2013 (12) TMI 1480

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....)(2b) of the I.T. Act out of the total payment of the bus rent, by not appreciating that the assessee failed to failed to back its claim by any conclusive evidence and further failed to produce any comparative prices to justify payments made to the related concerns? (ii) Whether Tribunal has erred in law in deleting disallowance of Rs. 93,25,426/- made u/s. 40(a)(ia) of the I.T. Act, by holding that amendment carried out by Finance Act, 2010 can be held to be retrospective from the assessment year 2005-06 inspite of then fact that the amendment brought out by Finance Act, 2010 is not curative in nature and therefore not retrospective?" 3. Tax Appeal No.1065 of 2013 :- Feeling aggrieved and dissatisfied with the impugned order dated 10/5/2013 passed by the Tribunal in Ashok J. Patel's case (supra), revenue has preferred the present Tax Appeal No.1065 of 2013 to consider the following substantial questions of law : "(i) Whether on facts and in the circumstances of the case, ITAT was right in law in deleting the disallowance of Rs. 15,49,163/- u/s. 40(A)(2b) of the I.T. Act out of the total payment of the bus rent, by not appreciating the fact that the assessee failed to fai....

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..... 1997-98 and is neither excessive nor unreasonable hence section 40A(2)(b) is not applicable. Hence it is clear that no proper explanation is forwarded nor any comparative chart for rate comparison is given. Further also furnish the explanation for the difference in the figures of tax audit and you submission. Hence you are therefore asked to show cause as to why 5% of the above payments made to persons specified u/s. 40A(2) (b) of the Act should not be added back to your total income considering the same as unreasonable and excessive in respect of fair market value." 4.2 The assessee submitted its reply vide reply dated 29/11/2007. The assessee submitted that payments are made by cheques and TDS is also deducted at source. It was submitted that payments are reasonable and based on commercial consideration. The assessee also submitted that rates are normal rate of transportation prevailing at that time and such payments were made solely on business consideration. 4.3 The AO was not satisfied with the reply given by the assessee and made addition of Rs. 15,49,163/- to the total income of the assessee by disallowing 5% of the total payment made by observing that the assessee has n....

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....out of the total payment of the bus rent with respect to A.Y. 2006-07, which came to be deleted by the learned CIT(A) and the same has been upheld by the learned ITAT by the impugned judgement and order. Feeling aggrieved and dissatisfied with the impugned order passed by the learned ITAT in confirming the order passed by the learned CIT(A) in deleting the disallowance of Rs. 14,97,668/- made by the AO under section 40A(2)(b) of the Act, out of the total payment of bus rent, the revenue has preferred the present Tax Appeal No.1064 of 2013, with the aforesaid proposed question of law. 6. Heard Mr. K.M. Parikh, learned counsel appearing on behalf of the revenue and perused the impugned common judgement and order passed by the learned tribunal. 7. Mr. K.M. Parikh, learned counsel appearing on behalf of the revenue has vehemently submitted that the learned tribunal has materially erred in deleting disallowance of Rs. 15,49,160/- made under section 40A(2)(b) of the Act out of total payment of the bus rent (for A.Y. 2005-06 and deleting disallowance of Rs. 14,97,668 under section 40A(2)(b) of the Act out of total payment of bus rent (A.Y. 2006-07). It is submitted by Mr. Parikh, learn....

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....A) deleted the said disallowances by observing that the AO has not made out any case for excessive or unreasonable payments to the related purpose towards the motor bus rent. The learned CIT(A) also observed that no comparative prices for similar transport services was cited by the AO and therefore, was not justified in making ad-hoc disallowance of 5% under section 40A(2)(b) of the Act and therefore, the CIT(A) as such rightly deleted the disallowances made under section 40A(2)(b) of the Act. Considering the provisions of Section 40A(2)(b) of the Act and the Evidence Act, if the AO was of the opinion that the payment for which disallowance is claimed, is excessive or unreasonable. In that case, it was for the AO to assess fair market price and give comparative instances for payment for similar transport service. In absence of such comparative cases brought on record, as rightly observed by the ITAT it was not open for the AO to make disallowance under section 40A(2)(b) of the Act. While deleting disallowance made by the AO under section 40A(2)(b) of the Act, the learned ITAT has observed and held in para 7 as under :- "7. It is plain on principle that, so far as disallowance und....