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2016 (4) TMI 1092 - ITAT JODHPUR

2016 (4) TMI 1092 - ITAT JODHPUR - TMI - Disallowance under sec. 40A(2)(b) - whether assessee had unreasonably paid higher amount regarding purchase of guar gum from related parties? - Held that:- Sec. 40A(2)(a) 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 clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair .....

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e of the goods was lower than the amount paid by the assessee to its sister concerns. In absence of the same, we find that the addition made has righty deleted by the Commissioner of Income Tax (Appeals) and calls no interference from us. - Decided against revenue

Disallowance of trading loss - Held that:- No material was brought on record by the Departmental Representative to controvert the finding of the Commissioner of Income Tax (Appeals) that the Assessing Officer has accepted th .....

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aximum 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 ₹ 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)- Decided against revenue

Deduction under sec. 80IA without setting off of unabsorbed depreciation of eligible unit - Held that:- The disallowance of deduction under s .....

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EMBER For The Assessee : Shri Rajendra Jain - Adv. For The Department : Smt. Alka R. Jain - DR ORDER PER N.S. SAINI, ACCOUNTANT MEMBER This is an appeal filed by the Revenue against the order of Commissioner of Income Tax (Appeals)-1, Jodhpur, dated 18/05/2015. 2. The ground No.1 of the appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) deleting the disallowance of ₹ 82,61,424/- made by the Assessing Officer under sec. 40A(2)(b) for the reason t .....

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24/-. 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 .....

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lowances the AO is expected to exercise his judgment in a reasonable and fair manner. The Board further stated that while making disallowances it should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bona fide cases. 4.3.1 I further find that the object of sec. 40A(2) is to prevent evasion of tax by diversion of income. An assesse .....

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s the list of related persons. It is only where the payment is made by the assessee to the related persons mentioned in cl. (b) of s. 40A(2) of the Act that the AO assumes jurisdiction to proceed to disallow the expenditure or a part of the expenditure which he considers excessive or unreasonable in respect of Clause (b) of s. 40A(2) of the Act. 4.3.2 On perusal of the assessment order, I find that the Assessing Officer has not brought on record any evidence that the fair market value of the goo .....

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were for legitimate business needs as in the business of export by the assessee firm, the consistency of supply as well as quality of supply is important, Further the prices of Guar, Guar Gum Split are highly fluctuating from time to time; therefore the reasonableness is to be seen and ascertained from this viewpoint as well. A reference is made to the decision in the case of Voltamp Transformers (P) Ltd. vs. CIT (1981) 23 CTR (Guj) 312 : (1981) 129 ITR 105 (Guj). 9. In the instant case, the ca .....

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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 businessm .....

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nd above which he feels appropriate but the opinion should be formed objectively from the point of view of a prudent businessman and after should not be influenced by immaterial considerations. The Hon ble Rajasthan high Court in the case of CIT v/s Consulting Engineering Group Ltd reported (cited Supra) after taking into consideration the decision of the various High Courts as referred by the assessee at Page 7-8 of written submission took the similar view. Thus, the facts of the case are ident .....

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for the year under consideration declared was assessed at the same rate of tax. Admittedly, it was not a case of tax evasion; the various decisions referred by the appellant firm in his submission are squarely applicable to the facts of assessee s case. I find further that in the past similar transactions with the sister concern were made and same were treated as genuine by the Assessing officer while passing the assessment order u/s 143(3) of the Act, and there is no difference either in syste .....

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ection 40A(2)(b) of the Act. Further the provision of section 4 has no rider as same is charging section 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 i .....

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the Assessing Officer was not justified in making the disallowance by invoking the provision of section 40A(2)(b). The addition of ₹ 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 Representative of the assessee supported the order of the Commissioner of Income Tax (Appeals). 6. We find that no specific error in the order of the Commissioner of Income Tax (Appeals) could be po .....

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to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of 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 the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a ded .....

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eal is directed against the order of the Commissioner of Income Tax (Appeals) deleting the disallowance of trading loss of ₹ 2,80,09,637/- made by the Assessing Officer in respect of transactions with related parties. 8. Brief facts of the case are that the Assessing Officer observed that the assessee had admitted a trading loss of ₹ 3,62,70,791/- vide submission dated 24/03/2014. Since the exact loss generated due to sales to the related parties under sec. 40A(2)(b) is not provided. .....

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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 m .....

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because the firm has single account for purchase of Guar Gum Split which is used for manufacturing as well as for trading but at the year end the assessee firm transfers the monthly quantity of Guar Gum Splits sold from Purchase of Guar Gum Splits to Purchases of Guar Gum Splits (Trading) Account by average purchase price and this practice is being followed year to year and same was accepted by the AO in the preceding assessment year. The AO has accepted profit of ₹ 7,96,81,577/- in respec .....

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f 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 ₹ 2,80,09,637/- is erroneous and the same deserves to be deleted. In view of the above discussion, it is held that the Assessing Officer was not justified in making the addition of ₹ 2,80,09,637/-. The addition of ₹ 2,80,09,637/- is hereby deleted. The grounds of appeal are allowed. 10. Departmental Representative relied on the .....

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96,81,577/- in respect of manufacturing activity and at the same time, has disallowed loss in respect of traded goods without bringing on record any material. All the purchases & sales were recorded in terms of quantity and value and were supported by bills and vouchers and no adverse material or evidence was noticed to 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 .....

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lowing 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 se .....

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e allowed. Since, in this case, profit of the eligible business against which brought forward unabsorbed depreciation is first to be set off and after setting of the brought forward unabsorbed depreciation there no profit left. The notional depreciation should be notionally adjusted in the subsequent years and after the same is exhausted by the assessee, then and then only the assessee will be eligible for the deduction under sec. 80IA of the Act. Hence, there is no question of allowing deductio .....

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ed by the decision of CIT Vs. Emerald Jewel Industries Pvt. Ltd. reported in 53 DTR (Mad.) 262. The relevant findings are reproduced as under:- ...there was no rectification possible under s. 80-1 in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, re computat .....

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r 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 .....

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