TMI Blog2016 (7) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... t the payment was made to a group concern - Decided in favour of assessee - TAX APPEAL NO. 822 of 2007 - - - Dated:- 22-6-2016 - MR. KS JHAVERI AND MR. G.R.UDHWANI, JJ. FOR THE APPELLANT : MR MANISH J SHAH, ADVOCATE FOR THE OPPONENT : MR NITIN K MEHTA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this appeal, the assessee has challenged the judgment and order of the Income Tax Appellate Tribunal (for short, the Tribunal ) dated 9.2.2007 passed in ITA No.1550/Ahd/2002, whereby the Tribunal has confirmed the order of the Assessing Officer by reversing the order of the Commissioner of Income Tax (Appeals) [for short, CIT (A) ]. 2. At the time of admission of this Appeal, this Court framed the following question of law:- Whether on the facts and in the circumstances of the case, the Tribunal was right in disallowing by application of section 40A (2)(b) ₹ 5,00,000/- from the payment of ₹ 10,00,000/- made by the assessee to M/s.Araham Developers Pvt. Ltd. in respect of the consultancy services provided by them to the assessee? 3. Mr.Manish Shah, learned counsel for the appellant submitted that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities. For providing and assisting such services to twelve various associations of Bakeri Group five employees were deputed by M/s. Araham Developer Pvt. Ltd. and it was agreed to pay their salaries. However, the salaries were not paid to the employees directly but a lumpsum payment of ₹ 10 lakhs was paid to their employer M/s. Araham Developer Pvt. Ltd. towards salary. M/s. Araham Developer Pvt. Ltd. had the expert technical personnel, who were basically the engineers and technical persons, who had helped the appellant in designing and estimation work etc. It was contended that out of the total receipts of consultancy charges, consultancy fees were paid to M/s. Araham Developer Pvt. Ltd., because these persons were instrumental in helping the appellant for rendering the consultancy services to Baker Group of Association. The appellant had confirmed in the statement recorded before the AO and there is no doubt that the technical people of Araham Developer Pvt. Ltd. have rendered the services for helping the appellant for rendering the consultancy services to Bakeri Group. Therefore, without any proper basis, the Assessing Officer has valued the services rendered by Araham ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. relating to the assess would be only 50% of ₹ 6,95,250/-. We have also noted from the balance sheet that Araham Developer Pvt. Ltd. has received consultancy services for the first time and therefore we do not agree with the plea of learned AR that Araham Developer Pvt. Ltd. was having technical expertise in the field for which the assessee was rendering the consultancy services. We also do not agree with the plea of the ld AR that the other expenses incurred by Araham Developer Pvt. Ltd. under the head administrative expenses are also recoverable from the assessee because the assessee himself has taken argument that the assessee has agreed that Araham Developer Pvt. Ltd. would be paid for the salaries of the five persons who have worked for the assessee. The AO in this case has allowed a sum of ₹ 5 lakhs out of the sum of ₹ 10 lakhs. Section 40 A (2) (b) empowers the AO whether the expenditure has been incurred on the persons referred to in sec.40A (2) (b), only to allow those expenses as is considered by him to be reasonable having regard to the fair market value of the services rendered by such persons. It is an admitted fact that the assessee has availed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Araham Developer Pvt. Ltd. it would not have been possible for the appellant to render the services to various associations of Bakeri Group. The entire payment of ₹ 10 lakhs to Araham Developer Pvt. Ltd. can be considered as reasonable, looking to the services rendered by them. Therefore, we find that the Tribunal has committed an error while passing the impugned order. We may also refer to the observations made by this Court at the time of deciding Tax Appeal No.1058 of 2006:- 4.1. Learned counsel for the appellant further submitted that in view of the decision of this Court in the case of Commissioner of Income Tax III Vs. Ashok J. Patel, reported in [2014] 43 Taxmann.com 227(Gujarat), more particularly paragraph Nos. 8, which reads as under :- 8. That the assessee who is in the business of transportation claimed disallowance with respect to motor bus rent paid to various persons for transportation contracts. The AO was of the view that the assessee has failed to produce any comparative market price and that the nature of work carried out by the aforesaid persons is general in nature. The AO disallowed ₹ 15,49,163/- for AY 2005-06 and ₹ 14,97,668/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair market price of such goods services or facilities. It is thus sine qua non for making a disallowance under section 40(A)(2) that the Assessing Officer has to ascertain the fair market price of such goods, services or facilities, and then make a disallowance for the amount which is in excess of fair market value of such goods, services or facilities. Unless there is a categorical finding about the fair market value and the assessee has an opportunity to be heard on Assessing Officers finding about such fair market value, there cannot be an occasion to make a disallowance under section 40A(2). The very scheme of Section 40A(2) does not envisage an adhoc disallowance as has been made in the present case. For this short reason alone, the impugned deletion of disallowance must stand confirmed. There is, however, one more reason for doing so. As evident from a plain reading of the assessment order, the Assessing Officer, had called upon the assessee to demonstrate that the payment made by the assessee to the specified persons is not unreasonable or excessive, and it is thus failure of the assessee which has resulted in disallowance under section 40A(2). However, proving a negative, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for whatever reasons/ consideration charged the interest at different rates by that itself cannot be a ground to come to the conclusion that charging of interest at higher rate than charged from other party was excessive and/ or unreasonable. Under the circumstances, both the learned CIT(A) as well as learned ITAT have rightly deleted the disallowance of Rs. ₹ 1,22,13,280/- made by the AO u/s 40A(2)(b) of the Act. We are in complete agreement with the view taken by the learned Tribunal. Under the circumstances, question no. 2(a) is answered against the revenue. 5. As against this, Mr. Patel, learned advocate for the respondent has strongly urged that all the three authorities have concurrently held against the appellant. Therefore, he urged that the order of the Tribunal is just and proper and does not warrant any interference by this Court. 6. We have heard learned advocate for the parties and perused the material on record. If we go through paragraph No.3.1 of the Assessing Officers order, wherein the Assessing Officer held relating to the question framed in this appeal i.e. commission of Govind Glass Industries limited, we see no germane reason in the find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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