The ACIT, Central Circle-1, Surat V. M/s. Creative Processing Ltd., Surat

ITA 721/AHD/2009

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89465 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-05-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 05-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: J P SHAH
• Keywords: Maximum Marginal Rate; Fair market value; Commercial expediency
• Section: 143(3); 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHARA T, J.M.) I.T. A. NO.721/AHD/2009 (ASSESSME NT YEAR: 2005-06) ACIT CENTRALCIRCLE-1, SURAT V/S CREATIVE PROCESSING LTD., GARDEN MILLS COMPLEX, SAHARA GATE, SURAT (APPELLANT) (RESPONDENT) PAN: AABCP4345H APPELLANT BY : SMT. SONIA KUMAR, SR. D.R. RESPONDENT BY : SHRI J.P. SHAH, A.R. ( )/ ORDER DATE OF HEARING : 08-05-2015 DATE OF PRONOUNCEMENT : 15 -05-2015 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A)-I, SURAT DATED 24.12.2008 FOR A.Y. 2005-06. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF DYEING AND PRINTING OF FABRICS ON JOB WORK CHARGES. ASSESSEE F ILED ITS RETURN OF INCOME FOR A.Y. 2005-06 ON 29.10.2005 DECLARING TOTAL INCO ME AT RS. 82,03,177/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER T HE ASSESSMENT WAS FRAMED ITA NO 721/ AHD/2009 . A.Y. 2005-0 6 2 UNDER SECTION 143(3) VIDE ORDER DATED 29.12.2007 AN D THE TOTAL INCOME WAS DETERMINED AT RS. 4,20,82,167/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 24.12.2008 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REVENUE AS WELL AS ASSESSEE PREFERRED A PPEAL BEFORE HONBLE TRIBUNAL. HONBLE TRIBUNAL VIDE ORDER IN ITA NO. 72 1/A/2009 AND C.O NO. 81/A/2009 DATED 06.08.2013 PARTLY ALLOWED THE APPEA L OF REVENUE AND C.O OF THE ASSESSEE. THEREAFTER AN M.A. NO. 177/A/2013 WAS FILED BY THE ASSESSEE INTERALIA FOR THE REASON THAT THERE WERE A PPARENT MISTAKES IN DECIDING GROUND NO. 1,2 & 3 OF REVENUES APPEAL. TH EREAFTER VIDE ORDER DATED 29.11.2013 THE APPEAL IN ITA NO. 721/A/2013 W AS RECALLED TO DECIDE THE AFORESAID 3 GROUNDS. THUS BEFORE US, THE 3 GROU NDS OF REVENUE WHICH WERE TO BE ADJUDICATED READS AS UNDER:- 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELET ING THE ADDITION MADE ON ACCOUNT OF EXCESS PAYMENT OF INTEREST TO THE SISTER CONCERN . 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELET ING THE ADDITION MADE BY THE ASSESSING OFFICER U/S.40A(2)(B) OF THE I.T. ACT ON ACCOUNT OF EXCESS DISCOUNT ALLOWED TO THE SISTER CONCERN. 3. THE C1T(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE ADDITION MADE U/S.40A(2)(B) OF THE I.T. ACT ON ACCOUNT OF SUPPRESSION OF CHARGE S RECEIVED ON ACCOUNT OF JOB WORK CHARGES FOR DYEING AND PRINTING FROM THE SISTER CON CERN. 1 ST GROUND IS WITH RESPECT TO DELETION OF ADDITION ON ACCOUNT OF EXCESS PAYMENT OF INTEREST TO SISTER CONCERN. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE HAS TAKEN UNSECURED LOAN OF RS. 1,90,00,000/- FROM VARE LLI FABRICS PVT. LTD. AT 18% PER ANNUM AND HAD PAID INTEREST OF RS. 36,30,26 7/-. A.O WAS OF THE VIEW THAT THE INTEREST PAID WAS EXCESSIVE IN NATURE AS THE MARKET RATE OF INTEREST WAS 10% AND THEREFORE THE INTEREST EXPENDI TURE TO THE EXTENT OF 8% ITA NO 721/ AHD/2009 . A.Y. 2005-0 6 3 WAS EXCESSIVE AND ACCORDINGLY WORKED OUT THE INTERE ST AT RS. 17,30,267/- AS BEING EXCESSIVE AND DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE LD. CIT(A) WHO FOLLOWING THE ORDER OF THE TRIBUNAL IN T HE ASSESSEES OWN CASE FOR A.Y. 2002-03 DELETED THE ADDITION BY HOLDING AS UNDER:- 3.3 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A PPELLANT AND OBSERVATION OF THE A.O. THE FACTS IN THIS YEAR ARE ALSO EXACTLY SAME AS IN THE A.Y. 2003-04. THE A.O. HAS NOT MADE OUT ANY CASE THAT THE ISSUE IS COVERED BY THE PROVISIONS OF SECTION 40A(2)(B). ACCORDING TO THE A.O. THE ASSESSEE AND THE LENDER A RE COMPANIES WHICH ARE INTERRELATED. THE ENTIRE CASE OF THE AO IS THAT THE PAYMENT IS EX CESSIVE AND WITHOUT ANY BUSINESS PRUDENCE. THE A.O. HAS NOT DOUBTED THE GENUINENESS OF PAYMENT. IN VIEW OF THESE FACTS BEING SAME AS IN A.Y. 2003-04, RESPECTFULLY FOLLOWI NG THE DECISION OF ITAT DATED 28.2.07 IN ITA NO.2878/AHD/2006 FOR A.Y.2003-04, THE DISALL OWANCE MADE DURING THE YEAR IS DELETED. HENCE THESE GROUNDS OF APPEAL ARE ALLOWED. 5. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. SUBMITTED THAT IDENTICAL ISSUE AROSE IN THE CASE OF ASSESSEE IN EARLIER YEARS AND ASSESSEE HAS BEEN ALLOWED RELIEF BY THE TRIBUNA L. HE THEREFORE SUBMITTED THAT SINCE THE FACTS OF THE CASE YEAR UND ER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEARS AS ALSO NOTED BY LD. CIT(A), THE GROUND OF REVENUE NEEDS TO BE DISMISSED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HA S NOTED THAT A.O HAD NOT DOUBTED GENUINENESS OF PAYMENT OF INTEREST AND IN E ARLIER YEARS SIMILAR DISALLOWANCE MADE BY THE A.O WERE DELETED BY HONBL E ITAT. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO C ONTROVERT THE FINDINGS OF LD. CIT(A) NOR COULD POINT OUT AS TO WHETHER THE DE CISION OF HONBLE ITA NO 721/ AHD/2009 . A.Y. 2005-0 6 4 TRIBUNAL IN EARLIER YEAR IN ASSESSEES OWN CASE HAS BEEN REVERSED BY HONBLE HIGH COURT. ON THE CONTRARY WE FIND THAT TH E CO-ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2002-03 IN ITA NO. 509/A/2011 ORDER DATED 30.04.2014 AND ON SIMILAR FACTS BY FOLL OWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN ASSESSEES OWN CASE ( IN TAX APPEAL NO. 1126 OF 2007 WITH TAX APPEAL NO. 814 OF 2009) HAS D ELETED THE ADDITION. WE THEREFORE FIND NO REASON TO INTERFERE WITH THE O RDER OF LD. CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 2 ND GROUND IS WITH RESPECT TO DELETION OF DISALLOWANCE U/S. 40A(2)(B) OF THE ACT. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NO TICED THAT ASSESSEE HAS CLAIMED RATE DIFFERENCE PROVIDED TO KAMALA ASSOCIAT ES, A SISTER CONCERN OF THE ASSESSEE. HE ALSO NOTICED THAT ASSESSEE HAD NOT PROVIDED RATE DIFFERENCE TO OTHER OUTSIDE PARTIES. THE SUBMISSION OF THE ASS ESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. HE WAS OF THE VIEW THAT THE ASSESSEE HAS SUPPRESSED RECEIPT BY WAY OF CHARGING AT LESSER PRICE FROM GRO UP CONCERNS. HE THEREFORE BY INVOKING PROVISIONS OF SECTION 40A(2)(A) WORKED THE DISALLOWANCE AT RS. 1,76,93,464/-. AGGRIEVED BY THE ORDER OF A.O., ASS ESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO AFTER THE CONSIDERING THE SUB MISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER:- 8.2.6.1 I HAVE CONSIDERED THE SUBMISSION MADE BY TH E APPELLANT AND THE OBSERVATION OF THE A.O. FIRST OF ALL THE DISCOUNT GIVEN IS NORMAL IN BUSINESS FOR A LARGE VOLUME OF WORK AND SECONDLY THE A.O HAS NOT MADE OUT ANY CASE BY B RINGING ANY MATERIAL ON RECORD THAT THE RATE CHARGED WAS NOT AS PER MARKET RATE. 8.2.6..2 THE MAIN ARGUMENT OF THE AO IS THAT THE AP PELLANT HAS MADE PAYMENT TO KAMALA ASSOCIATES (KA) WHICH THE APPELLANT HAS NOT MENTION ED IN THE TAX AUDIT REPORT AND THIS AMOUNT IS DISALLOWABLE U/S40A(2)(A). THE APPELLANT HAS, ON TH E OTHER HAND ARGUED THAT IT HAS NOT MADE ANY PAYMENT TO KA. I AGREE WITH THE APPELLANT IT HAS GIVEN DISCOUNT ON ITA NO 721/ AHD/2009 . A.Y. 2005-0 6 5 ACCOUNT OF BULK JOB GIVEN TO IT BY KA AND ISSUED CREDIT NOTES TO KA FOR THE DISCOUNT AND IT HAS RECEIVED THE NET AMOUNT AFTER THE DISCOUNT. DURING THE FINANCIAL YEAR ENDED ON 31.03.2005 RELEVANT TO A.Y. 2005-06 OUT OF THE T OTAL JOB WORK 1,47,48,475 METERS DONE BY THE APPELLANT COMPANY. 93,08.785 METERS OF JOB WORK WAS DONE FOR M/S. KAMLA ASSOCIATES WHICH CONSTITUTED ABOUT 63% OF THE TOTAL JOB WORK VOLUMES OF THE COMPANY. ONLY 1,86.867 METERS OF LOB WORK WAS DONE FOR GARDEN SILK MILLS LTD WHICH CONSTITUTED 1.25%. IN CASE OF OTHER OUTSIDE PARTIES TOTALING TO 66 INNUMBERS, THE AGGREGATE METERS OF JOB WORK WERE 52.52.882 METERS CONSTITUTING APPELLANT 35% WITH AN AVERAGE VOLUME OF 79.588 METERS PER PARTY. KAMLA ASSOCIATE BEIN G THE BIGGEST CUSTOMERS HAVING 63% SHARE OF BUSINESS OF THE COMPANY. THE JOB LOTS PROVIDED BY KAMLA ASSOCIATES MUCH BIGGER THAN THE OTHER PARTIES. THE NET RATE CHARG ED FROM M/S. KAMLA ASSOCIATES HAS BEEN DETERMINED AFTER TAKING INTO CONSIDERATION ALL THE ASPECTS OF COMMERCIAL EXPEDIENCY. M/S KAMLA ASSOCIATES WAS THE BIGGEST CUSTOMER OF TH E APPELLANT COMPANY. THE JOB WORK BUSINESS PROCURED FROM KAMLA ASSOCIATES CONTAINED THE BIGGER JOB LOTS COMPARED TO THE OTHER PARTIES. IN BIGGER JOB LOTS, THERE IS A SUBSTANTIAL SAVINGS OF TIME AS DYEING &. PRINTING JOBS AS THE S AME HAS TO BE EXECUTED ON LARGER LOTS WHICH NEEDS LESSER NUMBERS OF PROCES S SETTINGS. IN THIS REGARD, THE ASSESSEE RELIED ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CI T VS. A. SUBRAVA CHETTV & SONS (123-ITR-592) WHEREIN THE HON 'BLE COURT SAID THAT THE DIFFERENCE IN SALE PRICE AND ACTUAL PRICE AT LEAST THE GOODS A RE SOLD DOES NOT AMOUNT TO EXPENDITURE WHICH CAN BE DISALLOWED U/S.40A(2)(A). IN VIEW OF T HIS, THE DISCOUNT GIVEN CANNOT BE TREATED AS UNREASONABLE AND IT IS PROPER AS PER GEN ERAL BUSINESS PRACTICES. 8.2.6.3 EVEN OTHERWISE, WITH RESPECT TO THE COMPARA TIVE RATES TO SEE THE COMPARISON OF RATES IT IS SEEN THAT NO SINGLE DYEING OR PRINTING JOB WORK CARRIED OUT BY IT FOR OUTSIDER HAS BEEN CARRIED OUT FOR M/S. KAMLA ASSOCIATES AND M/S. GARDEN SILK MILLS. THE ASSESSEE SUBMITTED THE DETAILS BEFORE THE A.O. TO SHOW THAT THERE WAS NO QUALITY IN COMMON PROCESSED BY THE ASSESSEE COMPANY FOR KAMLA ASSOCIA TES VIS-A-VIS OUTSIDE PARTIES AND HENCE NO COMPARISON CAN BE MADE. FURTHER THE QUESTI ON COMPARISON OF JOB WORK RATES CHARGED TO OUTSIDE PARTIES WITH M/S KAMLA ASSOCIATE S EITHER ON GROSS RATE BASIS OR NET RATE BASIS DOES NOT ARISES BECAUSE NO SINGLE DYEING OR PRINTING JOB WORK CARRIED OUT BY IT FOR OUTSIDER WERE CARRIED OUT FOR M/S KAMLA ASSOCIA TES OR FOR THAT MATTER GARDEN SILK MILLS LTD. ACCORDINGLY THE SCOPE OF WORK, DESIGNS E TC WERE COMPLETELY DIFFERENT FOR M/S KAMLA ASSOCIATES VIS-A-VIS OUTSIDE PARTIES. IN THIS CONNECTION THE APPELLANT SUBMITS THAT THERE WAS NO INTENTION OF THE COMPANY TO EVADE TAX BY ALLOWING RATE DIFFERENCE TO KAMLA ASSOCIATES SINCE M/S. KAMLA ASSOCIATES ALSO FALLS I N TAX BRACKET OF MAXIMUM MARGINAL RATE ON THE SAID RATE DIFFERENCE INCOME. THE APPELL ANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS CLEARLY STATED THAT THE RATE DIFFERENCE IN THE NATURE OF DISCOUNT WAS GIVEN TO KAMLA ASSOCIATES BASED ON THE QUANTUM OF JOBS RECEI VED FROM THEM. IN THE CASE OF DEVAYHI BEVERAGES LTD, (296 ITR 41) (DEL) THE HIGH COURT HAS HELD THAT THE ASSESSING OFFICER COULD NOT ASSUME THE ROLE OF THE ASSESSEE AND DECIDE WHAT SHOULD HAV E BEEN APPROPRIATE EXPENDITURE TOWARDS DISCOUNT, ETC. THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.1,76,93,464/- IS ALSO NOT JUSTIFIED B Y INVOKING PROVISION OF 40A(2)(A) OF THE ACT BECAUSE THE PROVISION OF SEC.40A(2) IS APPLICAB LE ONLY IN THOSE CASES OF EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE OR IF TO BE MADE TO ANY SPECIFIED PERSON AND ASSESSING OFFICER IS OF THE OPINION THAT, SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE. ACCORDINGLY THE DISALLOWANCE CAN BE MADE ITA NO 721/ AHD/2009 . A.Y. 2005-0 6 6 U/S.40A(2) IF AND ONLY IF THERE HAS BEEN CASE OF EX PENDITURE, ELSE NO DISALLOWANCE CAN BE MADE BE MADE BY INVOKING SECTION 40A(2) OF THE ACT. WITH REFERENCE TO THE FACTS OF THE CASE, THE APPELLANT HAD GIVEN CREDIT NOTES FOR RATE DIFFERENCE/ DISCOUNT TO M/S KAMLA ASSOCIATES ON COMMERCIAL EXPEDIENCY DURING THE ASSE SSMENT YEAR IN QUESTION. THE SAID RATE DIFFERENCE WAS IN THE NATURE OF DISCOUNT WHICH WAS REDUCED FROM THE RECEIPTS AND THE NET RECEIPTS WERE CREDITED TO PROFIT AND LOSS ACCOU NTS. THE SAID FACTS WERE NEVER DISPUTED BY THE ASSESSING OFFICER. ON FACTS AND IN LAW & CIR CUMSTANCES OF THE CASE THE DISALLOWANCE IS NOT JUSTIFIED ON THE GROUND THAT TH E DISCOUNT GIVEN IN THE SALES BILL, DOES NOT ENTER THE BOOKS OF THE ASSESSEE AS AN EXPENDITU RE. IT WAS SUBMITTED THAT U/S.40A(2) ONLY WHEN THE EXPENDITURE IS INCURRED, WHICH IS FOU ND TO BE EXCESSIVE OR UNREASONABLE IN RESPECT OF WHICH PAYMENTS HAVE BEEN MADE TO THE SIS TER CONCERN AND SUCH EXPENDITURE IS FOUND BY THE ASSESSING OFFICER EXCESSIVE OR UNREASO NABLE DISALLOWANCE IS ATTRACTED. SINCE THERE WAS NO EXPENDITURE INCURRED, THE ASSESSING OF FICER WAS NOT RIGHT IN MAKING DISALLOWANCE OF EXPENDITURE BY INVOKING PROVISION O F SECTION 40A(2) OF THE ACT IN VIEW OF THE DECISION OF THE JURISDICTION ITAT AHMEDABAD IN THE CASE OF BINIT CORPORATION T24 TT3 5711 WHEREIN THE ITAT HAS, AFTER CONSIDERING VARIOUS JUD ICIAL PRONOUNCEMENT, STATED THAT FIRST OF ALL THE AO HAS TO SATISFY HIMS ELF WHETHER THE EXPENDITURE ITSELF IS GENUINE OR NOT AND IF IT IS GENUINE THEN FOR THE PU RPOSE OF FINDING OUT THE PORTION OF DISALLOWANCE HE SHALL HAVE TO FIND OUT THE FAIR MAR KET VALUE OF THE SERVICES AND THIS WOULD PRESUPPOSE THAT SERVICES ARE COMMONLY AVAILABLE FOR WHICH MARKET VALUE CAN BE KNOWN. THEREAFTER THE AO SHALL HAVE TO EVALUATE THE LEGITI MATE NEEDS OF THE BUSINESS AT A POINT OF TIME WHEN THE SERVICES WERE RENDERED AND THIS WOULD INVOLVE AN INQUIRY AS A BUSINESS MAN BECAUSE IN TIMES OF DIRE NEED SERVICES ARE OBTA INED EVEN AT HIGHER COST, THE ULTIMATE AIM BEING TO EARN PROFIT OR TO MAINTAIN THE BUSINES S RELATIONS. ACCORDING TO THE ITAT THE AO SHALL HAVE TO FIND OUT WHAT BENEFIT IS DERIVED B Y THE ASSESSEE AND THIS WOULD NOT NECESSARILY CONFINE TO THE YEAR IN QUESTION BUT SHA LL HAVE TO TAKE OVERALL PICTURE DEPENDING UPON THE FACTS OF EACH CASE. EVEN THE BEN EFIT ACCRUING TO THE ASSESSEE SHALL HAVE TO BE EVALUATED. THIS AGAIN MAY NOT BE CONFINE D TO THE PERIOD OF ACCOUNTING YEAR ONLY AND AGAIN IT WOULD NOT BE ESSENTIAL THAT BENEF IT MUST BE IN THE REVENUE FIELD. THEREAFTER ACCORDING TO THE ITAT THE AO SHALL HAVE TO GIVE REASONABLE OPPORTUNITY TO THE ASSESSEE TO REBUT HIS FINDING. IF COMPARABLE INSTAN CES OF OTHER PARTIES ARE NOT AVAILABLE AT LEAST COMPARE WITH EARLIER YEAR. SIMPLY ADHOC DISAL LOWANCE CANNOT BE STAND THE TEST OF APPEAL. 9. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 10. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE LD. CIT(A) A ND SUPPORTED THE ORDER OF LD. CIT(A). ITA NO 721/ AHD/2009 . A.Y. 2005-0 6 7 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT WHILE DELETING THE ADDITION, LD. CIT(A) H AS INTERALIA GIVEN FINDING THAT THE NET RATE CHARGED FROM KAMALA ASSOCIATES WA S DETERMINED AFTER TAKING INTO CONSIDERATION ALL THE ASPECTS OF COMMER CIAL EXPEDIENCY, THE RATE DIFFERENCE GIVEN BY ASSESSEE WERE IN THE NATURE OF DISCOUNTS WHICH WERE REDUCED FROM RECEIPTS AND THE NET RECEIPTS WERE CRE DITED TO PROFIT AND LOSS ACCOUNT AND THAT PROVISIONS OF SECTION 40(A(2) ARE APPLICABLE ONLY IN CASE OF EXPENDITURE. WE FURTHER FIND THAT LD. CIT(A) BY A W ELL REASONED AND DETAILED ORDER HAS DELETED THE MADE BY A.O . BEFORE US REVEN UE HAS NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THIS GROUND OF REVENUE IS DISMISSED. GROUND NO. 3 IS WITH RESPECT TO DELETION ON ACCOUNT OF SUPPRESSION OF JOB CHARGES RECEIVED FROM SISTER CONCERN. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE COMPARATIVE CHART OF RATE PER METER OF PROCESSING C HARGES, AO NOTICED THAT ASSESSEE HAS CHARGE LOWER PROCESSING CHARGES TO ITS GROUP COMPANIES AS COMPARED TO THE AMOUNT CHARGED TO OUTSIDE PARTIES F OR THE DYEING AND PRINTING JOB. HE NOTICED THAT ASSESSEE HAS CHARGED AVERAGE RATE OF RS. 10.55 PER METER TO OUTSIDE PARTIES FOR DYEING AND RS. 15. 07 FOR PRINTING AS AGAINST THE AVERAGE RATE OF RS. 6.70 PER METER DYEING CHARG ES AND RS. 13.57 PER METER FOR PRINTING CHARGES TO KAMALA ASSOCIATES, IT S SISTER CONCERN. HE ALSO NOTICED THAT THE PRICE CHARGED TO KAMALA ASSOCIATES WAS LESSER THAN THAT CHARGED TO GARDEN SILK MILLS LTD., ITS ANOTHER SIST ER CONCERN. HE WAS THUS OF THE VIEW THAT ASSESSEE WAS FOLLOWING DIFFERENTIAL Y ARDSTICK IN CHARGING THE ITA NO 721/ AHD/2009 . A.Y. 2005-0 6 8 JOB CHARGES FOR SISTER CONCERN. HE THEREAFTER ON TH E BASIS OF THE AVERAGE RATE OF PRINTING CHARGES CHARGED TO GARDEN SILK MILLS, W ORKED OUT THE AVERAGE JOB CHARGES THAT ASSESSEE SHOULD HAVE CHARGED TO THE KA MALA ASSOCIATES AND ACCORDINGLY ESTIMATED THE SUPPRESSION OF RECEIPTS O N ACCOUNT OF DYEING CHARGES AT RS. 11,45,024/- AND ON ACCOUNT OF PRINT ING CHARGES AT RS. 80,30,582/- AND THUS MADE AN AGGREGATE ADDITION OF RS. 91,75,606/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE LD. CIT(A) WHO AFTER THE CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION MADE BY A.O BY HOLDING AS UNDER:- 9.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE AP PELLANT AND THE OBSERVATION OF THE A.O. THE MAIN ARGUMENT OF THE APPELLANT ARE THAT TH E ASSESSEE HAS CHARGED AVERAGE RS.10.55 PER METER FROM OUTSIDE PARTIES FOR DYEING ACTIVITY WHEREAS IT HAS CHARGED RS.6.70 PER METER ON AN AVERAGE FROM KAMLA ASSOCIAT ES AND RS.7.36 PER METER FROM GARDEN SILK MILLS LTD. FOR THE DYEING ACTIVITY. IN RESPECT OF PRINTING CHARGES, THE ASSESSEE HAS CHARGED RS.15.07 PER METER ON AN AVERAGE BUT IT HAS CHARGED RS.14.63 PER METER FROM GARDEN SILK MILS LTD. AND RS.13.57 PER METER F ROM KAMLA ASSOCIATES. THIS MEANS THAT THE ASSESSEE HAS CHARGED KAMLA ASSOCIATES LESS ER THAN EVEN OTHER SISTER CONCERNS, I.E. GARDEN SILK MILLS, LEAVE ALONE OUTSIDE PARTIES . THE A.O., THEREFORE, DETERMINED THE AVERAGE DYEING CHARGES FOR OUTSIDE PARTIES AND GARD EN SILK MILLS AND STATED THAT THIS COMES TO RS.10.51 PER METER. THE A.O. HOWEVER STATE D THAT EVEN IF THE RATE OF GARDEN SILK MILL IS APPLIED STILL THE RATE CHARGED FROM KAMLA A SSOCIATES IS RS.0.66 PER METER LESS AND, THEREFORE, THE SUPPRESSED RECEIPTS AMOUNTED TO RS.1 1,43,624/-(0.66 X 1732764). ACCORDING TO THE A.O., THIS SHOWS THE MINIMUM RECEI PTS WHICH THE ASSESSEE SHOULD HAVE RECEIVED. WITH RESPECT TO PRINTING CHARGES, THE A.O . STATED THAT THE AVERAGE OF OUTSIDE PARTIES AND GARDEN SILK MILLS COMES TO RS.15.04 PER METER BUT EVEN IF THE RATE OF GARDEN SILK MILLS IS ADOPTED STILL THE ASSESSEE HAS CHARGE D RS.1.06 PER METER LESS FROM KAMLA ASSOCIATES. IN VALUE TERMS THIS COMES TO RS.80,30,5 82 (1.06 X 7576021). THE A.O., THEREFORE, HELD THAT EVEN IN COMPARISON WITH GARDEN SILK MILLS, THE ASSESSEE HAS CHARGED RS.91,75,606/- LESS FROM KAMLA ASSOCIATES EVEN IN C OMPARISON WITH GARDEN SILK MILLS FOR BOTH DYEING ACTIVITY AS WELL AS PRINTING ACTIVITY. THE A.O. MADE THE ADDITION OF RS.91,75,606/- ON THIS ACCOUNT. THE APPELLANT HAS O N THE OTHER HAND STATED THAT THE ARGUMENT OF THE AO IS BASED ON AVERAGES AND NOT ON SPECIFIC JOBS. THE JOBS DONE FOR GARDEN SILK MILLS (GSM) AND KAMALA ASSOCIATES (KA) ARE COMPARABLE IN SOME INSTANCES BUT THE JOBS DONE FOR OUTSIDE PARTIES ARE NOT AT AL L COMPARABLE WITH EITHER GSM OR KA. THE APPELLANT HAD FILED DETAILED QUALITATIVE CHART WITH THE AO AND THE SAME HAS BEEN GIVEN DURING THE APPELLATE PROCEEDINGS. THE ARGUMEN T OF THE APPELLANT AS REPRODUCED ABOVE IS ACCEPTABLE THAT FOR SO MANY REASONS THE RA TE CHARGED WOULD DIFFER FROM JOB TO JOB. THE APPELLANT HAS SHOWN THAT THE RATES ARE NOT COMPARABLE AND HENCE AVERAGING CANNOT GIVE THE CORRECT RESULT. WHEN THERE ARE HUND REDS OF QUALITIES COMPARING THEIR RATE WOULD BE SIMILAR TO AVERAGING THE RATE OF TVS IN A SHOW ROOM SELLING BLACK AND WHITE TV. ITA NO 721/ AHD/2009 . A.Y. 2005-0 6 9 ALONG WITH COLOUR PICTURE TUBE TVS OF SIZES VARYING FROM 15 INCH TO 21 INCH TO 25 INCH AND ALSO SELLING LCD TVS OF ALL SIZES AS WELL AS PL ASMA TVS OF ALL SIZES. I AGREE WITH THE APPELLANT THAT SINCE IT HAS FULLY EXPLAINED THE FAL L IN G.P. RATE AS DISCUSSED ABOVE, SUCH AVERAGING DOES NOT HELP AND IN FACT IT GIVES ABSURD RESULTS AS SEEN FROM THE EXAMPLE OF TVS GIVEN ABOVE. UNDER SUCH CIRCUMSTANCES AND EVEN OTHERWISE THERE IS NO PROVISION IN THE I. T. ACT TO TAX INCOME WHICH HAS NOT ACCRUED. THIS IS NOT A CASE OF SEC40A(2)(B) AND THIS IS NOT A CASE WHERE INCOME IS ACCRUED BUT THE ASSESSEE IS CLAIMING THE SAME TO BE NON-TAXABLE. HENCE, THE NOTIONAL INCOME ADDED BY AO IS DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 13. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 14. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE LD. CIT(A) A ND SUPPORTED THE ORDER OF LD. CIT(A). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, WE FIND THAT A.O ON THE BASIS OF RATE CHARGED BY ASSESSEE TO OTHERS FOR DYEING AND PRINTING ACTIVITIES DONE B Y IT, HAD ESTIMATED THE DYEING AND PRINTING CHARGES THAT THE ASSESSEE SHOUL D HAVE EARNED FROM KAMALA ASSOCIATES, ITS SISTER CONCERN. WE FIND THA T LD. CIT(A) BY A WELL REASONED AND DETAILED ORDER HAS DELETED THE MADE BY A.O BY HOLDING THAT THERE WAS NO PROVISION IN THE ACT TO TAX INCOME WHI CH HAS NOT ACCRUED AND FURTHER IT WAS NOT A CASE OF SECTION 40A(2)(B). BEF ORE US REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO SUPPORT ITS CONTEN TIONS OR CONTROVERT THE FINDINGS OF LD. CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. ITA NO 721/ AHD/2009 . A.Y. 2005-0 6 10 16. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 15 - 05 - 2015. SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD