TMI Blog2016 (4) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the profit of ₹ 7,96,81,577/- 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 assessee who has large income and is liable to pay tax at the highest rate prescribed under the Act often seeks to transfer a part of his income to a related person who is not liable to pay tax at all or liable to pay tax at a rate lower than the rate at which the assessee pays the tax. In order to curb such tendency of diversion of income and thereby reducing the tax liability by illegitimate means, s. 40A w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 observed that Certainly, aforesaid section provides that the AO, if he is of the opinion that such expenditure is excessive or unreasonable, having regard to the legitimate business needs of the company and the benefit derived by assessee, is not proper, has a chance to disallow any amount over and 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 ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 ₹ 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 pointed out by the Departmental Representative at the time of hearing. Further, we find that the Assessing Officer has compared the average purchase price of guar gum with the average purchase price paid by the assessee to its sister concerns and thereafter made the addition of difference amount of ₹ 82,61,424/- to the income of the assessee. In our considered opinion, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in trading account is not comparable with the corresponding sales in the trading account 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 respect of manufacturing activity and in the same account has disallowed loss in respect of traded goods without bringing on record any material. This too in a situation, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 eligible business (windmill business) to be computed as if such income is only source of income of the assessee during the previous year relevant to the initial assessment year and every subsequent assessment year upto and including the assessment year for which the determination is to be made, the brought forward unabsorbed depreciation is first to be set off against the profit of the eligible business and then from the balance profit deduction under sec. 80IA is to be 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 favor of assessee by observing as under:- 12. We have considered the submission of both the parties and carefully gone through the material available on record. In the present case, it is noticed that the Ld. CIT (A) while allowing the claim of the assessee following the decision of this Bench of the Tribunal in the case of M/s Choudhary Freight Carriers Vs. ACIT, Central Circle-1, Jodhpur in I.T.A. No. 441/ Jodh/2012 wherein the earlier order of the ITAT Jiapur Bench in the case of Saurabh Agrotech (p) Ltd. Vs. DCIT reported at 48 Tax World page 135 was followed. Since the impugned order has been passed by the Ld. CIT (A) in consonance with the decision of the ITAT Jodhpur and the Jaipu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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