TaxTMI 
TaxTMI 
2006 (12) TMI 129
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.... 2. Brief facts which are necessary to dispose of the appeal are recapitulated as under : The respondent/assessee is a public limited company engaged in the manufacture and sale of wind turbine generators. The relevant assessment year is 1993-94. The Assessing Officer, finding that the purchase price of certain items from the sister concern of the assessee is inflated when compared to that quoted by the third parties, disallowed the sum of Rs. 3,54,76,323 on account of such inflation under section 40A(2) of the Income-tax Act (for brevity, "the Act"). On appeal by the assessee, the Commissioner of Income-tax (Appeals) remanded the matter back to the Assessing Officer with a direction to give the assessee an opportunity to produce evidenc....
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....is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction : Provided that the provisions of this sub-section shall not apply in the case of an assessee being a company in respect of any expenditure to which sub-clause (i) of clause (c) of section 40 applies." (emphasissupplied) 5. A careful dissection of section 40A(2)(a) of the Act requires the following ingredients to be satisfied for invoking the power conferred under the said section, viz., (i) the assessee should incur an expenditure in respect of which payment has been or is to be paid t....
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....atute, but whether the transaction is a device to avoid tax and whether the transaction is such that the judicial process may accord its approval to it. It is neither fair nor desirable to expect the Legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and to expose the devices for what they really are and to refuse to give judicial benediction. The evil consequences of tax avoidance are manifold, viz. : (i) there is substantial loss of much needed public revenue, particularly in a welfare State like ours ; (ii) there is the serious disturbance caused to the economy of the country by the pilin....
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....efore, section 40A(2)(a) of the Act contemplates is that there should be some material available before the Assessing Officer for invoking section 40A(2)(a) of the Act to initiate action to disallow or refuse to deduct the excessive or unreasonable expenditure mentioned thereunder. But, at the same time, before taking any final decision by invoking the power under section 40A(2)(a) of the Act, either allowing or disallowing such expenditure incurred as excessive or unreasonable, such decision of the Assessing Officer should be based on reasons well-founded, which are judiciously acceptable and in which event, the finding or decision arrived at stating that the expenditure is excessive or unreasonable and the same cannot be allowed or deduct....
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....t. of the price per set/unit. 11. However, an argument is advanced by Mr. Sivaraman, learned counsel for the assessee that the burden is on the Revenue to prove that excessive and unreasonable expenditure has been incurred for the purchase of blades set and gear box by the assessee from its sister concern, when compared to that of M/s. Indian Molasses and the fair market value of the goods in question. According to him, the Revenue having failed to discharge the said burden to collect the fair market value of the impugned goods and then compare it with that of the prices offered by the assessee's sister concern, has no authority to invoke section 40A(2)(a) of the Act and, therefore, the very initiation of the proceedings under sectio....
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....venue has not discharged the burden and such argument advanced by Mr. Sivaraman, is totally misconceived. A similar view is also taken by the Bombay High Court in CIT v. Shatrunjay Diamonds [2003] 261 ITR 258, wherein it is held that (headnote) : "Once purchases are made by the assessee from the persons falling under the category under section 40A(2)(b) of the Income-tax Act, 1961, the burden is upon the assessee to establish that the price paid by it is not excessive or unreasonable. In cases falling under section 40A(2)(b) it is the duty of the assessee to prove and discharge its burden by leading proper evidence subject to cross-examination by the Department." 14. On the other hand, we are also unable to appreciate the approach adopted....