SURESH HIMMATLAL OZA,PUNE vs. DEPUYY COMMISSIONER OF INCOME TAX, CIRCLE -6, PUNE

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ITA 487/PUN/2020Status: DisposedITAT Pune07 November 2022AY 2013-20144 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the addition for incentive wages was wrongly made as the liability was discharged in the subsequent period and the genuineness of expenditure was not doubted. It also held that additions under Section 40A(2)(b) cannot be made without establishing the fair market value of the services.

What were the facts?

The assessee, engaged in the business of manufacturing incense sticks, filed a return of income. The Assessing Officer made several disallowances, which were partly sustained by the CIT(A). The assessee appealed against these additions.

What were the issues?

Whether the addition for incentive wages was justified under Section 41(1) and whether disallowances under Section 40A(2)(b) were valid without establishing fair market value.

Which sections of the Income-tax Act were involved?

Section 41(1),Section 40A(2)(b),Section 143(3)

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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE

Before: SHRI INTURI RAMA RAO & SHRI PARTHA SARATHI CHAUDHURY

For Appellant: Shri K. Srinivasan
For Respondent: Shri M. G. Jasnani
Hearing: 14.09.2022Pronounced: 07.11.2022

ORDER

PER INTURI RAMA RAO, AM:

1.

This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)- 4, Pune [‘the CIT(A)’] dated 26.03.2020 for the assessment year 2013-14.

2.

Briefly, the facts of the case are that the appellant is an individual engaged in the business of manufacturing and sale of Agarbattis and other type of incense sticks. The return of income for the assessment year 2013-14 was filed on 30.09.2013 declaring total income of Rs.1,43,38,340/-. Against the said return of income, the assessment was completed by the Dy. Commissioner of Income Tax, Circle-6, Pune (‘the Assessing Officer’) vide order dated 2 05.02.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.1,90,86,301/- after making several disallowances. 3. Being aggrieved by the order of assessment, an appeal was filed before the ld. CIT(A), who vide impugned order sustained the addition of Rs.5,25,000/- in respect of incentive wages payable to labour of Rs.9,75,000/-. Similarly, the ld. CIT(A) also confirmed the disallowance made by the Assessing Officer out of labour contract and commission payment of Rs.1,13,29,399/-. Similarly, the CIT(A) also sustained the addition @ 5% of labour contract and commission payment of Rs.5,66,469/- made to the relates parties invoking the provisions of section 40A(2)(b) of the Act. 4. Being aggrieved, the appellant is in appeal before us in the present appeal. 5. We heard the rival submissions and perused the material on record. We find that there is no material on record brought by the Assessing Officer to prove that the liability had ceased to exist. In fact, the material on record clearly indicates that the provision made during the year under consideration was discharged in the subsequent period. The genuineness of the expenditure was not doubted by the Assessing Officer. Therefore, the ratio of the decision of the Hon’ble Supreme Court in the case of CIT vs. Sugauli Sugar Works (P.) Ltd., 236 ITR 518 (SC) is squarely 3 applicable to the facts of the present case. Accordingly, we direct the Assessing Officer to delete the addition of Rs.5,25,000/- towards incentive wages payable to labour u/s 41(1) of the Act. Thus, the ground of appeal

no.1 filed by the assessee stands allowed.

6. Ground of appeal no.2 challenges the addition made on ad-hoc basis at the rate of 5% on account of labour contract and commission payment of Rs.1,13,29,399/- invoking the provisions of section 40A(2)(b) of the Act.

7. We have carefully perused the assessment order and also the ld. CIT(A)’s order. The Assessing Officer before invoking the provisions of section 40A(2)(b) should discharge the onus lies upon him to bring on record and demonstrate, as to what is the fair market value of the expenditure incurred as held by the Hon’ble Supreme Court in the case of Upper India Publishing House P. Ltd. vs. CIT, 117 ITR 569 (SC), wherein, the Hon’ble Supreme Court held that no addition u/s 40A(2)(b) can be made by the Assessing Officer without bringing material on record as well as fair market value of the services and this position was accepted by the CBDT vide Circular No.6-P dated 06.07.1968. In the present case, the Assessing Officer had not discharged this onus and therefore, the addition made by the Assessing Officer, cannot be sustained in the eyes of law. Therefore, we direct the Assessing Officer to delete the 4 ITA No.487/PUN/2020 ad-hoc disallowance made u/s 40A(2)(b) of the Act. Thus, the ground of appeal no.2 filed by the assessee stands allowed.

8. In the result, the appeal filed by the assessee stands allowed. Order pronounced on this 07th day of November, 2022.

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