2012 (12) TMI 1156 - AT - Income Tax

Summary

Issues involved: Appeal by Revenue against CIT (A) order for assessment year 2006-07 regarding deletion of addition u/s. 40A (2)(b) of the Act.

Facts: Assessee firm in business of manufacturing filed return declaring loss. Assessment framed u/s. 143(3) adding income. CIT (A) allowed appeal. Revenue appealed against deletion of addition of &8377; 13,75,120/-.

Revenue's Ground: CIT (A) erred in deleting addition as assessee failed to prove reasonableness of payment u/s. 40A (2)(b).

Assessment Proceedings: AO observed payments made to sister concerns, asked for reasonableness. Disallowed 5% of payments, added to income. CIT (A) deleted addition based on submissions and evidence provided by assessee.

Arguments: Revenue argued on failure to prove reasonableness of payments. Assessee argued Sec. 40A(2)(b) not applicable, provided profit sharing ratio and decisions supporting their case.

Judgment: Tribunal found AO did not compare payments with market rates, made adhoc disallowance. Citing precedent, Tribunal held no case for disallowance u/s. 40A(2)(b) was made out. Revenue's appeal dismissed.

Conclusion: Tribunal upheld CIT (A) order, dismissing Revenue's appeal.