The ACIT, Circle-4, Ahmedabad V. Gujarat Gas Financial Services Limited, Ahmedabad

ITA 91/AHD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6984 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 02-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: S N SOPARKAR
• Keywords: Maximum Marginal Rate; Rule of consistency; Wholly owned subsidiary; Fair market value; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD 0 0 , 0 0 , BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI N.S. SAINI , ACCOUN TANT ITA N O . AY / APPELLANT / RESPONDENT 556/AHD/2010 2006 - 07 GUJARAT GAS FINANCIAL SERVICES LIMITED, 2, SHANTISADAN SOCIETY, NR. PARIMAL GARDEN, ELLISBRIDGE, AHMEDABAD PAN : AAACG 5584 E ACIT, CIRCLE - 4, AHMEDABAD 656/AHD/2010 200 6 - 0 7 REVENUE ASSESSEE 91/AHD/2012 2007 - 08 REVENUE ASSESSEE 92/AHD/2012 200 8 - 0 9 REVENUE ASSESSEE 156 1 /AHD/2012 2009 - 10 REVENUE ASSESSEE ASSESSEE(S) BY : SHRI S.N. SOPARKAR , AR REVENUE BY : SMT. SONIA KUMAR, SR. DR. / DAT E OF HEARING : 02 / 12 /2014 / DATE OF PRONOUNCEMENT: 05 / 12 /2014 / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: ITA NOS. 556 & 656/AHD/2010 ARE THE CROSS - APPEALS FILED BY THE ASSESSEE AND REVENUE RESPECTIVELY AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) - VIII, AHMEDABAD DATED 15.10.2009 IN ASSESSMENT YEARS 2006 - 07. ITA NO.91/AHD/2012 IS THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) - VIII, AHMEDABAD DATED 20.10.2011 IN ASSESSMENT YEAR 2007 - 08, ITA NO.92/AHD/2012 IS ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 2 - THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) - VIII, AHMEDABAD DATED 20.10.2011 IN ASSESSMENT YEAR 2008 - 09 AND ITA NO.156/AHD/2012 IS THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) - VIII, AHMEDABAD DATED 26.04.2012 IN ASSESSMENT YEAR 2009 - 10. 2. IN ALL THE APPEALS FILED BY THE REVENUE, THE COMMON ISSUE INVOLVED IS THAT THE CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.4,62,89,335/ - IN THE ASSESSMENT YEAR 2006 - 07, RS. 5,87,27,940/ - IN THE ASSESSMENT YEAR 2007 - 08, RS.7,70,18,875/ - IN THE ASSESSMENT YEAR 2008 - 09 AND RS.6,65,41,730/ - IN THE ASSESSMENT YEAR 2009 - 10 ON ACCOUNT OF CLAIM FOR EXPENDITURE ON PAYMENT OF SERVICE CHARGES U/S 40A(2)(B) OF THE ACT WITHOUT APPRECIATING THE FACTS THAT THE ASSESSING OFFICER HAD ESTABLISHED THE CHARGING OF EXPENSES ON THE BASIS OF NUMBER OF CONNECTIONS GIVEN DURING THE MONTH FOR CHARGING USE OF OFFI CE INFRASTRUCTURE WAS ILLOGICAL AND WITHOUT ANY BASIS. 3. AT THE OUTSET, THE DEPARTMENTAL R EPRESENTATIVE SUBMITTED THAT AS THE FACTS AND ISSUES INVOLVED IN ALL THE YEARS UNDER CONSIDERATION ARE THE SAME, SHE IS ARGUING THE APPEAL FOR ASSESSMENT YEAR 2006 - 07 AND THE ARGUMENTS MADE FOR THIS YEAR ARE ALSO BE TAKEN AS THE ARGUMENTS FOR THE OTHER ASSESSMENT YEARS UNDER APPEAL. 4. THE DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD PAID A SUM OF RS.5,82,89,000/ - AS SERVICES CHARGES TO GUJ ARAT GAS COMPANY LIMITED (GGCL), A PERSON SPECIFIED U/S 40A(2)(B) OF THE ACT. IN RESPONSE TO THE SHOW - CAUSE NOTICE, THE ASSESSEE EXPLAINED THAT IT HAD PAID SERVICES CHARGES TO GGCL @ ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 3 - RS.3205/ - PER CONNECTION FOR SERVICES AND INFRASTRUCTURE OF THE COMPANY USED BY IT FOR GAS CONNECTIONS. DURING THE ASSESSMENT YEAR 2006 - 07, 18,187 CONNECTIONS WERE GIVEN ON WHICH PAYMENT @ 3205/ - PER CONNECTION, TOTALING TO RS.5,82,89,335/ - WAS MADE. IT WAS FURTHER SUBMITTED THAT THE OVERHEADS OF THE COMPANY WERE FOR A VERY MEAGER AMOUNT. THE ACTIVITIES OF THE ASSESSEE REQUIRED INSTALLATION AND OTHER WORK, PROCUREMENT, ETC. FOR WHICH THERE WERE NO EMPLOYEES. SINCE THE ASSESSEE WAS HAVING VERY FEW EMPLOYEES IN THE COM PANY AND MEAGER INFRASTRUCTURE, IT WAS USING THE INFRASTRUCTURE FACILITIES LIKE POWER, STATIONERY, VEHICLES AND OTHER EXPENSES INCLUDING COMMUNICATION PROVIDED BY GGCL. 5. THE DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSING OFFICER DID N OT ACCEPT THE EXPLANATION OF THE ASSESSEE AS CONVINCING. THE ASSESSING OFFICER OBSERVED THAT IT WAS ONLY PROVIDING GAS CONNECTION FOR S UPPLY OF PIPED GAS BY THE GGCL. TO PROVIDE PIPED GAS CONNECTION TO PROSPECTIVE CUSTOMERS, THE ASSESSEE WAS TAKING SERVICE S OF LABOUR CONTRACTORS WHO WERE SELECTED BY THE PROCESS OF FLOATING TENDERS. THEY WERE SUPPLIED MATERIALS FOR SUPPLYING PIPED GAS CONNECTIONS TO THE PROSPECTIVE CUSTOMERS. THE ASSESSEE GAVE CONNECTIONS ON LEASE RENTAL BASIS AND COLLECTED LEASE RENT. THE OWNERSHIP OF THE CONNECTION RESTED WITH THE ASSESSEE AND NEVER TRANSFERRED TO THE CUSTOMERS. THE ASSESSEE WAS 100% SUBSIDIARY OF GGCL, THEREFORE, THE CONTRACT ENTERED INTO BY 100% HOLDING COMPANY WITH 100% SUBSIDIARY COMPANY COULD NOT BE TERMED AS A CONTRA CT WITH FREE CONSENT. THE ASSESSING OFFICER ALSO NOTED THAT THE REPLIES FILED BY THE ASSESSEE WERE GENERAL IN NATURE AND THE ASSESSEE HAD NOT SUPPLIED THE DETAILS REGARDING THE SERVICES OBTAINED FROM GGCL IN LIEU OF THE PAYMENTS MADE. THEREFORE, THE ASSESS ING OFFICER ESTIMATED RS.10,00,000/ - PER MONTH AS THE COST FOR USE OF ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 4 - ACCOMMODATION AND INFRASTRUCTURE PROVIDED BY GGCL. HENCE, HE TREATED RS.1,20,00,000/ - FOR THE RELEVANT PERIOD AS REASONABLE AND DISALLOWED THE REMAINING AMOUNT OF RS.4,62,89,335/ - U/S 40 A(2)(B) OF THE ACT. 6. THE DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE DISALLOWANCE IN ALL THE YEARS UNDER APPEAL OBSERVING THAT THE ASSESSEE HAD PRODUC ED THE COPY OF AGREEMENT BEFORE THE ASSESSING OFFICER WHO HAD NOT FOUND ANY INFIRMITY IN THE SAID AGREEMENT. 7. FURTHER, THE DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE CIT (A), WHILE DELETING THE ADDITION, HAS ALSO OBSERVED THAT THE ASSESSEE WAS PAYING SERVICE CHARGES TO GGCL FOR LAST SO MANY YEARS AND IN THE ASSESSMENT MADE IN NUMBER OF EARLIER YEARS U/S 143(3) OF THE ACT, NO DISALLOWANCE OUT OF SERVICE CHARGES WAS MADE. SHE ARGUED THAT EACH ASSESSMENT YEAR IS INDEPENDENT ASSESSMENT YEAR AND THEREFORE , THE FINDING S OF EARLIER ASSESSMENT YEARS ARE NOT RELEVANT IN MAKING THE ASSESSMENT IN SUBSEQUENT ASSESSMENT YEARS. 8 . THE DEPARTMENTAL REPRESENTATIVE FURTHER ARGUED THAT THE CIT(A) WHILE DELETING THE ADDITION ALSO OBSERVED THAT THE ASSESSING OFFICER, W HILE INVOKING PROVISIONS OF SECTION 40A(2)(B), HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW HOW THE PAYMENTS MADE BY THE ASSESSEE TO GGCL ARE EXCESSIVE OR UNREASONABLE HAVING REGARD TO FAIR MARKET VALUE OF SUCH SERVICES. THE CIT(A) HAS OBSERVED THAT SE CTION 40A(2)(B) ENVISAGES THREE CONDITIONS FOR DETERMINATION OF EXCESSIVENESS OR UNREASONABLENESS OF EXPENDITURE IN RESPECT OF WHICH PAYMENT IS MADE TO CLOSE ASSOCIATES NAMELY FAIR MARKET VALUE ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 5 - OF GOODS, SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE, LE GITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE AND BENEFIT DERIVED OR ACCRUING TO THE ASSESSEE. THE ASSESSING OFFICER HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW HOW THE ASSESSEES PAYMENT TO GGCL IS ADVERSELY HIT BY THE CONDITIONS REFERRED TO ABOVE. S HE ARGUED THAT THE ASSESSING OFFICER HAS RECORDED A FINDING IN THE ASSESSMENT ORDER THAT SINCE THE ASSESSEE WAS A 100% SUBSIDIARY OF GGCL, THEREFORE, THE CONTRACT ENTERED INTO BY 100% HOLDING COMPANY WITH 100% SUBSIDIARY COMPANY WAS NOT A CONTRACT WITH FRE E CONSENT AND THAT THE REPLIES SUBMITTED BY THE ASSESSEE WERE GENERAL IN NATURE AND THE ASSESSEE DID NOT SUPPLY THE DETAILS REGARDING THE SERVICES OBTAINED FROM GGCL IN LIEU OF THE PAYMENTS MADE UNDER REFERENCE. THEREFORE, IT WAS HER SUBMISSION THAT THE OR DER OF THE CIT(A) SHOULD BE REVERSED AND THE ORDER OF THE ASSESSING OFFICER SHOULD BE RESTORED BACK. 9 . THE A UTHORIZED R EPRESENTATIVE OF THE ASSESSEE VEHEMENTLY ARGUED AND SUBMITTED THAT THE LEASE AGREEMENT ENTERED INTO WITH GGCL FOR SERVICES AND INFRAST RUCTURE TO BE PROVIDED BY THE GGCL TO THE ASSESSEE FOR GAS CONNECTIONS IS DATED 25.04.200 3 AND COPY OF THE SAME IS PLACED AT PAGE NOS.31 - 36 OF THE PAPER - BOOK. ON THE BASIS OF THIS AGREEMENT, SERVICE CHARGES HAVE BEEN CLAIMED BY THE ASSESSEE FOR ASSESSMENT YEAR 2004 - 05 OF RS.5,82,89,000/ - , FOR ASSESSMENT YEAR 2005 - 06 OF RS.7,07,28,000/ - AND FOR ASSESSMENT YEAR 2006 - 07 OF RS.8,90,19,000/ - , WHICH HAVE BEEN ALLOWED BY THE ASSESSING OFFICER IN THE ASSESSMENTS MADE U/S 143(3) OF THE ACT. 10 . HE FURTHER SUBMITT ED THAT FOR MAKING DISALLOWANCE BY INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, THE BURDEN WAS ON THE REVENUE TO POINT OUT HOW THE ASSESSEE EVADED THE PAYMENT OF TAX BY ALLEGED PAYMENT OF HIGHER SER VICES CHARGES TO SISTER - CONCERN U/S ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 6 - 40A(2)(B) OF T HE ACT. IT IS FOR THE ASSESSING OFFICER TO ESTABLISH THAT THE PAYMENT MADE FOR THE SERVICES WAS HIGHER THAN THE MARKET VALUE OF THE SERVICES RENDERED BY THE SISTER - CONCERN. IN THE INSTANT CASE, NO SUCH MATERIAL WAS BROUGHT ON RECORD BY THE ASSESSING OFFIC ER AFTER COMPARING THE MARKET VALUE OF THE SERVICES PROCURED BY THE ASSESSEE FROM THE SISTER - CONCERN TO SHOW THAT THE SERVICE CHARGES PAID WERE HIGHER THAN THE MARKET VALUE. IN ABSENCE OF THE SAME, NO DISALLOWANCE COULD BE MADE FROM THE SERVICE CHARGES CL AIMED BY THE ASSESSEE. 11 . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE AS WELL AS THE SISTER - CONCERN OF THE ASSESSEE M/S. GGCL WERE BOTH PAYING TAX AT THE MAXIMUM MARGINAL RATE AND THEREFORE, NO DISALLOWANCE OUT OF S ERVICE CHARGES PAID BY THE ASSESSEE TO GGCL COULD BE MADE BY THE ASSESSING OFFICER AND HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. GLAXO SMITHKLINE ASIA (P.) LTD., REPORTED IN [2010] 236 CTR 113 (SC), WHEREIN THE HONBLE S UPREME COURT HAS HELD THAT HAVING GONE THROUGH THE RELEVANT MATERIAL PLACED BEFORE US CONCERNING ASSESSMENT YEAR 2001 - 02, WE ARE OF THE VIEW THAT, AS FAR AS THIS SPECIAL LEAVE PETITION IS CONCERNED, NO INTERFERENCE IS CALLED FOR AS THE ENTIRE EXERCISE IS A REVENUE NEUTRAL EXERCISE. HE FURTHER PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO SAUDI SERVICES (TRAVEL) (P.) LTD., REPORTED IN (2009) 310 ITR 306 (BOM) , WHERE IT WAS HELD THAT WHEN REVENUE WAS NOT IN A PO SITION TO POINT OUT HOW THE ASSESSEE EVADED PAYMENT OF TAX BY ALLEGED PAYMENT OF HIGHER COMMISSION TO ITS SISTER - CONCERN , S INCE THE SISTER - CONCERN WAS ALSO PAYING TAX AT HIGHER RATE, DISALLOWANCE OF ALLEGED EXCESS COMMISSION PAID TO SISTER CONCERN WAS NOT JUS TIFIABLE. FURTHER, HE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LIMITED, REPORTED IN [2013] ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 7 - 358 ITR 295 (SC) , WHEREIN IT WAS HELD THAT A CONSISTENT VIEW HAD BEEN TAKEN IN FAVOUR OF THE ASSESSEE O N THE QUESTIONS RAISED, STARTING WITH THE ASSESSMENT YEAR 1992 - 93, THAT THE BENEFITS UNDER THE ADVANCE LICENCES OR UNDER THE DUTY ENTITLEMENT PASS BOOK DID NOT REPRESENT THE REAL INCOME OF THE ASSESSEE . T HERE WAS NO REASON FOR US TO TAKE A DIFFERENT VIEW UNLESS THERE WERE VERY CONVINCING REASONS WHICH THERE WERE NOT . 1 2 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT DURING THE YEARS UNDER CON SIDERATION THE ASSESSEE HAD CLAIMED SERVICE CHARGES PAID TO GGCL @ RS.3205/ - PER CONNECTION FOR SERVICES AND INFRASTRUCTURE OF THE COMPANY USED BY IT FOR GAS CONNECTION. THE ASSESSEE IN THE ASSESSMENT YEAR 2006 - 07 CLAIMED RS.5,82,89,335/ - AS SERVICE CHARG ES PAID FOR 18,187 GAS CONNECTIONS PROVIDED TO THE CUSTOMERS. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE WAS TAKING SERVICES OF LABOUR CONTRACTORS SELECTED BY THE PROCESS OF FLOATING TENDERS, THE MATERIALS WERE SUPPLIED BY THE ASSESSEE FOR PIPED GAS CON NECTIONS TO THE PROSPECTIVE CUSTOMERS, THE CONNECTIONS WERE GIVEN ON LEASE RENTAL BASIS COLLECTING LEASE RENT, OWNERSHIP OF THE CONNECTION RESTED WITH THE ASSESSEE AND WAS NEVER TRANSFERRED TO THE CUSTOMERS, THE ASSESSEE WAS 100% SUBSIDIARY OF GGCL, THEREF ORE, THE CONTRACT ENTERED INTO BY IT WITH 100% HOLDING COMPANY WAS NOT WITH A FREE CONSENT AND THE REPLIES OF THE ASSESSEE WERE GENERAL IN NATURE AND THE ASSESSEE HAD NOT SUPPLIED THE DETAILS REGARDING THE SERVICES OBTAINED FROM GGCL IN LIEU OF THE PAYMENT S MADE, THEREFORE, THE ASSESSING OFFICER CONSIDERED THE PAYMENTS MADE BY THE ASSESSEE AS EXCESSIVE AND UNREASONABLE. ACCORDINGLY, HE ESTIMATED THE AMOUNT PAYABLE AT RS.10,00,000/ - PER MONTH FOR COST OF USE OF ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 8 - ACCOMMODATION AND INFRASTRUCTURE OF GGCL AS REA SONABLE AND ACCORDINGLY COMPUTED RS.1,20,00,000/ - AS THE AMOUNT ALLOWABLE TO THE ASSESSEE. THEREFORE, HE DISALLOWED DEDUCTION FOR RS.4,62,89,335/ - . 13 . ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT THE ASSESSING OFFICER DID NOT FIND A NY INFIRMITY IN THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH GGCL, THE PAYMENTS WERE MADE ON THE BASIS OF THIS AGREEMENT IN NUMBER OF EARLIER YEARS AND NO DISALLOWANCE WAS MADE EVEN IN ASSESSMENT COMPLETED U/S 143(3) OF THE ACT. FURTHER, THE CIT(A) ALSO OBSERVED THAT IN ORDER TO INVOKE THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, THE ASSESSING OFFICER HAS TO SHOW THAT THE PAYMENTS MADE BY THE ASSESSEE TO GGCL WAS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF SUCH SERVICES. NO SU CH MATERIAL WAS BROUGHT ON RECORD BY THE ASSESSING OFFICER BEFORE INVOKING PROVISIONS OF SECTION 40A(2)(B) FOR MAKING THE IMPUGNED DISALLOWANCE. 14 . THE DEPARTMENTAL REPRESENTATIVE HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER, WHEREAS THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDERS OF THE CIT(A). 1 5 . WE FIND THAT IN THE INSTANT CASE THE ASSESSEE - COMPANY IS A GOVERNMENT COMPANY WHICH HAD MADE PAYMENT OF SERVICE CHARGES TO ANOTHER GOVERNMENT COMPANY. A PART OF THE SAID EXPENSES WAS DISALLOWED BY THE ASSESSING OFFICER BY INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. WE FIND THAT IN THE INSTANT CASE THERE IS NO ALLEGATION OF ANY EVASION OF TAX . MOREOVER, WE FIND THAT SERVICE CHARGES HAS BEEN PAID IN PURSUANCE OF AN AGREEMENT D ATED 25.04.2003 AT THE RATE FIXED VIDE THE SAID AGREEMENT. SUCH SERVICE ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 9 - CHARGES AT THE SAME RATE WERE ALSO PAID BY THE ASSESSEE - COMPANY TO THE SAME COMPANY IN THE ASSESSMENT YEARS 2004 - 05 AND 2005 - 06. IN THE ASSESSMENT COMPLETED U/S 143(3), THE DEPARTMEN T HAS NOT MADE ANY DISALLOWANCE OUT OF THE SAID EXPENSES. THUS, THE DEPARTMENT IN THE EARLIER YEARS ACCEPTED THE SAME RATE AT WHICH SERVICE CHARGES WERE PAID DURING THE YEARS UNDER APPEAL AS REASONABLE. IN OUR CONSIDERED VIEW, THOUGH RES JUDICATA IS NOT AP PLICABLE IN THE INCOME - TAX PROCEEDINGS BUT THE RULE OF CONSISTENCY NEEDS TO BE ADHERED TO AND WHEN THE FACTS REMAINS THE SAME IN DIFFERENT YEARS , THE REVENUE CANNOT BE PERMITTED TO DRAW DIFFERENT INFERENCE S IN THE DIFFERENT YEARS. OUR ABOVE VIEW FINDS SUPP ORT FROM THE FOLLOWING DECISIONS OF THE HONBLE SUPREME COURT IN THE CASES OF : - (I) CIT V S. EXCEL INDUSTRIES LIMITED, [2013] 358 ITR 295 (SC) , WHEREIN IT WAS HELD THAT A CONSISTENT VIEW HAD BEEN TAKEN IN FAVOUR OF THE ASSESSEE ON THE QUESTIONS RAISED, STARTI NG WITH THE ASSESSMENT YEAR 1992 - 93, THAT THE BENEFITS UNDER THE ADVANCE LICENCES OR UNDER THE DUTY ENTITLEMENT PASS BOOK DID NOT REPRESENT THE REAL INCOME OF THE ASSESSEE . T HERE WAS NO REASON FOR US TO TAKE A DIFFERENT VIEW UNLESS THERE WERE VERY CONVINC ING REASONS WHICH THERE WERE NOT . (II) BERGER PAINTS INDIA LTD. VS. CIT, [2004] 266 ITR 099 (SC) , WHEREIN IT WAS HELD THAT IF THE REVENUE HAS NOT CHALLENGED THE CORRECTNESS OF THE LAW LAID DOWN BY THE HIGH COURT AND HAS ACCEPTED IT IN THE CASE OF ONE ASSESSE E, THEN IT WAS NOT OPEN TO THE REVENUE TO CHALLENGE ITS CORRECTNESS IN THE CASE OF OTHER ASSESSES, WITHOUT JUST CAUSE. ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 10 - (III) M. A. MURTHY VS. STATE OF KARNATAKA & OTHERS, (2003) 264 ITR 001 (SC), WHEREIN IT WAS HELD THAT THE DOCTRINE OF BINDING PRECEDENT HEL PS IN PROMOTING CERTAINTY IN JUDICIAL DECISIONS AND ENABLES AN ORGANIC DEVELOPMENT OF THE LAW BESIDES PROVIDING ASSURANCE TO THE INDIVIDUAL AS TO THE CONSEQUENCES OF TRANSACTIONS FORMING PART OF DAILY AFFAIRS. 1 6 . STILL FURTHER, WE FIND THAT NO MATERIAL HAS BEEN BROUGHT BEFORE US TO SHOW THAT THE SERVICE CHARGES PAID BY THE ASSESSEE - COMPANY TO ANOTHER GOVERNMENT COMPANY WERE IN EXCESS OF THE FAIR MARKET VALUE OF SUCH SERVICES. WE, THEREFORE, DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). IT IS CONFIRMED. THE GROUND OF APPEAL OF THE REVENUE IN ALL THE YEARS UNDER APPEAL IS DISMISSED. 17 . IN ITA NO.556/AHD/2010, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ARGUED THAT THE SOLE GROUND OF APPEAL WAS GROUND NO.2 RAISED IN THE APPEAL WHEREIN THE ISSUE INVOLVED WAS THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.9,45,000/ - MADE BY THE ASSESSING OFFICER BEING VALUE OF INVENTORIES WRITTEN OFF AS OBSOLETE. HE SUBMITTED THAT ALL OTHER GROUNDS RAISED IN THE APPEAL ARE THE ARGUME NTS OF THE ASSESSEE. 1 8 . THE BRIEF FACTS OF THE CASE ARE THAT , DURING THE ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO JUSTIFY THE CLAIM FOR INVENTORIES WRITTEN OFF AMOUNTING TO RS.9,45,000/ - . THE ASSESSEE FILED DETAILS REGARDING GAS CONNECTIONS APART FROM REGULATOR, METER I.E. BALL VALVE, GAS METERS, G.I. PIPES AND FITTINGS, RUBBER TUBES, GAS TAPE HDPE SERVICE LINE ETC. THE ASSESSING OFFICER ALSO ASKED THE ASSESSEE TO PROVIDE ACCOUNT SHOWING ENTRIES OF SUCH ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 11 - PURCHASE, ISSUE AND CO NSUMPTION AND GENERATION OF OBSOLETE INVENTORY ON THE BASIS ON WHICH SUCH AMOUNT WAS CLAIMED. 1 9 . IN REPLY, THE ASSESSEE FILED THE DETAILS OF STOCK , PURCHASES ETC. AND SUBMITTED THAT IT WAS CARRYING OUT EXERCISE OF WRITING OFF THE INVENTORIES SINCE LAST MORE THAN 10 YEARS. IT WAS SUBMITTED THAT IN THE INTEREST OF THE CUSTOMERS AND PUBLIC AT LARGE THE ASSESSEE HAD A POLICY OF REGULARLY MAINTAINING ITS DOMESTIC CONNECTION BY UPGRADING IT FOR TECHNOLOGICAL OBSOLESCE. THEREFORE, IT HAD WRITTEN OFF REGULATOR AND OTHER ITEMS DURING THE RELEVANT YEARS WHICH WERE NOT USABLE DUE TO TECHNOLOGICAL OBSOLESCE . THE ASSESSING OFFICER DID NOT FIND THE SUBMISSIONS OF THE ASSESSEE SATISFACTORY ON THE GROUND THAT IT HAD FOLLOWED THE FIFO METHOD FOR VALUATION OF CLOSING ST OCK AND THERE WAS NO QUESTION OF OBSOLESCE . THE ASSESSING OFFICER ALSO OBSERVED THAT THE PURCHASE MATERIAL WAS DIRECTLY SUPPLIED TO THE CONTRACTOR. ALL THE PURCHASES WERE MADE BY GGCL AND TRANSFERRED IN THE NAME OF THE ASSESSEE BY PASSING JV ON 31 ST MARCH. THE ASSESSEE WAS CAPITALIZING CONNECTION S AND CLAIMED IT AS LEASE TRANSACTION S; THEREFORE, THE PURCHASE OF MATERIAL WAS EXPENDITURE OF CAPITAL NATURE AND COULD NOT BE CLAIMED AS REVENUE EXPENDITURE. THEREFORE, HE DISALLOWED THE DEDUCTION FOR RS.9,45,000/ - CLAIMED BY THE ASSESSEE AND ADDED TO THE INCOME OF THE ASSESSEE. 20 . ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OBSERVING THAT THE ASSESSEE HAS FILED THE LIST OF ITEMS WRITTEN OFF WHICH WERE FILED BEFORE THE ASSESSING OFFICE R AND APART FROM THIS, IT IS ALSO SUBMITTED THAT OUT OF RS.9,45,000 / - WRITTEN OFF DURING THE RELEVANT PERIOD , RS.5,00,000/ - WERE RECOVERED SUBSEQUENTLY. ON THESE FACTS, THE CIT(A) FOUND THAT THE ITEMS WERE NOT OBSOLETE DURING THE RELEVANT PERIOD AS CLAIME D BY THE ASSESSEE BECAUSE IT WAS ABLE TO RECOVER RS.5,00,000/ - I.E. MORE THAN 50% OF ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 12 - THE VALUE IN SUBSEQUENT YEARS. HE, THEREFORE, CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 2 1 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE DEBITED RS.9,45,000/ - IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD OF OBSOLETE INVENTORY. THE ASSESSEE EXPLAINED THAT THESE INVENTORIES BECAME OBSOLETE AND THEREFORE, THE VA LUE OF THE SAME WAS CLAIMED AT NIL. THE ASSESSING OFFICER OBSERVED THAT THESE ITEMS WERE IRON AND MUST HAVE SOME DISPOSABLE VALUE AND THEREFORE, DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND DISALLOWED THE ENTIRE AMOUNT. 2 2 . BEFORE THE CIT(A), THE ASSESSE E CLAIMED THAT THESE OBSOLETE INVENTORIES WERE SOLD IN SUBSEQUENT YEARS FOR RS.5,00,000/ - AND THE SAID AMOUNT OF RS.5,00,000/ - WAS SHOWN AS INCOME IN THE SUBSEQUENT YEARS. 2 3 . THE CIT(A) OBSERVED THAT THE ASSESSEE HAS REALIZED MORE THAN 50% OF THE VALUE OF THE INVENTORY AND THEREFORE IT CANNOT BE SAID THAT THE SAME HAS BECOME OBSOLETE DURING THE YEAR UNDER CONSIDERATION AND THEREFORE, HE CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 24 . WE FIND THAT IT IS NOT IN DISPUTE THAT THE INVENTORIES IN QUESTION WERE SOLD IN SUBSEQUENT YEARS FOR RS.5,00,000/ - ; THEREFORE, THE CLAIM OF THE ASSESSEE THAT THESE INVENTORIES HAD NIL VALUE AS AT THE END OF THE YEAR UNDER APPEAL CANNOT BE ACCEPTED. HOWEVER, AS NO MATERIAL WAS BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE MARKET VALUE OF THE INVENTORY IN QUESTION WAS MORE THAN RS.5,00,000/ - AS AT THE END OF THE RELEVANT PREVIOUS YEAR, WE CONFIRM THE DISALLOWANCE TO THE ITA NOS.556 & 656/AHD/ 2010: AY: 2006 - 07 ITA NOS. 91, 92 & 156 1 /AHD/2012 AYS : 2007 - 08, 2008 - 09 & 2009 - 10 GUJARAT GAS FINANCIAL SERVICES LIMITED - 13 - EXTENT OF MARKET VALUE AS AT THE END OF THE RELEVANT YEAR I.E. RS.5,00,000/ - AND DELETE THE BALANCE A MOUNT OF DISALLOWANCE OF RS.4,45,000/ - . THUS, THIS GROUND OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 2 5 . IN THE RESULT, THE APPEALS FILED BY THE REVENUE FOR ALL THE FOUR YEARS UNDER APPEAL ARE DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY , THE 5 TH OF DECEMBER , 2014 AT AHMEDABAD. SD/ - SD/ - ( G.C. GUPTA ) VICE PRESIDENT ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 05 / 12 /2014 * BIJU T , PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - VIII, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. [ / GUARD FILE . / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD