TaxTMI 
TaxTMI 
TaxTMI 
2017 (10) TMI 685
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....s taken as lead matter and are facts culled out therefrom. ITA No 1061/Del/2013 A Y 2009-10 2. The ld Assessing Officer has raised following two grounds in its appeal:- "1. On the facts and circumstances of the case and in law, the ld CIT(A) has erred in deleting the addition of disallowance of expenditure of Rs. 2411392/- made by the AO under subscription deposit scheme. 2. on the facts and circumstances of the case and in law the ld CIT(A) has erred in deleting the addition made by AO u/s 40A(2)(b) of the Act of Rs. 1297897/-. Brief facts 3. The assessee is a company engaged in the business of printing and publishing. Its main work is to undertake the work of printing from the newspapers and periodical published. For the year it filed its return of income on 26.09.2009 for Rs. 1377850/-. Assessment Proceedings before AO 4. The case of the assessee was selected for scrutiny and the ld Assessing Officer noted that a sum of Rs. 2411392/- is claimed as deduction under the head 'subscription deposit scheme service'. The assessee submitted its reply on 30.11.2011 contending that under the scheme a fixed deposit of sum is deposited by customers based on the number of magazin....
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....magazines are supplied by purchasing it from its sister concern Delhi Prakashan Vitran Ltd and cost is debited to the P&L Account. Therefore, he held that such expenses are allowable. 7. With respect to the payment u/s 40A(2) he held that all the companies whom payments have been made are accessed to tax and therefore, there is no question of diversion of profits. He further stated that 2% disallowance made by the ld AO is merely on the basis of suspicion and without brining any adverse material on record. Therefore, he deleted the disallowance of Rs. 1946818/-. The revenue aggrieved by the order of the ld CIT(A) dated 17.12.2012 has preferred appeal before us. Arguments of the Revenue 8. The revenue submitted that subscription deposit scheme expenditure are not matching with the revenue booked by the assessee and with respect to the payment made to relatives the reliance was placed on the order of the Assessing Officer. Argument of the assessee 9. The assessee submitted written submission with respect to above two disallowances which are as under:- "APPEAL No. 5001/DEL/2014 A.Y. 2010-11. Hon'ble Sir(s) The captioned appeal has been filed by the department against th....
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....to the A.Y.2004-05 and for the first time the addition was made by disallowing the expenditure in the A.Y. 2005-06 on the ground of matching principle and thereafter repeated till the A.Y. 2013-14. It is pertinent to mention here that in the first round the appeals of the A.Y. 2005-06, 2006-07 and 2007-08 were allowed by the CIT(A) against which the department had filed appeal before the Hon'ble ITAT. In further appeal the Hon'ble ITAT vide it's common order dt. 15.07.2011 for all the three years i.e. from A.Y. 2005- 06 to 2007-08 after examining the issue set aside the order and remanded before the AO with very specific directions i.e. to examine whether subscription deposit receipts have been utilized for the purpose of business or not and if it has been utilized for the purpose of business then no disallowance ought to be made. The relevant portion of the order is reproduced as under. (Copy of order dt.15.07.2011 is enclosed which forms part of P.B at Page 76-95) "We make it clear that the A.O. shall keep in mind the past history when these expenses have been allowed to the asses see. He shall regard a specific finding about the direct nexus of the funds vis-a-vis their utili....
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....it of receipt under the scheme and utilization of such amount for the business purpose of the appellant like purchase of raw materials, ink and paper etc. The CIT(A) on account of nexus of this fund with the business of the assessee and taking into account the past history that the expenditure had consistently been allowed earlier i.e. prior to A.Y. 2005-06 had allowed the appeal of assssee. Without prejudice to the aforesaid, here we would like to submit that besides the scheme, the Ld. A.O has not appreciated the fact that under this scheme the company gets interest free deposit which at present is to the tune of approximately Rs. 3.17 Cr which is to be used for the purpose of business. It is because of utilization of deposit amount towards the Fixed Assets as well as working capital of the company, that the company dependence of the loan is almost minimal. For the allow ability of any business expenditure, it has to be nexus with the business. Had the company taken or borrowed any secured loans for business purpose, it would have to incur expenditure by way of interest. Thus the company saved amount on interest that would otherwise have been paid to the bank in respect of ....
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.... a prudent businessman point of view. The Hon'ble Supreme Court in the case of CIT v/s S.A.Builders (288 ITR 1). while agreeing with the view taken by the Delhi High Court in CIT v. Dalmia Cement (B.) Ltd. [2002] 254 ITR 377 held that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman "can be compelled to maximize his profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. Moreover, without prejudice to the above, this issue has been taken into consideration by the Hon'ble ITAT, (Third Member) in the appeal of the revenue in assessment years 1993-94 and 1994-95. The issue before the Hon'ble Tribunal was not directly with regard to....
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....ing the jurisdictional High Court that although^ the doctrine of resjudicata does not apply to income tax proceedings since each assessment year is independent of the other but where an issue had been decided consistently in a particular manner for earlier assessment years or the sake of consistency the same view should continue to prevail for subsequent years unless there is material change in the facts. For the said proposition, reliance is placed on the following judicial pronouncements" 1. 193 ITR 321 (SC) ( Radhasoami Satsang v/s CIT) 2. 245 ITR 492(Del) (CIT v/s Neo Poly Pack(P) Ltd) 3. 264ITR 276(Del) (CIT v/s ARJ Security Printers) 4. 279ITR 86(Del) (CIT v/s Rajeev Grinding Mills) 2. The Second ground of appeal is against the addition of Rs. 48,59,360 by disallowing certain part of the expenditure i.e @ 8% on estimate /adhoc basis without making any inquiry with respect to transaction covered u/s 40(A)(2)(b). The Facts in this regard are that the the assessee is in the business of Printing 8s Publishing since 1968. However at present the main work of the company is to undertake the work of printing from the newspapers and periodical publishes which i....
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....60/- For the perusal 85 Convenience, we are enclosing a comparative Chart Party wise which contains the detail of nature of Work and the rates charged for the same work by our related party and by the outside Party and furnished before CIT(A) too. From the chart it is crystal clear that the various works viz Data Processing work has been done by related Party @25 86 15 per page whereas for the same work, the rate of Outside Party is Rs. 28 85 15 per page. For the Work of Stacking 8& Bundling, the rate charged by the related party is @ 5/- per thousand whereas for the same work the rate of Outside party is Rs. 6.50/- per thousand. The rate of Printing with related party is 560/250 per thousand forms whereas the same with outside party is for 600/- per thousand forms, The rate of Proof reading charge with related party at Rs. 35 per Page whereas for the same work the outside rate is Rs. 40/- per page . (The Chart with Rates of both the related as well as Outside Party is enclosed which is at Page 15-53. of P.B). From the above facts, it is crystal clear that various works viz, Data Processing, Stacking 85 Bundling, Plate Processing, Proof Reading 8& Printing has been done by th....
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....77] 108 ITR 54 (Guj) followed. In the instant case the A.O mechanically disallowed 2% of expenditure holding to be unreasonable without making any enquiry despite the fact that the works were undertaken with the relatives at a lower rates in comparisons to the rates charged by non-relatives. In this context reliance is also placed on the decision of Hon'ble Punjab & Haryana High court vide the decision of CIT v/s Brij Pal Sharma 333 ITR 229 wherein it has been held that as per section 40A(2) if the payment to relatives are unreasonable, only then disallowance can be made. If the payment to relative for service or goods is lower than amount paid to other parties for service or goods, the payment to relatives cannot be said to be unreasonable. It is also submitted that the Assessing Officer further failed to appreciate that all the companies with whom transaction has been entered into are profit making and the rate of tax are similar and therefore there is no logic in inflating the expenditure to reduce profit. In this context reliance is also placed on the decision of CIT v/s indo Saudi Service (Travel) Pvt Ltd 310 ITR 306 (Bom) wherein the Hon'ble Bombay High court in the con....
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....India Pvt. Ltd. Addl.CIT 13 Taxmann.com 149 (Mum). The foundation of disallowance thus must rest on categorical findings that the payment for the services are indeed excessive or unreasonable vis-a-vis fair market value of the services. So far as, expenditure being excessive or unreasonable having regard to the fair market value of the services is concerned, that the fair market value of such services is to be determined first. Unless this benchmark is set, there cannot be any question of resorting to disallowance under section 40A(2)(b). The disallowance based on quantum of expenditure incurred rather than the fair market value of services for which expenditure was incurred was contraiy to the scheme of the company as held in the case of Orchard Advertising Pvt. Ltd. v Addl. CIT 8 Taxmann.com 162 (Mum). It has also been held in the case of Battibala & Karani V ACIT 2 SOT 379 (Mum) that an expenditure being excessive cannot be inferred based on some subjective perception of the authority dealing with the same, it has to be based on cogent material on record. In the instant appeal the AO has simply disallowed 10% & 2% of expenditure on adhoc basis without any inquiry, as re....
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....ven therein. In the end he submitted that the ld Assessing Officer has made the addition wrongly and same has been deleted by the ld CIT(A). Reasons and Decision 11. We have carefully considered the rival contentions and also perused the orders of the lower authorities as well as the paper books and written submission submitted by the assessee. 12. With respect to ground No.1 of disallowance of subscription deposit scheme expenses, it is apparent that assessee is inviting interest free deposit from various customers for certain period and in lieu of this deposit magazines are supplied to them. For supply of such magazine assessee incur certain cost and same is claimed as deduction. It is undisputed that the payment is made to Delhi Prakashan Vitran Pvt. Ltd and others. The amount of interest free deposit is utlised for the purposes of the business. The only reason for disallowances that sales with regard to the magazine were not included on credit in the profit and loss account. It is also not denied that such deposits are refundable. These are refundable as and when demanded by the subscribers and from that date the supply of magazine is discontinued. Merely because the releva....
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....ted by the assessee at page No. 16 of the paper book showed as under:- Sl No. Name of the company Nature of work done Rate charge Market Rate (rs.) 1. VV Media Pvt. Ltd. Printing charges Rs. 360 thousand per Rs. 600 per thousand 2. Vinapar Pvt. Ltd Printing charges Rs. 540 thousand per Rs. 600 per thousand 3. PSPC Press Pvt. Ltd Printing charges Rs. 360 thousand per Rs. 600 per thousand 4. Woman‟s Era Media Pvt. Ltd. Printing charges Rs. 360 thousand per Rs. 600 per thousand 5. Media Services Data processing charge Rs. 20/10 per page 22/11 per page 6. Sankhiya Sanchar Sahyog Pvt. Ltd, Data processing charge Rs. 20 per page 40 per page 7. DP Communication Data processing charge Rs. 20 per page 22 per page 8. AN Logistics Processing charge Rs. 36 per page 40 per page 9. Delhi Press Samachar Patra Processing charge Rs, 535 per plate 600 per plate 10. Pratichhaya Graphics Place processing charge Rs, 535 per plate 600 per plate 11. DP Movers. Stackinig and bundeling charge Rs. 600 per thousand 6.5 per thousand. 15. It is at page Nos. 3 and 4 of the assessment order where the ld Assessing Officer has mentioned list o....
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....ket value has to be contemporaneous. The quotation for plate making charges, printing charges etc submitted by the assessee placed at page No. 33 of the paper book are dated 24.11.2010 whereas the impugned assessment before us is Assessment Year 2009-10. Furthermore, the bills of the related parties except in case of Delhi Press Samachar Patra Pvt. Ltd were also not provided. Even in that bill too the details of quantity and the rates are not mentioned. Further, in many cases the nature of services rendered are also not mentioned ex. Page No. 54 where the bill of Prerna Sahyog Pvt. Ltd is produced. Further, surprisingly the quantity of the work and the rates are not mentioned in the bills of the related parties but the rates are given separately in the different sheets, where the AO has mentioned that nature of such expenses are also not mentioned by the assessee. The ld CIT(A) has held that the appellant had during the course of assessment proceeding submitted comparative rate for the work done by the related parties as well as the outside party along with the ledger accounts whereas, ld Assessing Officer has mentioned that even the nature of work carried out by the related partie....
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....g in mind that the provision is intended to check, evasion of tax through excessive and unreasonable payment to related parties. In the result ground No. 2 of the appeal of the revenue is allowed with above direction. 21. In the result appeal of the revenue ITA No.1061/Del/2013 for Assessment Year: 2009-10 is partly allowed with above direction for statistical purposes. ITA No.1433/Del/2013 (Assessment Year: 2008-09) 22. In this appeal similar grounds as in Assessment Year 2009-10 were raised. The parties before us submitted that the facts and circumstances leading to above disallowances are also similar and their arguments are remains the same. 23. The ground No. 1 of the appeal is with respect to deletion of disallowance of expenditure of Rs. 1319989/- under subscription deposit scheme. We confirm the order of the ld CIT(A) for the reasons given by us in ITA No. 1061/Del/2013 for AY 2009-10 deleting the above disallowance. In the result ground No. 1 of the appeal of the Revenue is dismissed. 24. Ground No. 2 of the appeal is regarding deletion of the disallowance u/s 40A(2) of the Act. we set aside the whole issue back to the file of the Assessing Officer to decide it afre....