The DCIT, Circle-4,, Baroda v. M/s. Met Heat Engineers Pvt.Ltd.,, Baroda

ITA 3654/AHD/2007 | 2004-2005
Pronouncement Date: 23-07-2010 | Result: Partly Allowed

Appeal Details

RSA Number 365420514 RSA 2007
Assessee PAN AABCM3871D
Bench Ahmedabad
Appeal Number ITA 3654/AHD/2007
Duration Of Justice 2 year(s) 10 month(s) 15 day(s)
Appellant The DCIT, Circle-4,, Baroda
Respondent M/s. Met Heat Engineers Pvt.Ltd.,, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 23-07-2010
Date Of Final Hearing 08-07-2010
Next Hearing Date 08-07-2010
Assessment Year 2004-2005
Appeal Filed On 07-09-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH BEFORE SHRI G.D. AGARWAL VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.3654/AHD/2007 [ASSTT.YEAR: 2004-05] DEPUTY COMMISSIONER OF INCOME-TAX -VS- M/S. MET HE AT ENGINEERS CIRCLE-4 BARODA PVT. LTD. 857/2 GIDC MAKARPURA BARODA PAN NO.AABCM3871D (APPELLANT) (RESPONDENT) REVENUE BY : SHRI GAURAV BAATHAM DR ASSESSEE BY: SHRI M.G. PATEL AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-III BARODA IN APPEAL NO.CAB/I II/183/06-07 DATED 17-05-2007. THE ASSESSMENT WAS FRAMED BY DCIT CIRCLE-4(1) BAR ODA U/S.143(3) OF THE INCOME- TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 25-09-2006 FOR ASSESSMENT YEAR 2004-05. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING THE ADDITION OF RS.17 83 410/- MADE BY ASS ESSING OFFICER ON ACCOUNT OF LABOUR CHARGES. FOR THIS REVENUE HAS RAISED THE F OLLOWING GROUND NO.1 :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) ERRED IN DELETING ADDITION OF RS.17 83 410/- BEING LABOUR CHARGES PAID TO THE ITA NO.3654/AHD/2007 A.Y. 2004-05 DCIT CIR-4 BRD V. M/S. MET HEAT ENGINEERS PVT. LT D. PAGE 2 PROPRIETARY CONCERN OF THE DIRECTOR U/S.40A(2) OF T HE ACT DISREGARDING THE FACT THAT INFRASTRUCTURE WAS NOT AVAILABLE WITH THE SAID PROPRIETARY CONCERN. 3. THE BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TESTING OF METALS HEAT TREATMENT OF METALS LABOUR JOB-WORK A ND OTHER ACTIVITY RELATING TO METALOGRAPHY PHOTOGRAPHY ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOTICED FROM THE AUDIT REPORT THA T ASSESSEE HAS MADE PAYMENT OF LABOUR CHARGES TO M/S.MANGALAM ENGINEERS PROPRIETA RY CONCERN OF SHRI N.M.DAVE WHO IS ONE OF THE DIRECTOR OF THE ASSESSEE-COMPANY AND IT ALSO PAID HEAD TREATMENT CHARGES TO M/S. METAL HEAT ENGINEERS WHOSE DIRECTO R IS SHRI M.G. DAVE WHO IS SON-IN-LAW OF MANAGING PARTNERS OF METAL HEAT ENGIN EERS. ACCORDING TO ASSESSING OFFICER PAYMENTS MADE WERE FALLING U/S.40A(2)(B) O F THE ACT AND CONSEQUENTLY HE CALLED UPON THE ASSESSEE TO PROVIDE JUSTIFICATION F OR MAKING PAYMENTS BEING REASONABLE. THE ASSESSEE EXPLAINED THAT IT RECEIVED SAMPLE FROM CUSTOMER FOR TESTING OF METALS AND SUCH SAMPLES ARE OF UNEVEN SI ZES. ACCORDING TO ASSESSEE FOR THE PURPOSE OF TESTING THESE REQUIRED TO UNDERGO G RINDING AND MACHINING AS PER THE TECHNICAL SPECIFICATION AND STANDARDS. THE ASSESSE E EXPLAINED THAT IT OUT SOURCED SAMPLES FOR TESTING EVEN FROM FINANCIAL YEAR 1994-9 5 WHEN ASSESSEE WAS PARTNERSHIP FIRM. THE CUTTING & MACHINING OF METAL SAMPLES WERE GIVEN TO OUTSIDE AGENCIES BUT THOSE AGENCIES WERE NOT ABLE TO DO THE JOB OF CUTTING SHAPING AND MACHINING OF THE METAL SAMPLES IN TIME AND ACCORDIN G TO THE TECHNICAL SPECIFICATIONS AS REQUIRED FOR TESTING. AS A RESULT ASSESSEE-COMP ANY WAS UNABLE TO CARRY OUT TIMELY AND SATISFACTORILY METAL TESTING SERVICES FO R CUSTOMERS AFFECTING ASSESSEES BUSINESS. THEREFORE IT WAS DECIDED TO OUTSOURCE T HIS PARTICULAR LABOUR JOB WORK TO MANGALAM ENGINEERS SO THAT NOT ONLY DELAY IN WORK IS AVOIDED BUT ALSO SPECIFICATIONS AND STANDARDS ARE ALSO MET AND PROPE R SERVICES OF TESTING METAL SAMPLE CAN BE RENDERED TO CUSTOMERS IN TIME AND TO THEIR SATISFACTION. THE AO HAS NOT CONSIDERED THE REPLY OF THE ASSESSEE AS SATISFA CTORY AND NOTED THAT ASSESSEE COULD HAVE GOT THE JOB WORK DONE DIRECTLY FROM THE OPEN MARKET INSTEAD OF ASSOCIATE CONCERN. HE ALSO NOTED THAT M/S. MANGALAM ENGINEER S RECEIVED LABOUR CHARGES OF RS.17.83 LAKH AS AGAINST THE PAYMENT OF LABOUR CHAR GES AT RS.12.71 LAKH. ACCORDINGLY HE HELD THE PAYMENTS AS UNREASONABLE A ND EXCESSIVE AND DISALLOWED THE ENTIRE AMOUNT OF RS.17 83 410/- U/S.40A(2)(B) O F THE ACT. AGGRIEVED ASSESSEE ITA NO.3654/AHD/2007 A.Y. 2004-05 DCIT CIR-4 BRD V. M/S. MET HEAT ENGINEERS PVT. LT D. PAGE 3 PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITION BY GIVING FOLLOWING FINDING IN PARA-3.2 OF HIS APPELLATE ORDER:- 3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. A .R. AND THE FACTS OF THE CASE. THE ADDITION UNDER SECTION 40A(2) CAN BE MADE WHERE THE A.O. IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREA SONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS SERVICES OR FAC ILITIES FOR WHICH THE PAYMENT IS MADE OR WITH REFERENCE TO THE LEGITIMATE NEEDS O F THE BUSINESS OR PROFESSION. IT IS ONLY SO MUCH OF THE EXPENDITURE A S IS CONSIDERED TO BE EXCESSIVE OR UNREASONABLE WHICH CAN BE DISALLOWED. IN THE INSTANT CASE THE A.O. HAS DISALLOWED THE ENTIRE EXPENDITURE. MOREOVE R WHEN THE ASSESSEE HAS OFFERED A LOGICAL EXPLANATION WHICH IS SUPPORTED BY THE TAX AUDIT REPORT THEN IT IS FOR THE A.O. TO EITHER DISPROVE THE EXPLANATION BRINGING OUT THE FACT THAT THE EXPENDITURE WAS EXCESSIVE WAS UNREASONABLE. IT IS N OT UNCOMMON IN BUSINESS FOR CONCERNS TO CONCENTRATE ON ONLY ONE AS PECT OR ONE SINGLE PROCESS. FOR THE PURPOSE OF TESTING METAL SAMPLES THE ASSESSEE GOT THE GRINDING CUTTING ETC. DONE ON JOB WORK BASIS SINCE IT DID NOT HAVE THE SAME INFRASTRUCTURE IN ITS OWN FACTORY. NO DEFECT OR ELE MENT OF NON-GENUINE OR EXCESSIVE EXPENDITURE HAS BEEN BROUGHT ON RECORD I ORDER TO JUSTIFY THE DISALLOWANCE U/S.40A(2). HENCE IN MY OPINION THE A.O. WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OF THE JOB WORK CHARGES AMO UNTING TO RS.17 83 410/- WHICH IS DIRECTED TO BE DELETED. 4. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS OF THE CASE WE FIND THAT ASSESSEE FROM THE VERY BEGINNING MAKING P AYMENTS OF LABOUR CHARGES WHICH WERE ALLOWED. THE ASSESSEE HAS FILED COMPLETE DETAILS OF LABOUR CHARGES YEAR- WISE WHICH READS AS UNDER:- F.Y. A.Y. LABOUR CHARGES (RS.) 1996-97 1997-98 5 20 835 1997-98 1998-00 11 32 330 1998-99 1999-00 12 45 680 1999-00 2000-01 13 00 870 2000-01 2001-02 12 58 725 2001-02 2002-03 11 04 690 2002-03 2003-04 14 64 055 2003-04 2004-05 17 83 410 ITA NO.3654/AHD/2007 A.Y. 2004-05 DCIT CIR-4 BRD V. M/S. MET HEAT ENGINEERS PVT. LT D. PAGE 4 WE FURTHER FIND THAT ASSESSEE HAS FILED COMPLETE DE TAILS BEFORE ASSESSING OFFICER REGARDING LABOUR PAYMENT AND CLAIMED THAT OUTSOURCI NG OF THIS PARTICULAR LABOUR WORK TO MANGALAM ENGINEERS AVOIDED DELAYS AND SPECIFIED STANDARDS ARE ALSO MET. IT WAS CONTENDED THAT PROPER SERVICE OF TESTING METAL SAMP LES WERE RENDERED TO CUSTOMERS IN TIME AND TO THEIR SATISFACTION. WE FIND FROM TH E ASSESSMENT ORDER THAT ASSESSEE HAS PLANT & MACHINERY FACTORY BUILDINGS AFTER WDV AT RS.33 003/- AND RS.61 987/- RESPECTIVELY. WE FURTHER FIND THAT THERE IS NO BAS IS FOR THE ASSESSING OFFICER TO COME TO THE CONCLUSION THAT THE PROPRIETARY CONCERN HAS NO INFRASTRUCTURE TO CARRY OUT OF JOB-WORK OF LARGE QUANTITY OF CUTTING & SHAPING AND MECHANIZING OF SUCH SAMPLES. REGARDING ONUS TO PROVE THAT THE LABOUR PAYMENTS WE RE UNREASONABLE AND EXCESSIVE. THE LD. COUNSEL FOR ASSESSEE PLACED REL IANCE ON CBDT CIRCULAR NO.6- P(LXXVI-66) OF 1968 DATED 6 TH JULY 1968 WHEREIN VIDE PARAGRAPH NO.74 AN OBSERVATION IS THAT THE INCOME-TAX OFFICER IS EXPEC TED TO EXERCISE HIS JUDGMENT IN A REASONABLE AND FAIR MANNER. THE BOARD SAYS THAT IT SHOULD BE BORNE IN MIND THAT THE PROVISION IS MEANT TO CHECK EVASION OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS TO RELATIVES AND ASSOCIATE-CONCERNS AND SH OULD NOT BE APPLIED IN MANNER WHICH WILL CAUSE HARDSHIP IN BONA FIDE CASES. WE FU RTHER FIND THAT ASSESSEE HAS FILED COMPLETE DETAILS OF LABOUR EXPENDITURE INCLUDING BI LLS AND VOUCHERS BUT THE AO COULD NOT POINT OUT ANY DEFECT EITHER IN THE BOOKS OF ACC OUNT OR IN THE VOUCHERS. EVEN THE AO COULD NOT POINT OUT THE UNREASONABLENESS IN THE PAYMENT UNDER THIS HEAD. ACCORDINGLY WE ARE OF THE VIEW THAT CIT(A) HAS RIG HTLY DELETED THE ADDITION AND WE CONFIRM THE SAME AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DELETING THE ESTIMATED ADDITION OF RS.2.50 LAKH MAD E BY ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION. FOR THIS REVENUE HAS RAI SED THE FOLLOWING GROUND NO.2 :- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) ERRED IN DELETING THE ESTIMATED ADDITION OF RS.2 50 000/- ON THE DEPRECIATION THOUGH THE ASSESSEE FAILED TO FURNISH THE DETAILS O F PLANT AND MACHINERY RELATABLE TO MANUFACTURING ACTIVITIES. 6. AT THE OUTSET LD. SR-DR SHRI GAURAV BATHAM STAT ED THAT CIT(A) HAS ADMITTED A FRESH EVIDENCE THAT A CERTIFICATE FILED FROM THE M/S. SANTI CONSULTING ENGINEERS ITA NO.3654/AHD/2007 A.Y. 2004-05 DCIT CIR-4 BRD V. M/S. MET HEAT ENGINEERS PVT. LT D. PAGE 5 WHO ARE GOVERNMENT APPROVED VALUERS/SURVEYORS AND C HARTERED CONSULTING ENGINEERS RECOGNIZED BY C.C.E NAGPUR AND FACTORY I NSPECTOR OF GUJARAT AND MAHARASHTRA. WE FIND THAT THESE ARE NEW EVIDENCE A ND THIS WAS NOT CONFRONTED TO ASSESSING OFFICER WHILE ASKING REMAND REPORT FROM A SSESSING OFFICER. ACCORDINGLY WE ARE OF THE VIEWS THAT THIS NEEDS RE-VERIFICATION AT THE LEVEL OF AO AS ARGUED BY LD. SR-DR. LD. COUNSEL FOR ASSESSEE FAIRLY AGREED THAT HE HAS NO OBJECTION IN CASE THE MATTER BE SET ASIDE TO THE FILE OF ASSESSING OFFICE R FOR CONSIDERING THE FRESH EVIDENCE AND DECIDE THE ISSUE. ACCORDINGLY WE SET ASIDE TH IS ISSUE TO THE FILE OF ASSESSING OFFICER TO CONSIDER THE CERTIFICATE OF CHARTERED CO NSULTING ENGINEERS RECOGNIZED BY C.C.E NAGPUR AND FACTORY INSPECTOR OF GUJARAT AND MAHARASHTRA. THIS ISSUE OF THE REVENUES APPEAL IS SET ASIDE TO THE FILE OF ASSESS ING OFFICER. 7. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS DAY OF 23 RD JULY 2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD DATED : 23/07/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-III BARODA 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD