2012 (12) TMI 366 - AT - Income Tax

Tribunal upholds Commissioner's decision on disallowance under section 40A(2) for assessment year 2008-09

The Assistant Commissioner of Income Tax, Business Circle XI, Chennai Versus M/s. Prakash Impex

The Assistant Commissioner of Income Tax, Business Circle XI, Chennai Versus M/s. Prakash Impex - TMI Issues:- Disallowance under section 40A(2) towards differences in price of leather purchased from related parties and third parties.- Violation of provisions of Rule 46A regarding examination of fresh evidence.Issue 1: Disallowance under section 40A(2) towards differences in price of leather purchased from related parties and third parties:The Revenue appealed against the Commissioner of Income Tax (Appeals) order deleting the disallowance made by the Assessing Officer under section 40A(2) for the assessment year 2008-09. The Assessing Officer disallowed Rs. 2,12,77,744/- as the cost of leather purchased from related parties was deemed excessive compared to purchases from unrelated parties. However, the Commissioner of Income Tax (Appeals) found no evidence of excess payment to related parties and deleted the disallowance. The Commissioner noted that the Assessing Officer failed to consider crucial factors such as the type and quality of leather purchased, leading to an incorrect conclusion. The Commissioner reviewed detailed comparisons of prices paid to related and unrelated parties for various types of leather, showing that the rates fell within a reasonable range. The Appellate Tribunal upheld the Commissioner's decision, emphasizing that the Assessing Officer's approach was flawed and there was no basis to conclude excessive payments to related parties. Thus, the disallowance under section 40A(2)(b) was deemed unjustified, and the Revenue's appeal was dismissed.Issue 2: Violation of provisions of Rule 46A regarding examination of fresh evidence:The Revenue contended that the Commissioner of Income Tax (Appeals) violated Rule 46A by not providing the Assessing Officer an opportunity to examine new evidence submitted by the assessee. However, the assessee argued that they had indeed filed a petition under Rule 46A, submitting invoices for leather purchases from related and unrelated parties. The Commissioner forwarded this information to the Assessing Officer, who submitted a remand report. The assessee maintained that all relevant details were shared, and the Commissioner's decision was based on a thorough review of the remand report and furnished information. The Appellate Tribunal found no violation of Rule 46A, as the Commissioner had appropriately involved the Assessing Officer in the examination of the fresh evidence. Therefore, the Tribunal upheld the Commissioner's decision, dismissing the Revenue's appeal on this ground as well.This comprehensive analysis of the legal judgment highlights the key issues, arguments presented by both parties, decisions made by the lower authorities, and the final judgment by the Appellate Tribunal.