WAS DEDUCTED AT A LO WER RATE IN VIEW OF THIS CERTIFICATE. THE LEARNED CIT (APPEALS) SEND THIS DOCUMENT TO THE ASSESSING OFFICER FOR HIS COMMENTS. ON THE RECEIPT OF COMMENTS BY HE ASSESSI NG OFFICER, THE LEARNED CIT (APPEALS) OBSERVED THAT TH ESE WERE TO SAY THE LEAST PATHETIC, A MERE REPEAT OF THE ASS ESSMENT ORDER WITHOUT ANY APPLICATION OF MIND. AFTER CONSI DERING THE SUBMISSION OF THE ASSESSEE THE LEARNED CIT (APP EALS) OBSERVED THAT THE ITO, WARD 49(1), NEW DELHI AUTHOR IZES DEDUCTION AT 0.75% PLUS SURCHARGE ON PAYMENTS TO A TO Z LOGISTIC PVT. LTD. AND 1% PLUS SURCHARGE ON PAYMENT S TO ANKUR ROAD LINES. SINCE THE AUTHORIZATION IS RESTR ICTED TO 6 AN AMOUNT OF RS.9,10,000/-, THE ASSESSING OFFICER W AS DIRECTED TO CONSIDER THIS CERTIFICATE TO CONCESSION AL DEDUCTION OF TDS AS PROVIDED THEREIN. FURTHER SINC E THE ASSESSING OFFICER HAS PRODUCED EVIDENCE OF DEDUCTIO N OF TDS @ 2.04% AMOUNTING TO RS.3124/-, THE ADDITION OF RS.63,159/- MADE ON ACCOUNT OF PAYMENT TO KRISHNA C OAL COMPANY WAS DELETED BY THE LEARNED CIT (APPEALS). 13. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT (APPEALS) AND COPIES OF CERTIFICATES FURNISHED BY P AYEES TO RECEIVE PAYMENTS AT LOWER TAX WERE ALSO FILED WITH PAPER BOOK. 14. THE LEARNED D.R. RELIED ON THE ORDER OF THE LEARNED CIT (APPEALS) AND SUBMITTED THAT THE LEARNE D CIT (APPEALS) HAS GIVEN APPROPRIATE BENEFIT TO THE ASSE SSEE IN VIEW OF THE CERTIFICATES OF LOWER DEDUCTION OF TAX PRODUCED BY THE ASSESSEE. 15. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. ON PERUSAL OF THE ORDER OF THE LEARNED CIT (APPEALS ), WE SEE THAT THE LEARNED CIT (APPEALS) HAS GIVEN BENEFI T TO THE ASSESSEE IN VIEW OF THE CERTIFICATES OF LOWER DEDUC TION OF TAX FILED BY THE PAYEES. ON PERUSAL OF THESE CERTI FICATES FILED BEFORE US, WE SEE THAT THE COPIES OF THE SAME ARE NOT LEGIBLE AT ALL. HOWEVER, SINCE THE ASSESSEE IS ELI GIBLE TO 7 GET BENEFIT AS PER THESE CERTIFICATES, WE HEREBY DI RECT THE ASSESSING OFFICER TO CONSIDER THESE CERTIFICATES AN D GIVE THE ASSESSEE THE BENEFIT AS PER LAW. THE ASSESSEE IS ALSO DIRECTED TO FILE PROPER LEGIBLE COPIES OF THESE CER TIFICATES BEFORE THE ASSESSING OFFICER. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . 16. THE GROUND NO.3 RELATES TO DISALLOWANCE OF RS.7,40,125/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF INTEREST ON LOANS AND ADVANCES GIVEN TO CERTAIN PER SONS. 17. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HA S GIVEN FOLLOWING LOANS TO DIFFERENT RELATED PERSONS DURING THE YEAR : (I) SHRI KANAN DIWAN RS.25,00,000/- (II) M/S SEARCH SOFTWARE LTD. RS.14,25,000 (III) SHRI PARVEEN DIWAN RS.17,72,781/- (IV) M/S HILLCREST FOODS RS.50,85,942/- 18. AFTER CONFRONTING THE ASSESSEE REGARDING THE F ACT THAT THESE LOANS WERE GIVEN BY IT INTEREST FREE WHI LE THERE WERE INTEREST BEARING LOANS TAKEN BY THE ASSESSEE D URING THE YEAR. THE ASSESSING OFFICER MADE DISALLOWANCE OF AN AMOUNT OF RS.7,40,125/- COMPUTED ON THESE LOANS @ 1 2% PER ANNUM UNDER SECTION 36(1)(III) OF THE ACT. 19. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE SUBMITTED THAT IT HAS NOT PROVIDED ANY LOANS OR ADV ANCES TO THE SISTER CONCERN OR ASSOCIATES OUT OF THE LOAN S OBTAINED FROM SAID BANKS, ETC. THE ASSESSEE DID NO T 8 BORROW ANY SUM OF MONEY TO MEET PERSONAL OBLIGATION S OF THE DIRECTORS OR SISTER CONCERN. THE LOANS ADVANCE D HAVE NO LINKAGE WITH THE BORROWED FUNDS. THE ASSESSEE H AD NOT BORROWED FUNDS FROM NEW PARTIES OR BANKS DURING THE YEAR. THE INCREASE IN BORROWINGS IN COMPARISON TO PREVIOUS YEAR IS FROM ICICI BANK LTD. (WAREHOUSING FINANCE) AND HSBC BANK LTD. (PURCHASE ORDER FINANCE ) IN BOTH THE CASES FRESH LOANS HAVE BEEN TAKEN FROM JAN UARY, 2006. AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE THE LEARNED CIT (APPEALS) RELYING ON THE JUDGMENT O F THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD., 286 ITR 1 (P&H) CONFI RMED THE DISALLOWANCE OF RS.7,40,125/- MADE BY THE ASSES SING OFFICER. 20. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE LEARNED CIT (APPEAL S) AND FURTHER SUBMITTED THAT THE LOAN OF RS.50,85,942 /- WAS GIVEN TO M/S HILLCREST FOODS FOR SETTING UP THE PRO JECT OF M/S HILLCREST FOODS FOR FROZEN PEAS AS BUSINESS STR ATEGY AS ALMOST ALL THE PRODUCTION OF THE PROJECT WAS PUR CHASED IN FUTURE YEARS AT DISCOUNTED RATE WHEN PRODUCTION WAS STARTED. IT HAD DIRECTLY HELPED THE ASSESSEE COMPA NY ALSO. HENCE, THESE ADVANCES WERE NOT IN THE NATURE OF LOA NS. HOWEVER, THE SAME WERE IN THE NATURE OF BUSINESS TRANSACTIONS. RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. V CIT [2007] 289 ITR 26 (SC) , 9 21. THE LEARNED D.R. RELIED ON THE ORDER OF THE LEARNED CIT (APPEALS) AND AGAIN PLACED RELIANCE ON THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. (SUPRA). 22. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE ARGUMENT OF LOANS BEING GIVEN OUT OF COMMERCIAL EXPEDIENCY HAS BEEN RAISED BEFORE US, WHICH WE OBSE RVE THAT THIS PLEA WAS ALSO RAISED BEFORE THE LEARNED C IT (APPEALS) AS PART OF ASSESSEES WRITTEN SUBMISSIONS . HOWEVER, WE ALSO OBSERVE THAT THE LEARNED CIT (APPE ALS) HAS NOT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND HAS SUMMARILY PASSED THE ORDER CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER. EVEN THE ARGUMENT OF THE AS SESSEE THAT THE LOANS AND ADVANCES HAVE NO LINKAGE WITH TH E BORROWED FUNDS, HAVE NOT BEEN LOOKED AFTER BY THE L EARNED CIT (APPEALS) IN RIGHT PERSPECTIVE. IN VIEW OF THE SE, WE FIND IT PROPER TO SEND THE ISSUE BACK TO THE FILE O F THE ASSESSING OFFICER TO RECONSIDER THE SAME AFRESH BY TAKING INTO CONSIDERATION ALL THE EVIDENCES AND EXPLANATIO N GIVEN BY THE ASSESSEE. THE ISSUE IS TO BE DECIDED AS PER LAW AND ASSESSEE IS FREE TO PROVIDE ANY EVIDENCE OR MATERIA L IN THIS REGARD BEFORE THE ASSESSING OFFICER. 23. THE GROUND NO.4 RELATES TO ADDITION OF RS.93,047/- ON ACCOUNT OF DELAY IN DEPOSITING EMPLO YEES PROVIDENT FUND. DURING THE ASSESSMENT PROCEEDINGS, IT 10 WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSE SSEE HAD DEPOSITED AN AMOUNT OF EMPLOYEES CONTRIBUTION TOWARDS PF BEYOND STIPULATED DATE AND, HENCE DISALL OWED THE SAME. 24. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE PLACED RELIANCE ON THE ORDER OF THE I.T.A.T., DELHI BENCH IN THE CASE OF DCIT VS. AMRIT AGRO INDUSTRIES LTD., D ELHI HIGH COURT IN THE CASE OF CIT VS. PM ELECTRONICS L TD. AND THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. V INAY CEMENT LTD., 213 ITR 268 AND IT WAS PRAYED THAT THE PF AND ESI DEPOSITED AFTER EXPIRY OF DUE DATE BE ALLOW ED AS DEDUCTION. THE LEARNED CIT (APPEALS) AFTER CONSID ERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT ALL T HE PAYMENTS WERE MADE BEYOND THE GRACE PERIOD PROVIDED EXCEPT FOR THE MONTHS OF OCTOBER AND NOVEMBER. IN THIS WAY, HE PARTLY CONFIRMED THE DISALLOWANCE MADE BY T HE ASSESSING OFFICER. 25. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E PLACING RELIANCE ON THE JUDGMENT ON WHICH HE PLACED RELIANCE BEFORE THE LOWER AUTHORITIES, STATED THAT THE ADDITION ON ACCOUNT OF DELAY IN DEPOSITING THE EMPL OYEES CONTRIBUTION TO PF BE DELETED. 26. THE LEARNED D.R. RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 27. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES 11 BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. A DETAIL REGARDING EMPLOYEES AND EMPLOYERS CONTRIBU TION IS PLACED IN THE PAPER BOOK FILED BEFORE US AS ANNEXUR E-2, FROM THE PERUSAL OF WHICH, WE SEE THAT ALL THE PAYM ENTS OF EMPLOYEES CONTRIBUTION TO THE PF HAVE BEEN MADE TI LL 21.4.2006. THE JUDGMENTS WHICH HAVE BEEN RELIED ON BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES, SPECIFIC ALLY THAT OF THE HON'BLE APEX COURT IN THE CASE OF VINAY CEM ENT LTD. (SUPRA), IT HAS BEEN HELD THAT THE DEPOSIT OF CONTRIBUTION TO THE PF IS ELIGIBLE TO BE ALLOWED IN THE YEAR IF THE SAME HAS BEEN DEPOSITED BEFORE THE DUE DATE OF FILING OF RETURN FOR THE RELEVANT ASSESSMENT YEAR. SINCE IN THIS CASE, ALL THE PAYMENTS HAVE BEEN MADE BEFORE T HE DUE DATE OF FILING OF THE RETURN, THERE IS NO SCOPE FOR THE LEARNED CIT (APPEALS) TO SUSTAIN THE DISALLOWANCE O N THE FACT THAT THE SAME HAS NOT BEEN DEPOSITED WITHIN TH E GRACE PERIOD. THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER IS HEREBY DELETED. THE ASSESSEE SUCCEEDS IN THIS GROU ND OF APPEAL. 28. THE GROUND NO.5 RAISED BY THE ASSESSEE RELATES TO ADDITION OF RS.15 LACS MADE BY THE ASSESSING OFF ICER INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 29. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED AN EXPENDITURE OF RS.30 LACS ON ACCOUNT OF LEASE RENT TO M/S GREEN BAGH FOOD LTD., SISTER CONCERN OF THE ASSESSE E WITH BOTH THE DIRECTORS OF ASSESSEE AND THE COMPANY, BEI NG 12 COMMON. THE ASSESSEE FURNISHED COPY OF ACCOUNT OF LEASE DEED WITH THE SAID COMPANY, WHICH THE ASSESSING OFF ICER OBSERVED AS INSUFFICIENT TO PROVE THAT THE TRANSACT ION WAS AT MARKET RATE. 50% OF THE LEASE RENT WAS, THEREFO RE, DISALLOWED AS PER SECTION 40A(2)(B) OF THE ACT. 30. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE SUBMITTED THAT A LEASE AGREEMENT WAS ENTERED VIDE M OU DATED 22.9.2001. AS PER THIS AGREEMENT, THE ASSESS EE TOOK ON HIRE THE INFRASTRUCTURE CONSISTING OF LAND, BUILDING, PLANT & MACHINERY, FURNITURE AND FIXTURES AT AN AGREED LEASE MONEY PAYABLE OF RS.2,50,000/- PER MON TH. THE ASSESSEE HAD BEEN FILING RETURNS OF INCOME REGU LARLY W.E.F. ASSESSMENT YEAR 2002-03 AND THERE HAS BEEN N EVER ANY DISPUTE WITH REGARD TO ALLOWANCE OF DEDUCTION I N THIS RESPECT EVEN IN ASSESSMENT FRAMED UNDER SECTION 143 (3) OF THE ACT. THE ASSESSING OFFICER TAKING A DIFFERENT VIEW IN THIS YEAR HAS MADE AN ADHOC DISALLOWANCE OF 50% OF THE RENT. 31. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LEARNED CIT (APPEALS) OBSERVED THAT N O SPECIFIC DETAILS REGARDING LAND, BUILDING, PLANT & MACHINERY AND OTHER EQUIPMENTS HAVE BEEN MENTIONED IN THE ACCEPTANCE LETTER. IN THE ABSENCE OF THE SAME, THE MARKET VALUE CANNOT BE EVALUATED. THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE AS TO HOW THE RATE OF LEASE AMOUNT HAS BEEN WORKED OUT. IN THE ABSENCE OF SUCH DETAIL S AND SKETCHY INFORMATION, THE ASSESSING OFFICER WAS JUSTIFIED IN 13 SCALING DOWN THE LEASE RENT HOLDING IT AS EXCESSIVE AND UNREASONABLE. 32. THE LEARNED COUNSEL FOR THE ASSESSEE DURING TH E COURSE OF HEARING BEFORE US, SUBMITTED THAT NEITHER M/S GREEN BAGH FOODS LTD. NOR ANY OF ITS DIRECTOR OR ME MBER IS HAVING SUBSTANTIAL INTEREST IN THE BUSINESS OF T HE ASSESSEE. THEREFORE, THE PROVISIONS OF SECTION 40A (2)(B) OF THE ACT CANNOT BE INVOKED MERELY ON THE BASIS OF TH AT THERE ARE COMMON DIRECTORS IN THE COMPANY. FURTHER , IT WAS SUBMITTED THAT THE ONUS IS ON THE ASSESSING OFF ICER TO PROVE THAT THE PAYMENT MADE BY THE ASSESSEE IS EXCE SSIVE AND UNREASONABLE. THE ASSESSING OFFICER IS NOT JUS TIFIED IN MAKING THE DISALLOWANCE ON MERE SUPPOSITION WITH OUT BRINGING ON RECORD ANY MATERIAL TO CONTEND THAT THE RENT PAYMENT WAS EXCESSIVE OR UNREASONABLE. 33. THE LEARNED D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER AS WELL AS THAT OF THE LEARNED CI T (APPEALS). 34. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF AN A MOUNT OF RS.15 LACS ON ACCOUNT OF PRESUMED RENT PAID BY THE ASSESSEE INVOKING THE PROVISIONS OF SECTION 40A(2)( B) OF THE ACT. THE PROVISIONS OF THIS SECTION PROVIDES T HAT IN CASE THE ASSESSING OFFICER IS OF THE OPINION THAT A NY OF THE 14 EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO THE FAIR MARKET VALUE OF THE SAME, HE CAN DISALLOW SO MUCH OF THE EXPENDITURE AS HE CONSIDERS TO BE EXCES SIVE OR UNREASONABLE. IN THE PRESENT CASE, THE ASSESSIN G OFFICER HAS MADE DISALLOWANCE OF 50% OF THE RENT ON AN ADHOC BASIS AND NOWHERE HE HAS GIVEN ANY REASON FOR ADOPTING THIS 50% AS UNREASONABLE. IF THE ASSESSIN G OFFICER WAS OF THE VIEW THAT THE RENT PAID BY THE A SSESSEE IS EXCESSIVE, HE HAD TO ADOPT A SCIENTIFIC BASIS TO FIGURE OUT HOW MUCH THE EXPENSE IS EXCESSIVE. THIS HE COU LD DO BY BRINGING ON RECORD CERTAIN COMPARABLE INSTANCES AND THEN TO FIND OUT THE EXCESSIVE RENT PAID BY THE ASS ESSEE. MERELY ON THE SUSPICION WITHOUT BRINGING ON RECORD ANY COMPARABLES, THE ASSESSING OFFICER CANNOT INVOKE TH E PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. FURTHE R THE FACT THAT THE SAID EXPENSES HAVE BEEN PAID BY THE ASSESS EE FOR THE LAST MANY YEARS AND HAVE BEEN ACCEPTED BY THE DEPARTMENT EVEN IN SCRUTINY PROCEEDINGS, SHOWS THAT THERE WAS NO SUSPICION OVER THESE EXPENSES BEING EXCESSIVE IN EARLIER YEARS. WHAT TRIGGERED IN THIS YEAR IN THE MIND OF THE ASSESSING OFFICER BEING UNREASONABL E IS ALSO NOT COMING OUT OF THE ORDER OF THE ASSESSING O FFICER. IN THIS VIEW, WE DO NOT FIND ANY REASON FOR THE ASS ESSING OFFICER TO MAKE SUCH AN ADHOC DISALLOWANCE. THE G ROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 15 35. THE GROUND OF APPEAL NO.6 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF RS.48,400/- MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(3) OF TH E ACT. CERTAIN PAYMENTS OF SALARY TO THE DIRECTORS WERE MA DE IN CASH EXCEEDING RS.20,000/-. WHEN CONFRONTED BY TH E ASSESSING OFFICER, THE ASSESSEE REPLIED THAT IT HAD NOTHING TO SAY ON THE MATTER. SINCE THE PAYMENTS WERE MAD E IN VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE AC T, 20% OF THE TOTAL EXPENSES I.E. RS.2,42,000/- WAS MADE BY T HE ASSESSING OFFICER. 36. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE SUBMITTED THAT THE BOOKS OF ACCOUNT OF THE COMPANY WERE RE-WRITTEN UNDER PRESSURE ATMOSPHERE AND CERTAIN MISTAKES HAPPENED. SINCE THE BOOKS WERE CORRUPTED BY VIRUS/MANHANDLING AND ALL THE OLD STAFF LEFT THE CO MPANY, FRESH STAFF WAS RECRUITED AND THE BOOKS OF ACCOUNT WERE RE-WRITTEN FROM THE VOUCHERS AND BILLS. THE LEARNE D CIT (APPEALS) OBSERVED THAT THE RE-WRITING OF THE BOOKS ,TYPING ERRORS AND VIRUS CANNOT DEFEND A VIOLATION OF PROVI SIONS OF THE ACT AND CONFIRMED THE ADDITION MADE BY THE ASSE SSING OFFICER. 37. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE LEARNED CIT (APPEAL S). 38. THE LEARNED D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER AND AS WELL AS THAT OF THE CIT (A PPEALS). 16 39. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. WE ARE IN AGREEMENT WITH THE FINDINGS GIVEN BY THE LEARNED CIT (APPEALS) THAT RE-WRITING OF BOOKS OR B OOKS BEING CORRUPT BY VIRUS DOES NOT GIVE LEVERAGE TO TH E ASSESSEE TO FLOUT THE LAWS. THE INCOME TAX ACT PR OVIDES THAT WHEREVER THE PAYMENTS IN EXCESS OF RS.20,000/- ARE MADE IN CASH, 20% OF THE SAID EXPENDITURE ARE TO BE DISALLOWED UNDER SECTION 40A(3) OF THE ACT. WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARN ED CIT (APPEALS). THE GROUND OF APPEAL RAISED BY THE ASS ESSEE IS DISMISSED. 40. THE GROUND NOS.7 AND 8 RAISED BY THE ASSESSEE ARE GENERAL IN NATURE AND HENCE, NO ADJUDICATION IS BEING GIVEN. 41. IN THE RESULT, THE APPEAL OF THE REVENUE IN IT A NO.683/CHD/2010 IS DISMISSED AND THE APPEAL OF THE ASSESSEE IN ITA NO.692/CHD/2010 IS PARTLY ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF JANUARY, 2016. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 19 TH JANUARY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 17 18