EMMAR LOGISTICS PRIVATE LIMITED,VISAKHAPATNAM vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3(1), VISAKHAPATNAM

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER ITA No. 130/VIZ/2019 (Asst. Year : 2013-14) M/s. Emmar Logistics Pvt. vs. ACIT, Circle-3(1), Ltd., 30-7-17, 1st Floor, Visakhapatnam. Women’s India Association Mansion, Dabagardens, Visakhapatnam. PAN No. AABCE 2231 R (Appellant) (Respondent) Assessee by : Shri C. Kameswara Rao, CA. Department By : Smt. Suman Malik – Sr.DR Date of hearing : 26/09/2019. Date of pronouncement : 04/10/2019. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-1, Visakhapatnam, dated 28/01/2019 for the Assessment Year 2013-14. 2. Facts of the case in brief are that assessee is a company engaged in providing stevedoring and handling services, filed its return of income by declaring total income of Rs. 1,10,85,604/-. The return filed by the assessee was processed u/sec. 143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). Thereafter, case was taken up for scrutiny and assessment was

2 ITA No.130/VIZ/2019 (Emmar Logistics Pvt. Ltd.) completed u/sec. 143(3), dated 24/02/2016. During the course of scrutiny assessment proceedings, the Assessing Officer has found that assessee has paid an amount of Rs. 2,46,57,674/- to Sri P.Venkateswara Rao, Prop. M/s. Venkat Sainadh Transport who is the brother of the Director of the assessee-company. Therefore, the Assessing Officer was of the opinion that payments made by the assessee are attracts section 40A(2)(b) of the Act and called for explanation from the assessee. In reply, it was submitted that M/s. Venkat Sainadh Transport has rendered services towards transport and handling of cargo, therefore, payments are made for services rendered by him and submitted that there are no excess payments. However, in the assessment order, the Assessing Officer has observed that insofar as services rendered by M/s.Venkat Sainadh Transport to the assessee, the bills are raised on hourly basis whereas the services rendered by the other parties are either Tonnage basis or Trip basis and therefore provisions of section 40A(2)(b) are attracted and disallowed 1/3rd of the total expenditure on adhoc basis which comes to Rs. 81,37,032/-. 3. On appeal, ld. CIT(A) has scaled down the addition to 15% which comes to Rs. 36,98,651/-. 4. On being aggrieved, assessee carried the matter in appeal before this Tribunal

3 ITA No.130/VIZ/2019 (Emmar Logistics Pvt. Ltd.) 5. Ld.AR has submitted that the Assessing Officer without quantifying the excess payment made to the related party, adhoc disallowance is made which is excess and on appeal ld. CIT(A) restricted the addition to 15% which is also excessive and therefore submitted that the addition may be restricted further. 6. On the other hand, ld.DR relied on the orders of the authorities below. 7. We have heard both the sides, perused the material available on record and orders of the authorities below. 8. In this case, the assessee has made the payments to Sri P.Venkateswara Rao Prop. of M/s. Venkat Sainadh Transport to the tune of Rs. 2,46,57,674/- for the services rendered towards transportation and handling of cargo. According to the Assessing Officer, the transaction is being between the related parties, hence, section 40A(2)(b) squarely applies. In the assessment order, the Assessing Officer has observed that insofar as payments made by the assessee towards related party on hourly basis and to other parties are either tonnage basis or trip basis, therefore, he disallowed 1/3 payments made by the assessee as excessive and accordingly added the disallowed amount of Rs.81,37,032/- to the total income of the assessee, which was restricted to 15% by the ld. CIT(A) and directed the Assessing Officer to adopt Rs. 36,98,651/- as expenditure incurred by the

4 ITA No.130/VIZ/2019 (Emmar Logistics Pvt. Ltd.) assessee. We find that the Assessing Officer ought to have been quantified what is the excess payment made by the assessee to the related party instead of simply making adhoc disallowance. Even ld. CIT(A) also simply restricted the disallowance to the extent of 15%. Under the above facts and circumstances of the case, we are of the opinion that it would be reasonable to restrict the addition to 10% from 15% made by the ld. CIT(A). Ordered accordingly. 9. In the result, appeal filed by the assessee is partly allowed. Order Pronounced in open Court on this 04th day of Oct., 2019.

Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated: 04th Oct., 2019. vr/- Copy to: 1. The Assessee – M/s. Emmar Logistics Pvt. Ltd., 30-7- 17, 1st Floor, Women’s India Association Mansion, Dabagardens, Visakhapatnam. 2. The Revenue – ACIT, Circle-3(1), Visakhapatnam. 3. The Pr.CIT-1, Visakhapatnam. 4. The CIT(A)-1, Visakhapatnam. 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.