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2016 (1) TMI 629 - ITAT PUNE

2016 (1) TMI 629 - ITAT PUNE - TMI - Excessive and unreasonable payments made by the assessee to the persons specified under section 40A(2)(b) - CIT(A) deleted the addition - Held that:- The recipient i.e. Doshi Group has earned only 2% margin towards expertise and vast existence for purchasing the tea from various customers on cost plus basis method which appears to be quite reasonable and is in accordance with the past practices. Similarly, interest @ 8% is much lower than interest on bank bor .....

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, we hold that disallowance under section 40A(2)(b) of the Act is not called for in the facts and circumstances of the case and rightly deleted by the CIT(A). - Decided against revenue

Disallowance under section 36(1)(va) - Employees Contribution to PF & ESIC paid beyond due date - CIT(A) deleted the addition - Held that:- As submitted on behalf of the assessee that only delay is for the month of January, 2005 of ₹ 28,444/- which has been deposited on 17.02.2005, the payment tho .....

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aforesaid conclusion. - Decided against revenue

Disallowance of TDS payment under section 40(a)(ia) - TDS payment made by the assessee beyond due dates - Held that:- the relevant provisions of section 40(a)(ia) of the Act would be applicable are as per amendment carried out by the Finance Act, 2008 w.r.e.f. 01.04.2005. As per these provisions, where the tax was deducted in the month of March, 2005 but paid before due date of filing of return, deduction of corresponding expenses would .....

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that:- We find that the documents filed by the assessee have not been purportedly examined. It is not clear whether all the documents filed before the CIT(A) were present before the Assessing Officer or not. We find that the confirmation letter has been filed for subsequent year which indicates the opening balance of the earlier year. We consider it necessary that proper enquiry is conducted by the Assessing Officer to find out the bona-fides of the impugned cash credit. We observe that the Ass .....

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- ITA Nos.157, 159 & 160/PN/2012 - Dated:- 28-10-2015 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant : Shri Rajesh Damor For The Respondent : Shri S.N. Kapadia ORDER PER PRADIP KUMAR KEDIA, AM : This bunch of three appeals filed by the Revenue are against the consolidated order of CIT(A)-I, Baroda dated 18.11.2011 relating to assessment years 2005-06, 2006-07 and 2007-08 passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). ITA No.157/PN/2012 (A .....

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n the facts and in the circumstances of the case and in law, Ld. CIT(A) was justified in relying on the decision of the Hon'ble Bombay High Court in case of Indo Saudi Services (Travel) (P) Ltd. (2009) 310 ITR 309 and deleting the disallowance made u/s. 40A(2)(b), when judicial decision in case of Nund & Samount Co. P. Ltd 78 ITR 268 (SC) and CIT vs. Shatrunja Diamonds (261 ITR 258 (Bom) are squarely applicable to this case. 3. Whether on the facts and in the circumstances of the case an .....

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llant craves leave to add, alter, amend, modify any of the above grounds raised, any other grounds at the time of proceedings before the Hon'ble Tribunal which may please be granted. 3. The first and second grounds of appeal of the Revenue questions the action of the CIT(A) in reversing the excessive and unreasonable payments made by the assessee to the persons specified under section 40A(2)(b) of the Act. 4. The relevant facts governing the issue are briefly stated as follows. The assessee .....

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port, it was seen by the Assessing Officer that the assessee has incurred expenditure and paid to the specified persons under section 40A(2)(b) of the Act as follows :- (i) Purchases - Rs.7,12,28,743/-; (ii) Interest - Rs.1,98,63,209/-; (iii) Rent - Rs.1,20,000/-; and, (iv) Advertisement and Sales promotion expenditure - Rs.28,71,845/- 5. The Assessing Officer next observed that there is a steep fall in the gross profit of 12.47% [current year s (-) 6.18% plus last year s 6.29%]. The Assessing O .....

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b) of the Act. 6. The Assessing Officer further observed that in respect of interest expenses, the assessee has paid interest to person other than specified persons i.e. local parties at 6% whereas to the specified persons at the rate of 8%. Accordingly, he disallowed excess claim of 2% considering the same as unreasonable having regard to the fair market rate allowed by the assessee itself to the outsider by the local parties and consequent to the disallowance of ₹ 49,65,802/-. As a resul .....

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ssee was sought and reproduced in para 3.3 of the appellate order. The assessee, inter-alia, submitted that for the assessment years 2001-02, 2003-04 and 2004-05, where the assessment was framed under section 143(3) of the Act, no disallowance was made in earlier years after scrutiny, based on the similar justification canvassed in respect of same parties. Therefore, primary onus which lay upon the assessee is duly discharged in this case. There are no change in the circumstances or the facts. H .....

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ed as under :- 3.4 I have considered facts of the case, appellant's submissions, AO's report and appellant's comments there upon. AO's only reason for making disallowance u/s 40A(2)(b) was failure of appellant to discharge onus on it regarding the reasonableness of payments made to section 40A(2) parties vis-avis fair market value of the goods etc. On other hand, appellant's contention is that a detailed Note justifying payments made to section 40A(2) parties was furnished du .....

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to 2004-05, no disallowance was made u/s 40A(2) after considering the same justification. In this situation, it cannot be said that appellant did not discharge onus on it u/s 40A(2) in the assessment proceedings for AY 2005-06. Moreover, even on being asked at appellate stage, A.O. had no comments on merits of the justification filed by appellant. Justification provided by appellant in support of section 40A(2) payments is now taken up on merits. As far as transactions of purchase of tea were c .....

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a reasonable margin for the functions performed by the sec 40(A(2) parties, i.e. Doshi group from which purchase was made. Considering these aspects and the fact that purchases at same margin from the same sec. 40A(2) parties were accepted by the AO from AY 2001-02 onwards without any disallowance u/s 40A(2), it is held that there was no justification to invoke provisions of section 40A(2) in respect of purchase of raw materials. Regarding purchase of packing material, advertisement and sales p .....

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cepted in earlier years by the AO. After appellant had justified the consideration paid towards packing material, advertisement and sales promotion expenses etc in the above mentioned manner, it was for the AO to have brought material on record before it could be held that the price paid was excessive or unreasonable vis-a-vis fair market value. Similar transactions were accepted by the AO from AY 2001-02 onwards without any disallowance u/s 40A(2). It is held that there is no basis for making d .....

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ion 40A(2) parties @ 8% were a means to reduce borrowings from bank and therefore, rate should be compared with bank borrowings and not agency deposits which in any case were insignificant as compared to suppliers' credit. Moreover, agency deposits were actually not loans but security against supplies made by the appellant. I am in agreement with appellant that interest rate on suppliers' credit cannot be compared with interest rate on agency deposits. Appropriate benchmark for interest .....

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that appellant had brought forward loss exceeding ₹ 40 crore and assessed income for AY 2005-06 was loss of ₹ 5,49,59,480/-, i.e. far in excess of disallowance u/s 40A(2). Decision by Hon ble Bombay High Court in the case of Saudi Services (Travel) Pvt. Ltd. [2009] 310 ITR 306 (Bom) is relevant in this regard. To sum up, disallowance u/s 40(A)(2) of ₹ 1,23,87,860/- is cancelled and this ground of appeal is allowed. 9. Aggrieved by the order of the CIT(A), the Revenue is in appe .....

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his Bench situated at Pune. This is owing to the fact that the assessment order has been passed by the assessee situated at Baroda, Gujarat and therefore the appellate jurisdiction lies with the Ahmedabad Bench of the Tribunal in terms of Rule 4 of the standing orders under the Income Tax (Appellate Tribunal) Rules, 1963, which provides for ordinary jurisdiction of the Bench to be determined by the location of the office of the Assessing Officer. 12. In rejoinder, the Ld. Departmental Representa .....

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iled and well reasoned and after consideration of all the relevant facts and circumstances and case laws cited in this regard. 13. We have carefully considered rival submissions, orders of the authorities below and perused the case laws referred. We find no rebuttal to the contention of the assessee that similar payments have been made to Doshi Group for making purchase of tea on behalf of the assessee in incurring other expenses in the earlier years where on consideration of the identical premi .....

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does not stand to any benefit by making excessive payments to the specified persons over fair market value of goods or service, etc.. No case of tax advantage is perceptible in such alleged excessive payments. Decision of the Hon ble Bombay High Court in the case of CIT vs. Indo Saudi Services (Travel) P. Ltd., (2009) 310 ITR 306 (Bom) and CIT vs. Shatrunjay Diamonds, (2003) 261 ITR 258 (Bom) is squarely applicable in these facts. The recipient i.e. Doshi Group has earned only 2% margin towards .....

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e, the token amount credit available @ 6% does not give proper foundation for comparison. In the light of aforesaid facts and circumstances, we are in complete agreement with the findings of the CIT(A) and therefore decline to interfere. Accordingly, we hold that disallowance under section 40A(2)(b) of the Act is not called for in the facts and circumstances of the case and rightly deleted by the CIT(A). Thus, the ground of appeal Nos.1 and 2 pertaining to disallowance under section 40A(2)(b) of .....

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ees Contribution to PF of ₹ 28,444/- and Employees Contribution to ESIC of ₹ 22,667/-. It was submitted on behalf of the assessee that only delay is for the month of January, 2005 of ₹ 28,444/- which has been deposited on 17.02.2005, the payment though delayed has been made within grace period available under Employees Provident Fund Regulations. Similarly, for ESIC contribution, the payment is stated to have been made before due date of filing of return. The CIT(A) reversed th .....

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The next ground No.4 of the Revenue s appeal relates to disallowance of TDS payment under section 40(a)(ia) of the Act in respect of TDS payment made by the assessee beyond due dates. 16.1 In the context, the Assessing Officer made a disallowance of ₹ 4,34,901/- under section 40(a)(ia) of the Act by stating that payment has been made before the due date and section 40(a)(ia) of the Act are mandatory. The CIT(A) observed that the relevant provisions of section 40(a)(ia) of the Act would be .....

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o allow expenses in question as per aforesaid criteria. We find no error in the conclusion of the CIT(A) and hence, we decline to interfere with his findings. Thus, the ground No.4 raised by the Revenue is dismissed. 16.2. In the result, the appeal of the Revenue in ITA No.157/PN/2012 relating to assessment year 2005-06 is dismissed. ITA No.159/PN/2012 (A.Y. : 2006-07) : 17. Now, we take-up the appeal of the Revenue for assessment year 2006-07 in ITA No.159/PN/2012. In this appeal, the Revenue h .....

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t in case of Indo Saudi Services (Travel) (P) Ltd. (2009) 310 ITR 309 and deleting the disallowance made u/s. 40A(2)(b), when judicial decision in case of Nund & Samount Co. P. Ltd 78 ITR 268 (SC) and CIT vs. Shatrunja Diamonds (261 ITR 258 (Bom) are squarely applicable to this case. 3. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) was justified in deleting disallowance made u/s.36(i)(va) for Employees Contribution to PF & ESIC, which were paid beyond t .....

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amend, modify any of the above grounds raised, any other grounds at the time of proceedings before the Hon'ble Tribunal which may please be granted. 18. Ground Nos.1 and 2 of the Revenue s appeal for the assessment year 2006-07 are pari-materia with ground Nos.1 and 2 of the assessment year 2005-06 discussed earlier. Since the issues involved are identical and arising from the similar facts for the same assessee, we observe that the findings in respect of ground Nos.1 and 2 pertaining to ass .....

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und No.3 is also dismissed. 20. The Ground No.4 of the Revenue s appeal relates to addition of ₹ 2,00,00,000/- under section 68 of the Act vacated by the CIT(A). 20.1 In this context, the relevant facts, in brief, are that the Assessing Officer noticed that the assessee has shown a fresh unsecured loan/cash credit of ₹ 2,00,00,000/- in the name of Shri Jayant Sanghvi. The Assessing Officer questioned the impugned credit on the ground that confirmation from the lender has not been fur .....

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mitted that the lender, Shri Jayant Sanghavi is a reputed businessman in Vadodara. The Assessing Officer has come to the adverse conclusion on the ground that (a) the signature on PAN Card does not match with the signature on the confirmation letter; (b) Confirmation letter filed does not pertain to the relevant assessment year; and (c) Copy of the depositor s bank account is not furnished. Thus, the assessee has not discharged his burden of proving the genuineness of the cash credit. In defence .....

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bhit H. Shah, the Accounts Manager of the depositor, who is an authorized signatory. It was contended on behalf of the assessee that in large organizations, account confirmations are generally signed by the heads of the accounts departments and the question of the signature being different from that on the PAN Card is of no consequence. He next contended that copy of cheque no.102207 dated 18.10.2005 drawn on ABN Amro Bank duly signed by the depositor together with the copy of the forwarding let .....

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computation shows interest income of ₹ 7,63,850/- which includes interest of ₹ 5,42,466/- from the assessee as per copy of the TDS certificate. The computation also shows that the depositor has exempt income of ₹ 5.08 crores which adequately proves the creditworthiness of the depositor. The assessee, therefore, pleaded that the factum of deposit having been received from an identified persons and the fact that the depositor has substantial means to make the deposit are establi .....

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sessee deleted the addition holding that the addition under section 68 of the Act was not justified in the facts of the case. The relevant operative para of the CIT(A) s order is reproduced hereunder :- 6.2 I have considered facts of the case and appellant's submissions. I have also gone through the documents filed by the appellant in this regard during assessment proceedings through letters dt. 10.12.2008 and 18.12.2008. Appellant filed confirmation from the party for the period ending 31.3 .....

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total income by Shri Jayant Sanghavi for AY 2006-07. Confirmation letter filed by the appellant showed depositor's account for the year ended 31-3-2007 with opening balance as on 1.4.2006 of ₹ 2,04,81,601/-, which included principal amount of ₹ 2 crore plus the accrued interest of ₹ 4,81,601/- (net of TDS). The account showed the interest as above having been paid on 22-06-2006. Appellant had also filed copy of cheque dated 18.10.2005 of ₹ 2,00,00,000/- signed by Jay .....

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tures did not match with signatures on the PAN card of Shri Jayant Sanghavi. However, the signatures on the PAN card do match with signatures on the cheque dt. 18.10.2005 issued by Shri Jayant Sanghavi in appellant's name, which was credited in appellant's bank account on the same day. As such, due to the documents filed, there is no doubt about identity of the lender whose PAN card bearing photograph was filed. There is no doubt about genuineness of the transaction, which was through ba .....

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urn of Shri Jayant Sanghavi for AY 2006-07 declaring taxable income of ₹ 13,95,826/- in which interest on deposits of ₹ 7,63,850/- was reflected. This interest is claimed to be including gross interest of ₹ 5,42,266/- from the appellant. Moreover, as per computation of income Shri Jayant Sanghvi had shown exempt of ₹ 5.06 crore in the return of income filed for AY 2006-07, i.e. he was a man of means. A.O. s observation about non-filing of bank statement of Shri Jayant San .....

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of the party stood sufficiently discharged. It is held that addition of ₹ 2,00,00,000/- u/s 68 was not justified and the same is deleted. 21. Before us, the Ld. Departmental Representative for the Revenue submitted that the Assessing Officer was justified in making the addition under section 68 of the Act when the basic ingredients to satisfy the bona-fides of the loan are not present, even the confirmation letter was not filed. He relied upon the order of the Assessing Officer. 22. The L .....

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ments filed before the CIT(A) were present before the Assessing Officer or not. We find that the confirmation letter has been filed for subsequent year which indicates the opening balance of the earlier year. We consider it necessary that proper enquiry is conducted by the Assessing Officer to find out the bona-fides of the impugned cash credit. We observe that the Assessing Officer has failed to discharge his obligation to conduct a proper enquiry qua the lender to take the matter to logical co .....

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oses. 25. In the result, the appeal of the Revenue in ITA No.159/PN/2012 relating to assessment year 2006-07 is partly allowed. ITA No.160/PN/2012 (A.Y. : 2007-08) : 26. Now, we take-up the appeal of the Revenue for assessment year 2007-08 in ITA No.160/PN/2012. In this appeal, the Revenue has raised the following grounds of appeal :- 1. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) was justified in allowing excessive and unreasonable payments made by the asses .....

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vs. Shatrunja Diamonds (261 ITR 258 (Bom) are squarely applicable to this case. 3. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) was justified in deleting addition of ₹ 12,00,000/- made by the AO on account of interest paid on the addition of ₹ 2,00,00,000/- made u/s 68 in the previous year when the assessee could not prove genuineness and creditworthiness of depositor/ creditor inspite of sufficient opportunity given to him by the AO to prove the .....

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