NAINESHKUMAR GORDHANBHAI PATEL,,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-4(4), NEW JURISDICTION ITO, WARD-5(2)(3),,

The assessee has raised following grounds of appeal:- “1. That the CIT(Appeal) erred in confirming disallowance of Rs. 2,23,910/- being 25% of Ginning , Pressing and Majoori Expenses of Rs. 8,95,641/-, paid to Bhavani Cotex, a sister concern by applying the provision of section 40A(2)(b), without any supporting evidence. It is submitted that the charges were as per the prevailing market rate and market practice and compared with rates charged by Bhavani Cotex in earlier years and subsequent years from Cotton Corporation of India a third party, and therefore the disallowance of Rs. 2,23,910/- be deleted.”

In this case, return of income declaring income of Rs. 6,05,500/- was filed on 27th September, 2012. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act. The assessee is a proprietor of M/s. Yashodhar Cotton Traders and deals in processing and trading of cotton and cotton seeds. The assessee is also a partner in a firm viz. M/s Bhavani Cotex. During the course of assessment proceedings, the assessing officer has observed that assessee has debited ginning and pressing expenses of Rs. 6,84,469/- and Majoori expenses of Rs. 2,11,172/- in the profit and loss account. On further verification, the assessing officer noticed that the aforesaid expenses was paid to the sister concern of the assessee M/s Bhavani Cotex. Therefore, the assessing officer has called for the details of transaction carried out by the assessee with the persons covered u/s. 40A(2)(b) of the act. The assessee has furnished the copy of ledger account of M/s Bhavani Cotex with respect to the expenditure paid on the above two heads. On verification of the bills, the assessing officer has noticed that all the bills were raised in the month of March, 2012. He has further noticed that particulars of quantities mentioned in the bills were not comparable with the quantity of finished goods as reflected

Aggrieved assesse filed appeal before the ld. CIT(A). The ld. CIT(A) has sustained the said disallowance on the ground that assessee failed to substantiate the expenditure with supporting evidences. During the course of appellate proceedings before us, ld. counsel submitted paper book containing information written submission made before assessing officer and copy of judicial pronouncements etc. He contended that ld. CIT(A) has not considered the relevant bills, vouchers in respect of expenses paid to sister concern, M/s Bhavani Cotex by the assessee before sustaining the disallowance. On the other, hand, ld. departmental representative relied on the order of the ld. CIT(A).

We have heard both the sides and perused the material on record carefully. We have gone through the paper book submitted by the assessee and noticed that assessee has enclosed the ledger account, bill, voucher etc. in support of his claim for expenditure of Rs. 8,95,641 paid to M/s Bhavani Cotex, towards ginning and

In the result, the appeal of the assessee is allowed for statistical purposes.