DY CIT 16(3), MUMBAI V. MEHTA BROTHERS EXPORTS, MUMBAI

ITA 796/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54932 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 01-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 24-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: ARVIND SONDE
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Onus to prove
• Section: 92A; 92E; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI J.SUDHAKAR R EDDY (A.M) ITA NO.796/MUM/07(A.Y.2003-04) THE DCIT 16(3), MATRU MANDIR, TARDEO ROAD, MUMBAI 400 007. (APPELLANT) VS. M/S. MEHTA BROTHERS EXPORTS, 425, PARIKH MARKET, OPERA HOUSE, MUMBAI 400 004. PAN: AAAFM 2744B (RESPONDENT) APPELLANT BY : SHRI JITENDRA YADAV RESPONDENT BY : SHRI ARVIND SONDE ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 24/11/2006 OF CIT(A) 17 MUMBAI RELATING TO ASSESSMENT YEAR 200 3-04. THE GROUND OF APPEAL RAISED BY THE REVENUE READS AS FOLLOWS: THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON F ACT THAT THE ASSESSEE HAS ITSELF ADMITTED IN STATUTORY REPORT U/ S. 44AB OF THE I.T.ACT IN FORM NO.3CD THAT THE TRANSACTION WITH M/ S.POLYDIAM NV IS COVERED U/S. 40A(2)(B) OF THE I.T. ACT. THE ASSESS ING OFFICER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS HAS PROVED THA T THE PURCHASES WERE MADE AT THE HIGHER PRICE THAN FROM THE OTHER PARTIES AND THAT THE ASSESSEE WAS NOT ABLE TO PROVE THAT IT HAS ADOP TED ANY METHOD FOR COMPUTING THE ARMS LENGTH PRICE WHICH IS PRESCRIBED IN SECTION 92(1) OF THE I.T. ACT. 2. THE ASSESSEE IS A PARTNERSHIP FIRM. IT IS ENGAG ED IN THE BUSINESS OF MANUFACTURING AND TRADING IN DIAMONDS AND PRECIOUS STONES. THE ASSESSEE HAD PURCHASED ROUGH DIAMONDS FROM M/S. POLYDIAM NV BELGIUM, AN ENTITY REGISTERED IN BELGIUM AND PAID A SUM OF RS.8,51,41, 549/-. IN TERMS OF SECTION 92 OF THE INCOME TAX ACT, 1961 (THE ACT) TH E AFORESAID TRANSACTION OF ITA NO.796/MUM/07(A.Y.2003-04) 2 PURCHASE BY THE ASSESSEE WOULD BE INTERNATIONAL TRA NSACTION. ACCORDING TO THE AO M/S. POLYDIAM NV BELGIUM, WAS AN ASSOCIATE D ENTERPRISE OF THE ASSESSE, SINCE THE SAID ENTITY WAS OWNED BY MR. SAI LESH MEHTA, WHO HAPPENS TO BE THE BROTHER OF THE PARTNERS OF THE ASSESSEE. ACCORDING TO THE AO THE ASSESSEE HAS AN INDIRECT CONTROL ON M/S. POLYDIAM N V BELGIUM, AND, THEREFORE, IN TERMS OF SECTION 92A OF THE ACT, THE LATER WOULD BE CONSIDERED AS AN ASSOCIATED ENTERPRISE OF THE ASSESSEE. IN TERMS OF SECTION 92 OF THE ACT THE ARMS LENGTH PRICE(ALP) OF THE TRANSACTION OF PU RCHASE OF ROUGH DIAMONDS BY THE ASSESSEE FROM M/S. POLYDIAM NV BELG IUM, HAD TO BE DETERMINED. IN TERMS OF SECTION 92E OF THE ACT, EV ERY ASSESSEE WHO HAS ENTERED INTO INTERNATIONAL TRANSACTION DURING THE P REVIOUS YEAR HAS TO FURNISH A REPORT TO THE CHARTERED ACCOUNTANT ALONG WITH RETURN OF INCOME SETTING FORTH SUCH PARTICULARS AS ARE PRESCRIBED. 3. THE ASSESSEE IN THE PRESENT CASE DID NOT FILE AN Y REPORT AS IS REQUIRED UNDER SECTION 92E OF THE ACT. THE AO CALLED UPON T HE ASSESSEE AS TO WHY A REFERENCE UNDER SECTION 92CA OF THE ACT SHOULD NOT BE MADE TO TRANSFER PRICING OFFICER(TPO) TO DETERMINE THE ALP OF THE IN TERNATIONAL TRANSACTION. IN REPLY THE ASSESSEE SUBMITTED THAT M/S. POLYDIAM NV BELGIUM, IS NOT AN ASSOCIATE ENTERPRISE. FURTHER THE ASSESSEE POINTED OUT THAT AS EARLY AS 1/12/2003 IT HAD FILED THE REPORT TO A CHARTERED AC COUNTANT AS REQUIRED UNDER SECTION 92E OF THE ACT. IN TERMS OF INCOME T AX RULES, 1962 THE ASSESSEE WAS ALSO OBLIGED TO PRODUCE CERTAIN DOCUME NTS. ACCORDING TO THE AO THE ASSESSEE DID NOT FILE ANY SUCH DOCUMENTS. 4. THE AO CALLED UPON THE ASSESSEE TO JUSTIFY THE P RICE OF THE INTERNATIONAL TRANSACTION. THE ASSESSEE SUBMITTED THAT IT WAS NOT POSSIBLE TO ADOPT ANY APPROPRIATE METHOD OF COMPUTATION OF ALP FOR DIAMONDS. THE AO THEREAFTER WAS OF THE VIEW THAT THE ASSESSEE WAS NO T FURNISHING THE DETAILS. THEREAFTER THE AO PROCEEDED TO MAKE AN ADDITION BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT AS FOLLOWS: ITA NO.796/MUM/07(A.Y.2003-04) 3 IT IS SEEN THAT THE ASSESSEE HAS SHOWN THE SAME T RANSACTION WITH M/S. POLYDIAM NV IN FORM NO.3CD AS TRANSACTION COVE RED U/S. 40A(2)(B). HENCE, I HAVE NO OPTION BUT TO FIND OUT THAT WHETHER PAYMENT MADE TO POLYDIAM NV COVERED U/S. 40A(2)(B) IS AT PAR WITH PAYMENT MADE TO OTHER THIRD UNRELATED PARTY. FOR T HIS, AVERAGE METHOD IS ADOPTED WITH REGARD TO THE PURCHASE OF RO UGH DIAMOND. THE ASSESSEE HAS SUBMITTED THE COMPARATIVE PRICE OF PURCHASE AND SALE FROM M/S. POLYDIAM NV, BELGIUM ON 27/03/2006. ON THE BASIS OF THE DATA SUBMITTED BY THE ASSESSEE, THE ASSESSEE HA S PURCHASED ROUGH DIAMOND OF 3128.54 CARATS AT RS.2,64,98,159/-. THE REFORE, THE AVERAGE RATE OF PURCHASES IS RS.8469.81. WHEREAS ON THE BASIS OF THE DATA SUBMITTED BY THE ASSESSEE, THE ASSESSEE HAS PU RCHASED ROUGH DIAMOND FROM OTHER PARTIES OF 5218.57 CARATS AT RS. 2,92,15,296/-. THE AVERAGE RATE IS THUS RS.5598.30. THUS THE EXCE SSIVE PAYMENT MADE TO M/S.POLYDIAM NV IS RS. 2871.48 PER CARAT. HENCE THE TOTAL EXCESSIVE PAYMENT OF M/S. POLYDIAM NV IS RS. 89,83, 540/-. TOTAL PURCHASE FROM M/S.POLYDIAM NV TOTAL PURCHASES FROM OTHER PARTIES. ROUGH DIAMONDS AMOUNT(RS) RATE PER CARAT ROUGH DIAMONDS AMOUNT (RS.) RATE PER CARAT 3128.54CT. 2,64,98,139 8469.81 5218.57 2,92,15,926 5598.33 FROM THE ABOVE FACTS, IT IS SEEN THAT THE EXCESSIVE PAYMENT IS MADE TO M/S. POLYDIAM NV. THEREFORE, ADDITION U/S. 40A(2)( B) IS THUS MADE ON ACCOUNT OF ROUGH PURCHASES OF RS.89,83,540/- FROM M /S.POLY DIAM NV. 5. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO PROVE THAT THE QUALITY OF THE GOODS PURCHASED BY THE ASSESSEE FROM M/S. POLYDIAM NV AND THAT PURCHASED F ROM OTHER PARTIES WERE ONE AND THE SAME. IN THIS REGARD, THE ASSESSE E SUBMITTED THAT THERE WERE 3500 DIFFERENT VARIETIES OF ROUGH DIAMONDS AND CUT AND POLISHED DIAMONDS AND THE COST OF THE ROUGH DIAMONDS VARY DE PENDING ON THE POSSIBLE OUT-TURN QUALITY, COLOUR, SIZE AND SO MANY OTHER FACTORS. IT WAS SUBMITTED THAT THE AO DID NOT MAKE ANY ATTEMPT TO P ROVE THAT GOODS PURCHASED FROM BOTH ARE OF THE SAME VARIETY. THE A SSESSEE POINTED OUT THAT THE REALIZATIONS OUT OF THE ROUGH DIAMONDS PURCHASE D FROM M/S. POLYDIAM AND FROM OTHERS WERE ALSO NOT CONSIDERED BY THE AO. THE ASSESSEE ALSO POINTED OUT THAT UNDER ALMOST SIMILAR CIRCUMSTANCES FOR A.Y 2002-03 THE ITA NO.796/MUM/07(A.Y.2003-04) 4 TRANSFER PRICING OFFICER HAD NOT RECOMMENDED ANY AD JUSTMENT TO BE MADE THOUGH THE TRANSACTIONS WERE ALMOST SIMILAR IN THE EARLIER ASSESSMENT YEAR I.E. 02-03. THE ASSESSSEE POINTED OUT THAT THE TOT AL REALIZATIONS OUT OF THE ROUGH DIAMONDS PURCHASED OF 3128.54 CARATS FROM M/S . POLYDIAM WAS RS. 2,73,35,802/- AND THIS ROUGHLY WORKS OUT TO RS.8,73 7.56 PER CARAT WHEREAS THE TOTAL REALIZATION FROM THE ROUGH DIAMONDS PURCH ASED FROM OTHER PARTIES WORKS OUT TO RS. 2,95,92,804/- WHICH WORKS OUT TO R S. 5670.673 PER CARAT OF ROUGH DIAMONDS PURCHASED. THE ASSESSEE FURNISHED T HE FOLLOWING TABLE: TOTAL REALIZATIONS FROM M/S.POLYDIAM NV TOTAL REALI ZATION FROM OTHER PARTIES. ROUGH DIAMONDS AMOUNT REALIZED OUT OF PURCHASE OF ROUGH DIAMONDS (RS.) REALIZATION PER CARAT ROUGH DIAMONDS AMOUNT REALIZED OUT OF PURCHASE OF ROUGH DIAMONDS(RS.) REALIZATION PER CARAT 3128.54CT. 27,335,802 8737.56 5218.57 29,592,804 5, 670.67 COST PER CARAT 8,469.81 COST PER CARAT 5,598.33 6. THE ASSESSEE ARGUED THAT THE REALIZATIONS AS ABO VE WOULD CLEARLY SHOW THAT THE PURCHASES FROM M/S.POLYDIAM NV AND THE PUR CHASES FROM OTHERS WERE UNCOMPARABLES AND THE HIGHER VALUE ITEMS PURCH ASED FROM M/S. POLYDIAM NV HAVE YIELDED HIGHER REVENUE WHEREIN THE LOWER VALUE ITEMS PURCHASED FROM OTHER PARTIES AT LOWER RATES HAVE AL SO YIELDED LOWER REVENUE. IT WAS THUS ARGUED THAT THERE WAS NO CASE FOR MAKIN G ARBITRARY ADDITION U/S. 40A(2). IT WAS ALSO SUBMITTED THAT WHILE MAKING TH E IMPUGNED ADDITION, THE AO HAS NOT GIVEN ANY FINDING THAT REGARDING COMPARA BILITY AND MADE SIMPLE MATHEMATICAL CALCULATION AND THE CONCLUSION ARRIVED BASED ON THE MATHEMATICAL CALCULATIONS WITHOUT HAVING REGARD TO THE GROUND REALITIES OF THE BUSINESS CANNOT BE SUSTAINED MERELY FOR THE REA SON THAT THE ASSESSEE PAID HIGHER PRICE FOR A BETTER PRODUCT WHICH ALSO Y IELDED BETTER REVENUE WHEREIN THE LOWER QUALITY GOODS HAVE YIELDED THE LO WER REVENUE. ITA NO.796/MUM/07(A.Y.2003-04) 5 6. THE CIT(A) AGREED WITH THE SUBMISSIONS OF THE AS SESSEE AND DELETED THE ADDITION MADE BY THE AO. AGGRIEVED BY THE ORDE R OF THE CIT(A), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. D. R SUBMITTED BEFORE US THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AS SESSEE DID NOT FILE ANY DETAILS TO JUSTIFY THE PAYMENT MADE BY IT TO THE AS SOCIATE CONCERN AS A PAYMENT WHICH IS NOT HIT BY THE PROVISIONS OF SECTI ON 40A(2)(B) OF THE ACT. IN THIS REGARD WE HAVE ALSO PERUSED THE RECORDS AND SE EN THAT ON 26/12/06 THE AO HAS SPECIFICALLY CALLED UPON THE ASSESSEE TO JUS TIFY THE PAYMENT MADE BY THE ASSESSEE IN PURCHASE OF ROUGH DIAMONDS FROM M/S . POLYDIAM NV BELGIUM, IN THE LIGHT OF PROVISIONS OF SECTION 40A( 2)(B) OF THE ACT. THE ASSESSEE ADMITTEDLY DID NOT COMPLY WITH THE DIRECTI ONS OF THE AO. ON THE OTHER HAND, THE ASSESSEE HAS FILED SOME DETAILS BEF ORE THE CIT(A). IN OUR VIEW THE CIT(A) WAS NOT JUSTIFIED IN CONSIDERING TH ESE DETAILS WITHOUT AFFORDING THE AO OPPORTUNITY OF BEING HEARD. FURTH ER THE EXPLANATION GIVEN BY THE ASSESSEE BEFORE THE CIT(A) ARE GENERAL EXPLA NATIONS. THE BASIS ON WHICH THE CIT(A) ARRIVED AT A CONCLUSION REGARDING COMPARABILITY OF THE PURCHASES BY THE ASSESSEE FROM M/S. POLYDIAM NV BEL GIUM AND OTHERS IN OUR VIEW IS GENERAL AND VAGUE. THE LD. D.R HAS ALS O DRAWN OUR ATTENTION TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. SHATRUNJAY DIAMONDS 261 ITR 258, WHEREIN IT HAS BEE N HELD THAT U/S.40A(2)(B) OF THE ACT, THE BURDEN OF PROOF IS ON THE ASSESSEE TO ESTABLISH THAT THE PAYMENT MADE BY IT TO THE RELATED PARTY IS NOT EXCESSIVE. IT WAS ALSO A CASE OF A DIAMOND MERCHANT, WHERE THE ISSUE AROSE UNDER IDENTICAL CIRCUMSTANCES AS THE CASE OF THE ASSESSEE BEFORE TH IS TRIBUNAL. 8. HAVING CONSIDERED HIS SUBMISSIONS, WE ARE OF TH E VIEW THAT THE ORDER OF THE CIT(A) SHOULD BE SET ASIDE AND THE ISSUE HAS T O BE RESTORED TO THE AO. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SHATRU NJAY DIAMOND(SUPRA) HAD TO CONSIDER DISALLOWANCE U/S.40A(2)(B) OF THE A CT ON THE FOLLOWING FACTS. ITA NO.796/MUM/07(A.Y.2003-04) 6 THE ASSESSEE WHO WAS IN DIAMOND BUSINESS AND PARAS GEMS FROM WHOM THE ASSESSEE HAS IMPORTED ROUGH DIAMONDS, WERE PER SONS WHO FELL WITHIN THE CATEGORY SPECIFIED UNDER SECTION 40A(2)(B). TH E QUESTION BEFORE THE COURT WAS REGARDING THE PRICE PAID BY THE ASSESSEE FOR SU CH PURCHASES. THE HONBLE COURT HELD THAT, IF THE EXPENSES INCURRED O N THE PURCHASE OF ROUGH DIAMONDS FROM PARAS GEMS IS FOUND BY THE ASSESSING OFFICER TO BE EXCESSIVE OR UNREASONABLE, THEN THE BURDEN IS ON THE ASSESSEE TO ESTABLISH THAT THE PRICE IS NOT EXCESSIVE AND THAT THERE IS NO OVER IN VOICING. THE ASSESSEE IN THE SAID CASE FURNISHED A SUMMARY CHART OF PURCHASES IN RESPECT OF ROUGH DIAMONDS SHOWING THE PRICE AT WHICH SUCH DIAMONDS H AVE BEEN PURCHASED FROM DIFFERENT PARTIES. THE ASSESSEE ALSO FURNISHED A GROUP- WISE SUMMARY OF THE CUT AND POLISHED DIAMONDS EXPORTED BY THE ASSES SEE. THE ASSESSEE HAD FURNISHED CERTIFICATES OF SEVERAL PARTIES, BUT NO E VIDENCE WAS LED IN THE MATTER TO PROVE THE VERACITY OF THOSE CERTIFICATES. SINCE CORRELATION BETWEEN IMPORTED ROUGH DIAMONDS AND EXPORTED POLISHED DIAMO NDS COULD NOT BE ESTABLISHED AND NO FURTHER ENQUIRY WAS POSSIBLE ON ACCOUNT OF THE ASSESSEE NOT MAINTAINING LOTWISE CHART SHOWING THE QUANTITY, QUALITY AND COST EITHER IN RESPECT OF PURCHASES OR SALES OF THE FINISHED PR O- DUCTS, THE ASSESSING OFFICER BROUGHT THE DIFFERENTIAL AMOUNT TO TAX. THE COMMISSIONER OF INCOME- TAX (APPEALS) AS WELL AS THE TRIBUNAL DELETED THE D ISALLOWANCE MERELY FOLLOWING THEIR EARLIER DECISIONS WITHOUT GOING INT O THE QUESTION AS TO WHETHER THE ASSESSEE HAD DISCHARGED ITS BURDEN TO ESTABLISH THAT THE PRICE PAID BY IT WAS NOT EXCESSIVE. THE HONBLE BOMBAY HIGH COURT O N APPEAL BY THE REVENUE HELD THAT ONCE THE IMPORTS ARE MADE BY THE ASSESSEE FROM THE PERSONS FALLING UNDER THE CATEGORY UNDER SECTION 40 A(2)(B), THE BURDEN IS UPON THE ASSESSEE TO ESTABLISH THAT THE PRICE PAID BY IT IS NOT EXCESSIVE OR UNREASONABLE. THE HONBLE COURT HELD THAT IN CASES FALLING UNDER SECTION 40A(2)(B) IT IS THE DUTY OF THE ASSESSEE TO PROVE A ND DISCHARGE ITS BURDEN BY LEADING PROPER EVIDENCE SUBJECT TO CROSS-EXAMINATIO N BY THE DEPARTMENT. THE HONBLE COURT FURTHER OBSERVED THAT CERTAIN TRA DE PRACTICES PREVALENT IN THE DIAMOND INDUSTRY ARE WITHIN THE KNOWLEDGE OF T HE ASSESSE AND THAT THE ITA NO.796/MUM/07(A.Y.2003-04) 7 PURPOSE BEHIND THE LEGISLATURE ENACTING SECTION 40A (2)(B) WAS TO PROVIDE FOR SHIFTING OF BURDEN ON THE ASSESSEE IN CASES WHERE THE TRANSACTIONS ARE NOT AT ARMS LENGTH. THE HONBLE COURT ALSO OBSERVED T HAT INTRICACIES OF THE TRANSACTIONS ARE REQUIRED TO BE EXPLAINED BY THE AS SESSEE. THE HONBLE COURT FINALLY GAVE THE FOLLOWING DIRECTIONS SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMANDED THE ISSUE TO THE AO FOR FR ESH CONSIDERATION: SINCE ALL THE AUTHORITIES BELOW HAVE NOT GONE INTO THIS ASPECT OF THE MATTER, WE THINK IT NECESSARY, IN THE INTEREST OF JUSTICE, TO SET ASIDE ALL THE ORDERS PASSED BY THE AUTHORITIES BELOW AND REM IT THE MATTER BACK TO THE ASSESSING OFFICER TO DECIDE AFRESH THE QUES TION OF DISALLOWANCE UNDER SECTION 40A(2)(B) OF THE INCOME-TAX ACT. IN THIS VIEW OF THE MATTER, WE DIRECT : (I) THE ASSESSEE TO FILE BEFOR E THE ASSESSING OFFICER WITHIN SIX WEEKS FROM TODAY, AN AFFIDAVIT MAKING S TATEMENT ON OATH AND ANNEXING ADDITIONAL DOCUMENTS/STATEMENTS TO EST ABLISH THAT THE PRICE PAID BY IT TO PARAS GEMS IS NOT EXCESSIVE OR UNREASONABLE ; (II) IF THE ASSESSING OFFICER IS NOT SATISFIED BY SUCH AFFI DAVIT AND DOCU- MENTS/STATEMENTS ADDUCED BY THE ASSESSEE, THE ASSES SING OFFICER WILL CALL UPON THE ASSESSEE TO LEAD ORAL EVIDENCE OF TH ESE WITNESSES TO ESTABLISH ITS CASE. IT WILL BE OPEN TO THE ASSESSI NG OFFICER TO CROSS- EXAMINE SUCH WITNESSES, IF HE DEEMS FIT ; (III) S IMILARLY, IF THE ASSESSING OFFICER WANTS TO RELY ON ANY DOCUMENTS, HE SHALL FURNISH COPIES THEREOF TO THE ASSESSEE AND PERMIT THE ASSES SEE TO CROSS EXAMINE THE AUTHOR OF THAT DOCUMENT, IF THE ASSESSE E SO DESIRES ; (IV) ON CONCLUSION OF RECORDING THE EVIDENCE, THE ASSESS ING OFFICER SHALL FURNISH COPIES OF THE EVIDENCE TO THE ASSESSEE AND THEREAFTER HEAR THE MATTER ON MERITS IN ACCORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE AND PASS APPROPRIATE ASSESSMENT ORDER ON MERITS, IN SO FAR AS IT PERTAINS TO MAKING DIS- ALLOWANCE UNDER SECTION 40A (2)(B) OF THE INCOME-TAX ACT. WE, ACCORDINGLY, SET ASIDE THE ORD ER OF THE TRIBUNAL AS WELL AS THE ORDER PASSED BY THE COMMISSIONER OF IN COME-TAX (APPEALS) AND THE ORIGINAL ASSESS- MENT ORDER AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO PASS APP ROPRIATE ASSESSMENT ORDER PERTAINING TO DISALLOWANCE UNDER SECTION 40A (2)(B) OF THE INCOME-TAX ACT, IN ACCORDANCE WITH LAW BY FOLLOWIN G THE GUIDELINES SET OUT HEREINABOVE. THE APPEAL IS DISPOSED OF IN THE ABOVE TERMS, WITH NO ORDER AS TO COSTS. 9. WE ARE OF THE VIEW THAT THE AFORESAID DECISION OF THE HONBLE BOMBAY HIGH COURT WILL SQUARELY APPLY TO THE FACTS OF THE CASE BEFORE US. WE THEREFORE DEEM IT FIT AND PROPER TO SET ASIDE THE ORDER OF TH E CIT(A) AND REMAND THE ITA NO.796/MUM/07(A.Y.2003-04) 8 ISSUE UNDER CONSIDERATION TO THE AO FOR FRESH CONSI DERATION. THE ASSESSEE WILL COMPLY WITH HIS BURDEN AS LAID DOWN BY THE HON BLE BOMBAY HIGH COURT IN THE AFORESAID JUDGMENT. THE AO WILL ALSO EXAMI NE THE ISSUE IN THE LIGHT OF THE TERMS GIVEN BY THE HONBLE BOMBAY HIGH COURT IN THE DECISION REFERRED TO ABOVE. FOR STATISTICAL PURPOSES THE APPEAL OF T HE REVENUE IS TREATED AS ALLOWED. WE ALSO MAKE IT CLEAR THAT WE HAVE NOT GO NE INTO THE APPLICABILITY OF SEC.92 OF THE ACT AS THERE ARE NO CONCLUSIVE FINDIN GS BY THE AO AS WELL AS CIT(A) ON THIS ISSUE AND THE ADDITION HAS BEEN MADE BY THE AO PURELY BASED ON THE APPLICABILITY OF SEC.40A(2)(B) OF THE ACT. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12 TH DAY OF AUGUST, 2011. SD/- SD/- (J.SUDHAKAR REDDY ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 12 TH AUGUST.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RL BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.796/MUM/07(A.Y.2003-04) 9 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 3/8/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 4/8/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER