Case Law Details
DCIT Vs M/s Interarch Building Products (P) Ltd. (ITAT Delhi)
The relevant part of the order of the ld. CIT (A) on this issue pertaining to payments made to Mr . Arvind Nanda, with regard to the vehicle purchase, payment made to M/s Intertec on account of job work and the rental payments has been examined. For the sake of ready reference, the relevant part of the order is reproduced as under:
“6.4 Regarding Ground No. 3 of the appeal relating to disallowance under section 40 A(2)(b), I find that the Ld. AO has identified certain payments aggregating to Rs.2.29 crores in respect of certain ‘related persons’ and out of which had disallowed certain payments aggregating to Rs.13.86 lakhs. Regarding the disallowance in respect of purchase price for vehicle of Rs.1 ,66,673/-, to Mr. Arvind Nanda the Ld. AO has observed that ‘it appears that both the vehicles would not have been in good condition which prompted Mr . Nanda to transfer those vehicles to the assesses company at the same cost and in the same year thereby shifting the loss if any, is to be arisen on account of bad condition of the vehicle’. The submissions of the appellant was that in view of the restriction on registration of 6 seater vehicles in the name of a company other than the one engaged in transport business, due to the provisions of the Motor Vehicle Act, the appellant was compelled to purchase the vehicles in the name of the Director, which was sold to the appellant on the second day by him. I find that the observations of the Ld. AO are vague and presumptuous in the absence of any evidence in support of his argument. Both Mr. Arvind Nanda and appellant company are chargeable to tax at the maximum marginal rate . Hence, there was no question of any tax avoidance in this regard. Thus, it is held that the payment made was neither unreasonable nor excessive, calling for disallowance under section 40A(2)(b).
6.4.2 Regarding disallowance out of purchase price paid to M/s Intertec, a related Firm, the appellant had furnished detailed submissions which shows that such payments were at arm’s length. There was no evidence furnished by the Ld. AO as to why such purchase price was higher than the prevailing market price and no examples of comparative prices were cited. In view of the same, the addition based on disallowance made by the Ld. AO is liable to be deleted.
6.4.3 Regarding the disallowance in respect of rent paid to M/s Intertec (Firm), the LD. AO has disallowed an amount of Rs. 80,000/- on the ground that the appellant had not submitted comparative rates in the same location, where the premises are situated. The detailed submission of the appellant show that the appellant had to hire the factory premises to reduce its cost of manufacturing and to cater to the workload. The factory owned by M/s Intertec (firm) was adjoining the factory premise of the appellant and therefore , hiring of such premises was in the administrative and functional prudence of the appellant company. Moreover, M/s Intertec (Firm) and the appellant company both are entitled for deduction under section 80IC and there fore, there is no tax avoidance angle. The appellant has also explained about the job work payment to M/s Intertec (Firm). The Ld. AO could not furnish any evidence as to how such charges were higher compared to the fair market value or whether any undue benefit was passed on to the related person for such payment.
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