TMI Blog2014 (1) TMI 912X X X X Extracts X X X X X X X X Extracts X X X X ..... ny material on record - The decision in Mahavir Dyeing & Print Mills Pvt. Ltd. Versus Income Tax Officer [2010 (4) TMI 968 - ITAT AHMEDABAD] followed – Where an assessee incur any expenditure in respect of which payment has been made to any of a person referred then in the opinion of the Assessing Officer such expenditure 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 expenditure as is so considered by the Assessing Officer to be excessive or unreasonable shall not be allowed as a deduction. On careful readings of this Section 40, it is worth to mention that before applying the provision it is required that the Assessing Officer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of AO for fresh adjudication. Pursuant to the direction of Tribunal AO vide order dated 26.12.2008 passed order u/s 143(3) read with section 254 of the Act and addition u/s 40A(2)(b) of Rs 870358/- was made. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) vide order dated 25.1.2010 dismissed the appeal of the assessee. Against the aforesaid order of CIT(A) Assessee is now in appeal before us. The only effective ground of appeal raised by the Assessee reads as under:- 1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(Appeals) has erred in confirming the action of the Assessing Officer by disallowing Rs. 8,70,358/- as alleged excess payment of job charges u/s. 40A(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Shareholder of the above companies up to 31.08.1996. The appellant firm has no interest in above two companies and above two companies or the Directors of above two companies had also no interest in the firm. Hence 40A(2)(a) is not applicable to the job charges paid to above companies up to 31.08.1996". Further the A.R. explicated that these proceedings is running for the last 12 years. Meanwhile all the machineries which were not in suitable working conditions were disposed off on very nominal price. On A.O.'s request to furnish details for comparative instances to prove the price prevailing in the market; the A.R. pleaded in regard to that the long period of 12 years had been elapsed the appellant could not able to produce comparati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no partner or relatives of such partners were Director or shareholder of the above companies upto 31.8.96. The Assessee has also no interest in the aforesaid two- companies to whom job charges paid. The two companies or the directors of these two companies have also no interest in the firm and hence provisions of s, 40A(2)(a) are not applicable to the job charges. He further submitted that Assessee has paid job charges of Rs 15/kg for texturising of yarn to Amidhara texturising Pvt ltd. AO had determined the excessive amount by adopting the cost of texturising to the Assessee and the payment made in excess of cost to the Assessee was considered as excessive. He further submitted that cost of texturising of Rs 9.71 per kg was incorrect as h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O to be excessive or unreasonable. Thus it becomes apparent that the AO is required to form an opinion having regard to the fair market value of the service rendered. The AO has to record a finding as to whether the expenditure is excessive or unreasonable in relation to the requirements prescribed. 10. In the present case, it is seen that AO has not done any exercise to determine as to whether the amount paid by the Assessee to its sister concern were excessive or unreasonable by comparing the prevalent market rates. He has not arrived at an exact figure of excessive payment by comparing the amount paid by the assessee with the market rates for similar goods and services but he has rather considered the disallowance by comparing the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, as is apparent from the assessment order on the basis of which it could be said that the Assessing Officer has formed an opinion after collecting necessary information from the market to compare the prevalent market rate of the job work done by the said sister concern. Rather, the Assessing Officer was not sure about his opinion therefore he has used the termeology, "application to be excessive". He had also not arrived at an exact figure of disallowance rather made the disallowance ITA No. 1261/Ahd/2007 A.Y. 2004-05 Mahavir Dyeing and Print Mills P. Ltd. Vs 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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