2010 (4) TMI 968

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.... of excess job charges paid to sister concern u/s.40A(2)(b) of the Act." 2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the Income-tax Act, 1961 dated 22-12-2006 were that the assesseecompany during the year was engaged in the business of processing & dyeing of cloth on job work basis as well as manufacturing of gray cloth. In respect of the above ground, the observation of the Assessing Officer was that an amount of Rs.76,89,281/- was paid as job work charges to its sister concern, namely, Mahalaxmi Infracon Pvt. Ltd. It was found that the impugned amount pertained to the job work charges in respect of weaving work carried out by the said sister concern. The AO was of the view that the said amoun....

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....the said sister concern. He was of the view that the assessee-company has not exercised due diligence and without inviting tenders made the said payment to the sister concern. In his opinion no satisfactory explanation was offered because a person having ordinary business prudence always enquire about the rates applicable before making the payment. It was also observed that though the entire yarn was given to the said sister concern for weaving of the cloth, but the assessee had not discharged onus of proving the reasonableness of the rate. With the result, out of the total expenditure claimed of Rs.76,89,281/-, the AO has held that 10% was excessive and by invoking the provision of Section 40A(20(b) of the Act disallowed 10% i.e. Rs.7,68,9....

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....pellant is further in appeal. 4. We have heard both the sides and also carefully perused the orders of the authorities below as far as applicability of provision of Section 40A(2)(b) is concerned, the Act prescribed that where an assessee incur any expenditure in respect of which payment has been made to any of a person referred therein then in the opinion of the Assessing Officer such expenditure is excessive or unreasonable, having regard to the fair market value of the goods or services or facilities for which the payment is made, then so much of the expenditure as is so considered by the Assessing Officer to be excessive or unreasonable shall not be allowed as a deduction. On careful readings of this Section 4, it is worth to mention t....