2015 (5) TMI 517 - HC - Income Tax

Disallowance u/s 40A(2)(A) - excessive and unreasonable expenses - sister concerns - imposition of higher rate for conversion charges in respect of pig iron and C.I. Scrap - Held that - The Assessee has not furnished any information or evidence to show that even the rate of 2766.76 M.T. on account of conversion of pig iron and C.I. Scrap is equal to the market rate the assessee has nowhere pleaded that the rate of 2766.76 paid for conversion of pig iron 2, 000/- per M.T. for the year under consideration is found reasonable and proper in as much as the assessee has not disputed as such this rate adopted by the A.O. We therefore direct to allow the deduction of conversion charges for pig iron 2, 000/- per M.T. and to allow the conversion charges in respect of railway sleeper scrap @ 2, 766.76 per M.T. as claimed by the Assessee The A.O. shall modify the assessment order accordingly. Also Assessing Officer had specifically noted that the rate of conversion adopted by the Assessing Officer was not disputed by the assessee. It is also evident from the letter dated 21st November 1998 that the sister concern had explained for charging rate of conversion charges at 2766.76 for the accounting year 1993-94. No interference to above tribunal order required - Decided against assessee.

Summary

Issues:
1. Burden of proof on excessive or unreasonable expenditure under Section 40A(2)(b)
2. Shift of burden of proof from assessee to assessing officer
3. Disallowance of conversion charge under Section 40A(2) as excessive and unreasonable

Analysis:
1. The first issue revolves around the burden of proof regarding excessive or unreasonable expenditure under Section 40A(2)(b). The appellant argued that the Tribunal erred in placing the burden on them to prove that the conversion charges paid were not excessive or unreasonable. The Assessing Officer disallowed a portion of the conversion charge as excessive and unreasonable based on the relationship between the appellant and the party receiving the payment. The appellant sought a remand for fresh assessment, claiming the Tribunal's decision was unjustified.

2. The second issue pertains to the shift of burden of proof from the assessee to the assessing officer. The CIT(A) overturned the Assessing Officer's decision, stating that the disallowance lacked documentary evidence and was based on suspicion. However, the Tribunal, on appeal by the Revenue, found discrepancies in the conversion charges for different materials and upheld the disallowance, emphasizing the lack of justification for the higher rates paid by the assessee. The Tribunal directed the assessing officer to modify the assessment order accordingly.

3. The final issue involves the disallowance of a portion of the conversion charge under Section 40A(2) as excessive and unreasonable. The Tribunal found that the conversion charges for pig iron and C.I. scrap were unreasonably high compared to the previous year, with no justification provided by the assessee for the increased rates. The Tribunal deemed the rates excessive and directed the assessing officer to allow deductions at a lower, reasonable rate for pig iron and C.I. scrap while maintaining the conversion charges for railway sleeper scrap at the claimed rate.

In conclusion, the High Court upheld the Tribunal's decision, stating that the order under challenge did not warrant interference as it was fact-specific. The court noted that the assessing officer's adopted conversion rate was not disputed by the assessee, and the explanation provided by the sister concern supported the higher conversion charges. Therefore, the appeal was dismissed, and parties were directed to comply with formalities for obtaining a certified copy of the order.