TMI Blog2014 (1) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer was not justified in adopting disallowance to the extent of 10% payment under Section 40A(2)(b) of the Act solely on the ground that M/s. Pollucon Engineers to whom the payment was made, was run by the wife of the Director of the assessee company - Decided against Revenue. - Tax Appeal No. 1009 of 2013, Tax Appeal No. 1010 of 2013, Tax Appeal No. 1012 of 2013 - - - Dated:- 27-12-2013 - M. R. Shah And R. P. Dholaria,JJ. For the Appellant : Mr. Sudhir M. Mehta, Advocate JUDGMENT (Per : Honourable Mr. Justice M. R. Shah) 1.0. As common question of law and facts arise in all these Tax Appeals and as such with respect to same assessee but different assessment years and as such arising out of the common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07-08, the revenue has preferred the present Tax Appeal to consider the following substantial question of law. Whether on the facts and circumstances of the case and as per law, the Hon ble ITAT is right in upholding the decision of learned CIT(A) of deleting the addition made by the AO of Rs. 16,53,000/made on account of payments made U/s. 40A(2) (b) of the IT Act? 5.0. For the sake of convenience, the facts of Tax Appeal No.1012 of 2013 for AY 200506 are considered, which in nutshell are as under: 5.1. The assessee claimed to have engaged in the business of development of infrastructure facilities mainly relating to water and sewage treatment on turnkey basis filed return of income for AY 200506 declaring total income at Rs. NIL. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rector of the assessee company and therefore, element of excessive payment cannot be denied. 5.2. Feeling aggrieved and dissatisfied with the order passed by the Assessing Officer in disallowing 10% of payment of Rs.1.50 crores i.e. making 10% disallowance out of the payment to specified persons under Section 40A(2)(b) of the Act and directing to make addition to the total income of the assessee, the assessee preferred appeal before the learned CIT(A)and the learned CIT(A) has deleted 10% disallowance out of the payment to specified person under Section 40A(2)(b) of the Act i.e. payment to M/s M/s. Pollucon Engineers. 5.3. Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A), in deleting disallowance to the ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer by observing that element of excessive payment cannot be denied. 7.1. It is further submitted by Shri Sudhir Mehta, learned advocate for the revenue that the learned ITAT has not properly appreciated fact that M/s. Pollucon Engineers to whom the payment was made under Section 40A(2)(b) of the Act was a sister concern run by the wife of the Director of the assessee company and therefore, element of excessive payment cannot be denied. It is submitted that as such the assesssee failed to produce any evidence which may suggest that the payment was reasonable or was necessitated out of the business need or payee was the only person who could have only handled the project of plant operation on contract basis. It is submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve payment was made to the aforesaid firm which warranted disallowance / ad hoc disallowance. 10. While deleting the observation made by the Assessing Officer, the learned CIT(A) has observed as under: 4.3. I have considered the submission made by the appellant and servation of the A.O. The disallowance made by the A.O. u/s 40A(2)(b) is adhoc and without any basis. Disallowance u/s 40A(2)(b) by saying that the assessee has not followed due diligence and has not floated tender or obtaining the lowest rate is not correct. Various courts have held that the AO cannot dictate to the assessee as to how the business should be done. Hon ble ITAT in the case of Binit Corporation (24 TTJ 571) has after considering various judicial pronouncement s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is allowed. 11. The learned ITAT has confirmed the above deletion by observing in para 22 is as under: 22. We have heard this issue in the light of the material placed before us. The provisions of Section 40A(2)(b) are to be applied when the AO is of the opinion that an expenditure is excessive or unreasonable having regard to the fair market value of the services for which the payment is made. In the present case, the genuineness of the expenditure has not been doubted by the A.O. The only reason for the impugned addition was that the payments was excessive in nature. But before arriving to a conclusion that the payment was excessive, the AO was expected to place on record the reason for holding such opinion. We have noted that no s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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