Shri Deepak Rohatlal Chand, Ahmedabad V. The CIT-III, Ahmedabad

ITA 818/AHD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67937 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-11-2013
• Assessment Year: 2010-2011
• Appeal Filed On: 20-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D S KALYAN
• Keywords: Fair market value; Assessment record
• Section: 143(3); 263

Judgement Text

ITA NO 818/A HD/2013 . A.Y. 2010- 11 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI MUKUL KR. SHRAWAT, J.M. & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 818/AHD/2013 (ASSESSMENT YEAR:2010-11 DEEPAK ROHATLAL CHAND 47, ASHRAY ROW HOUSE, NEAR INDIRA BRIDGE, HANSOL, AHMEDABAD V/S CIT III, C-411, FOURTH FLOOR, PRATYAKSH KAR BHAVAN, AMBAVADI, AHMEDABAD- 380015. (APPELLANT) (RESPONDENT) PAN: ABGPC0537M APPELLANT BY : SHRI TEJ SHAH RESPONDENT BY : SHRI D. S. KALYAN, CIT DR ( )/ ORDER DATE OF HEARING : 18-11-2013 DATE OF PRONOUNCEMENT : 22 -11-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-III, AHMEDABAD DATED 25.02.2013 FOR A.Y. 2010-11. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER: 3. ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS O F TRADING OF SHARES. ASSESSEE FILED HIS RETURN OF INCOME ON 8.9.2011 FOR AY 2010-11 DECLARING TOTAL INCOME OF RS 3,99,26,604/-. THE CAS E WAS SELECTED FOR ITA NO 818/A HD/2013 . A.Y. 2010- 11 2 SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U /S 143(3) VIDE ORDER DATED 27.3.2012 AND THE INCOME WAS DETERMINED AT RS 4,00,05,370/-. 4. ON VERIFICATION OF THE ASSESSMENT RECORDS, CIT INTE RALIA OBSERVED THAT DURING THE YEAR ASSESSEE HAS CLAIMED PAYMENT OF RS 9 LACS AS ADVISORY FEES TO PERSON SPECIFIED U/S 40A(2)(B). HE FURTHER NOTICED THAT THERE WAS NO SUCH PAYMENT IN AY 2008-09 AND AY 2009-10. HE WA S THEREFORE OF THE VIEW THAT THE AO HAS NOT EXAMINED THE ISSUE AND THEREFORE THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF REVENUE. CIT THEREAFTER ISSUED SHOW CAUSE NOTICE ON 8.1.2013 IN RESPONSE TO WHICH THE ASSESSEE INTERALIA SUBMITTED THAT THE PAYMENT TO PE RSON SPECIFIED U/S 40A(2)(B) WAS MENTIONED IN THE TAX AUDIT REPORT SUB MITTED BEFORE THE AO AND THE SAME WAS GROUPED UNDER DIRECT EXPENDITURE A ND THE SAME HAS BEEN EXAMINED BY THE AO WHILE FRAMING ASSESSMENT U/ S 143(3) AFTER DUE APPLICATION OF MIND AND THEREFORE THE ORDER OF THE AO CANNOT BE CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF REVENUE. CIT DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND HELD THE AO HAD FAILED TO EXAMINE THE ISSUE OF PAYMENT OF ADVISORY FEE TO SPECIFIED PERSON AND THEREFORE THE ORDER OF THE AO PASSED U/S 143(3) WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND THE PROV ISIONS OF SECTION 263 BECOMES APPLICABLE. HE THEREAFTER SET ASIDE THE ASS ESSMENT ORDER TO THE FILE OF AO TO RE-EXAMINE THE ISSUE OF ALLOWABILITY AND REASONABILITY OF ADVISORY FEES BY HOLDING AS UNDER:- 3. THE SECOND ISSUE ON WHICH THE PROCEEDINGS U/S. 263 OF THE ACT WERE INITIATED WAS REGARDING THE FACT THAT, ON EXAMINATION OF PROFIT AND LOSS ACCOUN T, IT WAS NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 9,00,000/- ON ACCOUNT OF ADVISORY FEES PAID. NO SUCH CLAIM WAS MADE FOR THE A.Y.S 2008-09 & 2009-10.THE ASSESSEE HAD DEALT IN S HARE TRANSACTIONS WHICH WERE PURCHASED AND SOLD THROUGH THE BROKERS AND TO WHOM BROKERAGE WAS PAID AND HENCE THERE WAS NO NECESSITY TO PAY ADV ISORY FEES. THE ASSESSING OFFICER HAD NOT E XAMINED THIS ISSUE AND ALLOWED THE CLAIM, THUS RENDERING THE ASSESSMENT ORDER ERRONEOUS & PREJUDIC IAL TO THE INTEREST OF THE REVENUE. 3.1 THE ASSESSEE IN HIS SUBMISSION DATED 17/1/2013 HAS SUBMITTED AS UNDER:- ITA NO 818/A HD/2013 . A.Y. 2010- 11 3 VIDE MY SUBMISSION DATED 13/09/2011, I HAD PROVIDE D AUDIT REPORT U/S. 44AB OF THE INCOME TAX ACT, 1961. IN THE SAID REPORT, IN SCHEDULE B- PAYM ENT TO PERSONS SPECIFIED U/S. 40A(2)(B), AUDITOR HAS STATED PAYMENT OF ADVISORY FEES OF RS. 9,00,000 /0- (RS. 4,50,000/- EACH PAID TO SHAREWIN FINANCIAL SERVICES AND HONE DEEPAK CHAND). IN RESPONSE TO NOTICE OF A.O. DATED 14.02.2012, IN REPLY TO Q. 16, I HAD SUBMITTED VIDE MY SUBMISSION DATED 21.02.2012, COMPARATIVE STATEMENT OF INCOME AND EXPENDITURE PERTAINING TO F.YS 2009-10, 2008-09 AND 2007-08. IN THIS STATEMEN T ADVISORY FEES HAVE BEEN REPORTED UNDER THE GROUP DIRECT EXPENDITURE. IN MY SUBMISSION DATED 13/03/2012, I HAD SUBMITTED THAT MY SON LOOKS AFTER MY SHARE TRADING WORK AND FOR THAT HE IS PAID FEES. THIS SUBMISSION IS ALSO REPRODUCED IN THE ORDER U/S. 143(3) OF THE INCOME TAX ACT, 1961. 3.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE ASSESSEE WHICH STATES THAT HE HAD ACTUALLY PAID AN AMOUNT OF RS. 9,00,000/- AS ADVISORY FEES T O THE PERSONS SPECIFIED UNDER SECTION 40A(2)(B).HOWEVER, IT REMAINED TO BE ASCERTAINED TH AT AS TO WHAT ADVICE THE PERSONS MENTIONED IN THE AUDIT REPORT PROVIDED TO THE ASSESSEE, WHICH LE AD TO A HUGE PAYMENT TO THE TUNE OF RS. 9,00,000/- DURING THE A.Y. 2010-11. FURTHER, THE Q UALIFICATION AND AUTHENTICITY OF THE PERSONS TO WHOM THISFEES WERE PAID NEEDED TO BE VERIFIED. 3.3 THE ASSESSING OFFICER FAILED TO EXAMINE THIS IS SUE AND CONSEQUENTLY ALLOWED THE EXPENSES, AS CLAIMED, THEREFORE, THE ASSESSMENT ORDER IS ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST O F REVENUE REGARDING THE ALLOWABILITY OF ADVISORY FEES . THE ASSESSMENT ORDER IS THEREFORE, SET-ASIDE TO THE FILE OF THE ASSESSING OFFICER TO RE-EXAMINE THE ISSUE OF ALLOWABILITY & REASONABILITY OF ADVISORY FEES. 5. AGGRIEVED BY THE ORDER OF THE CIT, THE ASSESSEE IS NOW IN APPEAL BEFORE US. 6. BEFORE US THE LD.A.R, SUBMITTED THAT IN THE PRESENT CASE THE PREREQUISITE CONDITIONS SPECIFIED U/S 263 ARE NOT SATISIFIED. HE SUBMITTED THAT THE AO HAD PASSED THE ORDER AFTER CONSIDERING THE TAX AUDI T REPORT WHEREIN THE PAYMENT MADE TO PERSON SPECIFIED U/S 40A(2)(B) WAS CLEARLY MENTIONED. HE FURTHER SUBMITTED THAT THE NECESSARY DETAILS OF DIRECT EXPENSES INCURRED BY THE ASSESSEE WERE SUBMITTED BEFORE AO AND AO AFTER APPLICATION OF MIND PASSED THE ORDER. HE FURTHER SU BMITTED THAT CIT IN HIS ORDER HAS NOT POINTED OUT AS TO HOW THE ORDER OF AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND FURT HER HE CANNOT DIRECT THE AO TO EXAMINE THE ISSUE. HE ALSO PLACED RELIANCE ON THE DECISIONS IN THE CASE OF CIT VS GABRIAL INDIA LTD (1993) 203 ITR 108 (BOM), ITO VS D.G.HOUSING PROJECTS LTD (2012) 343 ITR 329 (DEL), SPECTRA SHARES & ITA NO 818/A HD/2013 . A.Y. 2010- 11 4 SCRIPS (P) LTD (2013) 36 TAXMANN.COM 348 (AP) AND C IT VS AMIT CORPN. (2012) 21 TAXMANN.COM 64 (GUJ). HE THUS URGE D THAT THE ORDER PASSED BY CIT NEEDS TO BE QUASHED. 7. ON THE OTHER HAND THE LD.D.R. SUBMITTED THAT FOR DI SALLOWANCE U/S 40A(2) FOR PAYMENT BENG EXCESSIVE OR UNREASONABLE CAN ONLY BE MADE WHEN THE PAYMENT IS MADE TO THE 'SPECIFIED PERSONS' U/S 40A( 2)(B) AND THE AO IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE O R UNREASONABLE HAVING REGARD TO THE FAIR MARKET PRICE OF THE GOODS, SERVI CES OF FACILITIES FOR WHICH THE PAYMENT IS MADE. THE OPINION OF THE AO FO R EXPENDITURE BEING EXCESSIVE OR UNREASONABLE IS TO BE FORMED VIS A VIS FAIR MARKET VALUE OF SUCH GOODS, SERVICES OR FACILITIES. THERE HAS TO BE A FINDING OF THE AO. IN THE PRESENT CASE THERE IS NOTHING ON RECORD TO DEMO NSTRATE THAT THE ISSUE OF DISALLOWANCE OF 40A(2)(B) WAS EXAMINED BY THE AO EITHER IN THE ASSESSMENT ORDER OR IN THE QUESTIONNAIRE ISSUED BY AO. THUS THE ISSUE HAS NOT AT ALL BEEN EXAMINED BY THE AO. HE FURTHER SUBM ITTED THAT IN THIS CASE THERE WAS NO INQUIRY BY THE AO AND THEREFORE THE CA SE LAWS RELIED UPON BY THE A.R. ARE DISTINGUISHABLE AS IN ALL THE CASES WHEREIN ASSESSEE HAS PLACED RELIANCE INQUIRY WAS MADE BY THE AO. HE ALSO PLACED RELIANCE IN THE DECISIONS IN THE CASE OF MALABAR INDUSTRIAL CO . LTD VS CIT (2000) 243 ITR 83, SWARUP VEGETABLE PRODUCTS VS CIT (1991) AND OTHER CASES. HE THEREFORE SUBMITTED THAT BY OVERLOOKING THE PROV ISION U/S 40A(2)(B), BOTH THE CONDITIONS NECESSARY FOR INVOKING BY THE P ROVISIONS OF S. 263 WERE SATISFIED AND THEREFORE THE ORDER OF CIT SHOUL D BE UPHELD. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAD MADE THE PAYMENT OF RS 9 ITA NO 818/A HD/2013 . A.Y. 2010- 11 5 LACS AS ADVISORY FEE TO HIS SON WHO IS A SPECIFIED PERSON AS PER THE PROVISIONS OF S. 40A(2)(B). IT IS ALSO A FACT THAT THERE WAS NO SUCH PAYMENT IN AY 2008-09 AND AY 2009-10. IT IS ALSO A FACT THAT NO SPECIFIC INQUIRY WAS MADE BY THE AO WITH RESPECT TO THE PAYM ENTS MADE TO THE SPECIFIED PERSONS AND THEREFORE THE ASSESSEE HAD NO OCCASION TO JUSTIFY THE PAYMENT OF ADVISORY FEES IN RELATION TO THE MAR KET PRICE. BEFORE US ALSO NOTHING HAS BEEN BROUGHT ON RECORD TO DEMONSTR ATE THAT ANY SPECIFIC QUERY OR INQUIRY WAS MADE BY THE AO WITH RESPECT TO THE PAYMENT OF ADVISORY FEES AND THE SAME HAS BEEN EXAMINED BY THE AO WITH RESPECT TO ALLOWANCE U/S 40A(2)(B). THUS IN THE PRESENT CASE I T CAN BE SAID THAT THERE WAS LACK OF INQUIRY ON THE PART OF A.O. IN THE CA SE OF LACK OF INQUIRY, CIT IS EMPOWERED TO PASS ORDER U/S 263 FOR WHICH WE FIND SUPPORT BY THE DECISION IN THE CASE OF CIT VS. JAWAHAR BHATTACHARJ EE (2012) 341 ITR 434 (GAUHATI)(FB) WHERE THE HONOURABLE HIGH COURT H AS HELD THAT NOT HOLDING SUCH ENQUIRY AS IS NORMAL AND NOT APPLYING MIND TO RELEVANT MATERIAL WOULD CERTAINLY MAKE THE ASSESSMENT ERRON EOUS WARRANTING EXERCISE OF REVISIONAL JURISDICTION. 9. IN THE CASE OF MALABAR INDUSTRIAL CO. VS CIT (SUPRA ) THE H'BLE APEX COURT HAS HELD THAT CIT HAS TO BE SATISFIED OF TWIN CONDI TIONS, NAMELY (I) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. AN INCORRECT ASSUM PTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUI REMENT OF THE ORDER BEING ERRONEOUS. 10. IN THE PRESENT CASE WE ARE OF THE VIEW THAT CIT WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263. WE FURTHER FIND THAT CIT HAS NOT PASSED ANY ITA NO 818/A HD/2013 . A.Y. 2010- 11 6 FINAL ORDER. HE HAS SET ASIDE THE ORDER TO THE FILE OF AO WITH REFERENCE TO THE CLAIM OF ADVISORY FEES OF RS 9 LACS AND DIRECTE D THE AO TO RE-EXAMINE THE ISSUE OF ALLOWABLY AND REASONABILITY OF ADVISOR Y FEES AND TO RECOMPUTE THE INCOME. CIT HAS NOT EXPRESSED ANY FIN AL OPINION ON THE ISSUE. FURTHER THE DECISIONS RELIED BY LD. A.R. AR E DISTINGUISHABLE ON FACTS. IN VIEW OF THE AFORESAID FACTS WE ARE OF THE VIEW THAT THE ORDER OF CIT DOES NOT SUFFER FROM ANY ILLEGALITY AND THEREFO RE THE GROUND OF THE ASSESSEE IS DISMISSED. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 22 - 11 - 2013. SD/- SD/- (MUKUL KR. SHRAWAT) (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,A HMEDABAD