TMI Blog2017 (3) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... he discussion made above, net job work rates (after providing discount) charged by the assessee to its associate/sister concerns are reasonable with regard to the fair market value of the services. We, therefore, delete the impugned disallowance sustained by ld. Commissioner of Income Tax(A). - Decided in favour of assessee - ITA No.2230/Ahd/2011 - - - Dated:- 20-3-2017 - Shri S. S. Godara, JM and Shri Manish Borad, AM. For The Appellant : Smt. Urvashi Shodhan,AR For The Respondent : Shri Prasoon Kabra, Sr.DR ORDER PER Manish Borad, Accountant Member . This appeal of assessee for Asst. Year 2001-02 is directed against the order of ld. Commissioner of Income Tax(A)-IV, Surat, dated 4.5.2011 vide appeal no.CAS-IV/234/10-11 arising out of order u/s 143(3) r.w.s. 254 of the Income-tax Act, 1961 (in short the Act) framed by DCIT, Circle-6, Surat, on 29.12.2010. Assessee has raised following grounds of appeal. 1) The Id. CIT (Appeals) erred in law and on facts in not following the directions of the Hon'ble ITAT as contained in its Appellate Order dated 27-11-2009 whereby the assessment was set aside. The Id. CIT (Appeals) erred in law and on facts in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serving as follows :- We find that in the instant case, the assessee has received job charges of Rs..!,87,37,1S3/- out of which 1,67,75,425/- was from the said two sister concerns and the balance amount of ₹ 19,61,758/- was from others. We find that both the parties before us or before the Learned Commissioner of Income Tax (Appeals) has brought no material to show the rates at which job charges was realized from the other parties and how the same compares with the net job charges realized from (he said two sister concerns.. In the instant case, it is observed that the genuineness of discount allowed by the assessee to the aforesaid two sister concerns is not in doubt or debate. The only point which is to be examined to adjudicate the issue was that the net job charges which was realized by the assessee from the said two sister concerns were in accordance with the market rate prevailing at the material time or not. We find that the Learned Commissioner of Income-Tax (Appeals) has also not examined the issue from this point of view. The Learned Commissioner of Income-Tax (Appeals) has observed that the rates at which bills were drawn in the raise of sister concerns were & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elated concerns, but has also undertaken job-work on behalf of other outside, unrelated parties; (iii) Nil or meagre discount has been allowed to the outside, unrelated parties. However, very high discount @ -20% has been afforded to sister concerns on paper. Such rate of discount is very high, excessive and unreasonable; (iv) In most of the cases, the job-work rate charged to sister concerns have been lower than the rates charged to outside parties; (v) No strictly comparable market laser-sawing job-work rates have been made available/obtained. Hence, the so-called discount has been made out to the sister concerns only as a means to suppress income and on the facts of the case, also upon relying upon the original assessment order, it is held that the so-called discount is an eyewash and an after-' thought. In a mutually convenient arrangement between the assessee and the related parties, journal entries have been passed post facto by allowing discount @ 20%, as the higher income flowing from higher rates in hands of the assessee firm would have made the profits fully chargeable to tax., but the higher profits in the hands of the related party, principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties are not comparable. On going through the order of the Hon'ble Tribunal, it is seen that they have identified three distinct periods over the year - April to August, 2000, September to December, 2000 and January to March, 2001. The rates have to be compared 'at the material time' and therefore averaging of rates is not correct. Neither the appellant nor the A.O. has tried to compare the rates over different periods of time. Further, in their comparison of rates, both have been selective. Selective comparisons give equally distorted picture as comparison of average rates. Hence, to arrive at a comprehensive picture, bills referred to by the A.O. and by the appellant have been arranged according to the three distinct periods identified by the Tribunal in one tabular form (Annexure-1). This gives the following results - a) During the period September to December, 2000, the appellant has definitely charged the associate concerns at rates below the rates charged to outsiders. b) During the period April to August, 2000, and January to March, 2001 bills raised to outsiders is both more and less than the associates. 7.2. These findings have to be viewed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 85 per carat from September to December and even further reduced to ₹ 65 from January, 2001 to March, 2001. Subsequently at the time of settlement of accounts discount was provided @ 20% on the rates charged at ₹ 100 and ₹ 85 per carat. It was further submitted that job work charged to sister concerns were matching the prevailing market rates and there was no undue benefits passed over to the sister concern by charging of less amount of job work charges and, therefore, ld. Commissioner of Income Tax(A) erred in sustaining addition of ₹ 13,32,885/-. Ld. Authorised Representative also referred to the order of ld. Commissioner of Income Tax(A) passed during the first round of litigation deleting the total addition of ₹ 32,60,820/- by observing that ld. Assessing Officer has been unable to prove that some underhand dealing or transaction in cash happened and the allegations made were totally baseless. 8. On other hand, ld. Departmental Representative submitted that ld. Commissioner of Income Tax(A) has strictly adhered to the directions given in the Tribunal s order dated 27.11.2009 and has rightly calculated the rate of ₹ 80 per carat bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture 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 deduction: 11. The provisions of section 40A(2)(a) contemplates that disallowance in this section can be made only if in the opinion of Assessing Officer payment made to persons specified in section 40A(2)(b) of the Act towards expenditure, is excessive or unreasonable, with regard to the fair market value of the goods, services or facilities. In order to examine the facts in the light of above provisions we find that assessee during the course of hearing before ld. Commissioner of Income Tax(A) has provided two schedules of which one relates to the rates charged to sister concerns along with discount given for three periods and the other relates to rate of job charges charged to parties other than sister concerns. Chart showing the net rate charged for three different periods to sister/associate concerns is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 65 8 January to March 2001 31-03-2001 Babulal Chunilal Shah 31 64.37 65 In the above chart showing 8 instances of bills raised to outside parties and if we take out the average of the total job work charges to the 8 parties it comes to ₹ 71.18 per carat and (569.54/8). 12. From the perusal of the average rates calculated from the above two charts wherein one relates to job rate work charged to sister concerns and the other to the outside parties we observe that the average rates in both the cases is ₹ 71 per carat. In order to examine the reasonableness of the rate of job work charges charged to the sister concerns the same can be compared with the other comparables in the form of job work rate charged to outside parties and we find that the average rates charged to the sister concern are at par with the average rate charged to outside parties. We also find that with the total diamond processed for the associated concern is 217024 carats for which the assessee has realized ₹ 16029035/- and if we calculate the av ..... X X X X Extracts X X X X X X X X Extracts X X X X
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