Mahavir Dyeing & Printing Mills Pvt.Ltd.,, Dist. Surat v. The Income tax Officer,Ward-1(3),, Surat

ITA 1261/AHD/2007 | 2004-2005
Pronouncement Date: 30-04-2010 | Result: Allowed

Appeal Details

RSA Number 126120514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 1261/AHD/2007
Duration Of Justice 3 year(s) 1 month(s) 4 day(s)
Appellant Mahavir Dyeing & Printing Mills Pvt.Ltd.,, Dist. Surat
Respondent The Income tax Officer,Ward-1(3),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 30-04-2010
Date Of Final Hearing 27-04-2010
Next Hearing Date 27-04-2010
Assessment Year 2004-2005
Appeal Filed On 26-03-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI MUKUL SHRAWAT JUDICIAL MEMBER AND SHRI A.N.PHAUJA ACCOUNTANT MEMBER ITA NO.1261/AHD/2007 ASSESSMENT YEAR:2004-05 DATE OF HEARING:27.4.10 DRAFTED:28.4.10 MAHAVIR DYEING & PRINT MILLS PVT. LTD. TATATHAIYA TAL. PALSANA DIST. SURAT PAN NO.AABCM9240J V/S. INCOME TAX OFFICER WARD-1(3) SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI K.N. BHATT AR RESPONDENT BY:- SHRI M.C. PANDIT SR-DR O R D E R PER MUKUL SHRAWAT JUDICIAL MEMBER:- THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF CIT(APPEALS)-I SURAT DATED 19-02-2007 AND THE SOLITARY SUBSTANTIAL GROUND READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW ON THE SUBJECT THE LEARNED C.I.T.(A)-I HAS ERRED IN CONFIRMING THE ADDITION TO THE EXTANT OF RS.3 84 464/- BEING THE AMOUNT OF EXCESS JOB CHARGE S PAID TO SISTER CONCERN U/S.40A(2)(B) OF THE ACT. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE INCOME-TAX ACT 1961 DATED 22-12- 2006 WERE THAT THE ASSESSEE- COMPANY DURING THE YEAR WAS ENGAGED IN THE BUSINESS OF PROCESSING & DYEING OF CLOTH ON JOB WORK BASIS AS WELL AS MANUFACTURING OF GRAY CLOTH. IN RESPECT OF THE ABOVE GROUND THE OBSERVATION OF THE ASSESSING OFFI CER WAS THAT AN AMOUNT OF RS.76 89 281/- WAS PAID AS JOB WORK CHARGES TO ITS SISTER CONCERN NAMELY MAHALAXMI INFRACON PVT. LTD. IT WAS FOUND THAT THE IMPUGNED AMOUNT PERTAINED TO THE JOB WORK CHARGES IN RESPECT OF WEAVING WORK CAR RIED OUT BY THE SAID SISTER ITA NO.1261/AHD/2007 A .Y.2004-05 MAHAVIR DYEING & PRINT MILLS P.LTD. V. ITO WD-1(3) SURAT PAGE 2 CONCERN. THE AO WAS OF THE VIEW THAT THE SAID AMOUN T WAS EXCESSIVE AND UNREASONABLE. IN HIS WORDS THE EXPENSE AS SHOWN ABOVE APPEARED TO BE EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE FAI R MARKET VALUE AS NO EVIDENCE OF HAVING INVITED THE TENDERS AND RATES HAVING BEEN COMPARED ETC. IS FURNISHED. THEREFORE VIDE LETTER DATED 15-12-2006 THE ASSESSEE WAS REQUESTED TO SHOW CAUSE AS WHY EXCESSIVE EXPENDITURE CLAIMED ON ACCOUNT OF PAYMENT MADE TO SISTER CONCERN SHOULD NOT BE DISALLOWED ON ESTIMATE BASIS. THE EXPLANATION OF THE ASSESSEE WAS AS FOLLOWS:- AS IN WEAVING INDUSTRIES THERE IS NO PRACTICE TO I NVITE TENDERS. THOSE WHO HAVE A MACHINERY AND NOT WANTS TO MFG. THEIR OWN CL OTH THEY INFORM IN THE MARKET FOR JOB WORK AND THOSE WHO HAVE NO MACHINERY AND WANTS TO MANUFACTURING CLOTH THEY DONE THROUGH THE ABOVE PAR TIES. YOU HAVE STATED THAT EXPENSES IS EXCESSIVE AND UNREASONABLE BUT FOR THIS YOU HAVE NOT GIVEN ANY DETAILS FOR THE SAME THAT HOW IT IS EXCESSIVE O R UNREASONABLE. AS IN WEAVING OF CLOTH THERE ARE SO MANY FACTOR TO BE CON SIDERED I.E. QUALITY OF CLOTH PRODUCED PEAK AND REED DESIGN WIDTH OF CLOTH ETC . WE HAVE GOT WEAVING OF PLOT BY 91 WIDTH WHILE NORMALLY THE SAID WAS 44 T O 56 AND THEREFORE WE HAVE TO PAY MORE JOB CHARGES FOR THE SAME. SO IT IS NOT POSSIBLE TO COMPARE OUR CASE WITH OTHERS. HOWEVER THE AO WAS NOT CONVINCED AND HELD THAT THE PROVISION OF SECTION 40A(2)(B) OF THE ACT WERE APPLICABLE BECAUSE ONE OF THE DIREC TOR OF THE ASSESSEE-COMPANY HAPPENED TO BE A CLOSE RELATIVE OF ONE OF THE DIREC TOR OF THE SAID SISTER CONCERN. HE WAS OF THE VIEW THAT THE ASSESSEE-COMPANY HAS NOT E XERCISED DUE DILIGENCE AND WITHOUT INVITING TENDERS MADE THE SAID PAYMENT TO T HE SISTER CONCERN. IN HIS OPINION NO SATISFACTORY EXPLANATION WAS OFFERED BECAUSE A P ERSON HAVING ORDINARY BUSINESS PRUDENCE ALWAYS ENQUIRE ABOUT THE RATES APPLICABLE BEFORE MAKING THE PAYMENT. IT WAS ALSO OBSERVED THAT THOUGH THE ENTIRE YARN WAS G IVEN TO THE SAID SISTER CONCERN FOR WEAVING OF THE CLOTH BUT THE ASSESSEE HAD NOT DISCHARGED ONUS OF PROVING THE REASONABLENESS OF THE RATE. WITH THE RESULT OUT OF THE TOTAL EXPENDITURE CLAIMED OF RS.76 89 281/- THE AO HAS HELD THAT 10% WAS EXCESS IVE AND BY INVOKING THE PROVISION OF SECTION 40A(20(B) OF THE ACT DISALLOWE D 10% I.E. RS.7 68 928/-. BEING AGGRIEVED BY THE SAID DISALLOWANCE ASSESSEE PREFERR ED AN APPEAL. 3. BEFORE THE FIRST APPELLATE AUTHORITY THE APPELL ANT HAS REITERATED ALL THOSE FACTS AND INFORMED THAT THE JOB CHARGES WERE PAID FOR THE CLOTH FOR WHICH WEAVING WAS DONE OF 91 WIDTH WHEREAS NORMALLY THE WEAVING OF THE CLOTH IS BEING DONE FOR WIDTH ITA NO.1261/AHD/2007 A .Y.2004-05 MAHAVIR DYEING & PRINT MILLS P.LTD. V. ITO WD-1(3) SURAT PAGE 3 OF 44 TO 56 OF CLOTH. CONSIDERING THE BUSINESS A CTIVITY OF THE ASSESSEE AND THE SALES SHOWN BY THE ASSESSEE LD. CIT(A) HAS GRANTED PART RELIEF VIDE PARA-4 AS UNDER:- 4. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. THE REPLY GIVEN BY THE APPELLANT IS GENE RAL. THE FACT THAT THE APPELLANT HAS MADE HUGE PAYMENTS TO ITS SISTER CONC ERN REQUIRES THAT THE APPELLANT SHOULD HAVE GIVEN JUSTIFICATION FOR LOSS AS ENTIRE PAYMENT IS ONLY TO SISTER CONCERN. IN THE ABSENCE OF ANY SUCH COMPARIS ON IT WAS STILL OPEN TO THE ASSESSEE TO EXPLAIN THE HUGE LOSSES INCURRED ESPECI ALLY WHEN PAYMENT HAS BEEN MADE TO THE SISTER CONCERN. SINCE THE APPELLAN T HAS FAILED TO EXPLAIN THE LOSS AND ESPECIALLY WHEN PAYMENT IS ONLY MADE TO SI STER CONCERN AMOUNTING TO RS.76.89 LACS HE LOSS CANNOT BE ALLOWED AS I IS . IT IS ALSO TRUE HAT U/S.40A(2)(B) THE AO IS REQUIRED TO GIVE COMPARATIV E CHARGES AND DISALLOW WITH RESPECT TO FAIR MARKET VALUE. THE AO HAS NO DO NE SO. KEEPING IN MIND HIS SITUATION THE DISALLOWANCE MADE BY HE AO IS RESTRI CTED TO 50% I.E. 5% OF THE EXPENSES. HENCE THE GROUNDS OF APPEAL ARE PARTLY AL LOWED. STILL BEING AGGRIEVED NOW APPELLANT IS FURTHER IN APPEAL. 4. WE HAVE HEARD BOTH THE SIDES AND ALSO CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS FAR AS APPLICABILITY OF PROVIS ION OF SECTION 40A(2)(B) IS CONCERNED THE ACT PRESCRIBED THAT WHERE AN ASSESSE E INCUR ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE TO ANY OF A PERSON REFERRED THEREIN THEN IN THE OPINION OF THE ASSESSING OFFICER SUCH EXPENDITU RE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS OR SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE THEN SO MUCH OF THE EXPENDITUR E AS IS SO CONSIDERED BY THE ASSESSING OFFICER TO BE EXCESSIVE OR UNREASONABLE S HALL NOT BE ALLOWED AS A DEDUCTION. ON CAREFUL READINGS OF THIS SECTION 4 I T IS WORTH TO MENTION THAT BEFORE APPLYING THE PROVISION IT IS REQUIRED THAT THE ASSE SSING OFFICER SHOULD FORM AN OPINION HAVING REGARD TO FAIR MARKET VALUE OF THE SERVICE R ENDERED. IN THE PRESENT CASE THIS EXERCISE IS LACKING AND THE AO NEED NOT MAKE ANY AT TEMPT TO FIND OUT THE PREVAILING MARKET RATE.. MEANING THEREBY THE ASSESSING OFFICER HAS NOT COLLECTED ANY INFORMATION AS IS APPARENT FROM THE ASSESSMENT ORD ER ON THE BASIS OF WHICH IT COULD BE SAID THAT THE ASSESSING OFFICER HAS FORMED AN OP INION AFTER COLLECTING NECESSARY INFORMATION FROM THE MARKET TO COMPARE THE PREVALEN T MARKET RATE OF THE JOB WORK DONE BY THE SAID SISTER CONCERN. RATHER THE ASSESS ING OFFICER WAS NOT SURE ABOUT HIS ACTION THEREFORE HE HAS USED THE TERMEOLOGY A PPEARED TO BE EXCESSIVE. HE HAD ALSO NOT ARRIVED AT AN EXACT FIGURE OF DISALLOW ANCE RATHER MADE THE DISALLOWANCE ITA NO.1261/AHD/2007 A .Y.2004-05 MAHAVIR DYEING & PRINT MILLS P.LTD. V. ITO WD-1(3) SURAT PAGE 4 MERELY ON AN ESTIMATE BASIS. EVEN WHEN THE ISSUE WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY THE SAME APPROACH WAS ADOPTED I .E. THE ESTIMATION OF THE DISALLOWANCE. THEREFORE LD. CIT(A) HAS REDUCED THE DISALLOWANCE FROM 10% TO 5% MERELY ON AN AD HOC BASIS. IN ORDER TO CONSIDER T HE OPINION SUCH ESTIMATION FOR THIS TYPE OF DISALLOWANCE IS NOT DESCRIBED UNDER THE STA TUTE. BEFORE US LD. AUTHORIZED REPRESENTATIVE HAS CITED A DECISION OF BANGALORE TR IBUNAL IN THE CASE OF S.K. ENGINEERING V. JCIT (2006) 286 ITR (AT) 210 (BANGALORE); IN THE CASE O F MARGHABHAI KISHABHAI PATEL & CO. V. CIT (1997) 108 ITR 54 (GUJ) AND CIT V. JAIN CABLES (P) LTD. (2001) 252 ITR 785 (RAJ) FOR THE PROPOSITION THAT FOR THE PURPOSE OF DISALLOWANCE U/S.40A(2)(B) THE ASSESSING OFFICER IS EXPECTED TO COMPARE THE LIKE NATURE OF EXPENDITURE AND IF FOUND EXCESSIVE THEN ONLY ENTITL ED TO INVOKE THE PROVISION OF THE SAID SECTION. SINCE NO COMPARABLE INSTANCE WAS CITE D FROM THE SIDE OF REVENUE AND THIS PRIMARY ONUS WAS NOT DISCHARGED THEREFORE TOT ALITY OF THE CIRCUMSTANCES THUS WARRANTS TO REVERSE SUCH AN APPROACH OF THE REVENUE DEPARTMENT. WE HEREBY ACCEPT THE CONTENTIONS OF THE APPELLATE AND BY RELY ING UPON THE AFORESAID DECISION THIS GROUND OF THE ASSESSEE IS ALLOWED. 5. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 30/04/2010 SD/- SD/- (A.N.PHAUJA) (MUKUL SHRAWAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED : 30/04/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-I SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD