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TMI Blog2014 (1) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance under section 40A(2) nor the onus of explaining such a variation is on the assessee - A tax auditor is an independent professional and any errors in his report cannot be put to assessee's disadvantage – Decided against Revenue. Applicability of Section 40(a)(ia) of the Act – Taxes deposited before filing of return but beyond due date – Held that:- Following CIT v. Royal Builders [2014 (1) TMI 136 - GUJARAT HIGH COURT] - amendment carried out by Finance Act 2010 can be held to be retrospective from assessment year 2005-06 - TDS from the payments disallowed were made well before the date of filing of the income tax return – the order of disallowance set aside – Decided against Revenue. - IT Appeal Nos. 334 & 335 (Ahd.) of 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lictor the Assessing Officer required the Assessing Officer to show cause as to why these payments not be treated as excessive. While the Assessing Officer did take note of assesssee's submission to the effect that disallowance is not applicable as the payments are neither excessive nor unreasonable, the Assessing Officer rejected this contention on the ground that that "it is clear that no proper explanation is forwarded nor any chart for rate comparison is given". It was in this backdrop that the Assessing Officer proceeded to make a disallowance under section 40A(2) by observing that "the assessee has failed to prove the reasonableness of payments made to the above parties, and, therefore, 1 disallow 5% of total payment made which works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure is excessive or unreasonable having regard to the fair market price of the goods, services or facilities for which the payment is made". The opinion of the Assessing Officer for the expenditure being excessive or unreasonable is to be formed vis-a-vis fair market price of such goods services or facilities. It is thus sine qua non for making a disallowance under section 40(A)(2) that the Assessing Officer has to ascertain the fair market price of such goods, services or facilities, and then make a 'disallowance for the amount which is in excess of fair market value of such goods, services or facilities. Unless there is a categorical finding about the 'fair market value' and the assessee has an opportunity to be heard on Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. In the result, the appeal of the Assessing Officer for the assessment year 2005-06 is dismissed. 9. In the appeal filed by the Assessing Officer for the assessment year 2006-07, following grievances are raised: On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the disallowance of Rs 14,97,668 under section 40(A) (2) of the Act, out of the payment of the bus rent. The learned CIT(A) erred in not appreciating that the assessee has failed to reconcile the difference in payments as per tax audit report and as submitted during the assessment proceedings and had also not produced any comparative prices to justify payments made to the related concerns. 10. Learned representatives fairly ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Section 40(a)(ia). 16. This issue is now settled, in principle, by Hon'ble Gujarat High Court's judgment in the case of CIT v. Royal Builders (Tax Appeal No. 520 of 2012; judgment dated 11th February 2013) wherein Their Lordships have held that amendment carried out by Finance Act 2010 can be held to be retrospective from assessment year 2005-06. The view of the learned CIT(A) is thus clearly unsustainable in law. 17. We have also noted that there is no dispute about the fact, as evident from the chart of payments set out in the order of the Assessing Officer as also in order of the CIT(A), that TDS from the payments disallowed were made well before the date of filing of the income tax return. The disallowance must, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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