TaxTMI 
TaxTMI 
2015 (7) TMI 743
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....nd disposed of by this common judgment. Since the defence in these group of Appeals is only with regard to the amount disallowed by the revenue authority u/s.40A of the Act, we have considered the Tax Appeal No.428 of 2015 as the lead Appeal in this judgement. 3. The appellant has requested this Court to frame the following question as substantial question of law in the case for determination of this Court under Section 260A of the Act: "Whether the Appellate Tribunal has substantially erred in law in deleting the addition of Rs. 7.70 crores made on account of disallowance u/s 40A(2)(b) r.w. S 40A(2)(a) of the Act, without properly appreciating the facts of the case and the material brought on record?" 4. Brief facts emerging from the record are as under: 4.1. The respondent assessee company is a 100% subsidiary company of the Gujarat Gas Company Limited, (hereinafter referred to as "parent company") owned by the State of Gujarat. The assessee company entered into an agreement with the parent company for providing service, etc to the parent company, which carries the business of supply of gas connection to its customers. 4.2. The assessee company and the parent company had exe....
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....s well as Tribunal have erred in holding that whatever expenses the assessee has claimed under Section-37 is just and legal since there was an agreement between two parties. He would further submit that the Assessee Company is just using some space of the parent company and, therefore, the Assessment Officer found that the expenditure claimed by the assessee company towards expenses for each connection, cannot be accepted as market value of the service or facility provided by the parent company. He would submit that under Section 40A of the Act, the Assessment Officer can refuse the expenditure as a deduction from the income if he finds the same is excessive or unreasonable having regard to fair market value, facility or legitimate needs of the business or provision of the assessee. He would submit that the in response to the notice issued, the assessee company did not provide details about the size of the accommodation provided by the parent company. He would further submit that in absence of any details provided by the assessee company, the assessment officer was right in holding that an amount of Rs. 10 lacs per month would be a correct expenditure for occupying some part of the....
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.... deductable i.e. Rs. 10 lacs per month. 7 By relying on the decision in case of the Commissioner of Income Tax-III vs Ashok J Patel, as reported at (2014) 43 Taxmann. com 227 (Gujarat), he would submit that the Assessing Officer has to ascertain the fair market price of such goods and facilities and before giving the verdict, the assessee must have an opportunity of explaining the same, which is not the case on hand. He has also placed reliance in the case of Commissioner of Income Tax-I vs Enviro Control Associated (P) Ltd., as reported at (2014) 43 Taxmann.com 291 (Gujarat) and would submit that the Assessing Officer has to ascertain the fair market price of such goods before deciding the correct amount. The assessee must have an opportunity of hearing, which is not given in the present case. He would submit that since the assessee company and the parent company are paying tax at the maximum marginal rate, there was no question of evading the payment of tax and, therefore, there is no need to exercise the power under Section 40A of the Act. In support of the case, he has relied on a decision of this Court in the case of Commissioner of Income Tax-I vs. Enviro Control Associated....
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....Act. In the backdrop of these facts, the arguments canvassed by learned Senior Counsel Mr. M.R. Bhatt cannot be countenanced. 12 The Gujarat Gas Financial Services Limited (a Government Company), is engaged in distributing gas through pipelines to its customers, wherein the respondent company is 100% subsidiary company of the Gujarat Gas Company Ltd. It is accepted fact that the parent as well as assessee company had entered into an agreement on 25.4.2003 for various works, which are to be undertaken by the assessee company. For such works, the assessee company would be entitled for service charges and the charges agreed between the parties is Rs. 3,205/- per connection. Accordingly, for the assessment year 2004-2005, the assessee company had paid Rs. 5,00,84,000/- towards service charges. which was deducted by the Assessment Officer under the provisions of Section 37 of the Act. Similar is the case for assessment year 2005-06 to the tune of Rs. 7,07,00,028/-. The Assessment Officer, who found such amount as excessive for the assessment Year 2006-07, initiated proceedings by exercising powers under Section 40A(2) of the Act. It was the case of the assessee company that it is the ....
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.... of a setting to rest rights of litigants, applies to the case where a point, fundamental to the decision,taken or assumed by the plaintiff and traversable by the defendant, has not been tranversed. In that case also a defendant is bound by the judgment, although it maybe true enough that subsequent light or ingenuity might suggest some traverse which had not been taken." 30. Reference was also made to Parashuram Pottery Works Co. Ltd vs ITO(1977) 106 ITR 1 (SC) and then it was held (page 329 of 193 ITR): "We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter - and if there was no change, it was in support of ....