9911796707
TMI Blog2016 (4) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer worked out the average price and made the addition of Rs. 82,61,424/-. 4. On appeal, Commissioner of Income Tax (Appeals) deleted the addition by observing as under:- "4.3. I have thoroughly gone through the facts of the case and submissions of the appellant and I find that the provisions of section 40A(2)(b) of the Act provides that where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in cl. (b) of the sub-section and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of business or profession of the assessee or the benefit derived by or accruing there-from, so much of the expenditure as is so considered by him to be excessive or unreasonable, shall not be allowed as a deduction. The Hon'ble Central Board of Direct Taxes vide Circular No. 6-P (LXXVI-66) of 1968, dt. 6th July, 1968, laid down that while making disallowances the AO is expected to exercise his judgment in a reasonable and fair manner. The Board further stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO is that the assessee made purchase of raw material from the sister-concerns at a price higher than the price paid to other parties by working out the average purchase rate of the day. There is no justification to apply the average purchase rate, as the market rate of purchase keeps on fluctuating from time to time. The expression used in s. 40A(2) is any expenditure which means that each expenditure has to be judged in relation to its market rate on the date of expenditure. Thus, it must be established before invoking sec. 40A(2) that on the date the purchase and its payment made was in excess of the fair market price. The Hon'ble Allahabad High Court in Abbas Wazir (P) Ltd. Vs. CIT (2004) 265 ITR 77 held that even while invoking the provisions of Section 40A(2) of the Act, the reasonableness of the expenditure for the purpose of business has to be judged from the point of view of a businessman and not that of the revenue. The approach has to be that of a prudent businessman and the reasonableness must be looked into from businessman point of view. The Hon'ble Rajasthan high Court in the case of VIT v/s Consulting Engineering Group Ltd reported in 223 Taxman 440(Raj) has o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion but in section 40A(2)(b) there is rider given through circular N0.6-P, dated July, 1968.The identical issue as involved in the appellant case, [Section 40A(2)(b)] in CIT v/s Consulting Engineering Group Ltd reported in 223 Taxman 440(Raj). In this case it was held "we also notice that the assessee-company as well as thesalary paid to Shri Viswas Jain has offered to tax at maximum rate in his individual capacity and therefore, it can be said that there is hardly any loss to the revenue in so far as the payment of salary is concerned. We have observed this only by way of an observation, otherwise, as observed herein above.... " Therefore the decision of Hon'ble Rajasthan High Court reported in 250 ITR Page 526 relied by Assessing Officer is not applicable on the facts of the case. In view of the above discussion and in the light of the ratio of judgments cited above, it is held that the Assessing Officer was not justified in making the disallowance by invoking the provision of section 40A(2)(b). The addition of Rs. 82,61,424/- is hereby deleted. The grounds of appeal are allowed." 5. Departmental Representative relied on the order of the Assessing Officer, whereas Authorized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the sales made to the related parties. Hence, trading loss of 2,80,09,637/- disallowed and added to the income of the assessee. 9. On appeal, Commissioner of Income Tax (Appeals) deleted the same by observing as under:- 5.3. I have carefully gone through the submission, and finding recorded by AO in the assessment order and I find that it is an admitted fact that the appellant maintains day to day books of account and produced the same before AO along with day to day stock register. The method of accounting adopted by the assessee firm is approved by chartered accountant as per the provisions of section 145 of the Act. The system of accountancy is followed year to year and was accepted by the AO in the past and in subsequent year also. In the year under consideration the method of accounting was found to be true and correct and accordingly the AO accepted the books of accounts as true and correct and same were not rejected at any stage of assessment proceedings. The Authorized Representative was asked to furnish a bifurcation of the account of goods purchased, used for sale or manufacturing and the same was filed. It was further submitted that the purchase of Guar Gum Splits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that the assessee firm has inflated any sales or purchases. Further, all the related parties, covered under sec. 40A(2)(b) are assessed to tax at the maximum rate of tax as that of assessee and as such the very presumption for diversion of income is erroneous and as such the addition made by working trading loss at Rs. 2,80,09,637/- is erroneous and is deleted. Therefore, we find no good reason to interfere with the order of the Commissioner of Income Tax (Appeals) which is confirmed and the ground of appeal of the Revenue is dismissed. 12. The third ground of appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) allowing deduction under sec. 80IA without setting off of unabsorbed depreciation of eligible unit, ignoring the provision of sec. 80IA(5) and also ignoring the decision dated 25/07/2014 in ITA No. 518/JU/2013 in assessee's own case for Assessment Year 2009-10 has been appealed against the Department before the jurisdictional High Court vide appeal No. 16/2015, decision of which is pending yet. 13. Brief facts of the case are that the Assessing Officer observed that in view of the provisions of sec. 80IA(5), income of such el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear should be reopened again for computation of current income under s.80-I for the purpose of computing admissible deductions there under. We also agree with the same. We see no reason to take a different view." 4. The Division Bench further proceeded to hold as under: "15. ...We are not agreeing with the counsel for the Revenue. We are, therefore, of the view that loss in the year earlier to initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business as no such mandate provided in the s.80-IA(5)." 6.3.1 On a similar issue the Hon'ble Madras High Court in the case of CIT Vs. Emerald Jewel Industries (P) Ltd. Reported in (2011) 53 DTR (Mad.) 262 held that the assessee- company is eligible for deduction u/s 80IA of the Act in respect of wind mill installed by it and unabsorbed depreciation the deduction u/s 80IA of the Act. We, therefore, do not see any merit in the departmental appeal n this issue." 6.3.2 Further, in appellant's own case for A.Y. 2009-10 in ITA No 518/Jodh/2013 dated 25/07/2014, the Hon'ble ITAT, Jodhpur Bench, Jodhpur decided the issue in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
