Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2018 (3) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (3) TMI 1752 - ITAT AGRAAddition u/s 40A(2)(b) - Addition on account of alleged excessive rent paid on machineries hire for hospital - unreasonable or excessive - CIT(A) observed that the machinery were very old, obsolete and had outlived their use and utility and the payment of rent was only to reduce the liability of the assessee - absence of inquiry by the AO - HELD THAT:- AO observed that the payments were made to the persons covered u/s 40A(2)(b). But that is why section 40A(2)(a) has been invoked. The issue is whether the AO’s opinion that the expenditure was excessive, is correct. As per section 40A(2)(a), such opinion of the AO is to be formed having regard to the fair market value of the goods in which the payment is made. AO has to place on record material showing the fair market value of the goods. In the present case, the AO did not conduct any inquiry or verification into the reasonableness of the expenditure with reference to fair market charges payable under similar conditions. In ‘CIT vs. Superior Crafts’ [2012 (4) TMI 476 - DELHI HIGH COURT] has approved the action of the Tribunal in deleting the similar addition/disallowance, dismissing the appeal filed by the Department. In ‘ITO vs. Mayur Agarwal’, [2010 (4) TMI 1061 - ITAT AGRA] it was held that u/s 40A(2)(b), the AO is bound to show as to how the rent paid to a relative is excessive. In ‘ACIT vs. Bombay Real Estate Development Company (P) Ltd [2011 (6) TMI 796 - ITAT MUMBAI] it was held that since the AO had not brought on record anything to show that the payment made was unreasonable or excessive having regard to the fair market value of the services for which the payment was made or the benefit derived from such services, the conditions of section 40A(2) were not satisfied. Also see ‘S.K. Engineering vs. JCIT’, [2005 (8) TMI 285 - ITAT BANGALORE-A] held, inter alia, that for invoking the provisions of section 40A(2), the onus lies on the AO that the payment is excessive or unreasonable having regard to the fair market value of the goods; and that the Revenue has to place on record evidence as regards excessiveness or unreasonableness. In ‘Jagdamba Rollers Flour Mill Ltd. Vs. ACIT’, [2008 (10) TMI 282 - ITAT NAGPUR] held that disallowance u/s 40A(2) can be made only if payment is made to a person specified in section 40A(2)(b) and it is found to be excessive or unreasonable having regard to the market value of the goods, services or facilities for which the payment is made; and that in the absence of inquiry by the AO, as contemplated by the provisions of section 40A(2)(a) , no disallowance can be made. - Decided in favour of assessee.
|