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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI
Before: SHRI H.S. SIDHU & SHRI N.K. BILLAIYA
The Assessee has filed the Appeal against the Order dated 08.11.2017 of the Ld. CIT(A)-1, Gurgaon pertaining to assessment year 2010-11 on the following grounds:-
1. That the Ld. CIT(A) has erred in confirming the addition of Rs. 9,46,999/- made by AO u/s. 40A(2)(b). The impugned addition being erroneous and untenable in law and law and on facts of the case be kindly deleted.
2. That the assessment having been made by applying net profit rate resulting in an overall addition of Rs. 26,11,564/-, the impugned separate specific addition of Rs. 9,46,999/- which tantamount to double addition in principle being untenable in law under the facts and circumstances of the case be kindly deleted. The observation and finding of the ld. CIT(A) in para 4.1 “that the facts and the issues involved are identical….” are misconceived and incorrect in this context. 3. That the Ld. CIT(A) is not justified in rejecting the assessee’s ground of appeal pertaining charging of penal interest u/s. 234B/C under the facts of the case.
2. The brief facts of the case are that the assessee is a Private Limited company who is engaged in the business of manufacturing of Transformers which is manufacturing instruments Transformers for Power Houses of various Electricity Boards in all over India and a 100% govt. supply company. The assessee filed its e-return of income on 28.9.2011 declaring income of Rs. 2,34,13,869/-. The case of the assessee was selected under scrutiny through CASs and the statutory notice u/s. 143(2) of the Income Tax Act, 1961 (in short “Act”) was issued on 18.9.2012 which was duly served upon the assessee within stipulated time as per law fixing the date for compliance on 27.9.2012. Further notice u/s. 142(1) of the Act dated 3.7.2013 alongwith detailed questionnaire was issued to the assessee fixing the case for 15.7.2013. In compliance to these notices, the AR of the assessee appeared from time to time and filed necessary details/ explanations as called for from time to time vide order sheet entries. The details have been examined. Books of accounts, bills and vouchers produced and have been test checked. Thereafter assessment was completed vide order dated 9.1.2014 passed u/s 143(3) of the Act at an income of Rs. 2,69,72,432/- by making an addition of Rs. 26,11,564/- on account of enhanced net profit rate and by making a further disallowance of Rs. 9,46,999/- u/s. 40A(2)(b) of the I.T. Act. Against the assessment order, the assessee appealed before the ld. CIT(A), who vide his impugned order dated 25.9.2014 has dismissed the appeal of the assessee.
Aggrieved with the impugned order, the assessee is in appeal before the Tribunal.
Ld. counsel for the assessee submitted that the issue in dispute is squarely covered in favour of the assessee in its own case decided by the Coordinate Bench of the Tribunal vide order dated 12.6.2018 for the preceding assessment year 2010-11 passed in (De) of 2014. For ready reference, he has filed the copy of the said decision. Hence, he requested to follow the aforesaid decision in the present case and addition in dispute may be deleted.
On the contrary, ld. DR relied upon the orders of the authorities below.
We have carefully considered the rival contentions and also perused the orders of the lower authorities and the order dated 12.6.2018 of the Coordinate Bench of the Tribunal for the preceding assessment year 2010- 11 passed in (De) of 2014 in assessee’s own case. For the sake of convenience, we are reproducing herewith the relevant findings of the Tribunal as under:-
“6. We have carefully considered the rival contentions and also perused the orders of the lower authorities. Admittedly in the present case the assessee has paid the sums of its related party having common Directors. The Learned
Assessing Officer has invoked the provisions of section 40A(2)(b) of the Act there cannot be any quarrel about the invoking of the above provision. However, the Revenue authorities after invoking such provision should have shown that how the payment made by the assessee is excessive or unreasonable compared to the market rates. The claim of the assessee was also that both the recipient as well as the payee company are assessed to tax at same rate and, therefore, it cannot be said that the above payment made by the assessee company to sister company is at unreasonable rates to evade taxes. Such an argument find support from the decision of the Hon’ble Gujarat High Court in the case of ACIT vs. Gujarat
Gas Financial Services Ltd. 60 taxman.com 483 (Guj.)
Further the Learned Assessing Officer also did not show any material such as comparable rates etc. to come to conclusion that excessive payment was made to sister concern which warranted disallowance. In view of the above, we also draw support from decision of the Hon’ble Gujarat High Court in CIT vs. Enviro Control Associate Pvt. Ltd. 43 taxman.com 291 (Guj) in deleting the above addition. Further for making a disallowance under section 40A(2) of the Act, the onus to prove un reasonableness and then to derive that the payment is excessive is on Assessing Officer. Merely saying that there were common Directors etc. and further raising doubts merely on the details of the services, the disallowance cannot be sustained. As the Learned Assessing Officer has disallowed the payment invoking the section 40A(2)(b) now it cannot be said that no services have been rendered by the assessee. In that case the whole disallowance should have been made under section 37(1) of the Act. When the Assessing officer has invoked the provisions of section 40A(2)(b) it necessary implies that such expenses are otherwise allowable, but because of certain payment to related parties the disallowance is made. In view of this, we do not find any reason to sustain the disallowance of Rs. 96,59,518/-.
5.1 After perusing the aforesaid finding of the Tribunal, we are of the view that similar and identical issue has been dealt by the Tribunal and decided in favour of the assessee, as aforesaid, hence, the issue in dispute is squarely covered by the aforesaid decision. Therefore, respectfully following the aforesaid decision of the Coordinate Bench in assessee’s own case in the preceding assessment year 2010-11, we delete the addition in dispute and allow the ground raised by the assessee.
In the result, Assessee’s appeal is allowed.
Order pronounced on 16-11-2018.