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TMI Blog2011 (7) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... required to compare the said price which prevailed in the local market on the same date which he failed to do so - In the absence thereof and keeping in view the observation of the CIT(A) that the difference is not very abnormal, in the view that the ad hoc disallowance of 10% made by the AO reduced by the CIT(A) to 5% without bringing on record any supporting material is not sustainable in law and accordingly, delete the disallowance made by the AO and sustained by the learned CIT(A) - The grounds taken by the assessee are, therefore, allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, Director Rs. 13,46,135/- amounting to Rs. 76,40,770/- will be disallowed treating the same as excessive/unreasonable and will be added to the total income. In response, the assessee furnished some details stating the justification for payment made to related persons u/s.40A(2)(b). But the Assessing Officer noticed that no comparison of the payments made with the other parties payments with proof were filed for verification. The Assessing Officer stated that in the absence of details for the reasonableness of payments made to directors, the genuineness of the payments of hire charges could not be verified. Hence, the Assessing officer disallowed an amount of Rs. 7,64,070/- being 10% of the hire charges paid to directors, treating the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 40A(2)(b), the Assessing Officer has to give due consideration to the following three important ingredients embodied in section 40A(2)(b): (a) Fair market value of the facilities for which payment is made (b) Legitimate business needs of the assessee, and (c) The benefit derived by the assessee from such payment It was further submitted that the Assessing Officer has overlooked all the three ingredients embodied in the section 40A(2)(b) and that his order is silent about the concrete/convincing reasons for forming the opinion that payments of hire charges to three directors are unreasonable having regard to the three stipulated conditions for disallowance. It was further submitted that the Assessing Officer did not make enquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the other transporters except in some cases with a very normal difference of Rs. 10/- per kilo litre therefore, the learned CIT(A) was not justified in sustaining the disallowance at 5% as against 10% made by the AO. He further submits that all the Directors fall in the highest bracket of tax which is at par with the tax rate applicable to the assessee and, therefore, it is a case of revenue neutral and hence even otherwise no disallowance is called for and for this proposition, reliance was also placed ion the decision in the case of CIT v. Siya Ram Garg (HUF)(2011) 237 CTR (PandH) 321. He, therefore, submits that the disallowance sustained by the learned CIT(A) be deleted. 7. On the other hand, the learned Departmental Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BPCL LOTE 10 KL 700 7000 Lopa S. Thakkar 6 09.05.06 MH04AL 3086 BPCL DOMBIVALI 10 KL 300 3000 Shahid Roadline 7 24.05.06 MH04CA 2445 BPCL DOMBIVALI 10 KL 300 3000 A.M. Thakkar 8 09.05.06 MH04CA 2631 BPCL PALGHAR 9.32 MT 450 4176 Lopa S. Thakkar 9 22.05.06 MH04BU 8776 BPCL PALGHAR 9.32 MT 450 4199 Shahid Roadline 10 06.06.06 MH04AC 1211 BPCL PALGHAR 9.32 MT 450 4181 Shahid Roadline 11 19.06.06 MH04CA 2446 BPCL PALGHAR 9.32 MT 450 4208 A.M. Thakkar 12 08.07.06 MH04CP 3396 BPCL SINNER 10 KL 600 6000 Jai Ganesh Transport 13 03.07.06 MH04CA 2632 BPCL SINNER 10 KL 610 6100 A.M. Thakkar 14 14.07.06 MH04CA 2631 BPCL SINNER 10 KL 610 6100 Lopa S. Thakkar 15 24.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BPCL MURBAD 10 KL 380 3800 A. M. Thakkar 36 01.03.07 MH04CA 2631 BPCL MURBAD 10 KL 380 3800 S.M. Thakkar 37 06.03.07 MH04CG 3669 BPCL MURBAD 10 KL 370 3700 Shahid Roadline 38 10.03.07 MH04CA 2444 BPCL MURBAD 10 KL 380 3800 S. M. Thakkar 39 18.03.07 MH04CA 2445 BPCL MURBAD 10 KL 380 3800 A. M. Thakkar From the above chart, it is seen that on 8th July 2006, the market rate was Rs. 600 per 10 kilo litre whereas on 3rd July or 14th July 2006, the assessee has paid transport charges at Rs. 610/- per 10 kilo litre, i.e. difference is only Rs. 10/- per kilo litre as compared to other transporters. However, we find that there is no material on record to show that on the same very date the lower market rate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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