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2022 (8) TMI 217 - AT - Income TaxAddition u/s 40A(2)(b) - amount incurred on Moulds Manufacturing & Repair expenses - As argued assessee is engaged in the business of manufacturing of plastic goods and has obtained services under AMC related to Mould Manufacturing and Repair Expenses from the related party and CNC Services from unrelated party and both the services are not comparable and thus cannot be the basis for determination of fair market value by invoking the provisions of Section 40A(2)(b) - HELD THAT:- We find justification in the case made out on behalf of the assessee. While the assessee has demonstrated that the nature of services are different, the CIT(A) has confirmed the action of the Assessing Officer without taking cognizance of such facts. Secondly, the CIT(A) has observed that the Assessing Officer has made disallowance towards excessive payment to relative party under Section 40A(2)(b) on the basis of fair market value but however the source of fair market value is in unknown territory. Except for the comparison with the amount paid to Kalsi Mould and Dyes vis-à-vis amount paid to sister concern (Jaypee Technoplast Pvt. Ltd. which are stately engaged in rendering different services and also, one is time based on seamless basis while other is essentially service based, the comparison is rightly claimed to be unjustifiable. We thus find merit in the plea of the assessee for lack of sound basis for determination of ‘fair market value’ and consequent inapplicability of Section 40A(2)(b). Addition of deemed dividend u/s 2(22)(e) - assessee (partner firm) obtained loan from the sister concern and one of the partners of the firm, Ms. Anita Jain holding profit sharing ratio of 25% in the firm (recipient of loan) is also holding 14.52% shares in the lender company - HELD THAT:- As in the case of Pradip Kumar Malhotra [2011 (8) TMI 16 - CALCUTTA HIGH COURT] has observed that advances given by lender firm was not for the individual benefit of the shareholder but for business purposes and therefore such transactions could not fall within the sweep of deeming fiction created under Section 2(22)(e) of the Act. This reason on a standalone basis is sufficient to exclude the applicability of Section 2(22)(e) of the Act on the money received by the assessee firm. Also see MOHAN BHAGWATPRASAD AGRAWAL [2020 (1) TMI 1139 - GUJARAT HIGH COURT] Hence, the loan obtained being not gratuitous in nature, do not fall within the mischief of Section 2(22)(e) of the Act. We thus opine that the action of the Assessing Officer runs counter to the mandate of Section 2(22)(e) of the Act on this score alone. Hence, we are not inclined to examine other limbs of arguments raised on behalf of the assessee. Penalty u/s 271(1)(c) - HELD THAT:- The penalty imposed under Section 271(1)(c) cannot survive for twin reasons as the quantum additions itself is devoid of merit and the issue involved, at any rate, is highly debatable and thus no case of any concealment of income/furnishing of inaccurate particulars of income per se could be successfully made out by the Revenue. The penalty imposed by the Revenue are thus reversed and cancelled. Assessee appeal allowed.
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